TRADE POLICY REVIEW MECHANISM MACAU Report By

RESTRICTED GENERAL AGREEMENT C/RM/G/48 30 August 1994 ON TARIFFS AND TRADE Limited Distribution

(94-1694)

Original: English

TRADE POLICY REVIEW MECHANISM

MACAU

Report by the Government

In pursuance of the CONTRACTING PARTIES' Decision of 12 April 1989 concerning the Trade Policies Review Mechanism (BISD 36S/403), the initial full report by the Government of Macau for the review by the Council is attached.

NOTE TO ALL DELEGATIONS Until further notice, this document is subject to a press embargo. Macau C/RM/G/48 Page iii

TABLE OF CONTENTS

Page

EXECUTIVE SUMMARY 1

INTRODUCTION - THE POLITICAL, LEGAL AND INSTITUTIONAL SITUATION IN MACAU

TRADE POLICIES AND PRACTICES

(i) Objectives of trade policies 3 (ii) Description of the import and export system 3 (iii) The trade policy framework 4 (iv) The implementation of trade policies 10

B. RELEVANT BACKGROUND AGAINST WHICH THE ASSESSMENT OF TRADE POLICIES WILL BE CARRIED OUT, WIDER ECONOMIC AND DEVELOPMENTAL NEEDS, EXTERNAL ENVIRONMENT

(i) Wider economic and development needs, policies and objectives of the contracting party concerned 12 (ii) The external economic environment 14 (iii) Problems in external markets 20

ANNEX I THE CONSTITUTIONAL SYSTEM OF MACAU:

PRESENT AND POST 1999 23

ANNEX II IMPORT AND EXPORT CONTROLS 30

ANNEX m SUMMARY OF TEXTILE EXPORT QUOTAS ALLOCATION SYSTEM 31 Macau C/RM/G/48 Page 1

GATT TRADE POLICY REVIEW ON MACAU - COUNTRY REPORT

EXECUTIVE SUMMARY

Trade is the lifeblood of Macau. The territory has historically been a free port and it operates one of the most liberal trading regimes in the world. There are practically no restrictions at all on the free flow of goods and capital in to, and out of, Macau. This free trade approach is both logical and necessary for a territory such as Macau. It has limited natural resources and a very small domestic market: so it relies on trade for its own economic survival.

Macau intends to continue with this free market approach both during the transitional period before December 1999, and in the time thereafter, once sovereignty has been transferred from Portugal to China. The Basic Law governing the territory after December 1999, provides that Macau may remain as a free port and as a GATT member.

Macau is fully committed to the GATT and to the system of open, fair and transparent trade which the rules are intended to promote. The multilateral framework of GATT is particularly important for Macau since it exports to, and imports from, a wide range of trading partners. Consequently, Macau would like to see a free trade system maintained and strengthened on a truly global level.

Historically, traders in Macau have depended very heavily on the textile sector. This dependency still exists, though efforts have been made towards diversification of industrial production and development of the services sector. Macau believes that the GATT system, and the principle of free trade which it is designed to protect, is absolutely fundamental for the continuing development of the territory as a modern, outward-looking, dynamic economy. C/RM/G/48 Trade Policy Review Mechanism Page 2

INTRODUCTION - THE POLITICAL. LEGAL AND INSTITUTIONAL SITUATION IN MACAU

Macau became a full Contracting Party to GATT on 20 January 1991. This is, therefore, the first time that Macau has submitted a report under the Trade Policy Review Mechanism. In these circumstances, it is important to describe, as background to the review of its trade policies, Macau's special political, legal and institutional situation. A full description of Macau's constitutional system, at present and as envisaged after 1999, is set out in Annex I.

The current status of Macau is defined by the Constitution of the Portuguese Republic and the Macau Organic Statute (MOS). In a Joint Declaration of the Government of the Republic of Portugal and the Government of the People's Republic of China (PRC) on the Question of Macau, signed in Beijing on 13 April 1987, it was agreed that - with effect from 20 December 1999 - Macau's status would be determined by a Basic Law enacted by the National People's Congress of the PRC. The Basic Law was approved on 31 March 1993.

In the transitional period until 20 December 1999, the Macau authorities - acting in accordance with the provisions of the Joint Declaration - will prepare and enact new legislation in a number of areas, including some of relevance to Macau's trade and economic policies.

On foreign affairs, the Basic Law provides that Macau may conclude and implement agreements with countries, regions and international or regional organizations in the fields of economics, finance, trade, shipping and communications. Agreements to which the PRC is not a party, but which apply to Macau, will be permitted to remain in force after 1999.

The Basic Law provides that Macau is to continue to be a free port, pursuing trade policies that ensure the free movement of goods and capital. It also stipulates that Macau is to remain a separate customs territory from the PRC, with the right to participate in international trade organizations and agreements such as the GATT and MFA, including preferential arrangements. Macau will also retain responsibility for the management of export quotas, tariff preferences and origin certificates after December 1999.

Under the Basic Law Macau may participate in international agreements which are not limited to States. It may also continue to establish economic and trade missions in third countries and receive consular missions in Macau with the approval of the PRC. Certain matters, including Macau's participation in international economic organizations may be the subject of discussion in the Liaison Group established by the 1987 Joint Declaration between Portugal and China.

In essence, the transitional period until 20 December 1999, is designed to ensure stability in Macau's liberal economic and trade policies. This will be reinforced by the provision in the Joint Declaration that policies covered by the Basic Law will remain unchanged for 50 years after 1999. Likewise, the legislative, executive and judicial functions in Macau are being adapted during the transitional period to meet Macau's new situation, nonetheless preserving effective functional continuity. Macau C/RM/G/48 Page 3

A. TRADE POLICIES AND PRACTICES

(i) Objectives of trade policies

The Government of Macau is firmly committed to non-discriminatory free trade. This commitment is a conscious and logical choice for a territory such as Macau. With a very small domestic market and limited resources, the economic development of the territory is integrally linked to the maintenance and development of strong and open trading relations. In keeping with this free trade philosophy, all goods enter and leave Macau without payment of customs duty. There are practically no trade restrictive measures in Macau.

Macau acceded to GATT in January 1991 and fully supports the maintenance of an open, multilateral system of international trade. It is committed both to fulfilling its obligations and to protecting its rights under the General Agreement. Macau participated in the Uruguay Round through tariff consolidation and submission of commitments on trade in services. As a free port and a developing centre for trade in services, Macau firmly supports the new WTO as the guarantor of free and fair international trade, within a transparent regulatory framework.

Macau has chosen not to pursue specific sectoral trade policies, except in the context of participation in the MFA. The government is, however, generally in favour of economic policies which will help stimulate and diversify industrial production and expand higher value-added industries in the territory.

(ii) Description of the import and export system

In principle, imports from any source may enter Macau on a duty-free basis and with minimum controls. Trade flows to and from the territory are determined by free market forces. As explained, the economic development and diversification of Macau is closely linked to the maintenance of free and open trade. Thus, it is logical for the government to follow policies which promote and strengthen the free trade system.

Such control as there is takes the form of licensing:

Import licensing

Goods entering Macau are subject to import licensing (with the exception of perishable goods). Licences are issued automatically and at no charge. Licensing is carried out for statistical purposes and does not present an obstacle to the free flow of goods.

Certain products require prior authorization, such as:

(a) Textiles and Clothing for surveillance purposes, as a back-up to the Macau textile export control system:

(b) Arms and Ammunitions Explosives and Pyrotechnic Products: for public safety reasons:

(d) Radio Transmitting Equipment, Electrical Apparatus for Line Telephony or Line Telegraphy, to prevent interference with the public telephone system; C/RM/G/48 Trade Policy Review Mechanism Page 4

(e) Fuels: for public safety reasons;

(f) Vehicles: to monitor the number of cars in circulation;

(g) Endangered Plant and Animal Species (CITES),

(h) Live Animals. Meat and Edible Meat Offal: to prevent infectious diseases and protect public health;

(i) Chemical and Pharmaceutical Products: to safeguard human life and public health.

(j) Electricity Supply Products: to monitor the existing power supply system

Under relevant Macau legislation the only other restriction on imports applies to second-hand motor-vehicles, lorries and motorcycles. This is due to environmental considerations and the fact that Macau is a very small territory.

Export licensing

Similarly, goods leaving Macau are subject to export licensing (again, with the exception of perishable goods). Temporary exports and re-exports require prior authorization, as do textile products which are subject to quota. This is necessary to ensure compliance with Macau's responsibilities under textile bilateral agreements in accordance with the MFA. Prior authorization is also required for chemical and pharmaceutical products and for endangered fauna and flora.

Certification of origin

So far as origin requirements are concerned, Macau applies no rules of origin on incoming goods but has to observe origin rules imposed by countries to which goods are exported (for example, in the case of textile exports under the bilateral agreements and for products subject to GSP treatment). For these purposes, the Macau authorities issue certificates of origin.

(iii) The trade policy framework

(a) Domestic laws and regulations governing the application of trade policies

The basic instrument governing foreign trade operations in Macau is Decree-Law No. 50/80/M of December 31, 1980.'

Decree-Law 50/80/M applies to both imports and exports. Under this law, foreign trade operations in Macau are subject to a pre-licensing system, with a few limited exceptions. Licences are granted to economic agents registered as foreign trade operators by Macau Economic Services and the licensing requirement applies to transactions with a value of over MOP$ 5,000.00 for foreign trade operators or MOP$ 10,000.00 for individuals. Licenses are required, irrespective of the value of the goods, for imports of products subject to consumption tax, for products exported with a certificate of origin, and for trade in goods subject to prior authorization.

'A full list of domestic legislation relating to import and export controls is contained in Annex II. Macau C/8M/G/48 PageS

So far as the textile quota allocation system is concerned, this is governed by Decision No. 40/GM/91 of February 1991. Two important features of the legislation are worth mentioning:

1. The government of Macau has very little discretion with regard to the allocation of quotas since these are predominantly based on the past performance of traders;

2. it is now legally permissible for quotas to be transferred between exporters, which builds more flexibility into the system.

Further details of the textile quotas allocation regime are provided in Annex III.

(b) Summary description of the process of trade policy formulation and review, as well as responsibilities and institutional functioning of bodies primarily involved in this process and with the administration of trade policies

Trade policy formulation

The formulation and implementation of trade policy involves the Governor, the Legislative Assembly, the Macau Government and the Economic Consultative Council.

In practice, the day-to-day responsibility for Macau's trade policy is delegated to the Secretary for Economic and Financial Affairs. Macau Economic Services, which comes under his authority, is the principal administrative agency involved in issues such as trade negotiations with third countries, relations with the GATT, the administration of bilateral textiles agreements as well as the MFA, origin and the GSP. The main responsibilities of Macau Economic Services are to:

(a) co-operate in the formulation and implementation of the Territory's economic policy and in the overall planning of economic activities;

(b) support and foster development, industrial diversification, improved product quality and investment in Macau, as well as development of the local fisheries sector;

(d) foster the growth and diversification of the Territory's exports and promote Macau's economy abroad;

(e) enforce fair competition, protect industrial property rights and promote the protection of consumer interests.

It is incumbent on the various departments of Macau Economic Services to discharge these responsibilities. The departments involved are as follows: the Industry Department (on industrial policies, including industrial growth and diversification, the regulatory framework for local industrial activities and defining origin criteria), the Commerce Department (on licensing foreign trade operations, managing Macau's bilateral textiles agreements, consumer protection and industrial property), the Export Promotion Department (on trade promotion, export diversification and provision of trade information), the Inspection of Economic Activities Department (which enforces economic legislation), the Research Department (providing expert technical support in economic policy formulation), and the Industrial C/RM/G/48 Trade Policy Review Mechanism Page 6

Development and Support Centre (CADI, which is an autonomous division responsible for professional training).

Outside Macau Economic Services, but also under the authority of the Secretary for Economic and Financial Affairs, the agencies with responsibilities covering trade related policies include:

the Macau Finance Department, which is responsible for the definition, co-ordination and supervision of administrative and financial matters in the public sector;

the Macau Monetary and Exchange Authority, which assists the Government in formulating and implementing monetary, financial, exchange and insurance policies for Macau;

the Macau Institute for Promotion of Investment, which is responsible for the promotion, co ordination and development of investment locally, within the framework of Macau's overall economic and financial policy;

the Macau Statistics and Census Department, which is responsible for the production and analysis of statistical data and the co-ordination of Macau's Statistical Data System;

the World Trade Centre Macau (WTCM), a limited company in which the Government holds a majority stake, which aims to promote and expand international trade in Macau;

Rôle of the private sector

In line with its liberal and non-interventionist economic philosophy, Macau places great emphasis on consultation with the private sector on the formulation of trade policy. The main channel through which the consultation process takes place is the Economic Consultative Council (ECC).

The ECC was formed in February 1994 and replaces the Textile Industry Advisory Board and the Economic Services Advisory Board. The main rationale for its creation is to modernize and upgrade the institutional framework for economic policy making in Macau. The principal focus of the Council is on local economic operators who provide the mainstay of Macau's free enterprise economy.

The ECC provides advice to the Governor on a wide range of economic questions. Its work programme includes: formulation of economic development guidelines for Macau (including industrial policy and investment promotion); advice on economic and social policy and legislation; analysis of economic development in Macau; monitoring the operation of bilateral or multilateral economic agreements to which Macau is party; co-operation and information exchange with similar foreign institutions, and promotion of information exchange between Macau's local business sectors. In discharge of these functions, the ECC undertakes work which was previously done at government department level.

The ECC is chaired by the Governor. Its membership comprises:

1. the Secretary for Economic and Financial Affairs;

2. five vice-presidents (one of whom is appointed by the Governor from category 4 below, the other four are elected by the members from categories 3 and 5 below); Macau C/RM/G/48 Page 7

3. eight delegates from organisations representing economic operators (appointed by relevant trade associations);

4. the Directors of Macau Economic Services, Public Works Department, Labour and Employment Department and Tourism Department, the Presidents of the Macau Exchange and Monetary Authority and Macau Promotion of Investments Institute, the Coordinator of the Planning and Cooperation Office and one representative of Macau Security;

5. eight individuals of recognised merit in the economic, business and scientific communities, appointed by the Governor.

The institutional structure of the Council runs along the following lines: the Chairman is nominal head of the body and is responsible for the supervision of its activities. However, the plenary session (comprising all Council members) has primary responsibility for defining the Council position on all matters of substance. An Executive Committee comprising the Secretary for Economic and Financial Affairs and the five Vice-Presidents assists the Chairman. This Committee appoints ad hoc working committees, draws up the internal regulations for the organization and prepares the annual report of the Council. The ad hoc committees may be either standing or temporary and cover areas such as industrial policy, technological development and professional training.

Trade policy management and administration

The Macau Marine Police (MMP), under the Secretary for Security, supervises imports and exports and the transit of goods. The MMP works in co-operation with the Macau Economic Services' Inspection of Economic Activities Department and reports any contraventions to the latter. The MMP is also responsible for co-ordinating Macau's relations with the Customs Cooperation Council (CCC), to which the Territory acceded in July 1993.

There are a number of other import licensing agencies in Macau: the Macau Health Department for licensing of chemical and pharmaceutical products; Macau and Islands' Municipalities for live animals, meat and edible meat offal, Macau Security Forces for arms, ammunitions and explosives; and the General Post Office for radio and transmitting equipment.

Multilateral

Macau became a full contracting part) to the GATT in January, 1991 and is fully committed to maintaining an open, multilateral system of trade, as the GATT is intended to promote. As a separate customs territory. Macau will be a member of the new WTO under the name of "Macau. China".

Macau is also a signatory to the Multi-Fibre Arrangement (MFA) and is a member of the International Textiles and Clothing Bureau (ITCB\ which co-ordinates the interests of exporting countries in the MFA context

Macau has also been a member of the Brussels Convention since 1950, the Convention on International Trade in Endangered Species since 1986, the International Maritime Organisation since 1990 and the Customs Cooperation Council since July 1993. C/RM/G/48 Trade Policy Review Mechanism Page 8

Regional

In 1992, the Asia-Pacific Region (which, in this context, includes the United States) absorbed 76 per cent of the Territory's total trade volume. Table 1 illustrates the value, structure and growth rate of this trade over the period 1987-1992.

Accordingly, Macau is keen to strengthen its economic and trading links with the countries of this region. Macau has acceded, as an associate member, to two regional organisations - the ESCAP in 1991 and the Asian-Pacific Development Centre in 1993

In March, 1993, Macau formally submitted its request to join the forum for Asia Pacific Economic Cooperation (APEC) which is particularly interested in developing trade and investment links within the Asian-Pacific region. Accession to this grouping is viewed as a key step towards consolidation of Macau's trading links with the countries of the region

Bilateral

Macau has, in the context of the MFA, concluded a number of bilateral accords with its trading partners. These include agreements with: the United States, the European Union (EU), Austria, Canada. Finland and Norway. More detailed information on these agreements, including a description of the textile products which are subject to restriction, is contained in Annex IV.

It should be mentioned that Macau is also party to a Trade and Cooperation Agreement with the EU. This is a non-preferential agreement under which the Parties accord each other most-favoured nation treatment as per GATT provisions. The main aim of the agreement is to consolidate, develop and diversify trade between Macau and the EU. » *

TABLE 1 MACAU TRADE RELATIONS WITH APEC MAIN TRADING PARTNERS, IN 1993

EXPORTS IMPORTS TOTAL TRADE BALANCE Value Structure Growth rate Value Structure Growth Value Structure Growth rate Value rate (PTC, Mn.) (%) 1988-93 (PTC, Mn.) (%) 1988-93 (PTC, Mn.) (%) 1988-93 (PTC, Mn.)

United States 4,757.4 33.4 3.0 933.9 5.8 14.7 5.691.3 18.7 4.5 3,823.5 Hong Kong 1,785.1 12.5 1.2 4,818.3 29.9 1.4 6.603.4 21.7 1.3 (3,033.1) P.R.China 1,886.1 13.2 33.2 3,429.1 21.2 10.3 5,315.3 17.5 15.8 (1,543.0) Japan 161.4 1.1 -17.6 2,548.8 15.8 18.6 2,710.2 8.9 12.4 (2,387.4) Total of above 8,590.1 60.3 5.2 11,730.1 72.7 ' 7.5 20,320.2 66.9 6.5 (3,140.0) APEC-Total 9,012.9 63.3 4.9 13,811.3 85.6 8.1 22,824.2 75.1 6.8 (4,798.4) WORLD-Total 14,236.2 100.0 3.5 16,138.0 100.0 9.2 30,374.2 100.0 6.3 (1,901.8)

Source: Research Department, Macau Economic services (based on External Trade Statistics, Macau Census and Statistics Department) C/RM/G/48 Trade Policy Review Mechanism Page 10

(iv) The implementation of trade policies

(a) Trade Policy measures

Tariffs

Macau applies zero tariffs on all imports from all sources. Macau's schedule of concessions deposited in the Uruguay Round (LXXXIX) comprises 1,368 items at 8-digit HS level bound at zero level, representing 20.4 per cent of Macau's imports in 1992.

Tariff quotas and surcharges

Macau does not maintain any tariff quotas or surcharges.

Quantitative restrictions

Macau does not apply any voluntary quantitative restrictions on imports or exports.

Licensing requirements

Macau's licensing controls are kept to a minimum and either stem from obligations under international agreements or are applied for health, safety or security reasons. This has already been covered in section A(ii) of the Report.

Customs valuation

Macau, as a free trade port, has no general laws, regulations or administrative procedures for the valuation of goods for customs purposes. Such legislation as there is deals only with assessing the value of certain imports for the collection of consumption taxes or the value of certain exports for the collection of fees for the issue of Certificates of Origin.

Rules of origin

Macau does not have domestic legislation applicable to rules of origin for imported goods. Origin requirements are imposed by the countries to which Macau exports goods, for example, textile products exported in accordance with bilateral agreements and goods exported under the GSP.

Local content requirements

Macau does not impose local content requirements on any product.

Government procurement

The basis of Macau's public sector procurement procedures is an open, competitive and transparent tendering system. Public tendering is the normal procurement procedure. Macau does not discriminate between domestic and foreign suppliers. For companies to be admitted, they must either be incorporated and registered with the Commercial Register in Macau or submit proof of incorporation in their home country. Non-Portuguese citizens and companies without an office in Macau must submit a declaration confirming their agreement to observe local legislation and their acceptance of the jurisdiction of the Macau courts. Macau C/RM/G/48 Page 11

Technical barriers

Macau does not have legislation regulating standardization, testing and type approval. Nevertheless, exporters observe international standards, e.g. ISO and WHO and also national standards which are required by the larger importing countries, mainly the U.S. and the EU.

Safeguards, anti-dumping and countervailing measures

Macau has not taken any safeguard, anti-dumping or countervailing actions against its trading partners.

Export taxes

Macau does not impose any export taxes, except for a charge on re-exports of gold (0.5 per cent per ounce) and a fee for issuing certificates of origin (1 per cent of the fob value for origin certificates for textiles and clothing under the MFA restrictions and 0.1 per cent for certificates for other purposes).

Export subsidies, tax exemptions and concessionary financing

Macau maintains none of these measures.

Export restrictions

Macau does not apply any restrictions on exports. The only form of control is the requirement of prior authorization for the export of textiles and clothing (MFA), for certain species of endangered wild fauna and flora and for chemical and pharmaceutical products.

Subsidies and tax exemptions

Macau does not subsidize any particular sector or product group. Within the framework of its economic programme, the Government has provided certain financial and fiscal incentives to industry aimed at up-grading and diversifying industrial production in the territory.

Rôle of State-trading enterprises

Macau does not operate any State-trading enterprises.

Foreign exchange controls

There are no foreign exchange controls in Macau However, to encourage local currency circulation. exporters are required to convert 40 per cent of their foreign exchange proceeds into patacas.

Counter-trade

The Government of Macau does not engage in counter-trade and keeps no record on the extent of counter-trade or similar arrangements in which Macau firms may be involved. C/RM/G/48 Trade Policy Review Mechanism Page 12

Macau does not require to implement a trade liberalization programme since it already has one of the most open trade regimes in the world. Nevertheless, in this general context, it is worth mentioning that the monopoly for the provision of telecommunications services in Macau is coming to an end. The Macau Telecom Company (CTM) had previously enjoyed exclusive rights in this sector but negotiations are now underway with the Government in order to allow other telecom operators into the market. In the near future, it should be possible to obtain mobile, data transmission, video conferencing services etc. from several different providers The CTM's monopoly will be confined to the local and international voice telephony.

(d) Prospective changes in trade policies and practices

There are a number of areas in which legislative initiatives are currently contemplated which might have an impact on trade. These include: revision to Decree-Law 50/80/M concerning external trade (in order to simplify procedures); introduction of new environmental legislation dealing with un-leaded petrol and depletion of the ozone layer; and new legislative measures on intellectual property protection.

It is perhaps worth mentioning that the most basic feature of Macau's trade regime - that is to say its liberal and open character - will remain unchanged.

B. RELEVANT BACKGROUND AGAINST WHICH THE ASSESSMENT OF TRADE POLICIES WILL BE CARRIED OUT, WIDER ECONOMIC AND DEVELOPMENTAL NEEDS- EXTERNAL ENVIRONMENT

(i) Wider economic and development needs, policies and objectives of the contracting party concerned

The central theme of Macau's economic policy is to transform the economic structure of the territory so as to accommodate the establishment and expansion of new, higher value-added activities. The government's priority tasks are, therefore, to enhance Macau's attractiveness to investors and promote the modernisation and re-structuring of existing local industries.

To achieve these goals, the government has embarked on a massive programme of new physical infrastructure development, including the construction of an international airport scheduled for completion in 1995, in joint venture with private investors. The administration has also sought to develop Macau's industrial infrastructure and has undertaken a careful examination of financial and fiscal incentives and factors such as non-resident labour authorizations.

The establishment of a Productivity and Technology Transfer Centre (comprising the Industrial Development and Support Centre) is forecast for this year and aims to foster professional training and promote new technologies. The government is also encouraging the establishment of a Venture Capital Company, to help foster efficient modernisation of the industrial sector.

To achieve greater co-ordination between government policies designed to stimulate foreign investment and the promotion of Macau exports, a new agency will be established, resulting from the merger of the Exports Promotion Department (currently operating under Macau Economic Services) Macau C/BM/G/48 Page 13 and IPIM (Macau Institute for Promotion of Investment). This new agency is scheduled to start operating in the course of 1994.

As Macau is driving toward the modernization of its economy, economic relations with the outside world, particularly with the Asia-Pacific region and Europe, are intensifying. Macau is deeply committed to the maintenance and development of these trade relations.

Influence of social and cultural policy considerations

To understand the wider economic and development needs of Macau, it is necessary to bear in mind its unique position. Macau has been under Portuguese Administration for over 4 centuries and, under its current status, is now recognised as an integral part of the vast Chinese territory. Thus, cross-cultural and social factors play an important rôle both in the decision-making process and in the formulation of policies.

Macau's social and cultural matrix is both complex and unique. The territory has an important and valuable cultural and historical link with both the East and the West. It is a territory where these civilizations have partially converged.

In the current period of transition before the handover of sovereignty to the People's Republic of China, the Portuguese Administration is striving to consolidate the identity of Macau, by preserving and enriching its cultural heritage.

In the past, Macau has played a pivotal rôle linking Europe and the East. The territory's economic development, particularly its links with the outside world, is now revitalising that historic rôle, precisely at a time when the Chinese mainland is opening up, both in terms of trade and investment and also in terms of market economic driven reforms.

It is, therefore, one of Macau's key strategies to develop and consolidate this elaborate "grid" of cultural ties which have characterised the territory over the centuries, and which have facilitated the friendly co-existence of different communities enabling them to share the benefits of social progress and economic development.

Environmental considerations

Environmental issues are increasingly important for Macau. With a land area of only 18 square kilometres and a population density of approximately 20,400 inhabitants per square kilometre, due care and attention has to be paid to environmental factors in order to secure the harmonious development of the territory.

The government has. therefore, implemented various action plans to address environmental questions. These include:

(a) Investment for solid waste treatment;

(b) Treatment of Residual Waters;

(d) Where industrial policies are concerned, environmental considerations play an important rôle. In certain cases, strict pollution control conditions have to be satisfied prior to the issue of an industrial licence. On such matters, the licensing authority (Macau Economic Services) frequently requests expert advice from the Macau Environment Office.

(ii) The External Economic Environment

(a) Major Trends in Imports and Exports

Foreign trade is vital for the prosperity of the Macau economy. The current value of total merchandise trade (exports and imports of goods) represents a high proportion of GDP (around three-quarters). Almost all industrial companies in Macau are exposed to strong external competitive pressures as the domestic market is so small.

In the mid-1970s, the development of textile and garment exports to western markets was the beginning of a rapid industrialization period in Macau and was the driving force of vigorous economic growth in the territory. During the 1980s, manufacturing became more diversified. Non-textile products managed to reach 31 per cent of total merchandise exports by the middle of the 1980s but in the following period a significant amount of manufacturing activity was re-located to the Special Economic Zone across the Chinese border. There was strong external demand for textiles in the first half of the 1980s but after 1988 there was a slow-down.

The traditional surplus in merchandise trade seen during the 1980s has now given rise to a relatively small deficit, and this in turn is largely offset by a surplus in the balance of trade in services. By the beginning of the 1990s, the export of services (principally by the tourist trade) had surpassed that of goods and the import of services continued to rise as a percentage of GDP.

Between 1983 and 1993, the value of Macau's total external trade increased from US$1,474 to US$3,812 million. This corresponds to an average annual growth rate of 10 per cent, which is around 3 points higher than similar growth rates in world merchandise trade.

TABLE 2 MACAU'S TOTAL MERCHANDISE TRADE (US$ million)

Item/Period 1983 1988 1993 Average annual growth (1983 - 93)

Total trade 1,474 2,783 3,812 10.0% Imports, c.i.f. 722 1,290 2,025 10.9% Exports, f.o.b. 752 1,493 1,787 9.0% Trade balance 30 203 (238)

Source: Research Department of Macau Economic Services based on data from Foreign Trade Statistics, Macau Census and Statistics Department.

In the last ten years (1983-93), the compound annual growth rate of Macau's total imports, valued in US$, was around 11 per cent, while that of total exports was 9 per cent. However, during the last five years (1988-93) the performance of Macau's exports has been poor (a little less than 4 per cent of the annual nominal growth rate). This is because of increasing competition from new, Macau C/RM/G/48 Page 15 lower labour cost producers and the proliferation of preferential trading agreements between the industrialized countries and some developing economies. In contrast to the poor record for exports, the pace of nominal growth for imports has grown at around 9.5 per cent per year over the same five year period, which is largely due to buoyant demand for investment and consumer goods.

The major trends in Macau's trade between 1983 and 1993 are:

(a) The importance of merchandise exports as the driving force behind Macau's economic growth has declined since 1987-88, export of services has become increasingly important and domestic demand has risen;

(b) The trend towards diversification of exports to non-textile products was reversed somewhat in the latter part of the 1980s, as a consequence of relocation of production of toys, ceramics, artificial flowers and other labour intensive industries to Guangdong province;

(d) Macau's dependence on the U.S. market for exports has expanded significantly, and is now at the same level as the European Union;

(e) China has grown substantially as an export destination in the last few years, accompanying the strong development of Guangdong's economy;

(f) The structure of imports by end-use categories has changed more to capital and non-foodstuffs consumer goods as a share of total imports; and

(g) The occurrence of trade deficits since the early 1990s, which is connected to the modest performance of the export manufacturing sector and an increase in domestic demand.

TABLE 3 MACAU EXPORTS OF SELECTED PRODUCTS

SHARE IN TOTAL EXPORTS 1983 1988 1991 1992 1993 % % % % %

Garments 57 0 64 3 64.6 66.2 63.1 Other Textile Products In 4 9 4 10 7 10.1 9.7 Electronic 4 4 1 ? 3 1 30 3.5 Toys 7 3 10 ! 5.8 4.9 4.2 Footwear 0.1 0" 1 3 0.9 1.3

Source Macau Census and Statistics Department

Trading partners

Macau's foreign trade relations are characterized by the concentration of exports to Western European and North American markets (70 per cent of the total in 1993) and on the predominance C/RM/G/48 Trade Policy Review Mechanism Page 16 of imports from the Asia-Pacific region, namely from the PRC, Hong Kong and Japan (67 per cent of all purchases from abroad).

Macau exports textiles and garments, toys and other light-industry manufactures to industrialised countries. It imports nearly all consumer, capital and semi-manufactured goods These imports come from all over the world (particularly from the Asia-Pacific region).

In 1993, Macau's main export markets were the European Union and the United States (some 33 per cent each), Hong Kong (13 per cent) and the PRC (13 per cent). In the period 1983-88. the growth rate of exports to the U.S. market was particularly strong, and since 1988 the demand from the Chinese market has also been very dynamic

The openness of China to foreign investment and international trade is creating a growing interdependence of Macau's economy and the Pearl River Delta. This is translated into an increase of border trade relations in which Macau often plays an "intermediation" rôle, and in the outward- processing system used by local garment entrepreneurs.

TABLE 4 MAJOR MARKETS FOR MACAU'S EXPORTS

SHARE IN TOTAL EXPORTS 1983 1988 1991 1992 1993 % % % % %

United States 26.6 34.1 31.7 35.4 33.4 Canada 1 2 1 4 i 5 1.5 1.5 E.U. 36.8 35.6 38.2 34.6 33.2 Hong Kong 22.0 14.0 13 1 12.5 12.5 P.R.C. 3 8 3.7 8 4 10.0 13.2 Japan 1.4 3.5 1.5 1.3 1.1

Source: Macau Census and Statistics Department

As noted earlier, the main sources of imports into Macau in 1993 were Hong Kong (30 per cent ofthe total), the PRC (21 per cent) and Japan (16 per cent).2 The share of Macau's total imports coming from the European Union and the United States is only 11 per cent and 6 per cent respectively, though some improvement has been noted in recent years. Imports from Japan have been growing fast in the last years, driven, in the main, by its strong international competitive position in capital and durable consumer goods.

Macau has experienced significant foreign trade surpluses with the European Union and the United States. Nevertheless, total exports from Macau are equal to only 88 per cent of total imports. The main reason for this is the strong negative trade balance with Japan, the PRC and Hong Kong. As Macau does not apply import duties or any other trade protective measures, these imbalances have to be seen as a result of structural trade patterns and the exercise of free economic choice by commercial operators. This can often be explained by factors such as geographic proximity, price competitiveness or knowledge of the Territory's domestic market.

2It should be noted that Hong Kong's imports value is likely to be over-estimated, by the fact that some of the imports were re-exports of products originating in the EU, U.S., Japan and other countries. Macau C/8M/G/48 Page 17

TABLE 5 MAJOR MARKETS FOR MACAU'S IMPORTS

SHARE m TOTAL IMPORTS 1983 1988 1991 1992 1993 % % % % % Hong Kong 38.7 43.4 34.8 32.9 29.9 P.R.C. 28.3 20.3 21.5 20.4 21.2 Japan 9.4 10.5 17.4 18.0 15.8 EU 5.8 6.8 8.1 8.7 11.2 United Sates 6.7 4.5 4.6 5.2 5.8 Taiwan 3.5 5.3 6.1 6.4 6.5 South Korea 0.9 1.7 1.9 2.2 2.3

Source: Macau Census and Statistics Department

(b) Developments in the Terms of Trade and Commodity Prices

Terms of trade

During the period 1982-92, unit export prices rose at an annual rate of 6.6 per cent, which corresponds (approximately) to minus 1 percentage point vis-à-vis average inflationary levels over the same period. On the import side, unit prices increased at a slower pace of 5.3 per cent per annum, thus resulting in favourable terms of trade over the 10 year period.

It should be noted that the peak in terms of trade occurred in 1987-88, due to a strong foreign demand. After a sharp fall in the terms of trade index in 1988-89, it once again reverted to the favourable trend of previous years. It is not, therefore, thought to have contributed to Macau's poorer trade balance.

Exchange and interest rates

The importance of Macau's economic, business and financial links with Hong Kong, together with local acceptance of the Hong Kong Dollar representing over half the total money stock, is the basis for the fixed and stable exchange peg (in place since May 1983) between Macau's currency - the Pataca (MOP) - and the Hong Kong Dollar (100HKD = 103MOP). C/RM/G/48 Trade Policy Review Mechanism Page 18

TABLE 6 PATACAS NOMINAL EXCHANGE RATE VIS-A-VIS THE USD

End-of-period rates Annual average rates

1983 7.9905 7 4665 1984 8.0279 8.0222 1985 8.0189 7.9989 1986 8.0094 8.0133 1987 7.9812 8.0099 1988 8.0428 8.0308 1989 8.0407 8.0341 1990 8.0340 8.0230 1991 8.0137 8.0041 1992 7.9717 7.9723 1993 7.9562 7.9679

Note: Since May 1983 : 1HKD = 1.03 MOP (and 1 USD = 7.8 HKD since October 1993)

Source: Monetary and Foreign Exchange Authority of Macau.

In view of the link to the Hong Kong dollar (which is, in turn, linked to the U.S. currency) and the full mobility of capital flows, local interest rates are linked to the rates applied both in Hong Kong and the United States. Thus, interest and exchange rates in Macau tend to be determined by outside factors, such as the U.S. economic environment and monetary policies, rather than by Macau's own economic situation.

This also explains the existence of low interest rates in a climate of relatively high inflation, currently at 6.7 per cent in average annual terms.

The increasing integration in a region of high economic growth, the large infra-structural projects underway, and especially the structural changes which the territory has made towards a more services oriented economy, are factors which explain the vigorous levels of economic activity in Macau. These factors have fuelled domestic demand, particularly private consumption and investment (especially on housing). This has, in turn, given rise to inflationary pressures, especially on non-tradeable goods. It should be noted, however, that inflation has been cooling off over the last couple of years.

Capital movements, money supply, balance of payments, currency stability

The liberal characteristics of the economy of Macau extend to the monetary sphere as well. Thus, there are no restrictions or control mechanisms of any kind on the movement of invisibles or capital. The same applies to deposit and credit transactions: these may be carried out in any currency, and no distinction is made between residents and non-residents.

Macau is a net exporter of capital. This arises from the fact that, despite a recent expansion, demand for credit by residents, principally credit denominated in patacas, has lagged behind the growth in resources. This has resulted in a surplus of liquidity which, due to a lack of domestic application alternatives, has been partially channelled abroad. The expansion of the monetary sector's Net Foreign Assets, lately fuelled by a surge in exports of services, has been the driving force behind the growth in the money supply. However, it should be noted that in 1993 there was a marked decline in the external position of the monetary sector which was mainly due to the poor performance of autonomous Macau C/8M/G/48 Page 19 capital and investment income flows. This resulted largely from a tighter monetary policy operated by the Chinese Central Bank from July 1993 and also from very low real interest rates in Macau.

The monetary situation in Macau is, therefore, similar to that of other small economies which are open to the outside world, whose currencies are pegged, and which operate no exchange control restrictions whatsoever. That is to say, the stability of the currency is basically dictated by the balance of payments, which plays a fundamental rôle in both formation of liquidity reserves and in the process of automatic adjustment of domestic expenditure. The money supply is not regulated by the Monetary Authority, but is rather determined by demand, and this, in turn, dictates the composition (by currency) of the money stock.

Official exchange reserves (Net Foreign Assets held by the Macau Monetary Authority; AMCM) are well in excess of the monetary issuance (all AMCM's liabilities denominated in patacas) which ensures full convertibility.

In the liberal monetary and foreign exchange framework operated in Macau the stability of the exchange rate is crucial. This function is the responsibility of the Macau Monetary and Exchange Authority, a body which also performs functions typical of a central bank, such as:

(a) ensuring domestic monetary equilibrium and convertibility of the local currency;

(b) supervising and co-ordinating the monetary, financial, exchange and insurance markets;

(d) advising the Government on monetary, financial and exchange matters;

(e) supervising and co-ordinating local financial institutions.

In light of the foregoing, it is evident that there is no room for an active monetary policy in Macau As already explained, the money supply depends mainly on the balance of payments, and, given the secondary weight of domestic credit, this is the determining factor in the liquidity of the system

Nevertheless, the Monetary Authority does act to support and reinforce use of the local currency by intervening in the pataca interbanking market, by means of monetary instruments such as SWAPS and particularly through Monetary Bills. The use of SWAPS enables commercial banks to exchange foreign currency for patacas; the use of Monetary Bills (short-term bills, issued at a discount on a daily basis') is playing an increasingly important rôle in absorbing excess liquidity in patacas.

Government income and expenditure

The liberal status of Macau is consistent with a policy of low taxation. The local social order is also consistent with reduced intervention by the administration, both in the economic and social spheres Taxes in Macau are very low

Tourism, and in particular gambling-related activities, has been a major source of revenue for the administration. Organized gambling, which has existed in the territory for 150 years, has contributed between 30 and 50 per cent of total government receipts over the last decade. Since 1962. a monopoly concession on gambling has been held by the privately-owned STDM (Sociedade de Turismo C/RM/G/48 Trade Policy Review Mechanism Page 20 e Diversôes de Macau). Under its franchise agreement, STDM is obliged to pay the government 30 per cent of its gambling turnover (increased in 1991 from 26 per cent).

Another important source of government revenue derives from land concessions. These concessions are of major relevance, not only because of their direct impact on the budget, but also because of the effects they produce on the economy in terms of local investment.

On the expenditure side, the approach of the authorities has been one of careful financial management: to balance the budget, avoid deficits, and ensure that public debt is kept at a very low level (currently 0.8 per cent of GDP). Budget policies are also influenced by strategic choices, for example, the allocation of resources to major development projects. This is viewed as necessary investment in the future.

(d) International macroeconomic situation affecting the external sector of the contracting party concerned

There are at least two important recent developments in the international economic sphere affecting Macau. The first is the opening up of the Chinese market to trade and investment. Trade between Macau and China boomed throughout the 1980s and is continuing apace. In fact, commercial relations with China have resulted in a ten-fold increase in Macau's temporary exports and re-imports. Similarly, Macau-based investors have accounted for a significant amount of investment in China and Chinese investors have a growing presence in Macau.

The second international development is the increasing trend towards regional, as opposed to multilateral, trade relations. Macau is a strong supporter of the multilateral free trade system, which the GATT is intended to promote. But with the growing prominence of economically powerful regional trading blocs applying preferential rules to ever more countries, it could become difficult for Macau to derive full benefits of GATT membership. It could also become difficult to resist being drawn into one such trading bloc.

The Macau authorities are, for example, worried about the increasing difficultly in exporting to countries of the EU, given the web of preferential trading agreements which the EU has established around itself. When one takes into consideration the preferential trade regimes which the EU operates with large textile producers like Turkey and the East European countries the signs for Macau are not encouraging. Macau has similar concerns about the NAFTA agreement.

(iii) Problems in external markets

There are three main problem areas for Macau in external markets. These are:

1. quotas on textile products under the MF A;

2. rules of origin; and

3. the GSP. Macau C/RM/G/48 Page 21

Quotas under the MFA

The existence of these measures has had a marked negative impact on Macau's export potential, particularly in the U.S. and EU markets. The effect of these restrictive measures is all the more serious, given the importance of the textile sector in local global economic activity. Macau's ability to sell textiles has been artificially restricted in its two main export markets:

(a) The EU classified Macau as a "dominant supplier" in the early 1980s, which meant that some local exports were limited to an annual growth rate of only 1.5 per cent; and

(b) the United States restricted expansion and imposed specific limits on particular textile products.

Rules of origin

Rules of origin for textiles vary considerably and this creates enormous difficulties for textile businesses in Macau. In general, they have to work with two different systems relating to the origin of goods: one for the EU and other markets, and one for the U.S. market.

Standardization of origin rules would be of great assistance to manufacturers and exporters in planning different stages of production in Macau. It would also give these economic operators the opportunity to analyze and decide which business plan is most favourable with respect to labour costs during the different production phases.

Moreover, rules of origin are presently determined and applied on a unilateral basis. It is very important for Macau that these rules be agreed on in a multilateral framework, as is now foreseen under the Uruguay Round Agreement.

The GSP

The GSP has, historically, been of considerable benefit to the economy of Macau in providing a stimulus for both the expansion and diversification of local industry (though, in practice, only a small range of products have benefitted from GSP treatment, owing to the restrictive application of preferential origin rules). A small economy, such as Macau, has neither the domestic market size nor the raw material resources to undertake all of the manufacturing operations necessary to satisfy GSP origin requirements.

TABLE 7 MACAU EXPORTS UNDER THE GENERALISED SYSTEM OF PREFERENCES (GSP)

1985 1986 1987 1988 1989 1990 1991 1992 1993

Value (US$ million) 174.7 213.5 246.0 253.5 270.7 254.8 184.5 171.6 148.5 Total in Exports (%) 19.5 19.8 17.5 17.0 16.5 15.0 11.0 9.7 8.3

Source: Macau Census and Statistics Department and Macau Economic Services C/RM/G/48 Trade Policy Review Mechanism Page 22

As the table shows, local exports over the past 6 years have gradually lost ground in both relative and absolute terms. This is a result of de-localization of non-textile manufactures to the PRC, which also benefits from the GSP system and from U.S.-granted m.f.n. status. The toy industry has been particularly badly affected by the de-localization process.

Nevertheless, the maintenance of GSP benefits for Macau, coupled with more flexible rules of origin, is a key factor in reducing the Territory's dependency on the textile sector, and in attracting new investments in non-textile areas. This is particularly important bearing in mind the completion of the international airport and improved links to all of the Pearl River Delta region. Macau C/RM/G/48 Page 23

ANNEX I THE CONSTITUTIONAL SYSTEM OF MACAU: PRESENT AND POST 1999

Summary

Macau's political system is currently enshrined in the Constitution of the Portuguese Republic and the Macau Organic Statute (MOS). Under these instruments, the Territory ' s constitutional structure comprises the Portuguese President, the Governor and the Legislative Assembly. Under this system, law-making authority is shared between the Legislative Assembly and the Governor. Executive power is vested in the Governor, although the day-to-day government and administration of Macau is managed by government departments under the authority of Secretaries. Trade and economic policy is the responsibility of the Secretary for Economic and Financial Affairs. Various private sector bodies together with the Economic Consultative Council, which comprises both public and private sector representatives, advise the executive branch of the Macau government. Macau has it own independent judiciary, headed by the Superior Court of Justice. In very limited circumstances, appeals against decisions of this court may be taken to the Supreme Court of Justice in Portugal.

On 13 April 1987, Portugal agreed to return Macau to Chinese sovereignty with effect from 20 December 1999. Arrangements for co-operation between Portugal and China on Macau during the transitional period are principally set out in the Portugal-China Joint Declaration.

This Declaration created a Sino-Portuguese Joint Liaison Group (JLG), for consultation and exchange of information between the Portuguese Republic and the PRC, during the transition period. The purpose of the JLG is to implement matters agreed by both States and to create the necessary conditions for the 1999 transfer of sovereignty.

The rôle of the JLG is to:

(a) consult on the implementation of the Joint Declaration and its Annexes;

(b) exchange information and consult on matters related to the 1999 transfer of sovereignty;

(c) consult on the actions of both Governments with a view to maintain and develop economic, cultural and other external relations of the Special Administrative Region of Macau (SARM);

(d) exchange information and consult on other matters agreed by both parties.

Matters over which there may be disagreement within the JLG are to be submitted to both Governments for resolution through consultations.

The JLG convened for the first time in April 1988 and meets three times each year. The Group will remain in existence until January 1, 2000.

Three main issues have so far dominated the work of the JLG and are under on-going study by a joint working group. These are: the status of the Chinese language in Macau; the translation and localisation of legislation in force in the Territory; and the localisation of Macau's administration.

On the first issue, the Portuguese side has always recognised that effective implementation of the Joint Declaration envisages the possibility that Chinese may be used (together with Portuguese) in daily relations within the Administration, in the courts, and in legislation which governs life in Macau. C/RM/G/48 Trade Policy Review Mechanism Page 24

This explains the importance and urgency of the steps taken by the Government to implement the generalised use of Chinese in the administration.

On the second issue, it flows from the principle of continuity, which is enshrined in the Joint Declaration, that laws previously enforced in Macau will continue to apply after 1999. Translation into Chinese is, therefore, imperative so that every citizen is fully familiar with these laws.

Resolution of the third issue also flows from the Joint Declaration. Maintenance and development of professional training programmes will be vital to ensure that administrative positions can be staffed by appropriately qualified personnel when the majority of political and administrative bodies consist of local residents.

Though a key objective of both Portugal and China in the transition period is to preserve stability and continuity in the administration of Macau, it is clear that a number of changes will occur and will impact on Macau's trade and economic policies. In particular, the Macau administration is engaged in the process of "localisation" of laws, many of which have economic content.

As background to this process of "localization" or "adaptation", it is important to have an understanding of both:

(a) the present constitutional structure in Macau, based on the Portuguese Constitutional and the Macau Organic Statute; and

(b) the system which will take effect after 20 December 1999 under the Basic Law.

The present system

The Governor

The Governor exercises representative, legislative and executive powers. He embodies Portuguese sovereignty in Macau and is appointed to (or removed from) office by the President of Portugal. His appointment has to be preceded by consultation with the local population, namely, through the Legislative Assembly (LA) and bodies representative of community interests.

The Governor's main duties are of an executive nature. He is responsible for drawing up general policy and for supervising the public administration. This covers the administration of Macau's finances and the structure and efficient operation of monetary and financial markets. He is also responsible for upholding the freedom and independence of the courts, and for taking measures to ensure proper enforcement of legislation. The office of the Governor is further empowered to protect the public interest by refusing entry to (or expelling from) the Territory any person whose presence causes serious problems to either domestic or international law and order.

The Governor may refer legislation enacted by the LA to Portugal's Constitutional Tribunal to ensure that it is in accordance with the letter and spirit of the Constitution. He is also empowered to formulate the Territory's internal security policy and, where public order is threatened or seriously disturbed, to adopt the measures deemed necessary to restore public order.

The Governor's executive powers may be delegated to Secretaries (not to exceed seven in number). These are currently as follows: Macau C/RM/G/48 Page 25

(1) Secretary for Security; (2) Secretary for Economic and Financial Affairs; (3) Secretary for Justice Affairs; (4) Secretary for Health and Social Affairs; (5) Secretary for Transportation and Public Works; (6) Secretary for Administration, Education and Youth; (7) Secretary for Communication, Tourism and Cultural Affairs.

The Secretaries are appointed and removed from office by the President of Portugal, upon the proposal of the Governor.

The Governor also exercises legislative powers over matters which are not the exclusive responsibility of the LA, such as the implementation of basic laws enacted under the Portuguese legislative process. The Governor is assisted by a Consultative Committee, which is required to advise, in particular, on:

(a) draft legislation submitted to the Legislative Assembly;

(b) draft decree-laws to be enacted by the Governor;

(d) denial of entry (or expulsion) of persons where warranted in the public interest or for serious disruption; and

(e) measures to maintain law and order.

The Consultative Committee, which is chaired by the Governor, comprises ten members, five of whom are appointed by the Governor from a pool of "prominent citizens" in the community, three who represent the Territory's social interests and two by the municipalities.

The Legislative Assembly

The Assembly's major responsibility is to legislate on matters which do not fall within the competence of the Governor or the Portuguese authorities. In addition to this legislative function, the Assembly:

(a) monitors the enforcement of the Portuguese Constitution in the Territory (which includes the power to refer laws enacted by the Governor for consistency with the Constitution);

(b) ratifies legislation enacted by the Governor (except matters falling within his exclusive responsibility);

(d) authorises the Governor to request and apply for loans, engage in credit transactions and serve as guarantor; C/RM/G/48 Trade Policy Review Mechanism Page 26

(e) authorises, on an annual basis, the collection of revenue and public spending and outlines the principles of the Territory's budget and,

(f) in general, advises on all matters of interest to the Territory.

The Assembly exercises political control over the conduct of the Executive. In particular, regarding the activities of the Governor, Secretaries and Administration in relation to public finances. The Assembly can pass a vote of no confidence in the Executive and submit this to the President of Portugal.

With a number of limited exceptions, the Assembly has exclusive legislative competence over the general system of concessionary grants; the main elements of the tax system; the administrative division of the Territory; the basic guidelines for the administration and financing of the municipalities; public administration, including creation of civil service posts and relevant grading and pay changes; and numerous legal and penal issues, including rules and regulations governing preventive detention, house searches, private communications secrecy, indefinite term criminal sentences and security measures.

Currently, the Assembly comprises 23 members, seven of whom are appointed by the Governor from local citizens of established merit, eight by direct vote and eight by indirect vote. The latter category represent the Territory's entrepreneurial, labour, professional and cultural, educational and sporting interests.

The Assembly works on the basis of a four year mandate, divided into four terms, which may be subdivided into shorter periods. It meets either in plenary session (generally open to the public and press) or in committees. There are two permanent standing committees ("Regulations and Mandates" and "Standing"). At the beginning of each session, permanent committees may be formed to deal with specific issues and ad hoc committees, as the need arises.

The system which will take effect at the end of the decade - main features of the Macau Basic Law entering into force on 20 December 1999

The Basic Law (BL) is the corollary of the Joint Declaration signed by the Government of the Republic of Portugal and the Government of the People's Republic of China on the Question of Macau in Beijing on 13 April 1987. The Joint Declaration provides that:

"The above-stated basic policies and the elaboration of them in Appendix I to this Joini Declaration will be stipulated in a Basic Law of the Macau Special Administrative Region of the People's Republic of China by the National People's Congress of the People's Republic of China, and they will remain unchanged for 50 years."

Following the signing of the Joint Declaration, the Final Draft Basic Law was approved in March 1992. The final text of the BL was approved on 31 March 1993, by the National People's Congress (NPC) of the People's Republic of China. It will, as from 20 December 1999, replace the MOS as the Special Administrative Region of Macau's (SARM) fundamental law.

The BL is divided into nine sections dealing with: (I) General Provisions; (II) Of Relations of the Central People's Government and the Special Administrative Region of Macau; (III) Of the Fundamental Rights and Obligations of residents; (IV) Of the Political Structure; (V) Of the Economy; (VI) Of Culture and Social Affairs; (VII) Of External Relations; (VIII) Of the Interpretation and Review of the BL; and (IX) Of the Complementary Provisions. These sections are followed by three Macau C/RM/G/48 Page 27

Appendices, four resolutions of the National People's Congress and one Proposal by the Drafting Committee of the Basic Law.

The fundamental rights and duties of SARM residents laid down in the BL are similar to those foreseen in Western constitutions. The section on Culture and Social Affairs provides that the SARM will be free to make policy in that area. On foreign economic affairs, the BL stipulates that the SARM may conclude and implement agreements with countries, regions and international or regional organisations in appropriate fields, such as economics, trade, finance, shipping and communications. Representatives of the SARM may participate in international organizations and conferences not limited to States. They may also participate, as members of the PRC delegation, in international organizations or conferences which are limited to States. Agreements to which the PRC is not a party, but which are applicable to Macau, will be permitted to continue in force. The SARM may establish economic and trade missions in foreign countries and these may, with the Central Government's approval, establish formal consular or semi-official missions in the SARM. Interpretation and review of the BL is to be carried out by the NPC's Standing Committee; acts or engagements validly entered into by the Macau authorities before December 1999, will remain valid thereafter, except if declared by the PRC's Government as contravening the Joint Declaration's "Arrangements for the Transitional Period".

Political structure

The BL contains provisions dealing with the Chief Executive; the executive body; the legislative body; the judicial bodies; the municipal bodies; public servants and the oath of allegiance.

The "Chief Executive" of the SARM. who is its representative and senior officer, will be answerable both to the PRC and SARM Governments. The Chief Executive, who must be a Chinese national and a SARM permanent resident for over 20 years, is appointed by the Central Government after elections or through consultations held locally. An Appendix to the BL sets out the methodology for selection of the Chief Executive, by an electoral committee. His term of office is for five years and he may serve one additional consecutive term.

Essentially, the rôle of the Chief Executive is to lead the SARM government, sign bills, draft laws, approve the budget passed by the Legislative Assembly, decide on government policies, appoint certain LA members, appoint and remove from office Executive Committee members, Court Presidents and judges, deputy Public Prosecutors and other holders of public office; nominate the Public Prosecutor (who is appointed by the PRC's Central Government) In certain circumstances, the Chief Executive also has the authority to dissolve the LA

The Chief Executive is to be assisted by an Executive Council. Members of this Council are appointed from the holders of main Government offices. LA members and citizens of high standing. Though it cannot make binding recommendations, the Committee has to be consulted by the Chief Executive before important decisions are made A Commissioner against Corruption and a Commissioner of Audit also report to the Chief Executive

The rôle of the SARM Government (under the leadership of the Chief Executive) is to draw up and implement policies, manage the administration, introduce the budget and draft laws Holders of major public offices in the Government must be Chinese citizens and SARM residents.

SARM legislation is the responsibility of the Legislative Assembly The term of each legislature is four years. The first legislature will comprise 23 members (as it does currently). Eight are to be elected by direct vote, eight by indirect vote, and seven to be selected by the Chief Executive, in C/RM/G/48 Trade Policy Review Mechanism Page 28 accordance with the rules set out in an NPC resolution, attached to the BL. LA members may introduce draft laws and bills which do not involve revenue and expenditure or the Government's political structure. Where Government policy is concerned, there must be prior written approval by the Chief Executive Bills or draft laws passed by the LA will only enter into force after being signed and promulgated by the Chief Executive.

Judicial authority is vested in the SARM's Courts, comprising primary and intermediate courts and a Court of Final Appeal. There will also be Criminal Courts and an Administrative Court Judges are appointed by the Chief Executive, on the recommendation of an independent commission composed of local judges, lawyers and citizens of high standing. They may be foreign nationals, except for the President of the Court of Final Appeal. The Public Prosecutor will be a permanent resident and is appointed by the PRC's Central Government, upon the nomination of the Chief Executive.

So far as economic matters are concerned, the SARM's financial and fiscal system will be autonomous and will generate its own revenue. No taxes or levies will be charged by the PRC's Central Government. Monetary and financial policies will be the responsibility of the SARM Government and the local currency (the Pataca) will continue to be the local tender and freely convertible

In the trade area, the SARM will continue to be a free port, pursuing free trade policies and assuring the free movement of goods and capital. It will remain as a separate customs territory, and will have the right to participate in international organisations and trade agreements (such as the GATT or WTO). Similarly it will continue to participate in arrangements regarding trade in textiles and also in preferential trade agreements. Export quotas, tariff preferences, origin rules and other similar arrangements in effect prior to the changeover will be managed exclusively by the SARM. Any vessel, except for foreign warships, may have access to the SARM's ports and the Government of the Region will also be authorised to manage civil aviation. Finally, the SARM will recognise land leases granted under and during the Portuguese Administration, including those which run beyond 19 December 1999.

Summary and comparison

Though there is no precise operational relationship between the present and future constitutional arrangements for Macau, it is clear that, notwithstanding the formal transfer of sovereignty from Portugal to China on 20 December 1999, the aim is to achieve substantial continuity. This is particularly the case as regards the economic and trade policies of Macau. Thus, although there are differences between the legislative, executive and judicial functions under the present constitutional structure and the Basic Law, in essence a great deal of consistency and continuity is assured.

So far as the offices of Governor and Chief Executive are concerned, each post is filled by an individual who is charged to represent Macau either as a territory under Portuguese administration or a Special Administrative Region of the PRC. The Governor is appointed by the President of Portugal and the Chief Executive, who must be a permanent resident, by the PRC Central Government. Both are empowered to sign and enact laws and appoint members to the LA.

The main difference between the two offices is that, theoretically, the Chief Executive does not have any legislative power, whilst the Governor shares such power with the LA. In practice, however, when LA members wish to introduce draft laws concerning Government policies these matters have to be approved by the Chief Executive. Thus, in these policy areas, the Chief Executive will, in practice, have extensive powers over the LA's legislative activities. Macau C/RM/G/48 Page 29

The Chief Executive will have the power, extensive in certain circumstances, to dissolve the LA. By contrast, the Governor can only recommend, on public interest grounds, dissolution to the President of Portugal.

Both the Governor and the Chief Executive are advised by similar bodies, the Consultative Committee and the Executive Council respectively. Consultation with these bodies is obligatory even though their advice is not binding. The Executive Council is appointed by the Chief Executive, while the Consultative Committee comprises an equal proportion of indirectly elected members and members appointed by the Governor.

Under the current system, executive power is vested in the Governor. The BL vests executive power in the SARM Government which, as explained, is led by the Chief Executive. Each office has responsibility for a wide range of policies in Macau and each has certain legislative functions and responsibilities for drafting and enforcing laws.

There are no substantial differences between the operating procedures of the Legislative Assemblies. The number of members and structural composition is the same. Nevertheless, after the coming into effect of the BL, the second and third Assemblies will have the number of members increased to twenty seven and twenty nine, respectively. The number of directly elected members will increase to ten, subsequently to twelve. The current LA quorum is half the number of members present, with resolutions passed by simple majority. Under the BL, the quorum will be half of the total membership, with resolutions passed by a majority of total members. A qualified majority is two-thirds of present membership and absolute membership respectively.

The power to initiate the review of the constitutional conformity of laws issued by the Governor and the power to pass votes of no confidence, which are currently exercised by the Legislative Assembly, are not envisaged for the LA of the SARM. Nonetheless, the power to pass a motion of no-confidence in the Chief Executive (in cases of serious breach of law or dereliction of duty) is envisaged for the LA after 1999. C/RM/G/48 Trade Policy Review Mechanism Page 30

ANNEX II IMPORT AND EXPORT CONTROLS

PRODUCTS LEGISLATION CONTENTS

ARMS AND AMMUNITIONS (1) LEGAL DECREE NO 21/73 OF 19 MAY 1973 REGULATION ON ARMS AND AMMUNITIONS TRADE EXPLOSIVES AND PYROTECHNIC LEGAL DECREE NO 688 OF 26 OCTOBER 1940 REGULATION ON EXPLOSIVES AND PRODUCTS (1) PYROTECHNIC PRODUCTS TRADE GOLD PROVINCIAL DECREE NO 19/74 OF -REGULATION ON GOLD TRADE 29 JUNE 1974 PRIOR AUTHORIZATION FOR IMPORTS AND RE-EXPORTS PLATINUM DIPLOMA NO 4283 OF 13 DECEMBER 1947 PRIOR AUTHORIZATION FOR IMPORTS AND EXPORTS ENDANGERED PLANT AND ANIMAL DECREE LAW NO. 45/86/M OF REGULATES IMPORTS AND EXPORTS SPECIES 29 SEPTEMBER 1986 UNDER CITES NEW VEHICLES (1) LEGAL DECREE NO 1865 OF SUBJECTS THE IMPORTER TO 30 DECEMBER 1971 REGISTRATION (CONDITION FOR PRIOR AUTHORIZATION TO BE GRANTED) SECOND-HAND MOTOR DIPLOMA NO. 295/73 OF 31 DECEMBER 1973 RESTRICTION OF IMPORTS VEHICLES.LORRIES AND MOTORCYCLES CHEMICAL AND PHARMACEUTICAL DECREE LAW NO 58/90/M OF -REGULATION ON PHARMACEUTICAL PRODUCTS (1) 19 SEPTEMBER 1990 PRODUCTS TRADE DECREE LAW NO. 5/91/M OF -PRIOR AUTHORIZATION FOR EXPORTS 28 JANUARY 1991 •DECISION NO 77/GM/89 OF 27 JUNE 1989 -SUBJECTS THE EXPORT OF CERTAIN STUPEFACIENTS AND PSYCHOTROPICS (drags AND narcotics) TO THE CONTROL OF THE HEALTH DEPARTMENT -OFFICIAL LIST OF THE SUBSTANCES UNDER INTERNATIONAL CONTROL FUELS (1) -LEGAL DECREE NO 1865 OF -SUBJECTS THE IMPORTER TO 30 DECEMBER 1971 REGISTRATION (CONDITION FOR PRIOR AUTHORIZATION TO BE GRANTED) -DECREE LAW NO 20/89/M OF 20 MARCH 1989 -SUBJECTS WHOLESALE OF FUEL TO PRIOR AUTHORIZATION RADIO TRANSMITTING EQUIPMENT (1) DECREE LAW NO 18/83/M OF 12 MARCH 1983 REGULATION ON RADIOCOMUNICATIONS TEXTILES AND CLOTHING (1) DECISION NO 40/GM/91 OF QUOTA ALLOCATION SYSTEM 12 FEBRUARY 1991

(1) Prior authorization for imports required under Decree Law No. 50/80/M Macau C/RM/G/48 Page 31

ANNEX III SUMMARY OF TEXTILE EXPORT QUOTAS ALLOCATION SYSTEM

1. Introduction

Export quotas are a result of the restrictions imposed by importing countries and existing bilateral agreements, with the aim of preventing market disruption.

These bilateral agreements are advantageous for both parties, as a safeguard for the importing countries from market disruption and in turn the restrictions imposed on the exporting countries are less severe than those, that could result from the imposition of unilateral restrictive measures.

2. Scope of application

Export quotas are only applicable to textiles and clothing exported to countries with which Macau maintains bilateral agreements.

3. Products that might become subject to quantitative limits

When the exports of a product not subject to quantitative limits reach a certain level, quotas may be imposed on this product, but only following bilateral negotiations. In this case the allocation of export quotas shall be established in accordance with the companies's past export performance.

4. Bilateral agreements

Macau maintains bilateral agreements with the following countries: EU, United States, Canada, Finland, Norway and Austria.

5. Quota holders

The allocation of quotas may only be made to registered exporters and manufacturers who comply with the necessary legal requirements.

6. Export quotas allocation types and procedures

6.1. Initial Consolidated Quota: quantitative limit allocated once a year (January) to Foreign Trade Operators, in accordance with the company's past performance. *

6.2. Acquired Initial Quota: quantitative limit allocated to Foreign Trade Operators, who comply with the necessary legal requirements, but taking into consideration the investments made in the modernization of factories or the results obtained from the exports to new markets.

6.3. Additional Quota: quantitative limit allocated twice a year, to Foreign Trade Operators legally established in Macau at least for three years. Allocation may be made during the year and may be extended to recently established operators if the levels of demand or use justify this procedure. Allocations are made on the basis of contract prices achieved by exporters.

7. Transfer of quotas C/RM/G/48 Trade Policy Review Mechanism Page 32

Those companies with insufficient quotas or that are not current holders, may obtain these through a transfer system, duly registered with Macau Economic Services, which may be temporary or permanent.

This transfer system allows the use of part or total of the initial consolidated quota of the transferor.

Temporary Transfer: the transferor will continue to benefit from the right to "past performance".

Permanent Transfer: the transferees will benefit from the right to "past performance".

8. Flexibility provisions

The bilateral textile agreements contain the following flexibility provisions:

8.1. Carry-over - the quantities deriving from this flexibility are added to the total of additional quotas.

8.2. Carry-forward - export quotas as antecipation quota, are allocated to foreign trade operators, who are current holders of initial quotas.

8.3. Swing - export quotas are allocated in two phases:

Phase I - to foreign trade operators who are holders of initial quotas in the categories of entry, (Swing In), and in the categories of exit (Swing Out)

Phase II - to all foreign trade operators who hold initial quotas in the categories of Swing Out.

9. Conditions for utilization

The utilization of the different types of export quotas follows a strict set of rules enacted by Decree- Law No. 40/GM/91 of February 12, published in the Government Gazette.

Information on these rules is widely disseminated through the associations representing the manufacturing and exporting sector, as well as the periods for quota allocation and utilization.

Companies which manufacure or export products subject to quantitative limits, must also comply with the rules of origins scheme.

Infractions to the Quota Regulation are severely penalized and may result in a company not being allowed to apply for additional quotas or deduction of initial consolidated quota. Macau asmmm Page 33

TEXTILE QUOTA ALLOCATION (IN PERCENTAGE OF ANNUAL QUANTITATIVE LIMITS)

COUNTRY t9» 1993 HH

CAT. I.C.Q. A.LQ. A.Q. LCQ. j A.I.O, | A.Q. J.C.Q. A.LQ. A.Q.

USA/239 53.9 - 35.9 61.7 6.2 32.1 - - -

331 67.7 - 32.3 71.7 • 28.3 78.9 - 21.0 333/4/5 69.9 7.5 22.6 62.1 9.0 28.9 73.7 10.0 16.3 336 72.9 7.7 9.0 91.1 8.7 0.2 48.5 • 51.5 338 74.2 4.2 17.3 72.6 11.3 12.8 85.9 9.6 4.5

339 76.5 4.8 18.1 71.8 6.0 22.2 79.4 9.5 10.3

340 68.0 4.4 24.2 67.5 8.0 22.3 79.7 9.7 10.6 341 65.1 - 34.9 70.3 - 29.7 66.0 10.8 20.8 342 74.1 21.5 89.9 5.1 5.0 53.4 - 46.6 345 47.2 42.7 64.5 18.5 17.0 74.3 9.8 15.1

347/8 80.6 6.8 12.6 78.8 10.8 9.2 90.1 5.9 3.9 349 76 6 - 23.4 75.7 24.3 - - - 351 76 1 - 23.9 64.2 - 23.3 46.4 8.3 45.3

352 72.8 - 27.2 73.8 - 26.2 • - - 359 85.9 87 5.4 89.3 5.5 5.2 - - - 435 34.1 65.9 74.0 - 26.0 74.0 - - 445/6 79.7 20.3 87.3 5.2 7.5 88.8 9.6 1.6

631 668 1.3 53.0 - 47.0 74.6 - 25.4 633/4/5 68.5 4.0 26.4 60.6 5.0 34.4 67.7 11.9 20.4 636 68.9 31.1 73.7 26.3 - - - 638/9 70.3 - 24.4 63.5 3.8 32.7 63.0 15.8 20.5 640 70 0 • 30 0 72.5 - 27.5 70.0 4.5 23.9 641 67.0 - 33.0 73.1 - 26.9 71.4 4.7 20.9 642 67 7 32.3 73.0 - 27 0 71.1 4.0 22.7 1 647/8 67.6 34 29 0 68.3 4,3 27.4 66.5 17.1 16.1 649 72 0 23.5 74.0 - 26.0 - - - 659 68.5 31 5 68.1 10.0 21.9 - - - 669 76 2 23 8 75.8 - - - - -

845/6 907 • 93 67.9 7.8 16.3 73.8 - 7.8 Aggregate 75.0 3 1 21.9 70.1 5.5 24.4 - - - EU/4 81 1 16 0 788 4.2 17.0 78.6 5.5 15.9

5 766 21.4 78.7 5.5 1S.8 82.7 8.7 8.5

6 899 1 8 8.3 85.4 3.0 11.6 81.6 3.9 9.0

7 78.5 15 5 76.6 3.4 20.0 76.2 6.1 17.7

8 85 7 05 12.7 84 1 2.2 13.7 844 1.8 13.8 13 55 8 27.6 70.5 - 295 79.6 - 15.7 21 65 7 25 8 70.3 20.0 9.7 870 5.0 8.0

24 59 1 20 7 74 2 25.8 78.3 0.5 21.2

26 58 0 257 70.6 11.8 17.6 79.6 8.7 10.7

31 59 8 12.2 61 3 • 38.7 79.4 - 20.4 83 42.2 27.3 64.6 - 35.4 59.4 18.5 22.1

ICQ. Initial Consolidated Quota A.I.Q. Acquired Initial Quota A.Q. Additional Quota ANNEX IV BILATERAL AGREEMENTS CONCLUDED BY MACAU UNDER THE MFA: PRODUCTS SUBJECT TO RESTRAINT

Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

Austria Article 4 Slacks, shorts, jeans, trousers, divided 406,335 p 6.0 N/A 11/6 1.1.91 - 1580 (Agreement) skirts, n.k., wholly or mainly cotton 31.12.94

Canada Article 4 Group A All clothing (categories 1 - 14 and 16) 4,806,352 m2 6.0 N/A 11/6 a) 1.1.94 - (Extension) 1 Coats, jackets, rainwear 383,927 p 6.0 6.0 11/6 31.12.94 2 Winter outerwear 60,362 p 6.0 6.0 11/6 3a Suits, jackets, and blazers MBC 20,124 p 6.0 6.0 11/6 3b Ensembles MBC * 4a Suits and ensembles, jackets,etc. WGC * 4b Dresses, skirts MBC * 5 Trousers, overalls and shorts 639,878 p 6.0 6.0 11/6 6 Tailored collar shirts MBC 255,950 p 6.0 6.0 7/8 Woven shirts, blouses, T-shirts, etc. * 9 Underwear * 10 Sleepwear and bathrobes * 11 Sweaters 547,992 p 6.0 6.0 12 Swimwear * 11/6 13 Foundation garments * 11/6 14 Babies' garments * 11/6 16 Smocks and shop coats * 44 Work gloves and liners 4,069,626 pr 6.0 6.0 11/6

* subject to Group quota * m

Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

Finland Article 4 I Jerseys, pullovers cardigans waistcoats, 733,598 p 4.25 6.0 10/5 1.1.94 - (Extension! blouses, shirts, shins blouses, T shirts, 31.12.95 singlets and otheis vests knitted or crochetted of cotton or mmf (excluding T- shirts and other vests ot man made filaments) II WG blouses, shirts and shirt blouses of 372.746p 4.25 6.0 10/5 cotton or mmf III MB shirts of cotton or mmf 36,982 p 4.25 6.0 10/5 IV MB anoraks (including ski-jackets), 97.625 p 4.25 60 10/5 wind jackets, wind cheaters & similar articles. |ackets and blazers & WG overcoats, carcoats. capes, cloaks, anoraks (including ski lackets. wind cheaters, wind- lackets & similar articles & jackets, of cotton or mmf V MBWG trousers ot cotton 929,040 pr 3.75 6.0 10/5

Norway \rticle 4 1 Outei garments ot woven material MBWG: 50.000 p 3.0 5.0 10/5 1.1.94- 31.12.95 (Extension Jackets tailored jackets, blazers, and waistcoats, sports jackets (including parts of Amendment ! ski suits), anoraks and similar garments, parkas, one-piece suits and the like, also as parts of suits, sets and costumes (BG with above 152 cm) 2 Outer garments of woven material MBWG: 125,000 p 3.0 5.0 10/5 Pi n S É Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

Norway -Trousers, slacks, jeans, breeches and the (Cont'd) like (including bib and brace overalls), other than swimwear and shorts, also as parts of suits and sets BG with height above 152cm) 7 Bed linen 20,000 kg 3.0 5.0 10/5

USA Article 4 SPECIFIC 7 0 b) 11/6 1 1.94 - LIMITS 31 12.95 (Extension) (Cont'd) 313 Cotton shetting 6,000,000 m2 4.00 314 Cotton poplin & broadcloth 1,000,000 m2 4.00 315 Cotton printcloth 3,000,000 m2 4.00 333/4/5/ MBWG coats & jackets 210,951 doz 6.25 /833/4/5 (333/5/ MBWG coats & jackets 111.121 doz 6.25 833/5) 336/836 Dresses 50,000 doz 6.25 338 MB knit shirts 271,565 doz 6.25 339 WG knit shirts & blouses 1,137,492 doz 6.25 340 MB shirts, not knit 257,037 doz 6.25 341 WG shirts & blouses, not knit 165,783 doz 6.25 342 Skirts 75,000 doz 6.25 345 Sweaters 45,860 doz 6.25 347/8/ 847 MBWG trousers, slacks & shorts 642,789 doz 6.25 350/850 Robes, dressing gowns, etc. 50,000 doz 6.25 Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

USA (Cont'd) 351/851 Nightwear & pajamas 60,000 doz 6.25 359-C/ Coveralls, of cotton & MMF 300,000 kg 6.25 659-C 359-V Vests, of cotton 100,000 kg 6.25 633/4/5 MBWG coats 446,706 doz 6.25 638/9/ 838 MBWG knit shirts, blouses & tops 1,391,054 doz 6.25 640 MB shirts, not knit 98,905 doz 6.25 641/840 WG shirts & blouses, skirts not knit, woven 169,992 doz 6.25 642/842 Skirts 99,039 doz 6.25 645/646 MBWG sweaters 231,843 doz 6.25 647/648 MBWG trousers, slacks & shorts 467,698 doz 6.25 659-S Swimwear, of MMF 100,000 kg 6.25 Group II All wool products 1,448,022 sme 1.0 3.0 c) 11/6 445/446 Sweaters 78,065 doz 1.0 5.0 d) n/6

DESIGNATED CONSULTATION LEVELS(DCL) 219 Duck, of cotton & MMF 2,000,000 m2 225 Blue denim, of cotton & MMF 7,000,000 m2 237 Playsuits, cotton & mmf 61,000 doz 317 Cotton twills 5,000,000 m2 326 Cotton sateens 2,000,000 m2 331/831 Gloves & mittens 300,000 dpr 'i i ft Countries Type of Category Product description Leveb / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S £ % B/-

USA (Cont'd) 611 Woven fabric, by weight, 85% or more 2,000,000 m2 625/6/7/8/9 Poplin, printcloth, sheeting, etc. 5,000,000 m2 631 Gloves & mittens 231,386 dpr 652/852 Underwear 160,000doz 670 Rat goods, handbags, luggage 340,194 kg 845/846 Sweaters of vegetable fiber & silk 102,000 doz

UNDER SURVEILLANCE YARN: 200 Sewing threads & yams, of cotton & mmf kg 201 Specialty yarns kg 300 Carded cotton yam kg 301 Combed cotton yam kg 400 Wool yam kg 600 Textured filament yam kg 603 Staple artificial yam, by wight, 85% or kg more 604 Staple synthetic yam, by weight, 85% or kg more 606 Non-textured filament kg 607 Other staple fiber yam kg a 800 Silk blends & non-cotton vegetable fiber n yam 1 73 1

S3 a Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

USA (Cont'd) FABRIC: 218 Yarn ol different colot m2 220 Fabric ot special weave m2 222 Knit fabric kg 221 Non woven fabric kg 224 Pile & tufted fabric m2 226 Cheesecloth, batiste lawn, etc m2 227 Oxford cloth m2 229 Special purpose fabric kg 410 Woven fabrics by weight, 36% or more m2 wool 414 Other wool fabric kg 613 Sheeting m2 614 Poplin & broadcloth m2 615 Pnntcloth m2 617 Twills & broadcloth m2 618 Woven artificial filament fabric m2 619 Polyester filament fabric m2 620 Other synthetic filament fabric m2 621 Impression fabric kg 622 Glass fiber fabric m2 624 Woven MMF fabric, > 15%, but < 36% m2 wool 810 Fabric, of silk blend & non-cotton veg. m2 fiber 2Q M SB n S IE era » Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks et Ç Restriction No. % % Carryforward period COM.TEX/S o % B/- USA (Cont'd) APPAREL:

330 Handkerchiefs doz 332 Hosiery dpr 349 Brassières & body supporting garments doz 352 Underwear doz 353 MB down-filled coats doz 354 WG down-filled coats doz 359 Other cotton apparel kg 431 Gloves & mittens dpr 432 Hosiery dpr 433 MB suit-type coats doz 434 Other MB coats doz 435 WG coats doz 436 Dresses doz 438 Knit shirts & blouses doz 439 Infants' wear kg 440 Shirts & blouses, not knit doz 442 Skirts doz 443 MB suits no | 444 WG suits no re 447 MB trousers, breeches & shorts doz 448 WG trousers, breeches & shorts doz 1 459 Other wool apparel kg 1 73 In

8. Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

USA (Cont'd) 630 Handkerchiefs doz 636 Dresses doz 643 MB suits no 644 WG suits no 649 Brassières & body supporting garments doz 650 Robes, dressing gowns, etc. doz 651 Nightwear & pajamas doz 653 MB down-filled coats doz 654 WG down-filled coats doz 659 Other MMF apparel kg 832 Hosiery dpr 839 Infants' wear kg 843 MB suits no 844 WG suits no 858 Neckwear kg 859 Other cotton apparel kg

MADE-UPS AND MISCELLANEOUS TEXTILES: 360 Pillowcases no 361 Sheets no 362 Bedspread & quilts no 363 Terry & other pile towels no 369 Other cotton manufactures kg o Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

USA (Cont'd) 464 Blankets kg 465 Floor coverings m2 469 Wool manufactures kg 665 Floor coverings m2 666 Other MMF furnishings kg 669 Other MMF manufactures kg 863 Towels no 870 Luggage kg 871 Flatgoods & handbags kg 899 Silk & vegetable fiber manufactures kg

European Agreement 4 Group I 1.1.93 - 1859 Union (EU) (Extension 4 Shirts, T-shirts 11,983,000 p 1.00 31.12.94 and Amendment) 5 Jerseys, pull-overs, slip-overs, waistcoats, 10,964,000 p 1.00 etc. 6 MB shorts, trousers 11,449,000 p 1.00 7 WG blouses, shirts and shirt-blouses 4,474,000 p 1.00 8 MB shirts 6,705,000 p 1.00 S afis Group II re 13 MB underpants & briefs,WG knickers,etc. 6,705.000 p 2.00 4% (between CO: between 2 -7% i !» 15 WG woven overcoats, raincoats 386,000 p 3.00 cats.2 & 3; re

S3 3 ë *

Countries Type of Category Product description Levels / Unit Growth Swing Carryover/ Reference Remarks Restriction No. % % Carryforward period COM.TEX/S % B/-

European 16 MB suils & ensembles 384,000 p 1.6 between cats. Union 4-8) (cont'd) 18 MBWG singlets & other vests, etc 3,709 T 2.0 19 Handkerchiets 612 T 3.0 20 Bed linen 154 T 3.4 5 % (into all CF: between 21 Parkas, anoraks windcheaters, etc. 552.000 p 2 0 cats, in 1-5% 24 MB nightshirts pyjamas bathrobes, etc 1.731,000 p 2.0 Grp. II & e) 26 WG dresses 1.019.000 p 1.5 III from cats. 27 WG skirts 2.252,000 p 15 in Grp. I, 31 Brassieres 6.626,000 p 3 0 II & III) 39 Table linen, toilet & kitchen linen 194 T 3.2 73 Track suits 1,111,000 p 2.0 78 Garments excluding cats 1.381 T 20 6.7,8.14.16.17.18.21 26.27.29.68,72,76 &

83 Overcoats jackets & other garments,etc. 315 T 3.0

Outwaid Processing Traffic (OPT) 6 Woven trousers 229.000 p 2.0 16 MB woven suits & co-ordinate suits 594,000 p 2.5

Sweden Article 4 Denunciation of all bilateral agreements 1.8.91 - 1612 a) Combined flexibility: 11 per cent (Group A); (cats. 1, 2a, 3a, 5, 6, 11 and 44) a Any swing between a restraint product in Group I and a restraint product in Group II will also be reflected in the Group I aggregate restraint. era b) "Specific limits in Group I (Annex B) may be increased by not more than 7 per cent (Swing), provided that a corresponding reduction in SME is made in one or more other specific *>. limit in Group I or from the Group II limit during the same Agreement Year." C c) "The Group II limit may be increased by not more than 3 per cent (Swing), provided that a corresponding reduction in SME is made in one or more specific limit in Group 1 during se the same Agreement Year. " d) "Within the Group II limit, ... any specific limit within Group II may be exceeded by not more than 5 per cent Swing, in addition to CO and CF permitted ..., provided thai the Group II limit as adjusted is not exceeded in any one Agreement Year. " e) Cumulative flexibility: 12 per cent

References to COM.TEX/SB/- documents are to the bilateral agreements as circulated after review by the Textiles Surveillance Body

Categories numbered in the:

200 series are of cotton and/or man-made fiber 300 series are of cotton 400 series are of wool 600 series are of man-made fiber 800 series are of silk blends or non-cotton vegetable fibers

Measurement Abbreviations used:

Doz Dozen Dpr Dozen of pairs P Piece Kg Kilogram T Ton No Number or Unit m2 Square meter SME Square meter equivalent

MB Men's and boys' WG Women's and girls' CI Children's and infants' f MMF mmf Man-made fiber