AGENDA AND PAPER FOR THE JUNE 26 MEETING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-01156R000100150009-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 77
• Document Creation Date: December 21, 2016
• Document Release Date: August 20, 2008
• Sequence Number: 9
• Publication Date: June 22, 1984
• Content Type: MEMO

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Exec tiv_e Secretar
EXECUTIVE SEATARIAT
ROUTING SLIP
ACTION
INFO
DATE
INITIAL
1
DCI
2
DDCI
3
EXDIR
4
D/ICS
5
DDI
6
DDA
7
DDO
8
DDS&T
9
Chm/NIC
10
GC
11
IG
12
Compt
13
D/Pers
14
D/OLL
15
D/PAO
16
SA/IA
17
AO/DCI
1
C/IPD/OIS
19
Afj (D ha
20
21
22
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THE WHITE HOUSE V
WASHINGTON
CABINET AFFAIRS STAFFING MEMORANDUM
Date: 6/22/84 Number: 169017 CA Due By:
Subject: Cabinet Council on Economic Affa; rc - ,Tune 76, 1 qR4
8:45 a.m. - Roosevelt Room TOPIC: Economic. Tmnart nt, T.nt Tr
ALL CABINET MEMBERS
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Counsellor
OMB
UN
USTR
GSA
EPA
OPM
VA
SBA
FYI
Action FYI
CEA lir, ^
CEQ ^ ^
OSTP ^ ^
^ ^
^ ^
^ ^
Baker
Deaver
Darman (For WH Staffing)
Jenkins
Mc Farlane
Svahn
V
^
0
CCCT/Gunn
E3 F-1
^
^
CCEA/Porter L1G ^
CCFA/ ^ ^
^
^
CCHR/Simmons ^ ^
^
^
CCLP/Uhlmann ^ ^
^
^
CCMA/Bledsoe ^ ^
^
^
CCNRE/ ^ ^
The Cabinet Council on Economic Affairs will meet on
June 26, 1984, at 8:45 a.m. in the Roosevelt Room.
The agenda and background paper are attached.
Tuedsday,
c.
r j
cam.:,
N;
S.zw
r
Ca
Kt I UKN I U: ^ Craig L. Fuller D Isa~therine Anderson ^ Don Clarey
Assistant to the President Tom Gibson ^ Larry Herbolsly
for Cabinet Affairs Associate Director
456-2823 Office of Cabinet Affairs
456-2800
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4P W
June 22, 1984
MEMORANDUM FOR THE CABINET COUNCIL ON ECONOMIC AFFAIRS
FROM : ROGER B. PORTER ,,,,D
SUBJECT: Agenda and Paper for the June 26 Meeting
The agenda and paper for the June 26 meeting of the Cabi-
net Council on Economic Affairs are attached. The meeting
is scheduled for 8:45 a.m. in the Roosevelt Room.
The Council will consider a report from the Working
Group on the Economic Impact on International Trade. The
Working Group's review has been divided into two parts. The
Council recently reviewed what macroeconomic policies would
help improve our trade and current account positions. This
.report, prepared under the direction of Deputy USTR Robert
Lighthizer, focuses on "Microeconomic Measures to Deal with
the Trade Deficit."
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June 26, 1984
8:45 a.m.
Roosevelt Room
1. Report of the Working Group on the Economic Impact of
International Trade (CM # 409)
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DEPUTY UNITED STATES TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON, D.C. 20506
202-395-51 14
June 22, 1984
MEMORANDUM
FOR: Cabinet Council on Economic Affairs
FROM: Robert E. Lighthizer /"-`--- o
SUBJECT: Microeconomic measures to Deal with the Trade Deficit
USTR has chaired a working group tasked to examine microeconomic
measures to improve our trade and current account positions.
Our analysis indicates that the trade deficit is due primarily
to macroeconomic issues including the strong dollar, our more
rapid economic growth rate relative to our trading partners,
and to the LDC debt problem. Clearly, these causes do not lend
themselves to a solution-involving strictly microeconomic
measures.
Nevertheless, actions that affect trade flows in individual
sectors can contribute, at the margin, to improving the trade
balance and are important to sustaining a public consensus in
favor of maintaining an open trading system. Attached for the
Cabinet Council's consideration are status reports on a number
of key trade issues which the working group has reviewed.
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DC Semiconductor Duty Reduction
EC Definition of "Kraft" Paper
EC Rules of Origin
Tariffs and Licensing Problems with Mexico
Trucking Regulations of Mexico
Intellectual Property Rights in Mexico
Aircraft Trade Distortions in Brazil
Liberalizing Brazil's Market Reservation Policies
Import Licensing and Tariffs Imposed by Brazil
Footwear Import Restrictions in Brazil
Taiwan Trade Liberalization Package
Bilateral Issues with Korea
Conversion of GATT Safeguard Actions to Tariffs
Foreign Industrial Targetting
Standards - Acceptance of Foreign Test Data
Services
Trade-Related Investment Measures
Military Trade
Aerospace
Canadian Discriminatory Postal Rates
Agricultural Import Restrictions in Mexico
Brazilian Export Subsidies (Poultry and Soybeans)
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EC Agricultural Products
EC Export Subsidies on Pasta
Japanese Beef and Citrus Quotas
Japanese Agricultural Import Quotas
Steel Quota Legislation
EC Tariffs
Canadian Licensing of Pharmaceutical Patents
Border Broadcasting Dispute with Canada
Information Policy of Brazil
Trade-Related Investment Decrees
Carbon Steel 201 Case
Steel Quota Legislation
Trade Remedies Reform Act
Danforth Telecommunications Trade Act of 1984
U.S.- Japan Trade and Investment Issues
U.S. Trade Relations with Japan
Japanese Tariffs
Telecommunications Legislation
Standardization and Certification
Japanese Import Quotas on Footwear
Promotion of Manufactured Imports
High Technology Working Group
Satellites
Blue Ribbon Panel
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 THE TRADE CARD
MERCHANDISE TRADE IS BILLION; FAS/OF)
APRIL 1984
YEAR TO-GATE 1984 ANNUALIZED, 1983 ACTUAL
1981 1981 % MANGE 1084 1983
% CHANGE
BALANCE -42.0 -15.4 -126.0 -69.4
EXPORTS 70.8 66.5 +6.5 212.4 200.5
+S.9
IMPORTS 112.8 81.9 +37.7 338.4 269.9
+ 25.4
NOTE: TRADE BALANCE ON AN FASICUS BASIS FOR 1993 WAS S-S7-6 BILLION
PETROLEUM IMPORTS
IS MWON; OF; ANNUALIZED FROM 3 MONTHS)
1984 1983 % CHANGE
VALUE IS BILLION) 58.6 45.6 + 28.5
SECTORAL BALANCES OF U.S. MERCHANDISE TRADE
IS BILLION; FAS/OF; SEASONALLY ADJUSTED)
AGRICULTURE MANUFACTURING OTHER*
TOTAL
1984 (ANNUALIZED
FROM 3 MONTHS) + 20.5 -04.7 -54.8
-119.0
1983 (ACTUAL) + 18.5 -38.2 -49.6
-69.4
*E.G., PETROLEUM AND OTHER CRUDE MATERIALS.
SELECTED U.S. BILATERAL TRADE BALANCES
IS KWON; FAS/OF; ANNUALIZED FROM I MONTH)
1984 1983 1984
1983
DCs 5-64.0 5-35.1 LDC: 5-53.6
5-34.7
EC -10.8 -1.6 LATIN AMERICA -20.1
-14.7
JAPAN -32.0 -21.7 SOUTH & EAST ASIA -26.5
-17.9
CANADA -19.6 -14.3 COMMUNIST + 1.2
+ 1.1
NOTE: AREA FIGURES MAY NOT EQUAL TOTALS DUE TO REPORTING COVERAGE
U.S. CURRENT ACCOUNT BALANCES FOR 1981,1982, AND 1983
1983 1982
1981
BALANCE $-40.8 s-11.2
S+4.6
OF WHICH:
MERCHANDISE -60.6 -36.4
-28.1
INVESTMENT + 23.6 + 27.3
+ 33.5
OTHER SERVICES + 4.3 +S.7
+ 7.5
OTHER -8.1 -7.8
-8.3
NOTE: MERCHANDISE TRADE CALCULATED ON A BALANCE OF PAYMENTS BASIS
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MAJOR TRADING PARTNERS OF THE
U.S.
(Annualized From 3 Months; FAS/CIF; S Billion)
TRADE
U.S. EXPORTS U.S.IMPORTS
BALANCE
BRAZIL 2.1 7.2
-5.1
CANADA 45.2 64.8
-19.6
CHINA, P.R. 2.5 3.2
-0.7
K 48.8 59.6
-10.8
BELGIUM S.2 3.6
+ 1.6
FRANCE 6.4 8.4
-2.0
GERMANY, F.R. 9.6 18.4
-8.8
ITALY 4.8 8.0
-3.2
NETHERLANDS 8.4 4.4
+ 4.0
UNITED KINGDOM 11.6 14.4
-2.8
EGYPT 2.8 0.2
+ 2.6
ISRAEL 2.4 2.1
+ 0.3
JAPAN 22.8 54.8
-32.0
KOREA 5.6 9.2
-3.6
MEXICO 11.2 . 18.4
-7.2
NIGERIA 0.6 3.2
-2.6
SAUDI ARABIA 6.0 4.S
+ 1.5
TAIWAN 4.8 14.7
-9.9
OVERALL BALANCES OF FOREIGN COUNTRIES
IS BILLION)
MERCHANDISE TRADE (FOB) CURRENT ACCOUNT
1983 1982 1983
1982
JAPAN +31.6 +18.5 +20.8
+6.9
CANADA + 14.6 + 14.8 + 1.3
+ 2.4
FRANCE -S.9 -14.0 -4.3
-12.1
GERMANY, F.R. +16.S +21.1 +4.0
+3.S
U.K. -0.8 +3.6 +3.1
+9.1
DOLLAR EXCHANGE RATE' CHANGES
(12131/90 ? 100)
DATE 12131181 12131182 12131183
3131184
DOLUut
INDEX 112.6 125.8 138.8
134.5
*Dollar exchange value measured in terms of IMF'
s Multilateral
Effective Exchange Rates (basket of 17 industrial country currencies
plus U.S. Dollar).
USTR 6/54
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EC SEMICONDUCTOR DUTY REDUCTION
Background:
The EC semiconductor duty is 17 percent. The U.S. was unsuccessful
during the Tokyo Round in gaining any reduction. The U.S. and
Japan have agreed to suspend our duties on semiconductors completely.
Authority for the U.S. reduction from a current rate of 4.2 percent
is pending before the Congress.
In February the UK proposed that the EC unilaterally cut its
semiconductor duty by 50 percent. The UK argued that the high
duty penalizes downstream user industries (computer & tele-
communications) without helping semiconductor producers and
encourages offshore production of downstream equipment. There
has been some support of this proposal by the Germans and Danes.
Separately, the French have suggested doubling duties on downstream
products, like home computers; but the French have not spoken
directly to the UK semiconductor initiative. The French proposal
itself has received no support.
Action Proposed:
Support UK proposal by feeding information to its supporters
within the EC and the Commission.
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KRAFT PAPER ?
Pursuade the European Community to adopt, for purposes
of current tariff levels, the CCCN definition of ?kraft,? thus
extending lover tariff treatment to some U.S. kraft exports
now classified elsewhere. _
Eackgrottd
The Commission has been unable to deliver on a commitment we
feel was made on this issue at the end of the Tokyo Round to
implement the,OOCN kraft definition in advance of Harmonized
System conversion. The amount of trade involved is about $30
million, out of total U.S. kraft paper exports to the EC of
somewhat less than $200 million.
Securing early EC adoption of the defin.tion, or even a verifiable
commitment to extend the definition at current tariff levels
at the time of HS conversion, would be very helpful to us, and
to one of the few remaining free trade industries, i.e., paper.
Current Status
EC tariff changes as controversial as this one must be approved
by the Foreign Ministers' Council. France and Italy have, so
far, blocked EC approval of the new definition.
Action R q ui red
The Community will require a quid-pro-quo for the extension
of the new definition to all U.S. kraft exports.
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? RULES OF ORIGIN -
The Community should liberalize 'rules of origin' for O.S.
electronics and textile products to allow a higher value-added
component and remove the 'two-process' rule.
Backq
-The EC maintains "rules of origin" on imports from its preferential
trading partners in order to ensure that only those goods originating
within the preferential trade area are accorded preferential
duty status. The U.S. believes that some of these rules are
excessively protective and result in a barrier to?U.S. exports
to countries utilizing U.S. goods as an input to exports to
the Community. The U.S. has pursued liberalization of these
rules since 1974; we had some success in the Tokyo round in
improving administrative regulationq and in securing higher
value-added levels for some products on a trial basis. But EC
rules continue to heavily burden U.S. exports of electronic
components and textile products.
EC "rules of origin" mandate that textile products must have
been transformed twice to receive preferential origin status.
U.S. textile exporters claim that this is the single most significant
trade barrier to their exports worldwide. In electronic components,
the EC regulations require that no more than three percent of
the value of the electronic components of a machine import may
come from a non-preferential supplier, if the machine is to
receive preferential treatment. These rules are not enforced
uniformly by all Member States, an.d even EC manufacturers are,
in many cases, unable to comply with such a restriction in their
own production.
Current Status
The EC considers these "rules" fundamental to the preservation
of legitimate "Community preference" behind the Common External
Tariff. There are no current plans to liberalize the system,
but there have been suggestions, principally from France, to
tighten it.
Action Required
The EC would require a substantial incentive (negative or a
quid-pro-quo) to agree to any liberalization of these regulations.
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Tariffs and Licensing Problems with Mexico
Proposed Action
Reduce tariffs ant liberalize licensing of imports.
Background
On June 26, 1981, Mexico extended its general import licensing
requirement to approximately 300 new product categories. As
a result, more than 2,000 tariff classifications representing
82 percent of all imports are now;subject to,aimport licensing.
In July 1981, tariffs were increar. .' on 409 products. In addition,
those seeking to import must obtain. a foreign exchange permit.
In December 1983, licensing was liberalized for more than 1,000
tariff line items, i.e., principally for imports destined for
the export section.
Current Status
In Mexico's Letter of Intent to the IMF, it has pledged to rational-
ize its import regime and rely increasingly on tariffs rather
than quantitative restrictions. In addition, under a $350 million
export development plan concluded with the World Bank, Mexico
is eliminating many of the restrictions on imports destined
for the export sector. The GOM claims that Mexico's imports
will increase again in direct relation to Mexico's ability to
export.
Further Action
The USG should encourage Mexico to liberalize its import market
as its economy recovers. Since Mexico is not a GATT member,
we cannot take action in that forum.
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Trucking Regulations of Mexico
proposed Action
Open access to Mex.-,co for U.S. truckers.
Background
Under Mexican law, reign-owned tractors and drivers are prohibited
from operating be., ..: d the Mexican frontier/"border zone" (a
20 kilometer strip of land that runs adjacent to the U.S. border).
Nevertheless, Mexican carriers continue to operate officially
and "unofficially" within the United States. Despite the existence
of Mexican legal authority (1955 Ruiz Cortines Decree) to operate
foreign carriers in the border zone, few U.S. truckers in fact
have access to the region. The law is administered locally
and access varies from city to city. Mexican carriers may operate
in the United States under ICC license, although, per Congressional
directive, no new licenses may be issued until Mexico allows
equivalent market access. The imbalance in opportunity is injuring
U.S. truckers, particularly in the Southwest.
Current Status
A U.S. delegation (co-chaired by USTR) met on March 26-27 with
their Mexican counterparts in the Transportation Working Group
of the Joint Commission on Commerce and Trade. The Mexicans
indicated their intention to continue the status Quo ante; that
is, little access to the border and no access to the interior,
although they were willing to work out specific problems on
a case-by-case basis.
Further Action
We will continue to seek an opening of the Mexican market for
U.S. truckers. At the same time, there are a number of Congressional
initiatives, such as the continuation of the ICC licensing moratorium
and elimination of licensing exemptions, currently available
to Mexican truckers which may induce the GOM to revise its current
policy.
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Intellectual Property Rights in Mexico
Proposed *tion
Eliminate disincentives to foreign investment embodied in
Mexican technology transfer, patent and trademark laws.
Background
The 1982 Law on Technology Transfer and the Use and Exploita-
tion of Patents and Trademarks operates as a disincentive to
foreign investors. For examrj',., all agreements, contracts
and actions, which are reduceu,.Co writing and which relate
to services rendered must be registered with the government
there, or they will have no binding effect in Mexico.
Additionally, trade secrets and know-how are not specifically
protected. Information provided by a-transfer of technology
cannot be kept confidential for longer than a period of the
agreement itself and such agreements cannot exceed 10 years.
Furthermore, the licensor of technology must hold the licensee
harmless for infringements of a third party's industrial
property rights. Finally, the Mexican Law does not cover
biological inventions, namely, genetic research or gene
splicing.
Current status
The GOM and the USG have been involved in lengthy, relatively
productive discussions designed to soften the disincentives
contained in the Law and its implementing regulations. The
GOM seems amenable to molding its regulations with certain
U.S. objectives in mind.
Further action
Productive discussions should continue.
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Aircraft Trade Distortions in Brazil
Proposed
Open Brazilian market to assembled general aviation aircraft
and eliminate that country's use of heavily subsidized export
credit financing.
Background
Brazil restricts the importation of assembled general aviation
aircraft and offers heavily subsidized expert credit financing
(9 percent in dollars) in support of Brazilian sales. Duties
and exchange taxes on imported aircraft amount to 60 percent,
and import licenses are difficult to obtain.
Between 1977 and mid-1983, the United States shipped only 21
new completed aircraft (exclusive of Piper kits) to Brazil.
U.S. manufacturers claim they could reasonably expect to ship
at least 60 aircraft were import taxes cut in half and
licensing liberalized. Subsidized financing has enabled
small-and medium-sized' Brazilian aircraft to pose serious
competitive pressures for U.S. manufacturers selling in our
domestic market.
Current status
In a previously-negotiated (1982) ad referendum agreement,
Brazil agreed to import annually up to 40 aircraft for
demonstration and subsequent sale. Such imports would be
exempt from import licensing requirements and would be
assessed at 30 percent duties and exchange taxes. The
agreement was not finalized due to a U.S. company filing
of a CVD complaint. Brazil continues to indicate a willing-
ness to liberalize its market, particularly as its economy
revives. U.S. industry, however, is split on its objectives,
with certain companies seeking an immediate opening of the
market and others seeking a more gradual approach.
Further action
U.S. industry must develop a consensus regarding its objectives
in Brazil, for subsec;:enz policy response.
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Liberalizing Brazil's Market Reservation Policies
Proposed USG action
Take steps to induce liberalization of Brazil's market reservation
policies, which negatively affect both U.S. exports and investors
in certain sectors, particularly computers and pharmaceuticals.
Appropriate steps might include elevating the level of pressure
on the Brazilians in our bilateral investment discussions.
Background
Brazil believes that in order to achieve its economic and social
development aspirations, it must become self-sufficient in important
industrial sectors. Thus it has adopted the policy of reserving
certain markets (sale and production) for "national" industries.
These market reservation schemes depend heavily on the use of
import controls, prohibitions on foreign direct investments
in these sectors, subsidies to Brazilian producers, incentive
schemes and local content requirements. Furthermore, the definition
of "national company" is often very restrictive, requiring local
residence for all of the Board of Directors and full practical
and operational control over the decision-making process of
the firm. Recently, we have observed an increasing tendency
to disallow joint ventures, which were previously encouraged
as a means of acquiring technology. Although it recognizes
that these policies require certain sacrifices of efficiency,
the GOB is pleased with the results to date and has recently
indicated that it is fully prepared to extend its market reservation
policies to an increasing number of product sectors where desire-
able. Brazil is making use of market reservation policies most
significantly in the auto, pharmaceutical, and "informatics"
(computer and electronics) sectors, although many other select
areas involve substantial government participation.
These restrictive policies will have significant effects on
the U.S.-Brazil bilateral trade relationship. In addition to
the import controls which directly reduce U.S. exports, Brazilian
investment restrictions translate into a reduction in the trade
flows which would normally be stimulated by procurement needs
of the investor and his stronger marketing presence in the host
country.
Status of USG strategy
Until recently, the GOB has avoided or refused to hold bilateral
discussions with us on investment issues. However, during the
recent Trade Subgroup consultations, we were successful in beginning
a dialogue with the GOB on investment issues, which we plan
to continue.
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The current U.S. approach in the Trade Subgroup is to foster
a constructive exchange of views that will encourage liberalization
of the Brazilian investment climate. We hope to move toward
this goal by emphasizing Brazil's need for a conducive investment
climate in order to realize the benefits of direct investment
and as an additional source of foreign capital.
Further action required
Aggressive follow-up of issues raised in recent consultations
including a Brazilian commitment for consultation prior to an
expansion of the market reserve.
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Import Licensing and Tariffs Imposed by Brazil
Proposed action
Ease licensing restrictions on imports of interest to the United
States.
Background
All imports must have a permit issued by the Cateira de Comercio
Exterior (CACEX) prior to shipment. Items considered superfluous
or luxurious, as well as those already produced in Brazil, cannot
be imported. Tariff surcharges of 30 to 100 ,percent have been
imposed on several thousand items, with duties on some items
as high as 205 percent. A Tax on Financial Operations (IOF)
is imposed on the value of foreign exchange purchased for importation
of a wide range of goods and services.
Current status
While Brazil has traditionally restricted imports to encourage
and protect local production and to ease balance of payments
pressures, changes are anticipated. Under a recently-concluded
$352 million World Bank project, Brazil will facilitate the
importation of hundreds of products destined for the export
sector. Organizational changes are also being made within the
GOB to ease export-related activities.
Further action
The United States should encourage a rationalization of Brazil's
import structure and that country's undertaking of additional
trade obligations as its economy recovers.
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Footwear Import Restrictions in Brazil
Proposed actions
Liberalize Brazilian import market for certain types of footwear.
Background
Brazil has suspended the issuance of licenses for non-ALADI
footwear imports. In addition, it imposes a 170 percent tariff
and port charges and Merchant Marine Renewal taxes of 20 percent.
In December 1982, the U.S. industry filed a section 301 petition
against the Brazilian restrictions. U.S.,,efforts to export
other than sport shoes (not subject to licensing) to Brazil
have been unsuccessful. U.S. exports of sport shoes to Brazil
have been under 50,000 pairs per year since 1978 and account
for less than one percent of our total non-rubber footwear exports.
U.S. industry alleges that the restrictions cause. diversion
to the U.S. market of lower-cost footwear from countries like
Taiwan.
Current status
It is likely Brazil will maintain most of its balance of payments
restrictions on footwear. However, authorities there have indicated
a willingness to provide some liberalization with respect to
U.S. exports, e.g., quotas or tariff breaks allowing the importation
of higher-priced shoes. In mid-October, upon the request of
the American Footwear Industries Association, the USG transmitted
to the GOB a list of footwear items of interest for liberalization.
We are currently pursuing a "package deal" with Brazil in which
it would make concession on a small list of items including
footwear in return for U.S. cooperation in other areas.
Further action
Continue to press Brazil for a positive response to our request
for liberalization.
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Taiwan Trade Liberalization Package
Problem
The Coordination Council for North American Affairs (CCNAA)
has asked for suggestions on measures that might help narrow
the U.S.-Taiwan trade deficit. The Taiwanese are interested
in proposals that will benefit American, rather than Japanese
or European, exporters. The American Institute in Taiwan (AIT)
needs a package of proposed trade liberalization measures to
present to the CCNAA.
Recommendation
That the following package be accepted as the trade liberalization
package AIT will present to CCNAA.
Background Our bilateral trade deficit, with Taiwan, which increased to
$6.7 billion in 1983, is expected to continue to grow in the
next few years. The Taiwanese are concerned that continuing
large trade deficits will harm bilateral trade relations and,
most notably, will jeopardize Taiwan's GSP status. (Taiwan is
currently the largest beneficiary of GSP, accounting for 28%
of all 1983 GSP imports.) These concerns prompted the CCNAA
request.
While Taiwan's principal motivation is to improve its chances
of maintaining its GSP benefits, AIT should make clear to CCNAA
that any liberalization measures by Taiwan are completely
unilateral. We cannot make any commitments on GSP in return
for such liberalization steps. If Taiwan takes significant
liberalization steps, however, we would apprise appropriate
members of Congress of those steps.
The U.S. response was developed by the TPSC Subcommittee on
Developing Countries through consultations with the private
sector. advisors, the American Chamber of Commerce in Taiwan,
and the American Institute in Taiwan. The package does not
include areas in which Taiwan allegedly is not in compliance
with MTN obligations (e.g., soda ash, customs valuation). we
are pursuing these issues separately; it is not appropriate
to allow Taiwan to get "credit" for something that it is obligated
to do anyway. The package consists of three parts: (1) tariff
measures, (2) non-tariff barriers, and (3) major projects.
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ATP PROPOSAL
I. TARIFF ASASURSS
A. The Taiwanese on several occasions have suggested that
it would be advantageous to American products if Taiwan were
to base its customs valuation on F.O.B. rather than C.I.F.
This proposal, however, has been linked with a postponement
of the elimination of the 10% customs uplift. The U .S. position
has been and continues to be that Taiwan must meet its MTN commitment
to eliminate the uplift by the end of 1984. The private sector
advice indicated that U.S. exporters would benefit if, in addition
to eliminating the uplift, Taiwan shifted to an F.O.B. basis,
provided that there was not a concomitant increase in tariffs
to make up for lost customs revenues. While AIT can inform
CCNAA informally of the private sector advice, the formal AIT
proposal should not include a request for a switch to F.O.B. because
certain USG agencies believe that it would be useful to examine
the merits of switching from an F.O.B. to C.I.F. basis of customs
valuation in the States
foreclose option by making a formal proposal that Taiwan
switch to F.O.B.
B. Accelerate the staging of Taiwan's Section 124 concessions
to the United States. The existing implementation schedule
stipulates January 1987 as the final stage. We suggest that
Taiwan complete the implementation of its tariff concessions
on January 1, 1985. We particularly recommend the acceleration
for the following products in which U. S. exporters have shown
strong interest, and we request .that Taiwan consider cutting
the following tariffs below the filial section 124 rates:
Final Section
Current Duty
124 Duty
Item No. Description
0805.0210 Walnuts, shelled
34%
25%
0805.0410 Almonds, sweet
34%
25%
(formerly 1208.0210)
0812.0210
Dried prunes, in
boxes
39%
30%
0812.0220
Dried prunes, in
bulk
39%
30%
2006.0400
Almonds, prepared
or preserved
56%
35%
6202.0111
Linens
63%
50%
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49 U
3
C. Following are specific items in Taiwan's tariff schedule
on which significant tariff reductions would be expected to
stimulate increased U. S. exports. We suggest that the existing
tariffs be cut at least in half on January 1, 1985. On selected
items, we have suggested even deeper cuts where consultations
with the private sector have indicated that such cuts would
be necessary to make foreign products competitive with domestic
goods. (*indicates request for licensing liberalization in
conjunction with tariff reductions)
C rrent Duty
i
i
Suggested Duty
r r Nom
Descr
pt
on
0201.0100(ex)
Beef (high NT $23.80/kg
quality )
NT $11.90/kg
0201.0500*
Edible
-of fals
75%
0202.0200
Turkey meat
35%
18%
0203.0100*
Poultry
livers
0301.0400
Mullet roe
0301.0800
Mullet NT$90/kg or
65% W.I.G.
NT$40/kg
0301.9900 (ex)
Salmon
65%
32%
0402.9900 (ex)
Dried Whey
65%
0504.0100
Hog casings
30%
15%
0504.9900*
Other (guts,
bladders and
stomachs)
30%
0701.9900 (ex)
Fresh celery,
lettuce
40%
0702.9900 (ex)
Frozen corn,
peas, potatoes
40%
0705.9900
Other pulses
(o/t red beans,
green beans)
10%
5%
0802.0210
Fresh oranges
50%
(10/1-2/29)
0804.0100
Fresh grapes
50%
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0805.0290
Walnuts, in
shell
65%
25%
0805.9900(ex)
Pistachios,
filberts
65%
25%
0807.0300
Fresh
cherries
40%
20%
0807.9900(ex)
Fresh plums
65%
20%
0810.0000(ex)
Frozen
cherries,
cranberries,
blueberries
65%
32%
0812.9900(ex)
Dried apples,
mixtures
65%
30%
Sunflower
seed
40%
20%
1206.0100
Hop cones
50%
25%
1206.0200
Lupul in
1207.0311
Ginseng
american
NT $2000/kg
or 30% w. i. g.
NT $1000/kg or
15% w. i. g.
1207.0312
Ginseng,
radix
NT $1220/kg
or 30% w. i. g.
NT $610/kg or
15% w. i. g.
1207 .'0313
Ginseng,
radix
NT $880/kg
or 30% w. i. g.
NT $440/kg or
15% w. i. g.
1501.0100
Lard
20%
1507.0100
Soybean
Other prep.
edible fats
(margarine,
etc)
45%
22%
1602.9900
Other prep/
pres. meats
60%
30%
Chocolate, in
75%
powder, paste or
slab
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1806.0200
Chocolate
confectionery
75%
20%
1806.9900
Other food preps.
containing cocoa
75%
20%
1902.9900
Other grain
preps
60%
30%
2002.9900
Other prepared
vegetables
65%
30%
2006.0110
Canned peaches
45%
22%
2006.0190(ex)
Canned fruit
cocktail,
cherries
45%
22%
2007.0100
Concentrated
fruit juices
55%
25%
2007.0210
Orange juice
60%
30%
2007.0290 (ex)
Apple, grape,
and cranberry
juice
75%
38%
2007.0390
Other
vegetable
juices
75%
2102.0100
Coffee extracts,
essences or
concentrates
50%
2107.0400
Canned corn
60%
2107.9900
Other food
preparations,
n. e. s.
60%
30%
2202.0000
Non-alcoholic
beverages
50%
25%
2304.9900(ex)
Soybean meal
20%
10%
2307.0100
Cat and dog
food
100%
50%
2307.9900
Other prepared
animal feeds
20%
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3003.0300 Vitamins, incl. 35%
supplements for
feedstuffs
3208 TV frit 20-25%
3306.0300 Toothpaste 50%
3306.0400 Lipsticks, 85%
perfumery, face
cream
3306.9900 Other perfumery 85%
cosmetics or
toilet
preparations
3401.0100 Toilet soap 40% 20%
3402.0300
3701.9900
3702.0120
Washing 40% 20%
preparations
(whether or not
containing soap)
Other 25% 12%
photographic
plates and film
in the flat
Photographic 30%
film in rolls,
sensitized,
unexposed, other
than film in item
3702.0110
3702.0200 Cinematographic 15%
film in rolls,
sensitized,
unexposed
3703.0119 Other unexposed 35%
paper and paper-
board
3708.0100 Chemical products, 25%
photographic
4102.9900(ex) Wet blue hides 35%
and crust leather
4411.9900 Fiberboard 30% 15%
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4414.0100
Free
4415.0100
Plywood
15%
4415.0200
Veneer panels and
sheets
40%
20%
4418.0000
Particleboard
40%
4801.0520
Uncoated Kraft
paper
35%
4801.0590
Other uncoated
paper
35%
4801.0620
Uncoated Kraft
paperboard
40%
4801.0690
Other uncoated
paperboard
40%
4807.0290
Other coated
paper
45%
4807.0350
Coated bleached
board
20%
4807.0390
Other coated
paper.
4816.0100
Boxes for
packing liquid
foods
4821.0801
Infant diapers
5101.0111
High tenacity
synthetic
multi-filament
yarn
5101.0119
Other synthetic
multi-filament
yarn
40%
5101.0219
Other regenerated
multi-filament
yarn
40%
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5509.0410
Cotton denim
fabric
NT $73/
sq.m.or 55%,
whichever is
higher
10%
5601.0100
Synthetic fibers,
not over 2 meters
in length
35%
5605.0110
Synthetic spun
40%
11% + NT
yarns
$1.25/kg.
5802.0300
Other carpets
of synthetic
fibers
65%
12%
5908.0290
Other textile
fabrics,
impregnated,
coated, covered
or laminated...
of synthetic or
regenerated fibers
60%
10%
7003.0000
Glass tubing
30%
7013.9900
Other glassware
45%
7017.9900
Other lab
glass
10%
7018.0700
Blanks for
corrective
spectacle
lens
15%
7020.9920
Fiberglass
30-50%
13.5%
7020.9990
screening
7616.0200
Alumimum
screening
30%
15%
8412.0100
Air
conditioners
40%
20%
8415.0310
Domestic
ref rigerators,
electrical,
complete
35%
18%
8419.0100
Dishwashing
machines
30%
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w w
Laundry,
drier and
drycleaning
machines,
with capacity
of 6kg. and
over
Individual
computer
terminals
Electrical
data processing
machines not
falling in
items 8452,
8453.0110, or
8453.0120
8453.0140
8506.0200
8702.0112
8703.0200
8703.0310
8707.0100
9009.0100
ADP parts 20%
Transformers, 25%
3,000-70,000
volts
Electric 45%
vacuum cleaners
Motor cars with 75%
cylinder displacement
over 2,000 cc.
Road Sweeper 30%
lorries,
spraying lorries
Crane lorries 15%
Work trucks
used in factories,
warehouses, dock
areas or airports
Image projectors 30%
Other
electro-medical
apparatus
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9017.9900 Other medical, 15%
dental and
surgical
instruments
9706.0000 Appliances, 40%
apparatus,
accessories and
requisites for
gymnastics, or
athletics or for
sports and outdoor
games
9801.0190 Buttons, not of 50%
metal
D. The following general product categories, the majority
of which fall under Sections 45, 46, and 48 of Taiwan's Custom
Classification Code (CCC), are sectors in which U.S. exports
are highly competitive and could expand rapidly if there were
significant reductions in Taiwan's tariffs:
Medical Instruments/Equipment-Current imports of over
$71 million are expected to grow 30% annually through 1988
(due to a hospital building boom). U. S. firms are the
leading suppliers of these goods, with a 37% market share.
Communications Equipment-Current imports of $425 million
are projected to grow 20% through 1988. The U.S. is the
top supplier. Duty reductions will especially help U.S.
equipment designed to facilitate voice, video, and data
transmissions.
Computers/Peripherals/Business Equipment-Imports of $120
million in 1983 accounted for 90% of this market segment.
Annual growth of 25% is projected through 1988. The U.S. is
the second leading supplier, slightly behind Japan.
Electronic Industry Production Test Equipment and Electronic
Components-Imports of over $2 billion and projected market
growth of 10%. annually through 1988 make this the premier
market sector for U. S. EIPT and component suppliers. U. S. firms
have a 35% market share, ahead of number two Japan.
Environmental/Pollution Control Equipment-Imports are now
$70 million and are likely to top $100 million by 1987.
Imports of U.S. goods are expected to be $38 to $40 million
by 1987, making the U.S. the primary supplier.
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rood packag ng/Proces~ ng and Hotel %Restaurant Equipment-
$250 million in hotel, restaurant, and food processing
plant improvements through 1990 will keep this an important
market. 1983 imports were $59 million.
,,.___, : `.. Control- Equipment-1983 imports exceeded $210 million and are projected to grow 15% per year through
P ~ ~
1987. U.S. suppliers (31% market share) are second to
the Japanese (36%).
II. -
A. Increase purchases of following U. S. products by the
Taiwan Tobacco and Wine Monopoly Bureau: i
Item NO.
Product
2203.0000
Beer
2205.0100
Still
wines, red
0200
2205
Still
wines, white
.
2205.0300
Champagne
2401.0100
Tobacco leaf
2402.0200
Cigarettes
American firms are confident that they could export these products
successfully if the Monopoly Bureau were to allow domestic demand
to determine the level of imports. These imports could still
flow through the Monopoly itself.
B. Remove the import
successful exportsltoiTaiwanmical products,
which previously were
o ABS (acrylonitrile butadiene styrene)
o Zinc pyrithione
P-
o anti-ozonant: N-(1,3-dimethylbutyl)-N I-phenY1-
phenylenediamine
o vulcanization accelerators:
(1) N-tart-butyl-2-benzothiazolesulfenamide
(2) N-cyclohexyl-2-benzothiazolesulfenamide
(3) 2,21-dithiobis (benzothiazole) ; benzothiazyl
disulfide
(4) 2-mercattobenzothiazole
Remove the import bans on the following agricultural products:
(1) Edible offals (tariff item number 0201.0500)
(2) Poultry livers (0203.0100)
(3) Other guts, bladders, stomachs (0504.9900)
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C. Eliminate performance requirements. Taiwan's current position
on performance requirements is to start from a 50 percent export
performance requirement for all foreign investment and negotiate
lower percentages on a case-by-case basis. Since mandatory
export performance requirements encourage exports beyond what
would occur under freely operating market forces, Taiwan should
eliminate export performance requirements and domestic content
requirements on all foreign investment applications.
III. MAJOR PROJECTS
Seek U.S. suppliers for major projects. Major projects provide
a quick and visible way to reduce the tade deficit. There
are several Taiwanese projects in which U.S. industry is interested
and for which Taiwan could look to U.S. industry as the primary
supplier: Taipower Nuclear plants 7 and 8, the Taipei subway,
the Taipower Computer Facility upgrading, the China Steel expansion,
and the telephone switching project. In addition, Taiwan's
civil aircraft market could be a source of major orders from
U. S. companies.
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.,TT nTER ISSUES - KOREA
I ROK T_; be ration r, USG
Prior to President Reagan's to Seoul last
a reduction ofNRorean import
officials suggested to the ROKG
barriers of particular interest to U.S. exporters would be very a
t e
posi
helpful to our bilateral lt~1renewpGSPa woul
so c lled
contribution to the effort
high priority items was given to the ROKG.
The Koreans responded by announcing a unilateral liberalization
of import licensing restrictions on 36 Items of interest to
U. S. exporters . The announcement contained
household
and fibers,
market openings (e.g., lemons, certain yarns
refrigerators, and metal-punching machines), but most of the
liberalization was hedged through emergency tariff increases,
anti-surge mechanisms and carefully drawn ex outs.
The USG's formal response to the Korean liberalization was given
in the February 7th aide memoire that Assistant Secretary Wolfowitz
gave to ROK Ambassador Lew and in the letter to Minister of
Commerce, and Industry (MCI) Kum from Ambassador Brock. Our
response congratulated the ROKG for its exemplary action of
undertaking unilateral liberalization, but it also made clear
that the liberalization did not meet all our requests.
On the eve of MCI Minister Kum's trip to Washington in early
March, the ROKG announced a new import liberalization schedule
to be implemented in successive stages between July 1, 1984
and 1988. We still have not seen the full schedule, but the
ROKG has informed us that among the items on the original U.S. high-
priority list for liberalization, imports of cameras, chocolate
candy and wood flooring panels will be permitted in July 1984;
imports of nylon carpets, loudspeakers and textured polyster
filament are scheduled for liberalization in 1986.
All of this activity indicates that the Koreans understand the
need for import'liberal.ization on their part in order to maintain
access to the American market. They still are being very cautious,
however, in their specific liberalization measures (and they're
avoiding liberalization of the most sensitive items, such as
personal computers and cigarettes); but at least they're moving
in the right direction. We should continue the strategy of
giving them credit for what they've done while at the same time
encouraging them to liberalize further in areas of U.S. comparative
advantage.
Emergency tariffs, a tariff quota system, and a classification
which allows monitoring of products for import surges are measures
in addition to import licensing which allow the ROKG to maintain
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tight control of ,its import regime. The Korean Ministry of
Finance recently announced emergency tariff rates for the first
six months of 1984. Four of the eleven product categories added
to the list (cosmetic soap, carpets, rugs, woven pile fabrics)
were freed from licensing restrictions under the Koreans' November
1983 announcement. These tariff increases seriously undermine
whatever credit has been gained by the import licensing liberali-
zation measures. Since then there have been unconfirmed press
reports that emergency tariffs will be imposed on items scheduled
for import licensing liberalization in June, the most notable
example being chocolate confectionery.
The National Assembly has passed a comprehensive tariff reform
package designed to bring general tariff.,rates to average OECD
levels of protection by 1988. The first phase took effect January
1, 1984. Rates on 729 (32 percent) of the 2,294 line items
in the general tariff schedule were reduced, while rates on
311 (14 percent) were increased. Most of the reductions are
substantial cuts in barrier tariffs phased over 3 to 5 years,
while most of the increases are small increases in revenue tariffs
that take effect in 1984.
II. Korean Computer Decree
On July l r 1982, Korea's Ministry of Commerce and Industry (MCI)
issued criteria for the importation of computers which make
it very difficult for foreign suppliers to sell their products
in Korea unless they participate in a computer localization
plan. Priority for the importation of medium- and larger-sized
computers is given to suppliers that participate in a computer
localization scheme -- through the transfer of technology or
production of components in Korea. Importation of mini-, mid:ro-
and personal computers is banned, as is the importation of printers,
disks and terminals.
The computer decree follows the promulgation of the Electronics
Industry Promotion Law of 1981, which established a special
Electronics Industry Promotion Fund to ensure the availability.
of financial resources to upgrade technology and strengthen
Korea's production base. The Fund, which is funded by both
private companies and the ROKG, has reportedly fallen short
of its ?1983 goal. Nevertheless, the intent of the Fund is clear
to develop a domestic electronics industry through various
investment incentives, subsidies and R&D assistance.
ROKG plans were further articulated in late February 1983, when
the government announced its "Long-Term Electronics Industry
Development Plan" which singled out 31 products for concentrated
government subsidies, preferential credits, and other incentives.
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In addition to computers, the products included under the plan
are telecommunications equipment, computerized VTRs, medical
equipment, computer software, hybrid ICs, linear ICs and semi-
conductor elements.
We have warned the ROKG repeatedly that the import measures
adopted by the Korean Government aimed at closing the Korean
market to O.S. computer exports is a matter of great concern
to us. We are very disappointed that the November 1983 trade
liberalization package failed even to mention the smaller computers
(mini-, micro- and personal computers) and certain types of
peripherals. We continue to seek the elimination of the import
controls and a return to the previously open market for computer
products in Korea.
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(?ronosed)
Con - sicn cf !_,: Term Protective Measures
to Tarif Article XXVIII
rrct~s:d tier
---In-recent years, contrac x.: parties have. taker, an -increasing
numoer of protective measur_; outside the regimen of the GATT.
many of tnese measures nave remained in force for a much loncer
period than contemplated uncer GATT Article XIX, and now afford
protection on a quasi-permanent basis. A new approach is needed
to bring these measures under the coverage of! the GATT articles
and to ensure, through enhanced scrutiny and increased discipline,
that the rights of exporting countries affected by these measures
rotec.ea
are adequately
p
In conjunction with renewed efforts to conclude a new safeguards
code, GATT member countries should:
o agree to self-identify protective measures taken on a long
term basis to insulate chronically uncompetitive domestic
industries from import competition', recognizing that such
measures are distinct from short term-measures taken to
promote adjustment to increased import competition, as
envisioned under Article XIX;
o agree that these?.long term measures--many of which involve
some form of quantitative restraint--are more appropriately
covered under GATT Article XXVIII, which facilitates the
provision of long term protection to domestic industries
through the renegotiation of a contracting party's tariff
obligations;
o agree to convert these long term protective measures into
tariffs in accordance with the procedures of Article XXVIII;
and
o agree that any short term safeguards measures taken will
conform with the provisions of Article XIX, as elaborated
upon in a new safeguards code.
Countries adversely affected by the conversion to tariffs would
retain their rights to compensation in accordance with the provisons
of Article XXVIII. The actual amount of compensation owed would
be the subject of negotiations between the converting country
and affected suppliers. Converting countries would be entitled
to some offsetting credit for bringing their protective measures
under the GATT. Any increase' tariffs resulting from the conversion
could be reduced through negotiation over time, as circumstances
pe r,;,i t .
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Bacr.around-
The most ifficult type of protective measures for the GATT
to recula a are lono term actions taken to insulate chronically
-ut ccrpetitive industries from import competition. These open
enaea measures cannot be characterized as short term emergency
actions taken to promote adjustment to import competition, as
envisioned under Article XIX. They constitute instead a auasi-
permanent form of protection which is not subject to GATT discipline
or scru-tiny. As tariffs and nontariff measures regulated by
GATT articles have been reduced over time, the relative effect
of these measures in restricting international trade has grown
enormously. e
The conversion of long term gray area measures to tariffs in
accordance with the procedures of Article XXVIII would result
in an added degree of discipline and scrutiny over contracting
parties' actions to protect chronically import sensitive industries
from import competition. It would be consistent with the fundamental
role of tariffs in the GATT as regulator of trade, with the
GATT's prohibition on the utilization of quantitative restric-
tions, and would be similar in form to the conversion of then
existing quantitative restrictions to tariffs during the 1950s.
It is possible that b' converting many of these measures to
tariffs under Article Xxvlii, much of the domestic political
opposition in major trading countries to increased discipline
over a country's ability to take adequate safeguards measures
could be defused. Long term gray area measures would be effectively
removed as an issue blocking the conclusion of a safeguards
code dealing with short term emergency actions. Having adequately
protected the contracting parties' ability to take long term
measures in response to import competition, while providing
suitable protection for the interests of exporters, many of
the problems which have prevented agreement on certain aspects
of a new code dealing with short term measures may prove less
intractable.
On a broader plane, a commitment by the member countries of
GATT to subject these protective measures to GATT discipline
would contribute greatly to a restoration of confidence in the
GATT mechanism. In addition, such action would complement other
measures, presently under consideration, to reduce existing
protective measures and st:nulate trade liberalization.
The acceptance and implementation of this proposal will depend
heavily upon the amount of political will that exists among
GATT member countries to .:-.rove and strengthen the GATT system.
At the present time, co~ntr:._s maintaining long term gray area
measures do so with re'_: .1y little external interference.
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49 a
The measures are not notified to the GATT; nor are they
subject to annual review. Compensation for exporting countries
-affected by these measures is usually waived,in the process
of reaching agreement on a satisfactory restraint mechanism.
In those instances involving unilaterally imposed restrictions
on imports, compensation is rarely offered. Moreover, in
many instances, domestic industries affected by import
competition prefer the protection afforded by quantitative
restrictions than that afforded by increased tariffs. Under
Article XXVIII, however, countries converting these measures
likely would be subject to claims for compensation or retaliatory
withdrawals.
The combination of these factors may make it difficult to
persuade other GATT member countries to agree to convert
their long term measures without some quid pro quo. They
may request compensation for converting their measures. The
United States has very little to offer in return. It may be
sufficient to drop all claims for compensation and declare a
general "amnesty". More likely, the United States will have
to convert some measures of its own, i.e., its Section 22
quotas, if other contracting parties are to agree to the
proposal. This, of course, would require Congressional
legislation, which likely would be opposed by the farm
community and their representatives in Congress.
This proposal has been discussed informally in general terms
with officials of the European Community, Japan, and Canada,
in the Quadrilateral process and with GATT Director General
Dunkel. It has not been introduced formally in the GATT for
consideration by the Contracting Parties.
Further Action Required by Administration
The proposal has been approved in principle by the TPRG. The
detailed aspects of practical application of the proposal
are under consideration. When appropriate, the Administration
will need to devise a strategy for introducing the proposal
and gaining the acceptance of major GATT trading partners,
the Congress, and private sector interests in the United
States.
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Foreign Industrial Targeting Develop a mechanism whereby an industry that fee's threatened
can request the USG to review the foreign tarcetnc "threat."
Based on the f indinas , the USTR can request the ITC =c initiate
a Section 332 investigation into foreign targeting practices
and the effect on U. S. industry. If appropriate, there could
be meetings with industry representatives to discuss options
such as initiation of bilateral negotiations, and perhaps domestic
measures needed to restore industry competitiveness.
2. The TPSC Targeting Subcommittee could be responsible for
determining when finer trade statistic breakouts are needed.
This group would direct its attention towards obtaining accurate
information on trade statistics and trends in emerging technologies
and file 484E requests for itistical breakouts with the ITC.
3.. Encourage the FCC to reinstate the Form 740 Program that
was dropped due to a lack of funds. The program -i,-.1.70 . -:Veo Z: 1-1 e
requirement that the importers of communicaticns ecuit-gent sub-:it
a 740 form with each shirment, confirming that the i-.pertz were
i n_ fact certified by she FCC. The program a_se _ov_ded a.
r.
excellent source of import data for the t.S. -..a..L'fac=rers of
this type c= ecui _ment. The data was espec_a_1 y useful i^ that
many communications imports f all into basket categories, thus
specific data is not normal lv available on selected pro(fucts.
4. For sectors that have been targeted by foreign governments
where subsidized exert financing is a tool used, ensure that
they are provided competitive e:;port financing. .:c r r .. ese sectors
in 'articular, _ximbank should .rake measures to cfrse_ =c_a_
mixed credit offers des fined to _-:;land ma_ kit
Seek Japanese agreement to cons_`er industries for considerac_cn
4 4
tv the U.S.-Japan fi_ch Technology Wcrk Gzrcuz where
analysis indicates a targeting ef-cort.
6. Initiate a Section 301 case de__ii g with an _ndustr`~ ~..a~
has been targeted and where restricted market access is the
major problem. The purpose of such a case would be to show
that a) legislative chances aren't needed because 301 covers
targeting, b) 301 covers restricted market access, and c) the
Administration has the political will to use the existing tools.
7. Have CFIUS (Committee on Foreign investment in the United
States) review investments in the United States which are made
in targeting country. As a matter of current practice, CFIUS
normally reviews only those investments involving foreign government
ownership, but it has the authority to review any investment
which might have "major implications for U. S. national interests. "
CFIUS can also initiate special studies of trends in inward
investment.
8. Review barriers to entry for U.S. investors the targeted
industry in the targeting country and. review the treatment of
such investors. This review could comprehend a wide range of
practices including screening, market reservation policies,
and even J--- ~-A ~" =n nc,cr}-.carinn crate cresence.
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(Proposed)
Standards: Acceptance or Test Data
Proposed Action
The U. S. Government should seek increased acceptance by importing
countries of test data generated in exporting countries.
Background
The acceptance of test data is the single most important standards-
related trade issue. It is not dealt with effectively in any
international agreements. Only the GATTAgreement on Technical
Barriers to Trade (Standards Code) directly addresses the acceptance
or test data. The major purpose or the Code is to establish
principles by which signatories prepare, adopt and apply standards
and certification systems. The major benefit or the Standards
Code is the information network that provides U.S. suppliers
with the opportunity to comment on proposed standards and rules
or certification systems.
The Code contains an "encouragement" that signatories should
accept foreign generated test data, but provides for consultations
in order to achieve this goal. Experts argue that test data
cannot be accepted without full knowledge or the test methods
applied and the conditions under which the tests are carried
out. Currently bilateral or regional arrangements are the only
means used to promote the acceptance or test data.
Significant progress in standards-related trade matters will
not be achieved until the acceptance or test data is incorporated
into a binding "international" document. An arrangement could
be negotiated under the Standards Code whereby signatories are
obligated to accept test data for particular products on a mutually
agreed basis. This process has been started in a limited way
under auspices of the "International Laboratory Accreditation
Conference" (ILAC).
Current Status
This is a new proposal which has not been discussed within the
U.S. Government or with foreign governments.
Further Action Required by Administration
It believed useful, a formal proposal (including a strategy
on who to proceed) could be submitted to the TPSC for consideration.
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10,
W ?
The otion of a services "pledge" would be to freeze the
promulaa on of new regulations, particularly those which are
trade res rictive, affecting services industries. Regulator,
.practices generally govern the extent that services can be
provided in foreign markets. Many of the rapidly growing
service industries, such as transborder data flows, are not
seriously har:::ered by distortive foreign regulations. There
are efforts i:.. many countries, however, to impose new regulations
that would control the spread of data processing opportunities,
and such a."pledge" could ensure considerable future trade Growth
that may otherwise be lost.
Many existing services g ces '.-,a'.:riers are presently in place,
but there are problems in gaining agreement as to which are
truly distortive. The idea of a freeze, which has already
been proposed by the Secretary General of the OECD, would
be a more realistic objective, since it would be based on
the idea that better information is first needed before
putting forth regulations that could have*a distortive effect.
The United States is almost certain to improve its trade
account by such a freeze because: 1) we have considerable
competitive advantage in most services and 2) we tend to
regulate less than other countries and indeed are deregulating
many of our services industries.
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Services
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Trade-Related Performance Requirements
rooosed ct=cn
B-ecome more aggressive in responding to foreign governments'
-use of trade-related performance requirements.
Background:
An increasing number of countries are implementing trade-related
performance requirements such as local content requirements
and export requirements. The effect of these measures is to
distort trade flows. Thus, Government fiat replaces comparative
advantage. Local content and related measures prevent us from
exporting products to the host country. Foreign export requirements
result in loss of our traditional export markets in third countries
or an unfair increase in imports in the United States. In sum,
problems created by the use of these measures are growing.
And progress on controlling their use in multilateral organizations
is slow.
In his International Investment Policy Statement, the President
underlined our opposition to government,use of trade-related
performance requirements which attempt to shift artificially
the benefits of investment flows. He went on to say that the
United States will pursue "an active international investment
policy aimed at reducing foreign government actions that impede
or distort investment flows, and at developing an international
system, based on national treatment and most-favored-nation
principles, that permits investment flows to respond more freely
to market forces."
The best unilateral mechanism to ensure that trade distorting
measures are not attached to U.S. foreign direct investment
appears to be our 301 authority. For non-GATT countries such
as Mexico and Taiwan we have leverage in the goods or services
areas since we can retaliate with relative impunity. With GATT
countries we will not be able to retaliate in the goods area
unless we first receive GATT authorization. We have brought
one case (Canada's FIRA practices) to the GATT, which to date
has gone in our favor. However, we may not be so successful
in GATT cases against the NICs (e.g., Brazil, Mexico, Taiwan,
Korea) who are the most prevalent users of performance requirements.
Any action taken in this area which is intended to address our
trade imbalance in a substantial way will have to be directed
toward one or more of these countries. Only S. Korea and Taiwan
have a positive trade and current account position. Therefore,
if we take any unilateral action to redress the distortions
we could exacerbate the foreign payments difficulties of other
NICs.
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Where We Stand on Decisionmaking:
The. decisi on whether or not we s
hould take a country's practices
to the GATT rests with the TPC. The same is true for the decision
on whether or not we self-initiate a 301 case.
Further Action.- Regui red:
Even if we de ide to bring additional complaints to the GATT
or take unilateral action against non-GATT members, we will
still need to obtain a multilateral discipline in order to be
effective in this area. To accomplish this we need to follow
up the President's statement with active support from the U.S. cabi-
net in all the appropriate fora. Our trading partners need
to be made aware of our concern at the highest level. Otherwise,
at the lower level of the various international organizations,
progress will not be made.
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Trade Balance Actions Assessment
Military Trade Sector: Measures to Increase
U.S. Receipts
Proposed-Ac-.. ..
Eliminate t}:! _- sent $50,000 limit on allowable commissions on
FMS contract
Discussions:
Several years ago in an effort to counter bribery, a limit
of $50,000 was imposed on the amount of the commission that
could be charged to an FMS contract.
There is a need to retain representatives and to pay
commissions (not bribes) well in excess of $50,000 for many
foreign military sales -- for which contracts can be in the
hundreds of millions of dollars.
The commissions are still being paid. There is no limit on
the commission, only on the amount that can be charged to the
FMS contract. As a result the commission is funded out of
corporate earnings, rather than charged to the foreign
customer.
Impact of Action:
Increase U.S. receipts on FMS contracts.
Increase U.S. corporate profits and hence Federal tax receipts.
W. Stephen Piper
10/21/83
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Expansion of U.S. Exports in the
Aerospace Sect:,_
Proposed 4 tion:
Develop a policy statement to provide better assurance that
extraterritorial export controls would not be used as a
foreign polio: -;.-strument without consultation with our
affected allie
Discussion:
There is foreign availability (present or feasible) for
almost all aerospace products. Many programs require large
investments, and risk over a number of years, so that
there is a trend toward international consortia for specific
projects.
In many cases U.S. suppliers are being excluded from parti-
cipation in foreign programs becuase of the potential that the
USG will block commercial sales at some future time.
Another consequence of the foreign fear of U.S. export. controls
is that foreign governments are promoting the development of
additional manufacturing capability.
Impact of Action:
Expand foreign business opportunities for U.S. firms.
Lessen the rate of establishment of foreign competition.
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V W
Discriminatory Canadian Postal Rates
Proposed- Action
Secure elimination of discriminatory Canadian postal rates on
second-class printed matter.
Background
Canada has had, regulations providing for second-class classification
differentials on non-Canadian publications since 1969. It was
not until April 1, 1979, however, that a discriminatory rate
system was enacted. Under the system the lowest second-class
rate is afforded to Canadian publications (magazines and news-
papers). A somewhat higher rate applied to non-Canadian publications
printed and mailed in Canada (e.g., Time Magazine). The highest
rate, which was considerably higher than the other two, applied
to non-Canadian publications printed outside of Canada, trucked
into Canada in bulk, and mailed to Canadian subscribers, newsdealers,
etc.
The rationale for these differentiated and discriminatory rates
has always been to provide support to Canadian publications
and to Canadian cultural policy, which seeks to foster "Canadianness"
and shield Canadians against the influence of foreign, particularly
U.S.,, culture.
A number of bilateral discussions on this matter have been held
over the years. Most recently, formal GATT Article XXII consulta-
tions were held in Geneva late last year, to no avail.
Current Status
On July 14 Canadian Communications Minister Francis Fox announced
that preferential postage rates for second-class publications
in Canada will begin to be phased out. The result of this action
will be an increase in already discriminatory postal rates on
U.S. magazines and periodicals printed and mailed in bulk in
Canada, and U.S. publications printed in the United States,
trucked to Canada, and mailed in Canada.
Further Action Needed
Convince Canadian Government that discriminatory postal rates
are GATT inconsistent.
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i w W
Agricultural Import Restrictions in Mexico
Liberalize licensing of imported agricultural products and
reduce tariffs and surcharges.
Background
U.S. agricultu:..._ exports to Mexico continue to be severely
restricted by tigin tariffs and prior import licensing require-
ments. Mexico produces neither commercially nor in suffi-
cient quantities products such as deciduouis fruits, tree nuts
and high quality beef. Nut imports are also subject to
luxury taxes and other surcharges.
Mexico allows the importation of beef and veal only to place
downward pressure on domestic prices. U.S. producers of
almonds, walnuts, pecans, hazelnuts, pistachios and chestnuts
are denied open access to the Mexican market. U.S. exports
of fresh peaches and pears are limited to the border and free
zones, while canned peaches and fruit cocktail are subject
to tariffs, surcharges and licensing requirements.
Current status
Mexico's development plans call for expanded domestic agri-
cultural production. Nevertheless, given that country's
climactic constraints and its need to meet nutritional
goals, the United States may be able to obtain increased
access for U.S. products over the longer term.
Further action
Because of Mexico's non-membership in GATT, the USG cannot
take action in that forum. Perhaps, in the context of GSP
renewal, we could achieve some liberalization of the agri-
cultural import market.
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Brazilian Export Subsidies (Poultry and Soybeans)
Proposed action
Achieve elimination of Brazilian export subsidies particularly
for poultry and soybeans.
Background
Brazil uses a series of incentives -- including a general credit
premium for exports, fiscal incentives (BEFIEX), preferential
working capital financing and duty drawback schemes -- to encourage
exporting. The United States has taken 301, actions against
Brazilian exports of poultry and soybean products which displace
U.S. producers in third countries and has imposed countervailing
duties on a range of products, including cotton yarn, various
specialty and carbon steel products and vinyl film.
In initiating section 301 actions, the United States has claimed
Brazil uses export subsidies to undercut U.S. poultry prices
by $350-$400 per metric ton. We also noted that, while Brazil's
share of the Middle East market had risen from zero in 1974
to 44 percent in 1982, the U.S. share has fallen to zero in
1983. We sold 87,000 tons of broilers in 1981 and only 690
tons in 1982. For soybeans, the 301 investigation is focusing
on Brazil's tax exemptions and deductions, subsidized operating
and production financing based on export performance,,. and tax
drawbacks. These programs appear to have injured U.S. exporters
of soybean meal and oil and processors of oilseeds.
Current status
Brazil denies that it engages in unfair practices in soybean
products and poultry. The USG has requested conciliation in
the GATT for poultry, and is holding GATT Article XII consultations
on soybeans. We would be amenable to a U.S.-EC-GOB solution
on poultry and possibly a bilateral approach on soybeans. Brazil
has recently greatly reduced the subsidy element of its working
capital finance programs.
Further action
Press for a settlement of 301 cases through GATT and bilateral
channels, or, if adequate progress cannot be made, consider
retaliatory actions to restore U.S. equitable share of the world
market.
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? EC AGRICULTURAL PRODLwS
The EC should bind levies on some processed agricultural
products of interest to U.S. exporters.
Backgroffnn"
The trae barrier effect of variable levies is so complete that
the use of such a system virtually closes out importation of
competing products when the prospective importer is capable
of self sufficiency at the mandated reference price. It is,
in effect, the realization on a sectoral basis of the autarkic
principle of total self sufficiency in designated items. The
Community uses reference prices and variable levies
bound'products) to block low priced trade. (even on
U.S. agricultural trade to the Commun,}ty and to third countries
would increase in both value and volume if the EC would bind
it variable levies, i.e., turn them into regular, if somewhat
high, tariffs.
Current Sta ue
The protective advantages of variable levies are well known
to the EC, and, in fact, are the functional basis of the EC
agricultural incomes policy known as the CAP. There is no current
interest among EC policymakers to cap the levies; such an initiative
would require a substantive shift in attitude concerning EC
agricultural economic, policy.
Actio~i It emu' rasa
The USG should be prepared to create incentives for the Community
to look favorably upon an opportunity to negotiate the capping
of the variable levies.
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? 0
Obtain BC agreement to negotiate some physical, verifiable
limit to the scope, level, or gross value of agricultural export
subsidies.
Backgrotlnd
--These subsidies are essential to the financial survival of the
CAP, since the reference prices and levies are, in effect, an
open-ended invitation to EC farmers to produce surpluses that
cannot be disposed of at the price that fomented their creation.
During bilateral negotiations in 1983, and through the ongoing
GATT dispute settlement process an several U.S. agricultural
exports, the U.S. has attempted to negotiate a limit to these
EC subsidies.
Current Status
The Community has refused to enter into such negotiations.
Over the next two years, financial stress may encourage some
EC interest, however.
Action Required
The USG should be prepared to create incentives for the Community
to look favorably upon an opportunity to negotiate the capping
of the its agricultural export subsidies.
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EC Export Subsidies on Pasta
Action Requested
If the EC continues to block the adoption of the Subsidies Code
panel report on pasta and refuses to take any action to eliminate
its export subsidies on this product, the United States should
impose countervailing duties which would offset the amount of these
subsidies. The EC pays similar export subsidies on many other
processed products (e.g., butter cookies, starch, whisky) in
apparent contravention of the GATT. Consideration could also. be
given to the imposition of countervailing duties on these products.
Background
In October 1981, the U.S. National Pasta Association filed a
petition under Section 301 of the Trade Act of 1974 against EC
export subsidy practices for pasta. The petitioner claimed that
the EC has violated Article 9 of the Subsidies Code which prohibits
subsidizing a non-primary product such as pasta. In 1975, Italian
pasta exports to the United States were 10 million pounds. By 1980,
the volume had increased to 26 million pounds, and in the first six
months of 1983, U.S. imports of Italian pasta were estimated at 38
million pounds.
The 301 petition was accepted by USTR on November 31, 1981. A
Subsidies Code panel was formed and met on July 12 and October 8,
1982, and on March 29, 1983. On April 19 the panel issued its
report, ruling in favor of the U.S. viewpoint. The report is now
before the Subsidies Code Committee, where the EC is trying to
prevent its adoption. Despite intense discussion with the EC in
bilateral discussions and in Geneva among Subsidies Code Committee
members, no resolution of the issue has yet been possible.
Status
The Administration has rejected the EC proposal that the pasta
case be dropped in exchange for the strict limitation of EC export
subsidies for pasta to the difference between EC and world prices
for durum wheat. The USG is currently trying to revive efforts by
the Subsidies Code Committee to resolve this dispute (on terms
favorable to the United States).
Action Required
If the above efforts are unsuccessful, the United States should
impose countervailing duties on pasta imports from the EC.
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? ?
Japanese Beef and Citrus Ouotas
Proposed Action
The USG and GOJ have negotiated an understanding on Japanese
imports of beef and citrus for JFY 1984-87.
Background
Japan restricts by import quotas and other GATT-inconsistent
barriers the trade in beef, oranges and orange and grapefruit
juice. Exports of these products to Japan in 1982 totaled $376
million. We have good reason to believb, however, that the
Japanese market holds even greater potential.
Status
A new bilateral understanding with Japan on beef and citrus
was negotiated in April 1984 to cover Japanese fiscal years
1984 through 1988. Under its terms, Japan will expand high-quality
beef, fresh orange and orange juice imports. They will also
eliminate import restrictions on grapefruit juice by April 1,
1986.
Increased imports of beef, fresh oranges and orange juice, as
well as the liberalization of grapefruit juice, should increase
U.S. exports to Japan by $400 million above existing trade levels
over the next four years.
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?
Japanese Agricultural Import Quotas
Proposed Action
The United States maintains that more than 13 categories of
Japanese agricultural quotas are inconsistent with the General
Agreement on Tariffs and Trade (GATT), the trading rules to
which we adhere. We have taken this matter to the GATT under
Article XXIII:1 consultations in the hopes of resolving it.
In April 1984, a two year settlement was reached. Consultations
will resume on this issue in 1986.
Background
At the time that Japan acceded to the GATT in June 1955, all
of its imports were quantitatively restricted (QR). Japan claimed
a balance- of -payments justification for these restrictions under
GATT Article XII. The restrictions were progressively liberalized,
and on March 4, 1963, Japan, under pressure, disinvoked its
balance-of-payments justification under Article XII. At that
point, the remaining QR's became "residual restrictions" without
authorization of the CONTRACTING PARTIES. Such restrictions
could be expected to remain in place during a phaseout period,
but 20 years is clearly excessive.
For 15 years. we have been discussing with the Japanese our concerns
about their agricultural import quotas, particularly those affecting
beef and citrus. Nevertheless, the Japanese have been very
slow in dismantling their import quota system. We still face
residual import quotas in the same 19 agricultural tariff categories
that we did 10 years ago.
In July 1983, we initiated under Article XXIII of the GATT formal
consultations with the Japanese on 13 of these 19 categories.
Key items among the 13 categories include non-roasted peanuts,
dry leguminous vegetables, fruit pulp, paste and puree, tomato
sauce and ketchup, non-citrus juices, prepared and preserved
meats, food. preparations, and various dairy products. We do
not consider, the formalization of our bilateral discussions
over quotas in GATT to be a confrontational or unfriendly act
but as the appropriate process for seeking a mutually acceptable
solution to the "longstanding" problem which we believe has
a significant impact on U.S. agricultural interests and U.S.-Japan
trade relations.
Status
In July 1983, the USG initiated a round of GATT Article XXIII:1
consultations with the GOJ over the 13 categories of agricultural
quotas. The most recent consultations were held in Geneva in
September 1983. In January 1984, the TPC authorized proceeding
to a GATT Article XXIII:2 panel to resolve this issue, but no
decision was made with regard to when this should occur or on
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which of the 13 categories.
In March 1984, the USG and GOJ held a bilateral meeting at which
the GOJ made offers on the 13 categories that would be in exchange
for the USG terminating its GATT case on all of the 13. When
the U.S. and Japan reached an understanding on the beef and
citrus talks in April 1984, the Japanese noted they would like
to settle this issue as well. In April, both sides agreed to
a two-year truce on the 13 categories, including a suspension
of our GATT case, in exchange for the Japanese liberalization
of some items, expansion of some quotas, and cutting tariffs
on other items. This issue may be raised in the latter half
of JFY 1985 under the aegis of the U.S.-Japan Trade Committee,
and consultations will occur as soon as JF$ 1986 starts.
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Re uce the level of some EC tariffs that affect D.S. trade.
- Background
Barriers to U.S. exports to the European Community are not,
in general, embodied in EC tariff policy. Average EC tariffs
on industrial trade are as low as in the United States. However,
relatively high EC tariffs or charges on some imports are a
major cause of complaint by some U.S. exporters. In addition,
EC preferential agreements with the EFTA countries, ACP countries,
and certain Mediterranean states result in U.S. exports to the
Community, in some cases, facing a differential tariff that
distorts trade toward the preferential partner. As the EC expands,
the problem also increases.
The major EC-wide tariff barriers to U.S. trade are centered
in the agricultural sector, but there are trade-blocking tariffs
scattered throughout the EC tariff schedule that heavily burden
U.S. exports. Although not numerous, these duties often preclude
trade in products where U.S. competitiveness is well established.
Examples of such products are as follows:
Pipe Tobacco 117 percent
Chewing Tobacco 65 percent
Snuff and Cigars 52 percent
Canned Meats 26 percent
Beer 24 percent
Freeze-dried spices 16 percent
Phosphoric Acid 12 percent
Silicones 11.3-14.2 percent
Aluminum Wheel Centers _ 11 percent
Southern Comfort $4.00 per gallon
Rum $2.00 per gallon
Still Wine $.70 per gallon
Current Status
There is no current authority delegated from Congress to negotiate-
the reduction of these duties.
Action Reg i d
In addition to a renewal of the Executive Branch's negotiation
authority, the U.S. would have to be prepared to reduce U.S. tariffs
on items of comparable economic and political i.~iportance to
the European Community.
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Expand the current EC duty-free tariff quota on imports
of Softwood Plywood.
Backgr
The EC is a net importer of plywood, particularly of the softwood
variety. The U.S. product is highly competitive, but suffers
from a tariff disparity (10 percent v.s. 0 percent) with competing
products from the Scandinavian suppliers, who have preferential
tariff treatment. The negotiated duty-free quota for this product
is inadequate to cover EC needs, but a single French supplier
bars the quota's expansion.
Current Status
The Community has refused to expand the quota for 1984.
Action R q >> d
The United States should negotiate either a quota expansion
or a duty reduction that would permit expanded U.S. exports
of softwood plywood to the EC. _
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W V
Canadian Licensing of Pharmaceutical Patents
Proposed Action
Secure modification in Canadian legislation which allows compulsory
licensing of pharmaceutical patents.
Background
Section 41 of the Canadian Patent Law provides that any company
may request the Canadian. Commissioner of Patents to provide
a compulsory license for pharmaceutical patents and that only
a nominal royalty of four percent is Raid. The section was
enacted in 1969 (although a similar provision dated back to
World War I) as a result of assertions that foreign pharmaceutical
companies were making inordinately high profits in Canada.
The legislation was based on British patent law (subsequently
repealed), and was designed to rectify some abuses and to foster
greater competition in the pharmaceutical industry. The legislation
is highly popular and is supported by all political parties
in Canada as well as the provinces, who are concerned about
keeping health costs down.
Current Status
On May 2.7, 1983, Andre Quellet, then-Minister of Consumer and
Corporate Affairs, announced the Canadian Government's decision
to change Section 41 and to launch extensive discussion with
Canada's provincial governments, the pharmaceutical industry
and consumer groups to identify ways of stimulating the Canadian
pharmaceutical industry and to maintain reasonably priced drugs.
Minister Quellet was subsequently replaced by Judy Erola, who
is not prepared to seek modification of Section 41. Instead,
she has appointed a one-person board of inquiry to review the
issue, and to report recommendations by the end of the year.
In the interim, outstanding requests for compulsory licenses
could be processed to the detriment of U.S. interests.
Further Action Needed
Convince Canadian Government to introduce legislation to modify
Section 41.
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? 40
Border Broadcasting Dispute with Canada
Proposed Action
Resolve border broadcasting dispute with Canada.
Background
In 1976, Canada adopted a tax provision denying Canadian enterprises
tax deductions for the cost of advertising in foreign media
when the advertising is directed primarily at Canadians. The
Administration, following a 301 finding, has on three occasions
proposed mirror legislation to the Congress, but it has never
been acted upon. The latest proposal is still before Congress.
In March 1983, we floated a compromise proposal which would
reinstate the tax deduction for a certain percentage of the
advertising placed in the U.S. based on the percentage of the
border station's audience which is accounted for by U. S. viewers
(70 percent).
Current Status
In response, the Canadian Government commissioned a study of
the impact that this compromise might have on the Canadian broad-
casting industry, which was released early this year. The report,
while noting some administrative difficulties with a station-by-
station breakout of the U. S. proposal, does note that some equitable
solution could be easily found, if the Canadian Government actually
desires a compromise. While officials at the Department of
External Affairs are apparently supportive of a compromise,
Department of Communication's are strongly opposed.
Further Action Needed
Convince Canadian Government of need for compromise.
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Informatics Policy of Brazil
Proposed action
Liberalize Brazilian trade and investment restrictions governing
the information-based industries. Provide copyright protection
for computer software.
Background
The Brazilian Special Secretariat for Informatics (SEI), using
a national security justification has placed top priority on
the development of a national computer and information industry.
SEI has taken numerous steps to protect and promote Brazilian
producers, including market reservation for equipment manu-
facturers, registration requirements for computer software,
restrictions on transborder flows of information, and import
licensing.
Brazil has extended its informatics-related barriers beyond
computers to superminicomputers, software, medical test equip
ment, analytic instrumentation and biomedical equipment. The
GOB is considering legislation that would provide inadequate
legal protection for computer software. In March 1984, the
Brazilians agreed to provide information of SEI's intentions
for expansion.
Further action
The USG has just conducted a second round of consultations with
the GOB on informatics; until last year, the GOB had been unwill-
ing even to discuss the issue. We should continue the dialogue,
convincing Brazil that its restrictions retard, rather than pro-
mote, its achievement of higher technology-related objectives. In
addition, we should attempt to convince the GOB that adequate
legal protection of software will be in Brazil's interest, as
well as ours. A stronger, more public push by the USG on this is-
sue would prove counterproductive at this time.
Drafted by: MBarell:USTR:6/22/84
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Proposed action
Eliminate trade distorting decrees in the auto, pharmaceutical
and computer sectors.
Background
In 1983-84, the GOM has extended the scope and use of sectoral
decrees governing trade, pricing, investment and production.
The revised auto decree, announced in the Hall of 1983, increases
previous local content and export performance requirements,
requires reductions in the number of production runs (i.e.,
models), and imposes other restrictions. The recently-announced
pharmaceutical decree, which has elicited by far the most op-
position from U.S. industry, imposes new import restrictions,
denies national treatment to U.S. investors and provides in-
adequate patent protection. The proposed computer decree also
imposes trade-related performance requirements.
Current status
The GOM has been unwilling to fashion sectoral decrees that do
not prejudice our interests. With respect to pharmaceuticals, in
particular, we have held intensive discussions with the GOM to
try and eliminate the deleterious aspects of the new decree. The
USG has informed the GOM that further action will not be possible
on the proposed bilateral subsidies agreement until we have
achieved our objectives in pharmaceuticals. From the private
sector perspective, pharmaceutical companies may find it more
financially sound to divest; the auto and computer companies
appear willing to operate generally within current constraints.
Further action
The USG should continue to consult with the GOM on the decrees
in an effort to develop policies that will not hinder U.S.
interests there. On pharmaceuticals in particular, we should
press strongly for elimination of the more onerous provisions
of the decree.
Drafted by: MBarell:USTR:6/22/84
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~RBOI STBEL 201 CASE
The USITC on June 12 decided by 3-2 vote that imports of certain
steel products have been a substantial cause of serious injury
to US steel producers. The products are:
ss nni-finished steel
sheet and strip
plates
structural steel
wire and wire prods.
Total O. S. imports
imports from EC
3C
822,000 tons
208,000 tons
25.3
6,549,000 '
1,885,000 ?
28.8
1,103,000
273,000 '
24.8
1,445,00.0 '
422,00? ?
29.2
873,000
158,000 '
18.1
The. ITC found no import injury on pipe and tubes, wire rods,
bars, and railroad-type products. The five products on which
injury was found represent 71% of the products in the petitioners'
petition.
The ITC will vote on a remedy during the week of July 9 and
formally transmit their report to the President by July 24.
The President will have 60 days from that time to decide if
import relief is in the national economic interest and, if so,
what remedy to apply. The ITC's report limited itself to whether
imports were the substantial cause of injury to this industry.
The Presidents mandate is much broader and includes the effect
of relief on consumers and international economic relations.
An interagency task force is now being formed to begin work
on these latter issues.
We will soon be soliciting the views of interested parties.
The EC's representatives in Washington are aware of the above
and will be making submissions. We will also be consulting
directly with any interested governments.
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Steel Quota Legislation
The Administration is strongly opposed to the "Fair Trade in
Steel Act," H.R. 5081 and S. 2380. These bills would impose
import quotas of approximately 15 percent on steel products
for a five year period. Such a wide range of arbitrarily
established quotas provided outside our normal, trade statutes
would undermine the competitiveness of a great many industries
dependent on steel as a raw material and would be highly
inflationary.
The dangers posed by this legislation to our greater domestic
and international economic interests are clear. While they
risk great harm to the remainder of the economy, they also
discourage adjustment within the steel industry itself. By
dramatically curtailing the degree of foreign competition in
the U.S. market, the global quotas proposed in this bill
would insulate the industry and delay progress toward urgently
needed modernization, cost containment and productivity.
Restrictions on imports will lead to a distorted increase in the
price of steel, which, in turn, will raise production costs for
a wide variety of U.S. industries that make up our industrial
base.
Such blatantly protectionist legislation is inconsistent with
our international obligations which prohibit import restrictions
without a finding of serious injury. Demands for compensation
or retaliation by other countries would jeopardize thousands
of U.S. jobs in other sectors. Sweeping quotas on all steel
products will have an even more devastating effect on the
U.S. balance of trade.
By imposing such restrictions, the bill undermines the procedures
already legislated by Congress to permit industries and workers
to petition for import relief through a fact-finding procedure
administered by the independent U.S. International Trade Commission
(ITC). Bethlehem Steel and the United Steelworkers have filed
such a petition under Section 201 of the Trade Act of 1974. The
remedy report from the ITC is due on July 24 and the President
must determine if relief is in the national economic interest
by September 24.
This Administration is concerned about the possible effects of
dramatic increases in aggressively priced steel imports from
certain countries. Yet many of these imports are already under
investigation for unfair trade practices. Since 1981, more than
100 cases dealing with steel products have been filed under the
antidumping and countervailing duty statutes which offset
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- - 2 - -
injurious unfair government subsidies and sales at less than
fair value. When such practices are found, immediate action
is taken to counter the effect. We are strongly committed to
preventing unfairly traded imports from undermining the integrity
of our market and injuring U.S. steel producers. The Administra-
tion's record on such cases demonstrates this.
This Administration opposes the steel quota bill in the strongest
possible terms. Such legislation is inconsistent with our
international trade agreements and circumvents trade statutes
that have proven effective when utilized correctly in response
to unfair practices. Further, it will cause other U.S. industries
to pay the price of protectionism through foreign retaliation and
artifically increased prices.
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Trade Remedies Reform Act
("Gibbons Bill")
H.R. 4784 contains a number of constructive changes in our anti-
dumping and countervailing duty laws. However, its three major
provisions make the bill unacceptable to the Administration.
These provisions (1) define the so-called "targeting practices"
of foreign governments as subsidies, (2) radically alter the
definition of subsidies as to natural resources, and (3) expand
the scope of the antidumping law to include downstream dumping.
These provisions are contrary to the international obligations
of the United States, represent dangerous international prece-
dents, and pose direct or indirect threatstto American exporters.
If the United States violates its international obligations,
other nations would have a right to retaliate against U.S.
trade under the rules of the GATT and its Codes. We should not
subject American exporters to this risk. The United States should
not enact rules prohibiting certain foreign practices unless we
are prepared to have our own exports subject to the same rules
under foreign mirror legislation.
The Administration welcomes efforts to simplify the administration
of our unfair trade laws to improve access to injured firms and
workers, but cannot support any bill containing the three above
provisions.
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Danforth's Telecommunications Trade Act of 1984
There has been a fundamental shift in the philosophy underlying
U. S. telecommunications policy from pervasive economic regulation
toward reliance on unregulated market competition. Significant
structural changes are evident in the U.S. `industry including
rapid technological development and increased competition among
service and equipment providers. Most importantly, divestiture
opens the U.S. market to foreign competition while foreign markets
remain protected. Changes in the structure of the U. S. industry
will result in a dramatic increase in imports. U. S. imports
doubled in 1983 to $1.6 billion representing a 3.5 percent growth
in the share of the U.S. market. This trend is expected to
accelerate as the U. S. market grows to level of $30 billion
by 1987 and $45 billion by 1990. The U.S. industry estimates
that we will be facing a flat export curve in face of an almost
vertical import curve.
The Danforth telecommunications bill is intended to respond
to this trade consequence of divestiture by creating the negotiating
leverage needed to secure competitive opportunities in foreign
markets for U. S. exports equivalent to those available in the
United States. Under the legislation, U. S. tariffs on telecom-
munications products will be immediately unbound. If, over
a three year period, we are unsuccessful in negotiating liberalizing
trade agreements in this sector, tariffs would be raised to
the Column 2 levels.
We, of course, must consider the GATT implications of the bill.
We an raise tariffs under GATT Article XIX as a result of injurious
imports or under the traditional tariff modification procedures
of Article XXVIII. In either case, compensation obligations
are triggered by the unbinding of U.S. tariffs. While the bill
provides some compensation authority, it is limited in scope
and may not provide adequate coverage to deflect retaliation.
In light of this situation, there are a number of questions
that should be addressed:
1. Should the Administration take or support any steps to deal
with the trade effects of divestiture?
2. If were are to act, should we limit our efforts to new market
access, as envisioned by the Danforth Bill? If so, should the
NTT agreement be considered adequate? Are there realistic possi-
bilities of achieving access to the European PTT's?
3. If we are to deal with the problems of both import penetration
and market access, should this be done with an immediate increase
in U.S. tariffs, then be negotiated down over time, or by the
threat of tariff increases as suggested by the Danforth Bill?
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4. Should we work with Senator Danforth to modify his bill
to meet Administration objectives? If so, how should it be
limited?
5. Should the legislation be limited to those products in which
ere was little or no trade prior to divestiture?
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THE FOLLOW UP ON U.S.-JAPAN TRADE AND
INVESTMENT ISSUES
CURRENT STATUS AND NEXT STEPS
May 23 , 1984
During his May 8-10, 1984 visit to Tokyo, the Vice President
brought to a close the initial phase, under his leadership,
of the follow up effort to seek resolution of outstanding U.S.-Japan
bilateral issues. The effort had been set in motion by the
agreement of the President and Prime Minister Nakasone during
the President's trip to Japan in November 1983.
As the Vice President made clear in his meetings with the Prime
Minister, Foreign Minister Abe, and the other members of the
Economic Cabinet in Japan, the follow uppeffort to this point
has resulted in significant progress on several issues, but
a number of other important issues remain in urgent need of
resolution. The next steps in the follow up effort will be
of three kinds.
First, to ensure that the market opening potential of those
positive steps announced by the Japanese actually materialize,
close continued consultation between our two Governments will
be required. This will involve U. S. officials at the working
level visiting Japan to consult with officials in the Ministries
of Finance and Posts and Telecommunications on the administrative
ordinances and procedures that will be formulated to implement
the announced reforms in the sectors of manufactured tobacco
products and telecommunications services, respectively.
Second, the Vice President indicated a number of outstanding
issues that will need either resolution or significant progress
prior to the June Economic Summit, the next opportunity at which
the President and the Prime Minister will meet. These include
Japanese tariff reductions on forest products, paper products,
and wine, as well as setting the final text of the beef and
citrus agreement.
-- On April 27, the Japanese Government announced a number
of tariff reductions to be implemented April 1, 1985.
These included several that responded to U.S. requests,
notably on color photo paper and farm machinery. However,
no cut was announced on one major U.S. request, forest
products (plywood, veneer, particleboard). Cuts made
on wine and paper were positive but do not fully satisfy
U. S. objectives.
-- Oral agreement was reached on the beef and citrus issue
by USTR Brock and Japan's Agriculture Minister Yamamura.
Working level discussions are in progress to settle the
remaining issues of the language of the text.
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Third, there are also a number of outstanding issues that need
attention and progress during the remainder of this year. These
include:
-- Software program rights protection: the Japanese have
assured us that no change on protection will be made before
consultations are held with the U.S. Our objective is
to ensure that no change is made which would diminish either
the scope or duration of protection, or remove such protection
from under the aegis of the copyright.
-- Satellites: the April 27 announcement of the Japanese
Government stated that future purchase of foreign manufactured
satellites by Japan's telephone monopoly NTT after its
privitization, by private firms, and by Government agencies
would be possible. But clarification of the intent of
the announcement is required because of ambiguity in the
language used pertaining to "consistency" of such puchases
with Japan's space development policy.
Standards and Certification: the U.S. will continue to
seek to have U.S. testing organizations designated by the
Japanese Government to carry out tests of U.S. products
(and facilities) here for approval for sale in Japan.
Lawyers: the U.S. will continue to press for enactment
by the Japanese Government this year of a legal change
to permit foreign lawyers to provide legal services in
Japan and to associate with Japanese lawyers.
Direct Investment: the U.S. will continue to seek removal
of the requirement that inward direct investment by foreigners
be pre-notified to the Ministry of Finance.
Tobacco Shipping: we shall continue our efforts to have
U. S. firms be permitted to bid for commercial scale shipments
of leaf tobacco to Japan's tobacco monopoly, JTS.
These and other issues will be addressed, in one or more of
the on-going bilateral groups established by the U.S. and Japan
to handle our trade and investment issues. On the trade side,
these include the U.S.-Japan Trade Committee, chaired by Deputy
USTR Ambassador Smith, the U.S.-Japan Working Group on High
Technology, and specific groups covering the NTT Agreement and
other sectoral issues. The investment issues will be addressed
in the U.S.-Japan Investment Committee chaired by Deputy USTR
Lighthizer.
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0 49
U. S. TRADE RELATIONS WITH JAPAN
The objective of U. S. trade policy toward Japan is to achieve
access to the Japanese market for U.S. exporters and investors
equal to that enjoyed by Japan in the United States. We have
engaged in continual bilateral discussions with the Japanese
toward that end. The GOJ has responded with five sets of trade
initiatives over the past two and one-half years.
The most recent initiative was announced on April 27 of
this year. It marked the end of the first phase of the followup
effort, led on the U.S. side by the Vice President, agreed upon
by Prime Minister Nakasone and President Reagan during the Presi-
dent's trip to Japan last year. These initiatives represent
some progress, but there are still importartt issues on our agenda
that remain to be resolved.
Our current trade and investment issues with Japan fall
into three categories: (1) those on which progress has been
made but which will require continued followup; (2) those which
will require clarification or which the GOJ has only partially
addressed; and (3) those which remain unaddressed and unresolved.
Issues on Which Progress Has Been Made
Tobacco: If legislation before the Diet is approved, effective
April 1, 1985, the Japanese will end their government monopoly
on distribution and importation of manufactured tobacco products;
enable foreign firms to set their own prices, with Finance Ministry
approval; continue to expand the number of retail outlets permitted
to handle imports; and revise the excise tax to make possible
a retail price reduction. Followup will be required to ensure
that our firms are allowed to price their products competitively,
and are otherwise not discriminated against.
Telecommunications: Also next April, the GOJ will privatize
the telecommunications monopoly, NTT, and permit foreign firms
as well as Japanese ones to compete in this potentially vast
market. We intend to follow up to see that registration procedures
imposed on Value-Added Network Services do not disadvantage
foreign firms.
issues Partially Addressed
Satellites: The effect of the April announcement on the
revocation of the prohibition on the purchase of foreign-made
satellites by Japanese firms and government agencies is not
clear. First, NTT purchases of satellites over the next five
years may already be precluded by NTT's existing agreements
with Japanese manufacturers. Second, the announcement indicates
that purchases by NTT, the major market in Japan, will be conditional
on "consistency with the national space development policy."
We have requested clarification on the meaning of this condition.
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Software: Proposed legislation to abandon copyright protection
for computer software will not be submitted to this session
of the Diet, but is still under deliberation within the GOJ.
The EC fully shares our concern on this issue. We have reiterated
our strong and unaltered opposition to this proposal.
Standards: Although MITI recently designated an American
firm to conduct factory inspections for U.S. electrical appliance
suppliers, MITI has not yet designated American firms to conduct
product testing. No other Japanese agencies requiring certification
have yet drafted guidelines for approval of U. S. testing firms.
Tariffs: The April announcement contained tariff reductions
on several items of U. S. interest, including paper products
and wine, farm machinery, color photographic paper, and black
and white film. The absence of any reduction on forest products
tariffs was a major disappointment, however.
Direct Investment: Japan has yet to abolish its prenotification
requirement for foreign direct investment and to clarify its
commitment to a policy of national treatment.
Agriculture: Agriculture has been partially addressed,
because Japan has recently agreed to increase its imports of
high-quality beef and citrus, and to liberalize import restrictions
on 13 categories of agricultural products. (These agreements
are not yet final, due to difficulties in drafting.) However,
the more general issue of Japan's GATT-inconsistent agricultural
quotas is still unresolved, and will remain so until Japan abolishes
them or commits to a date certain for their abolition.
Unresolved Issues
Legal Services: We are seeking GOJ legislative action
to enable U. S. lawyers in Japan to give advice on U. S. and inter-
national law, just as Japanese lawyers in New York can.
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The Japanese trade initiative of April 27 includes tariff
cuts on more than eighty items, of which four -- paper products,
wine, color photographic paper, and hay balers -- are from the
U.S. major request list. Lack of any tariff cuts on forest
products was a significant disappointment, as this was a major
U.S. request. We should seek to keep the forest products tariff
reductions at the forefront of our agenda with Japan, and seek
further reductions on paper and wine.
Background
Although the April 27 trade initiative includes tariff
cuts on several items of U.S. interest, none of these cuts will
take place until next year. Lack of cuts on forest products
was a major disappointment, as the U.S. forest products industry
had lobbied hard both in Tokyo and on the Hill, and had offered
its support for a major reciprocal reduction of the U. S. tariff
on Japanese sen plywood. The paper products tariff cuts are
to initially requested levels, though still smaller than the
industry's bottom line objectives. The wine tariff cuts are
acceptable as an initial step, but their value to U. S. wine
exporters was somewhat reduced by a concurrent increase in the
Japanese excise tax on wine.
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Legislation submitted to the Japanese Diet would open up
Japan's telecommunications sector to competition among private
firms, both Japanese and foreign-owned, effective April 1, 1985.
Since the real value of market liberalization will depend very
heavily on the implementing ordinances, the Trade Policy Subcommittee
on Japan is currently reviewing the proposed legislation and
drafting a USG paper containing U.S. concerns and questions
on the legislation. Our objective is to ensure that administrative
ordinances being drawn up to implement the legislation reflect
U.S. concerns and do not serve to disadvantage U.S. firms.
A
Background
Up until now, Japan's telecommunications sector has been
an almost wholly closed market controlled by Nippon Telephone
and Telegraph Public Corporation, a government-owned monopoly.
U.S. telecommunications firms are experienced and enjoy comparative
advantage. Once the market liberalization measures are implemented,
the market in Japan for U. S. exporters could be enormous.
The Telecommunications Bill currently before the Diet includes
a registration requirement for large-scale Value-Added Network
Serivces firms that in effect gives the Ministry of Posts and
Telecommunications a prior approval over whether a firm can
enter this business. The April 27 initiative commits the GOJ
to ensure simplicity and transparency in registration and notifi-
cation procedures, as well as fair competition between the new
NTT and other telecommunications firms.
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? 4P
STANDARDIZATION AND CERTIFICATION
Although the Japanese Diet has revised some sixteen laws
governing standards and certification, the full benefits of
these changes in providing equal treatment for imported products
has yet to be realized. U. S. producers will be able to reap
these full benefits only if Japanese ministries designate U.S.
testing firms to carry out factory inspections and product testing
in the United States.
Background
Japanese approval schemes require that factory inspections
and product testing be conducted in order to meet Japanese require-
ments. In April 1984, MITI became the first Japanese agency
to publish guidelines for designating authorized foreign inspection
agencies. This month, MITI approved a Florida company to conduct
factory inspections.
Japanese officials have recently suggested that designation
of U.S. firms to conduct product testing can only take place
if there is a reciprocal exchange of test data. This proposal
is unacceptable, since U. S. certification systems already provide
equal treatment to foreign and domestic producers.
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JAPANESE IMPORT QUOTAS ON FOOTWEAR
The Japanese leather and footwear industries are protected
by global import quotas because they employ a, large percentage
of the underprivileged DOWA minority group. Now that the GATT
Council has adopted the GATT Panel Report on leather, we can
seek remedial action on both leather and footwear.
Background
The domestic footwear industry filed petitions for relief
under Section 301 of the Trade Act in O6tober 1982 and June
1983, alleging that restrictive Japanese trade practices were
denying market access for U. S. footwear exports. These petitions
were rejected on the basis of insufficient information. In
January 1983, we held Article XXII consultations with Japan
and confirmed the existence of a global quota on footwear imports.
On June 6 of this year, the ITC voted that the U.S. industry
had not been seriously injured by increased imports of nonrubber
footwear. Legisltation was subsequently introduced in Congress
that would limit footwear imports to 50 percent of the domestic
market.
The case against Japan on nonrubber footwear is based on
the same arguments that we raised in the GATT on leather. On
May 16, the GATT Council adopted the GATT Panel report which
concluded that Japan's import restrictions on leather are inconsis-
tent with the GATT. In February, Ambassador Smith indicated
to Minister Komatsu that we expect the GOJ to take action to
eliminate the global quota on footwear.
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PROMOTION OF MANUFACTURED IMPORTS
Japan's manufactured trade surplus with the U.S. is large
and growing, despite the various measures that Japan has taken
in the past several years to lower tariff and non-tariff barriers.
That surplus grew from $ 21.4 billion in 1982 to $ 23.8 billion
in 1983. The Japanese Government has issued a number of essentially
hortatory statements encouraging greater manufactured imports,
but has not presented a concrete strategy for bringing about
such an increase.
Background 6
Earlier this year, the Industrial Bank of Japan published
a forecast of Japanese trade patterns. The Bank forecast Japanese
exports to grow at an average annual rate of 5 to 6 percent,
compared to about 4.5 percent for imports if import composition
remains basically unchanged. The Bank predicted that Japan
will have a current account surplus in 1990 of $80 billion.
In cumulative terms, Japan's global current account surplus
would amount to over $400 billion over the period 1983 through
1990, and would rival the OPEC surplus of 1974 to 1981.
In February, both the U.S. and Japanese Cabinets adopted
a set of recommendations drafted by the U.S.-Japan High Technology
Working Group, which included a commitment by the GOJ to develop
"possible concrete measures" to promote imports of high technology
manufactured goods. The Working Group's Recommendations on
Semiconductor Trade, adopted in November during the President's
trip to Japan, included a number of similar import promotion
measures for semiconductor trade.
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40 ?
HIGH TECHNOLOGY WORKING GROUP
We want to highlight the work of the High Technology Working
Group as a constructive bilateral effort, and stress the need
to maintain momentum behind the Group's work. The next steps
should be implementation. of the Group's recommendations on
semiconductors, and the development of recommendations covering
bilateral trade and investment issues in other high technology
industries.
Background
,Q
The U.S.-Japan Working Group on High Technology Industries
has produced two sets of recommendations over the past two years.
The first set, approved by the U.S. and Japanese Cabinets in
February 1983, covers general issues relating to high technology
trade and investment. The second set of recommendations, adopted
by both Cabinets in November, focuses on issues affecting trade
and investment opportunities in the semiconductor industry in
both countries. The U.S. semiconductor industry has welcomed
these recommendations, stating that they appear to represent
a very constructive step forward.
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? 49
In its April 27 announcement, the GOJ states that after
passage of telecommunications reform legislation by the Japanese
Diet, private firms will be able to purchase communications
satellites. It stated also that when NTT is legally transformed
next April, a "privatized" NTT will be able to purchase satellites
either domestically or from abroad, so long as "consistency
with the national space development policy" is ensured. Furthermore,
the announcement states that government agencies may procure
in a non-discriminatory way satellites not necessary for autonomous
development of space technology. In a recent letter to Ambassador
Okawara, Ambassador Brock asked for clarification of this language.
We have not yet received a response on this issue from the GOJ.
Background
in October, Foreign Minister Abe gave Ambassador Brock
a summary of the GOJ position on the procurement of communications
satellites, which states that Japan will ensure autonomy in
the development of such satellites. The policy was defended
on considerations of national security and public safety. During
the President's trip to Japan in November, Foreign Minister
Abe reiterated this self-sufficiency policy to Secretary Shultz.
We feel that the GOJ approach to communications satellites is
an example of protectionist industrial policy and belies Japan's
protestations that it no longer uses such policies.
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BLUE RIBBON PANEL
On April 10, Minister Okonogi sent Ambassador Brock a proposal
for implementing his suggestion for a "Blue, Ribbon Panel" of
U.S. businessmen to be invited to Japan. Ambassador Brock
responded positively to Minister Okonogi's proposal in a letter
of June 14, and suggested a number of points designed to strengthen
the effectiveness of the panel.
Background
Last October, Ambassador Brock wrote then MITI Minister
Uno suggesting the formulation of a Blue Ribbon Panel. In April,
Minister Okonogi sent us a proposed plan for the Panel and a
procedure for selecting panelists. He suggested that the Panel
be composed of three to four top U.S. business executives, and
that the panelists stay in Japan for about a week to exchange
views with their Japanese counterparts.
In a June 14 letter, we suggested that the Panel be established
on a continuing, rather than on a one-time basis, and that it
be provided with the opportunity for frequent direct meetings
with the Prime Minister and the Minister of MITI. We also suggested
that a critical element in attracting top-level business executives
would be a commitment by the Prime Minister and Minister Okonogi
to correct barriers to the Japanese market identified by the
Panel.
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