II. The World Organization

A. Introduction element of the broader international economic landscape. Given its magnitude and scope, the This chapter outlines the progress in the work potential of the DDA to transform world trade program of the commands priority attention. (WTO), the work ahead for 2004, and the multi- lateral trade negotiations launched at Doha, The WTO and multilateral trading system are Qatar in November 2001. The United States constantly evolving. Members need to continue remains steadfast in its support of the rules-based to take responsibility for important institutional multilateral trading system of the WTO. As a key improvements. Pursuant to the architect of the postwar trading system and a Agreements Act, the United States will continue leader in the pursuit of successive rounds of trade to press for increased transparency in WTO oper- liberalizations, the United States shares a ations, in WTO negotiations and in Members’ common purpose with our WTO partners: to trade policies. The WTO needs to expand public obtain the expansion of economic opportunities access to dispute settlement proceedings, to for the world’s citizens by reducing trade barriers. circulate panel decisions promptly, to encourage A recent statement by the Bretton Woods institu- more exchange with outside organizations and tions reflects the energy that the WTO can bring continue to encourage timely and accurate to the global economy: “.... collectively reducing reporting by Members. barriers is the single most powerful tool that countries, working together, can deploy to reduce The Doha Development Agenda poverty and raise living standards.” The DDA covers six broad areas: agriculture, non-agricultural market access, services, the so- The multilateral trade negotiations and the imple- called “Singapore issues” (transparency in mentation of WTO Agreements remained at the , , forefront of U.S. trade policy in 2003. Despite the investment and competition) and rules (trade impasse at the WTO’s 5th remedies), TRIPS, and development-related in September 2003 in advancing the Doha issues. In addition to reviewing progress in the Development Agenda (DDA), the year closed on negotiations overall, Box 1 below identifies the a more upbeat note. On December 15, General issues for Ministerial consideration at the WTO’s Council Chairman Perez del Castillo outlined the 5th Ministerial Conference in Cancun Mexico. overall direction required to reinvigorate the negotiating process in 2004—expressing his hope The DDA in 2003 had an extensive negotiating that the sense of urgency evident during his post- agenda and deadlines, but lack of progress in agri- Cancun consultations would quickly enable culture early in the year determined the overall governments in 2004 to put the negotiations back pace of the negotiating agenda. Delays by the on track. 2003 closed with all WTO Members European Union in adopting, then translating, its carefully reflecting on next steps. reform of its Common Agricultural Policy (CAP) into WTO negotiating positions led to slowed The objectives agreed in Doha remain a priority negotiations overall, and hardened disagree- in U.S. liberalization efforts. The WTO’s mandate ments in areas including the extent to which the to reduce barriers and to provide a stable trading negotiating agenda should be broadened to system in order to raise standards of living and include the Singapore Issues, and whether there reduce poverty continues to be an essential was sufficient attention to development-related

1 Box 1 5th Ministerial Conference, Cancun, Mexico—September 2003

Tasks for Cancun from the Ministers agreed at the launch of the Doha Round to use the 5th Ministerial Conference as a midterm review of progress in the negotiations and provide any necessary political guidance on, including:

• Singapore issues: Take decisions by explicit consensus on modalities of negotiations on Singapore issues (investment, competition, transparency in Government Procurement and trade facilitation). • Agriculture negotiations: Members were to submit their initial offers (draft schedules no later than date of Fifth Session). • TRIPS: Conclude negotiations on the establishment of a multilateral system of notification and registration of geographical indications for wines and spirits.

Receive reports: • from the Committee on Trade & Environment on issues in para. 32 with recommenda- tions, where appropriate, for future action, including the desirability of negotiations; • on technical assistance and capacity building in the field of trade and environment;

from General Council on: • progress on those elements of the Work Program, which do not involve negotiations; • the continued e-commerce work program; • recommendations for action on small economies; • progress in trade, debt and finance examination; • progress in trade and technology transfer examination;

from Director General on: • implementation and the adequacy of technical cooperation and capacity-building commitments;

issues. The EU’s agricultural reforms were not the rules and disciplines of the WTO system. agreed until late July 2003. As a result of U.S. The market access related negotiations of the efforts, in August of 2003 agreement was reached DDA offer the greatest potential to create jobs, on the question of TRIPS/health and compulsory advance economic reform and development, and licensing for countries with little or insufficient reduce poverty worldwide. The United States manufacturing capacity—the resolution of which recognizes there are many important issues in all hoped would provide new impetus to the the national economic strategies of our devel- Cancun meeting. Despite great efforts, Ministers oping country WTO partners, yet believes the arrived at Cancun with less progress than had focus of the WTO must remain concentrated on been envisioned in the Doha Declaration. its mandate of reducing trade barriers and providing a stable, predictable, rules-based envi- Since the launch of the Doha Development ronment for world trade. As the experience at Round in 2001, the United States has tabled the Cancun Ministerial clearly showed, this is seventy formal submissions to dramatically work that requires the focus, flexibility and reduce barriers to trade in services, agricultural political will of all Members. The United States products and industrial goods, and to strengthen is prepared to meet these requirements in order

2 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT to reach an ambitious outcome in the DDA resolution of disputes, the Members believed it negotiations, along with contributions of other would be important for Ministers to meet on a WTO Members. regular basis in order to provide necessary direc- tion and political oversight to the organization’s Given the emphasis on development in the DDA, work. The regular cycle of ministerial meetings the United States has led the effort to provide was an important innovation for the WTO. unprecedented contributions to strengthen tech- nical assistance and capacity building to ensure The Doha Agenda is heavily oriented towards the participation of all Members in the negotia- market access issues, with agricultural reform at tions. After detailing the DDA’s progress to date, the heart of the negotiations. The DDA, along this chapter follows with a review of the imple- with the day-to-day implementation of the rules mentation of existing Agreements, including the governing world trade, are an important part of critical negotiations to expand the WTO’s the Bush Administration’s overall trade strategy in membership to include new members seeking to ensuring global growth and economic prosperity. reform their economies and join the rules-based In addition to work on the DDA at Cancun, Trade system of the WTO. Ministers approved the accession protocols of Nepal and Cambodia, the first least-developed The General Council and The Trade countries to join the WTO since its establishment Negotiations Committee Pursue The Doha in 1995. Each government now must complete its Development Agenda Preparations for the respective domestic ratification process to Cancun Ministerial Meeting. complete membership. The Trade Negotiations Committee (TNC), established at the WTO’s Fourth Ministerial In addition to the meetings convened in Geneva, Conference in Doha, Qatar, oversees the agenda a series of informal ministerial-level meetings and negotiations in cooperation with the WTO were held in 2003 to engage ministers on the General Council. The TNC met regularly issues. Various regional meetings, from APEC throughout 2003 to supervise negotiations and to ACP and Africa where the Doha negotiations work with the General Council. Annex II identi- were the focus of attention and concern. A series fies the various negotiating groups and special of developed and developing country informal bodies responsible for the negotiations, some of “mini-ministerials” were held in Tokyo, Paris, which are the responsibility of the WTO General Sharm-El-Sheik and Montreal to help shape the Council. The WTO Director-General serves as issues for Cancun, and obtain ministerial direc- Chair of the TNC, and worked closely with the tion. The Doha negotiations were also a topic at Chairman of the General Council, Ambassador various regional meetings, including APEC and Carlos Perez del Castillo of Uruguay. The the G-8 Summit. Chairman of the General Council played a central In late July, at an informal meeting in Montreal, role in preparations for Cancun. Canada, Ministers asked the United States and EU At Doha, Ministers agreed to review progress at to try to bridge the wide divergences in positions the mid-point of the DDA negotiations and to on agriculture to help avoid an impasse at convene a Ministerial Conference in line with Cancun. As a result, a framework paper was Article IV of the presented to Members in Geneva ten days later. Establishing the WTO. Under Article IV, the , leading and ultimately a large WTO is required to hold a ministerial conference number of Latin American Members as well as at least once every two years. Given the WTO’s India, and , formed a coalition known as ongoing responsibility to supervise and assist the G20 in opposition to the U.S.-EU framework. in the implementation of commitments for These countries feared that the framework would the further liberalization of trade, and for the diminish the level of ambition for agricultural

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reform, particularly the elimination of export The progress achieved at Cancun has subsequently subsidies. As a result, they questioned the extent been the subject of discussion by negotiators in to which developing countries should reduce Geneva. Specifically, the General Council barriers and open their markets to trade. Chairman’s consultations post-Cancun focused on four issues: agriculture, non-agricultural Chairman Perez del Castillo held consultations in market access (NAMA), the Singapore issues and a variety of formats to pursue progress in the the treatment of cotton. Chairman Perez-del- negotiations. Working with inputs from the Castilo reported to Members on December 15 Chairs of the negotiating bodies, the Chairman in that while no breakthroughs had been achieved, July 2003 developed a draft text for ministerial there appeared to be a greater readiness of all consideration. This text was the subject of inten- Members to find a way forward. sive discussion at the level of Heads of Delegation and with the Trade Negotiations Committee. Prospects for 2004 While there was not a consensus on the text in Consultations will begin in January with the aim Geneva, the Chairman, as has been the case for of restarting the talks early in the new year. If previous ministerial meetings, sent to ministers a negotiations move forward, WTO members will draft text on his responsibility. This text was the provide further direction to negotiators on how to point of departure for the discussions in Cancun, proceed on specific issues. Cancun confirmed Mexico as the ministerial meeting opened. At the that developing countries now play an increas- Ministerial meeting in Cancun, the process ingly important role in the WTO and with that further evolved with a proposed text from increased participation comes new responsibility, the Chairman of the Ministerial, Minister particularly for the most active trading nations. Luis-Ernesto Derbez of Mexico. Developing countries, which now comprise more than two-thirds of the WTO’s membership, are at The Cancun meeting ended in impasse after it the center of the new negotiations. Key issues in became clear that countries were not ready to 2004 will include: seriously negotiate liberalization in the key areas of agricultural reform and market access, and • Agriculture: Following on the bold proposals substantial divergences could not be bridged on tabled in 2002, the United States will the so-called Singapore issues. Finally, although continue its intensive campaign for agricul- cotton was not a specific agenda point on the tural reform addressing each of the three DDA agenda, African cotton producers focused pillars of the negotiations: market access, attention on their concerns in this sector as an export subsidies and domestic support. issue separate and apart from the agriculture Progress in all three areas, to reduce and negotiations. harmonize the level of trade domestic support, eliminate export subsidies and Before concluding the Ministerial Conference in create new market access opportunities in September, Ministers instructed the General the markets of developed and developing Council Chair to consult with Members on countries will be essential to putting the moving the DDA forward, building on the negotiations back on track. progress secured at Cancun. America played a key role in launching the Doha negotiations and • Non-Agricultural Market Access: The United advanced them with our ambitious proposals, States will continue to press partners to and solved the contentious access-to-medicines ensure that new market access opportunities issue before the Cancún ministerial. After in the manufacturing sector will keep pace Cancún, America suggested a resumption based with the progress on agriculture. The United on the draft Cancún text, an idea that has won States will continue to reach out to trading widespread support around the world partners to find a means to ensure an

4 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT ambitious market access result. The United • WTO Rules: Utilizing the solid mandate States tabled a far-reaching proposal to elimi- achieved at Doha, negotiations will focus on nate in two steps all duties on industrial and strengthening the system of trade rules and consumer goods by 2015, utilizing a formula- addressing the underlying causes of unfair based approach, and to address non-tariff trade practices. American workers need measures concurrent with the negotiations. strong and effective trade rules to combat While this goal was not shared in 2003 by unfair trade practices, particularly as tariffs others, it provides the United States an excel- decline. While there are no major deadlines lent platform to continue to pursue a big in 2004, negotiators will continue to identify, outcome for U.S. exporters. Past U.S. efforts and more precisely define, issues of concern. have been instrumental in bringing about The process envisioned in the WTO should the Information Technology Agreement, result in strengthened trade rules in Chemical Harmonization and a host of other antidumping and subsidies, as well as new initiatives aimed at eliminating barriers to disciplines on harmful fisheries subsidies trade in non-agricultural products. that contribute to over-fishing. • Services: An aggressive agenda for market • Trade Facilitation (Customs Procedures): opening in services, including audio-visual Increasingly, WTO Members are convinced services, financial services (including insur- that the key to developing their economies ance), express delivery services, energy and combating corruption is in strength- services and telecommunication services, is ening the trade rules governing customs being pursued in the negotiations. Since the procedures to ensure the free flow of goods United States is the world’s leader in services and services in the new just-in-time for the 21st century economy, and services economy. Strengthening these rules is the account for 80 percent of U.S. employment, aim of work in the WTO. Progress is crucial, our efforts in this area continue to be signif- for example, to the success of our express icant. Market opening in services is essential delivery industry. In 2004, WTO Members to the long-term growth of the U.S. will have to decide whether this area of economy. Services are a great economic work, so essential to market access, will be multiplier. Currently only 40 WTO pursued in the negotiations. Members have tabled offers, we will work • Environment: The United States will pursue with others to expand the offers and seek a practical approach to the negotiations, their improvement. working to enhance the process of commu- • Dispute Settlement: The United States has nication and cooperation between the led efforts to strengthen the rules governing Secretariats of Multilateral Environmental the settlement of disputes because the Agreements (MEAs) and the WTO. Along system of WTO rules is only as strong as our with our work in market access and rules, ability to enforce our rights under these we will continue to be vigilant to ensure Agreements. For this reason, the United that these negotiations are not used to States has led the efforts to promote trans- introduce protection under the guise of parency in the operation of dispute safeguarding the environment. The U.S. settlement. This will continue to be an issue agenda is aimed at promoting growth, trade as Members pursue the review of the Dispute and the environment. Settlement Understanding (DSU) which was • Competition and Investment: In both of these extended into 2004. areas, decisions will need to be taken about how to proceed in light of the lack of

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consensus at the Cancun Ministerial WTO Members also established an ambitious Conference. Substantial resistance to pursuing negotiating timeline, calling for reform work of any kind on these issues remains, modalities, such as tariff and subsidy reduction particularly from developing countries. formulas, to be established no later than March 31, 2003 and submission of draft schedules of • Transparency in Government Procurement: specific commitments by the Fifth WTO Members in 2004 will need to determine Ministerial Conference. However, the March whether a transparency agreement will be a 2003 deadline was missed and the Cancun contribution to the fight against corruption Ministerial concluded without an agreement. in government purchasing, long an issue and the subject of initiatives in other fora. The WTO provides multilateral disciplines on • Trade and Development: An essential ingre- agricultural trade policies and serves as a forum dient in the DDA has been a more intensive for further negotiations on agricultural trade program of technical assistance and capacity reform. The WTO is uniquely situated to advance building to integrate developing countries the interests of U.S. farmers and ranchers, because into the trading system. In the coming year, only the WTO can impose disciplines on the the United States will pursue cooperation entire broad range of agricultural producing and with the Bretton Woods institutions, and consuming Members. For example, absent a WTO ensure the effectiveness of the approximately , there would be no $18 million targeted for the Global Trust limits on European Union subsidization nor firm Fund in 2004 to which the United States is a commitments for access to the Japanese market. major contributor. Negotiations in the WTO provide the best hope to open important markets for U.S. farm products • Implementation: The majority of so-called and reduce subsidized competition. implementation issues have been resolved through consultations. Nonetheless, Major Issues in 2003 outstanding issues remain, including the treatment of rules issues, particularly trade- In 2003, the United States continued to take the related investment measures and whether to lead in calling for substantial reform of agricul- expand the negotiations in the TRIPS agree- tural trade policies, across all Members and all ment regarding geographical indications products. The United States has proposed beyond wines and spirits. A consensus has comprehensive reform by reducing high levels of not emerged on these issues to date. allowed protection and trade-distorting support through formulas that reduce tariff and subsidy 1. Special Session of the Committee disparities across countries, as well as strength- on Agriculture ening WTO rules on a range of trade-related measures. In addition, the United States has Status proposed that WTO Members agree to eliminate At the Fourth WTO Ministerial Conference in all trade-distorting subsidies and all tariffs by a Doha, Qatar WTO Members agreed to an ambi- date certain. Members with heavily-distorted tious mandate for agriculture, including agricultural sectors, such as the European Union “substantial improvements in market access; and Japan, have resisted substantial reform and reductions of, with a view to phasing out, all instead have called for marginal reductions in forms of export subsidies; and substantial reduc- protection and trade-distorting support while tions in trade-distorting domestic support.” also calling for new WTO provisions to legitimize

______1 Current Cairns Group Members are: , Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, , South Africa, Thailand, and Uruguay.

6 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT measures oriented toward addressing non-trade issues of special and differential treatment for concerns. Developing countries, particularly developing countries. Many Members disagreed within the Cairns Group1, have traditionally with a number of the elements of the draft looked to the agriculture negotiations as a prin- Harbinson text, and it did not serve to facilitate cipal means for achieving more meaningful trade consensus on a way forward in the negotiations. participation in the global economy. A new devel- oping country coalition formed in 2003, now In the wake of disagreement over the Harbinson referred to as the G-20, has called for substantial text, many WTO Members requested that the reform of developed countries’ agricultural United States and the EU work together to bridge domestic support and export subsidy policies their differences. These members recognized that while proposing far less ambitious reforms in some common understanding on a framework for developing countries’ market access policies. The negotiations between the United States and the EU G-20 coalition includes traditionally import- was a necessary condition for moving forward in sensitive countries like India as well as typically agriculture. There was hope that steps toward export-oriented Cairns group members, such as CAP reform undertaken by the European Union Brazil and South Africa. would help them move forward with negotiations.

The Uruguay Round Agreement on Agriculture The United States and European Union negotiated provided the framework for further negotiations a joint framework paper that they presented on in 2003. Negotiations on agriculture began in the August 13. The paper addressed key outstanding year 2000 and in the first two years some 45 issues between the EU and U.S., and reaffirmed proposals were submitted on behalf of 121 the objectives identified in the Doha Declaration. Members. In 2002, Members focused attention It identified a number of formulae for imple- on specific proposals for establishing reform menting reduction commitments for tariffs and modalities, consistent with the Doha mandate. subsidies, leaving the coefficients in the formulae The United States submitted the first compre- to be the subject of future negotiations. The agree- hensive set of proposed modalities for reform, ment included, among other things: helping set the discussions in Geneva on an • A “blended formula” for tariff reductions ambitious reform track. A number of other that would require a harmonizing Swiss Members, including the Cairns Group and other formula for a certain percentage of tariff developing countries, also submitted specific lines, a Uruguay-round type average cut for modality proposals oriented toward substantial another percentage of lines, and tariff elimi- reform. The European Union, Japan, and other nation for the remainder of tariff lines; Members with high tariff and subsidy levels did not come forward with specific or forthcoming • A harmonizing approach to reducing the modality proposals, instead making general most trade-distorting domestic support proposals for marginal reform. (amber box), with greater efforts by countries with higher trade-distorting subsidies; and According to the ambitious negotiating timeline set in Doha, Members were to agree on specific • A framework for “reductions of, with a view reform modalities by March 31, 2003. Little to phasing out,” export subsidies in parallel progress was made toward that goal because many with disciplines on export credits. countries refused to move off of their original Several countries charged that the EU-U.S. positions. The chairman of the WTO Agriculture framework lacked ambition. The G20, which Committee, Stuart Harbinson, attempted to meet emerged in the run-up to Cancun, were particu- the March 2003 deadline by drafting modalities larly vocal in advocating larger reductions in covering all three pillars of reform and addressing domestic support and export subsidies by devel-

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oped countries, together with strong special and 2. Special Session of the Council for differential provisions that would result in Trade in Services minimal reform and market access commitments by developing countries. Status In 2000, pursuant to the mandate provided in the Going into the 5th WTO Ministerial in Cancun, Uruguay Round, Members embarked upon new, Mexico (September 2003), there were multiple multi-sectoral services negotiations under conflicting texts. In preparation for Cancun, the Article XIX of the General Agreement on Trade in General Council Chairman Perez del Castillo Services (GATS). The Doha Declaration recog- incorporated substantial parts of the U.S.-EU nized the work already undertaken in the framework into a draft modalities framework. services negotiations and reaffirmed the The G20 tabled its own draft modalities frame- Guidelines and Procedures for the Negotiations work. Four West African cotton-producing adopted by the Council for Trade in Services countries tabled a proposal that targeted the (CTS) in March 2001. The Doha mandate U.S. cotton support program and called for directed Members to conduct negotiations with a compensation for their producers. view to promoting the economic growth of all trading partners. The Doha mandate also set At Cancun, Chairman Derbez developed a draft deadlines for initial services requests and offers. modalities text that sought to find common The Special Session met 4 times during 2003, in ground among the divergent positions. March, May, July, and October. However, after five days of negotiations, Ministers were unable to agree on how to Major Issues in 2003 proceed in meeting the objectives mandated in The GATS negotiations entered a new phase in the Doha Development Agenda. The ministerial 2003 as WTO Members submitted initial negoti- closed without a final result. ating offers consistent with the deadlines No special sessions in Agriculture were held established in the Doha Declaration. The United after the Cancun Ministerial. The Derbez text States submitted its offer on March 31 and at the remains the most recent stage of development in same time made the offer public. A copy of the establishing modalities for agricultural reform. initial U.S. GATS offer is available at: www.ustr.gov/sectors/services/2003_03-31- After a period of reflection and consultations consolidated _offer.PDF. As of December 2003, between Chairman Perez del Castillo and in addition to the United States, the following 39 members, on December 15, 2003 a General WTO Members had submitted initial offers: Council meeting was held to take stock and find Japan, New Zealand, Australia, Korea, Uruguay, a way forward. Members expressed a willingness Chinese Taipei, Canada, , Paraguay, to reinvigorate the trade talks, and will most Bahrain, , Liechtenstein, Panama, likely resume negotiations early in 2004. Argentina, , Senegal, Israel, , , St. Christopher & Nevis, EU, Prospects for 2004 Czech Republic, Macao, China, Mexico, Fiji, In 2004, negotiations will need to focus on , Chile, Singapore, Slovak Republic, establishing specific modalities so that , Sri Lanka, Guatemala, Peru, Thailand, members can conclude the round. As talks Bolivia, Colombia, China, Bulgaria, and India. move forward, the United States will work to Discussions continued in 2003 on three provi- increase the level of ambition that all countries sions contained in the GATS that relate to the bring to all three pillars. negotiations. The GATS calls for an “assessment

8 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT of trade in services in overall terms and on a negotiating offers, and other topics of concern. sectoral basis with reference to the objectives of Discussions in the general meeting and in the this Agreement, including those set out in para- bilateral negotiating sessions are expected to graph 1 of Article IV, Increasing Participation of continue on the topics noted above. Developing Countries.” A number of WTO Members have made written and oral presenta- 3. Negotiating Group on tions discussing the effects of services Non-Agricultural Market Access liberalization. The United States submitted a paper on this topic in March. The GATS also calls Status for establishment of two sets of procedures. The At the fourth WTO Ministerial Conference held first, the Modalities for the Special Treatment for in Doha in 2001, Ministers agreed to launch non- Least-Developed Country Members, was agricultural market access (NAMA) negotiations adopted by the Special Session in September. In to reduce or eliminate non-tariff measures and connection with the Modalities, at the request of tariffs, including the reduction or elimination of a number of LDCs, the United States expanded tariff peaks, high tariffs and tariff escalation, in on its obligations under Article IV of the GATS by particular on products of export interest to devel- establishing more contact points in the devel- oping countries. Ministers also agreed that oping world and distributed a list of those developing countries should be permitted to contact points to be used by private-sector busi- provide less than full reciprocity, but that negoti- nesses in developing countries, to enhance their ations should be comprehensive and without a exports of services to the United States. The priori exclusions. second set of procedures, “The Modalities for the Treatment of Autonomous Liberalization,” Major Issues in 2003 addresses the treatment of liberalization under- Negotiations on non-agricultural market access taken autonomously by Members since previous in 2003 moved into a more active phase of work negotiations, and was adopted by consensus at and focused intensively on discussion of a wide the March meeting of the Special Session. range of developed and developing member proposals on how tariff and non-tariff barriers Several other issues were discussed at Special (NTBs) should be liberalized (the “modalities” Session meetings during 2003, including Mode 4 for tariff and NTB liberalization). Proposals (temporary entry), following the introduction of a ranged from employing traditional request-offer paper on the subject by India and 14 co-sponsors approaches, to various proposals for formula at the July meeting, and provisions on Special and reductions and to the use of sectoral initiatives Differential Treatment of developing-country such as those proposed in the Uruguay Round for Members. At the July meeting, the Chairman of zero-zero elimination of tariffs or harmonization the Special Session took on board views from of tariff rates to lower levels by all, or a subset of Members, including the United States, to seek participants. Many proposals called for a mix of new dates and mileposts in the Cancun text in modalities to achieve the Doha objectives set out order to heighten the momentum and move the above. These proposals varied dramatically on services negotiations to the next phase. their level of ambition and the degree to which bound tariffs (which exceed applied levels in Prospects for 2004 many developing countries) would be reduced to Sessions in Geneva will continue to include a below current applied tariff levels, a test of the general meeting of the Special Session, followed degree to which real new market access can be by bilateral meetings which allow Members the achieved in the negotiations. opportunity to present and discuss their initial

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As a general matter, all Members support the use developing countries are prepared to make of a formula as at least one key component of the concessions, but at this stage are reluctant to liberalization modalities. Developing countries commit to reducing their bound rates to the level generally support use of a formula that would of their current applied rates. require developed countries to reduce tariffs substantially, while permitting developing coun- Prospects for 2004 tries to reduce tariffs, but retain relatively high In 2004, it will be necessary to find ways to bridge levels of protection. Many countries also support the significant differences that exist between an ambitious sectoral component that would also Members on the modalities, to develop a frame- help deliver on the mandate to eliminate tariffs, as work for modalities, and then finalize the details appropriate. However, most developing countries on the type of formula that will be used, and the do not support mandatory participation in a degree to which sectoral approaches will comple- sectoral component, nor the use of a sectoral ment the formula approach in the negotiations. component as an integral part of the modalities. The United States continues to seek an ambitious approach that will deliver real market access in In the lead up to the Cancun Ministerial, the key developed and developing country markets. Chairman of the Negotiating Group presented However, the U.S. position also supports members with a proposed “framework” on elements of additional flexibility for the least modalities, which outlined a number of ideas for developed and most financially constrained how the negotiations could be conducted, members and those developing country members reflecting his views on where consensus might lie. that have already contributed significantly to The Chairman’s text was hotly debated. While liberalization through the maintenance of low most members have indicated support for the tariff levels and high levels of tariff bindings. In structure of the Chairman’s text, the detailed the second half of 2004, it is anticipated that proposals contained in the text, which involved a Members would negotiate and agree on the mix of modalities, were not broadly accepted. specifics of modalities as well as prepare market Efforts at Cancun to bridge differences did not access offers. succeed, in part due to lack of agreement on other issues in the negotiations (agriculture and the 4. Negotiating Group on Rules Singapore issues). However, wide differences of view also remain between developing countries, Status and between developing and developed coun- In paragraph 28 of the Doha Declaration, the tries, on the level of ambition and the means to Ministers agreed to negotiations aimed at clari- achieve it, including how to preserve all aspects of fying and improving disciplines under the the Doha mandate, for example those relating to Agreements on Implementation of Article VI of less than full reciprocity. Most developed the GATT 1994 (the Antidumping Agreement) Members and a number of developing Members, and on Subsidies and Countervailing Measures such as Hong Kong, Singapore, Chile and Costa (the Subsidies Agreement), while preserving the Rica, support significant liberalization of both basic concepts, principles and effectiveness of developed and developing country markets in these Agreements and their instruments and order to ensure that global growth and develop- objectives. Ministers also directed that the nego- ment can advance effectively. However, many tiations take into account the needs of developing developing countries have expressed the concern and least developed participants. The Doha that they cannot sustain significant tariff reduc- mandate specifically calls for the development of tions due to concerns about revenue losses and disciplines on trade-distorting practices, which that significant liberalization of developed are often the underlying causes of unfair trade, country markets would erode existing tariff pref- and also calls for clarified and improved WTO erences they wish to retain. A number of disciplines on fisheries subsidies. In addition,

10 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT paragraph 29 of the Doha Declaration provides • Second, trade remedy laws must operate in for negotiations aimed at clarifying and an open and transparent manner. This prin- improving disciplines and procedures under the ciple is fundamental to the rules-based existing WTO provisions applying to regional system as a whole, and the transparency and trade agreements. due process obligations should be further refined as part of these negotiations; Paragraph 28 provides for a two-phase process for the negotiations, in which participants would • Third, disciplines must be enhanced to identify in the initial phase of negotiations the address more effectively underlying trade- provisions in the Agreements that they would distorting practices. Work has already begun seek to clarify and improve in the subsequent along these lines with respect to the steel phase, but does not specify any deadline with sector in discussions among the major steel respect to the transition from the first phase to the producing nations at the OECD, based on second phase. WTO Members have submitted a the general recognition that market- total of 143 papers to the Rules Group thus far, distorting practices have contributed to with the vast majority of them identifying issues global excess capacity; and for discussion rather than making specific • Fourth, it is essential that dispute settlement proposals, although several Members submitted panels and the , in interpreting specific proposals on particular issues in 2003. obligations related to trade remedy laws, follow the appropriate standard of review and Major Issues in 2003 not impose on Members obligations that are The Rules Group held five formal meetings in not contained in the Agreements. 2003 (in February, March, May, June, and July) In accordance with these principles, the United under the Chairmanship of Ambassador Tim States was very active in the discussions in the Groser from New Zealand, as well as several Rules Group in 2003, both in identifying specific meetings informal with respect to its considera- issues for consideration, and in raising questions tion of issues relating to regional trade with respect to the issues raised by other Members. agreements. The Group based its work primarily on the written submissions from Members, • Pursuant to the first principle, we have organizing its work in the following categories: repeatedly emphasized that the Doha (1) antidumping (often including similar issues mandate to preserve the effectiveness of the relating to countervailing duty trade remedies); trade remedy rules must be strictly adhered (2) subsidies, including fisheries subsidies; and to in evaluating proposals for changes to the (3) regional trade agreements. Antidumping or Subsidies Agreements, and have raised a number of questions to eval- Given the Doha mandate that the basic concepts uate whether issues raised by other Members and principles underlying the Antidumping and are consistent with that mandate. We have Subsidies Agreements must be preserved, the also identified particular issues relevant to United States outlined in a 2002 submission the ensuring that these trade remedies remain basic concepts and principles of the trade remedy effective, such as addressing the problem of rules, and identified four core principles that circumvention of antidumping and counter- would guide U.S. proposals for the Rules vailing duty orders, and the need for the Negotiating Group: unique characteristics of perishable and seasonal agricultural products to be reflected • First, negotiations must maintain the in the trade remedy rules. strength and effectiveness of the trade remedy laws and complement a fully effec- • Pursuant to the second principle, we have tive dispute settlement system which enjoys identified a number of respects in which the confidence of all Members; investigatory procedures in antidumping

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and countervailing duty investigations could antidumping. In addition to the submissions by be improved, highlighting areas in which this group and the United States, Argentina, interested parties and the public could Australia, Brazil, Canada, China, Egypt, the benefit from greater openness and trans- European Communities, Hong Kong China, parency, as well as some areas where India, Japan, Korea, Morocco, New Zealand, improved procedures could reduce costs. Venezuela, and by a group of 18 textile-exporting Since U.S. exporters are a major target of Members also submitted papers on antidumping foreign trade remedy proceedings, it is essen- issues in 2003. The United States has been tial to improve transparency and due process actively engaged in addressing the submissions so that U.S. exporters are treated fairly. from this group and other Members, posing written questions with respect to many of them, • Pursuant to the third principle, we have and seeking to ensure that the Doha mandate for stressed the need to address trade-distorting the Rules Group is fulfilled. practices that are often the root causes of unfair trade, and have made a number of Subsidies: In 2003, the United States submitted submissions to the Rules Group with respect its second subsidy-specific paper to the Rules to the strengthening of subsidies disciplines Group, advocating a number of ways in which the generally and the work ongoing in the existing rules should be strengthened, including OECD addressing trade-distorting practices the prohibition of additional types of subsidies; in the steel sector. tougher rules on indirect subsidies and govern- • Pursuant to the fourth principle, we have ment investment in private sector companies; and emphasized the importance of ensuring that changes to the rules on government pricing of WTO panels and the Appellate Body adhere natural resources. The United States also raised to the special standard of review in the the issue of the different treatment under the Antidumping Agreement, and the need to Subsidies Agreement of indirect and direct taxes. address several issues raised by certain past findings of the WTO Appellate Body in trade Additional substantive papers on subsidies issues remedy cases. were submitted in 2003 by India, Canada and Australia, and by Venezuela and Cuba jointly. Antidumping and Countervailing Duty Trade India, in its second substantive subsidy paper, Remedies: The United States has thus far in its raised several issues regarding duty drawback and submissions to the Rules Group identified over indirect tax programs and the definition of 30 issues for discussion related to antidumping “export competitive” under Article 27 of the and countervailing duty trade remedies, in accor- Subsidies Agreement. The Canadian and dance with the principles listed above. A group Australian papers argued for the clarification of calling itself the “Friends of Antidumping” has several issues that have been subject to WTO also presented a series of papers identifying over dispute settlement proceedings. Venezuela and 30 antidumping issues for discussion by the Rules Cuba advocated making certain types of subsidies Group, following up with more detailed proposals non-actionable, in particular certain types of in 2003 on six of these issues. The “Friends” group subsidies provided by developing countries. consists of Brazil, Chile, Colombia, Costa Rica, Hong Kong, Israel, Japan, Korea, Mexico, Norway, Fisheries Subsidies: The United States played a Singapore, Switzerland, Chinese Taipei, Thailand, major role in advancing the discussion of fisheries and Turkey, although not all of its members have subsidies reform in the Rules Group in 2003, joined in each paper. From the issues that this working closely with a broad coalition of devel- group has raised thus far, and from the proposals oped and developing countries, including they have submitted, it is clear that their goal is to Australia, Chile, Ecuador, Iceland, New Zealand, impose additional restrictions on the use of Peru and the Philippines. After submitting two

12 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT papers in 2002 reviewing the problems caused by improved transparency in the discussions, the fisheries subsidies, the United States submitted a Rules Group focused on these issues with the paper in April 2003 seeking to move the discus- understanding that work on systemic issues sion to consideration of possible solutions, would be revisited at a future date. advocating stronger rules to remedy the economic and environmental damage from over- The United States considers that the Group’s fishing. Among the ideas presented in the U.S. work on transparency thus far has been of value, paper were: possible expansion of the category of given the need to improve the effectiveness of the subsidies prohibited under WTO rules to include current WTO system for reviewing and analyzing fisheries subsidies that directly promote overca- trade agreements. Some of the proposals contem- pacity and overfishing, or have other plated in the Rules Group would put the trade-distorting effects; improvements to the Secretariat to work systematically compiling quality of fisheries subsidy notifications under information from Member submissions on each WTO rules; and ways to draw upon relevant agreement. In 2003, Members focused on when, expertise in other international organizations and how and to what extent Members should notify obtain the views of non-governmental groups. the WTO of the provisions of an RTA, and how The United States views improving WTO disci- the WTO can best review these provisions. Some plines on harmful fisheries subsidies as an developing country Members, citing the GATT important objective that will provide a concrete, “Enabling Clause” decision of 1979 (GATT real world demonstration that trade liberalization Decision on Differential and More Favorable benefits the environment and contributes to Treatment, Reciprocity and Fuller Participation of sustainable development. Developing Countries), have opposed applying strengthened reporting and review disciplines to Additional submissions in 2003 in support of preferential agreements among them. Some strengthening disciplines on fisheries subsidies European Members have argued for “grandfa- were made by the European Union and Chile, and thering” preexisting RTAs so as to exempt them by Argentina, Chile, New Zealand, Norway and from some or all new disciplines on reporting and Peru in a joint submission. However, Japan and review that may emerge from the negotiations. Korea have continued to dispute that disciplines on fisheries subsidies should be strengthened, On substantive or “systemic” issues, previous arguing that it has not been demonstrated that work within the WTO Committee on Regional fisheries subsidies, rather than poor fishery Trade Agreements identified many of the issues management, have led to the present poor state of encompassed by the Doha mandate on RTAs. The the world’s fisheries. Additional submissions WTO Secretariat also prepared a synopsis of these were made by China and by a group of eight small substantive issues. This work has informed the coastal state Members, advocating special and discussions in the Rules Group on such issues as differential treatment with respect to fisheries the requirements of GATT Article XXIV that RTAs subsidies for developing country Members. eliminate tariffs and “other restrictive regulations of commerce” on “substantially all the trade” Regional Trade Agreements: The discussion in between parties (and the analogous provisions for the Rules Group on regional trade agreements the GATS), the effects of particular rules of origin (RTAs) has focused on ways in which WTO rules applied in RTAs, and the relationship between governing customs unions and free trade agree- RTA rules and the application of trade remedies. ments, and economic integration agreements for services, might be clarified and improved. During Papers on RTA issues submitted to the Rules 2003, the discussion on RTAs was divided into Group by Australia, Chile, the European Union, “transparency” and “ systemic” issues. After Hong Kong China, Korea, India, New Zealand finding more common ground on the need for and Turkey have also contributed to the discus-

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sions. The United States has been an active to the Fifth Ministerial in Cancun. At each of participant in the RTA discussions in the Group. these meetings, the CTE in Special Session addressed each of the negotiating mandates set Special and Differential Treatment Proposals: A forth in the three sub-paragraphs under para- list of proposals by certain developing and least graph 31 of the Doha Declaration: developed country Members for special and differential treatment on issues pertaining to (i) the relationship between existing WTO rules antidumping, subsidies, and regional trade agree- and specific trade obligations set out in ments was referred by the Chairman of the MEAs (with specific reference to the applica- General Council to the Rules Group in 2003. The bility of such existing WTO rules as among Group had very limited discussion of these parties to such MEAs and without prejudice proposals at its meetings in 2003, largely because to the WTO rights of Members that are not the sponsors of the proposals were in most cases parties to any MEA in question); unable to attend the meetings and present their (ii) procedures for regular information exchange proposals. These proposals will remain on the between MEA secretariats and relevant WTO agenda for the Rules Group. committees, and the criteria for granting observer status; and Prospects for 2004 It is expected that the process of issue-identifica- (iii)the reduction or, as appropriate, elimination tion in the Rules Group will continue in 2004, as of tariff and non-tariff barriers to environ- well as consideration of specific proposals as they mental goods and services. are submitted. The United States will continue to MEA Specific Trade Obligations and WTO Rules: pursue an aggressive affirmative agenda, based on During the second year of negotiations under this the core principles summarized above, and mandate, discussions generally settled into a building upon the U.S. papers submitted in 2003 phased approach, with initial focus on the with respect to strengthening the existing subsi- specific parameters of the mandate and analysis of dies rules, and improving WTO disciplines on provisions in MEAs that are covered by it. While harmful fisheries subsidies. On RTAs, a more this did not preclude more conceptual discus- focused discussion of possible procedural sions on the MEA-WTO relationship, the large improvements within the WTO to enhance trans- majority of delegations resisted any premature parency is likely in 2004. consideration of potential results in the negotia- tions. Most delegations expressed readiness to 5. Special Session of the Committee focus attention on provisions in six MEAs that the on Trade and Environment United States had identified as containing “specific trade obligations” covered under the Status Doha mandate. These six MEAs are: (i) the Following the Fourth Ministerial Conference at Convention on in Doha, the Trade Negotiations Committee (TNC) Endangered Species; (ii) the Montreal Protocol established a Special Session of the Committee on Ozone Depleting Substances; (iii) the Basel on Trade and Environment (CTE) to implement Convention on Hazardous Wastes; (iv) the the mandate in paragraph 31 of the Doha Cartagena Protocol on Biosafety; (v) the Declaration. The CTE in Regular Session has Rotterdam Convention on Prior Informed taken up other environment-related issues Consent; and (vi) the Stockholm Convention on without a specific Doha negotiating mandate. Persistent Organic Pollutants. Additionally, there was a high degree of support for a U.S. suggestion Major Issues in 2003 that the CTE in Special Session afford Committee The CTE in Special Session met three times in Members the opportunity to provide information 2003. All three formal meetings took place prior on their experiences with respect to negotiation

14 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT and implementation of specific trade obligations list that would not require full participation. in these MEAs in light of WTO rules. Reactions from preliminary discussions of the U.S. paper, held just before the Cancun Procedures for Information Exchange and Ministerial, were quite positive. Delegations Criteria for Observer Status: Members generally continued to acknowledge that market access appear to be supportive of identifying additional negotiations on environmental goods and serv- means to enhance information exchange between ices should take place in the Non-Agriculture MEA secretariats and WTO bodies. In this regard, Market Access Negotiating Group and the delegations suggested a number of options, Committee in Trade in Services in Special Session. including formalizing a structure of regular infor- mation exchange sessions with MEAs; organizing In addition to the three CTE Special Session meet- WTO parallel events at meetings of the confer- ings, the CTE also met in Regular Session four ences of the parties (COPs) of MEAs; organizing times during 2003, debating important trade joint WTO, UNEP and MEA technical assistance liberalization issues including, market access and capacity building projects; promoting more under Doha Sub-paragraph 32(i), TRIPS and regular exchange of documents between secre- environment under Doha Sub-paragraph 32(ii), tariats; and otherwise creating additional avenues labeling for environmental purposes under Doha for communication and coordination between sub-paragraph 32(iii), capacity building and trade and environment officials. On the issue of environmental reviews under Doha paragraph 33 observer status for MEA secretariats in WTO and the environmental effects of negotiations bodies, little progress was made, although under Doha paragraph 51. Members were able to agree on a separate deci- sion to allow certain MEA secretariats to be Prospects for 2004 invited on an ad hoc basis to attend CTE Special Following a resumption of Doha negotiations, the Session meetings. With respect to a more perma- CTE in Special Session is likely to pick up where it nent status, a number of delegations expressed left off. Under sub-paragraph 31(i), efforts may be the view that the issue of criteria for ownership is limited to obtaining a clearer picture of whether dependent on an outcome in ongoing General there are specific problems that could be practi- Council and TNC deliberations. cally addressed on the basis of the approach set forth in the U.S. paper. It is quite possible that Environmental Goods and Services: Members negotiations under sub-paragraph 31(ii) could engaged in more detailed discussions in the CTE pick up, particularly if it becomes more clear that in Special Session on the scope of products that eventual results under sub-paragraph 31(i) are could be included in a definition of environ- likely to be limited in scope. Increased informa- mental goods. While much of the focus tion exchange between MEAs and the WTO and continued to be on existing lists developed by the more predictable observer status could go a long OECD and APEC, additional ideas were tabled, ways in ensuring that the two systems of interna- such as a proposal from Qatar to include clean tional obligations remain compatible and energy production technologies in the definition. mutually supportive. Finally, the CTE in Special The United States submitted a paper on the prac- Session is likely to engage in further discussions of tical considerations that affected development of ideas put forward by the United States regarding the APEC list and the lessons that could be drawn modalities for environmental goods. The CTE will from this earlier exercise. The United States remain the forum to highlight the importance of followed up with a proposal on modalities for liberalization in both environmental goods and negotiations on environmental goods. This services in order to secure concrete benefits proposal suggested that there could be a flexible associated with access to state-of-the-art environ- approach to the definition involving a core group mental technologies that promote sustainable of goods for which all Members would make tariff development and a cleaner environment. and non-tariff concessions and a complementary

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6. Special Session of the Dispute to the public for the first time and give greater Settlement Body public access to briefs and panel reports. In addition to open hearings, public briefs, and early Status public release of panel reports, the U.S. proposal Following the Fourth Ministerial Conference in calls on WTO Members to consider rules for November, 2001, the TNC established the Special “amicus curiae” submissions—submissions by Session of the (“DSB”) non-parties to a dispute. WTO rules currently to fulfill the Ministerial mandate found in para- allow such submissions, but do not provide guide- graph 30 of the Doha Declaration which provides: lines on how they are to be considered. Guidelines “We agree to negotiations on improvements and would provide a clearer roadmap for handling clarifications of the Dispute Settlement such submissions. Understanding. The negotiations should be based on the work done thus far as well as any addi- In addition, the United States, joined by Chile, tional proposals by Members, and aim to agree on submitted a proposal to help improve the effec- improvements and clarifications not later than tiveness of the WTO dispute settlement system in May 2003, at which time we will take steps to resolving trade disputes among WTO Members. ensure that the results enter into force as soon as The joint proposal contains specific options possible thereafter.” aimed at giving parties to a dispute more control over the process and greater flexibility to settle Major Issues in 2003 disputes. Under the present dispute settlement The Special Session of the DSB met frequently system, parties are encouraged to resolve their during 2003 in an effort to implement the Doha disputes, but do not always have all the tools with mandate. In previous phases of the review of the which to do so. Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), Members had Prospects for 2004 engaged in a general discussion of the issues. In 2004, Members will continue to work with a Following that general discussion, Members view to the May 2004 target date to complete the tabled proposals to clarify or improve the DSU. review of the DSU. The Chairman of the DSU Discussions intensified in 2003 in order to review has requested that Members submit conclude discussions by May 2003. Members revised draft legal text early in 2004. Members conducted a review of each proposal submitted will be meeting monthly in multi-day sessions and requested explanations and posed questions through the end of May in an effort to complete of the Member(s) making the proposal. Members their work. also had an opportunity to discuss each issue raised by the various proposals. The Chair of the 7. Special Session of the Council for Special Session offered a draft text for considera- Trade-Related Aspects of Intellectual tion by the Members. Notwithstanding these Property Rights (TRIPS) efforts, Members were unable to conclude Status discussions. In July, the General Council decided that Members should seek to complete With a view to completing the work started in the discussions by May 2004. TRIPS Council on the implementation of Article 23.4, Ministers agreed at Doha to negotiate the The United States advocated two proposals. One establishment of a multilateral system of would expand transparency and public access to notification and registration of geographical dispute settlement proceedings. The proposal indications for wines and spirits by the Fifth would open WTO dispute settlement proceedings Session of the Ministerial Conference. This is the

16 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT only issue before the Special Session of the At the April 2003 meeting, Hong Kong, China, Council. As no consensus on the system or other introduced a proposal under which a registration issues emerged at the Fifth Ministerial or in should be accepted by participating Members’ 2003, it is expected that negotiating groups domestic courts, tribunals or administrative will be reactivated early in 2004, and that this bodies as prima facie evidence of: (a) ownership; negotiating mandate will be extended. (b) that the indication is within the definition of “geographical indications” under Article 22.1 of Major Issues in 2003 the TRIPS Agreement; and (c) that it is protected During 2003, the TRIPS Council continued its in the country of origin. The intention is that the negotiations under Article 23.4, which is issues will be deemed to have been proved unless intended to facilitate protection of geographic evidence to the contrary is produced by the other indications. Argentina, Australia, Canada, Chile, party to the proceedings before domestic courts, Colombia, Costa Rica, the Dominican Republic, tribunals or administrative bodies when dealing Ecuador, El Salvador, Guatemala, Honduras, with matters related to geographical indications. Japan, Namibia, New Zealand, the Philippines, In effect, a rebuttable presumption is created in Taiwan, and the United States continued to favour of owners of geographical indications in support the “Joint Proposal” under which relation to the three relevant issues. Although this Members would notify their geographical indica- proposal was discussed, it has not been endorsed tions for wines and spirits for incorporation into by either supporters of the Joint Proposal or the a register on the WTO website. Members EU proposal. choosing to use the system would agree to consult the website when making any decisions under Prior to the April 2003 meeting, the Chairman of their domestic laws related to geographical indi- the Special Session issued a note by the Chairman cations or, in some cases, trademarks. containing a Draft Text of Multilateral System of Implementation of this proposal would not Notification and Registration of Geographical impose any additional obligations with regard to Indications for Wines and Spirits (JOB(03)/75. geographical indications on Members that chose This text was criticized by supporters of the Joint not to participate nor would it place undue Proposal as going beyond the mandate of the burdens on the WTO Secretariat. The European negotiations, especially with regard to participa- Union together with a number of other countries tion in the system and legal effect. continued to support their alternative proposal Prospects for 2004 for a system under which Members would notify the WTO of their geographical indications for In his report to the TNC, the Chair of the Special wines and spirits. Other Members would then Session of the Council for Trade-Related Aspects have eighteen months in which to object to the of Intellectual Property Rights noted that several registration of particular notified geographical delegations had raised comments and questions indications that they believed were not entitled to on his draft text, and that positions continue to be protection within their own territory. If no objec- quite divided. He noted that profound differences tion were made, each notified geographical exist with respect to the legal effect of registra- indication would be registered and all WTO tions, international mechanisms for settling Members would be required to provide protection differences regarding geographical indications as required under Article 23. If an objection were and participation. made, the notifying Member and the Member The United States will aggressively pursue addi- objecting would negotiate a solution, but the tional support for the Joint Proposal in the coming geographical indication would have to be year, so that the negotiations can be completed. protected by all Members that had not objected.

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8. Special Session of the Committee improved process for such deliberations. The on Trade and Development renewed effort by heads of delegation in the Spring and Summer of 2003 led to the comple- Status tion of a set of recommendations that were later In February 2002, the Trade Negotiating submitted by the Chairman of the General Committee convened a Special Session of the Council for adoption at the Cancun Ministerial, Committee on Trade and Development (CTD) to although no decision was taken on these fulfill the Doha mandate to review all special and recommendations at the Cancun Ministerial. differential treatment (S&D) provisions “with a view to strengthening them and making them Prospects for 2004 more precise, effective and operational.” The A resumption of Doha Round negotiations would Special Session is responsible for reviewing all ultimately include efforts by Committee existing special and differential treatment provi- Members to complete the S&D review under the sions available to developing-country Members. DDA mandate. Discussions to date have led to Under S&D provisions, the WTO provides devel- crafting solutions reflecting convergence on a oping-country Members with technical assistance number of agreement-specific issues put forward. and transitional arrangements toward implemen- However, there remain a number of areas that will tation of WTO Agreements and, ultimately, full require more in-depth discussion as the DDA integration into the multilateral trading system. advances, in particular with regard to a more WTO S&D provisions also enable Members to broadly-based assessment of S&D as it pertains to provide better-than-MFN access to markets for the fact that developing-country Members often developing-country Members. As part of the S&D present unique individual situations that may not review, the CTD Special Session provided recom- be best addressed by a ‘one-size-fits-all’ approach. mendations to the General Council for The CTD Special Session has held only prelimi- consideration at the Cancun Ministerial, where nary discussions on how S&D treatment and no decisions were taken on S&D. differentiation among various levels of develop- ment should be incorporated into the architecture Major Issues in 2003 of the WTO, and with regard to the nature of a The CTD Special Session met in January and future mechanism for monitoring implementa- February 2003 to continue work under its DDA tion and effectiveness of S&D treatment. mandate to review the S&D provisions Debate was lively, particularly with regard to considera- tion of more than 80 Agreement-specific C. Work Programs established proposals by various developing-country under the Doha Development members which, in their originally-proposed Agenda form, entailed reopening Agreements and revis- iting the Uruguay Round’s overall balance of 1. Working Group on Transparency obligations. By the February 2003 General in Government Procurement Council session, the CTD Special Session had not Status completed its work. In lieu of tabling a final package of recommendations, the CTD instead Leading up to the Cancun Ministerial, the submitted a progress report to the General Working Group on Transparency in Government Council that included those recommendations Procurement (Working Group) continued work achieved to that point. The General Council on development of elements of an agreement on decided that work would continue through transparency in government procurement. deliberations by heads of delegations. United However, at the close of 2003, it remained unclear States helped advanced this next phase of the as to whether and how work will continue on this S&D review by submitting a proposal for an important topic in the WTO. General Council

18 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Chairman Perez del Castillo, in his report of the ability of countries to give preferences to December 15, 2003, suggested that work should domestic supplies and suppliers. It also provided continue with the aim of reaching agreement on that such an agreement would cover only procure- modalities for negotiations of an agreement on ments above certain value thresholds (to be transparency in government procurement. negotiated), and that coverage beyond goods and central government entities was not prejudged. It Major Issues in 2003 also stated that applicability of the DSU was not The Working Group held two formal meetings in prejudged, except that individual contract awards February and June 2003, in which it continued to would not be subject to the WTO dispute settle- make progress on identifying the key substantive ment system. In addition, the draft text reaffirmed elements of a potential agreement on trans- that negotiations would take into account partici- parency in government procurement. The pants’ development priorities and reiterated the Working Group particularly focused on two commitment to provide technical assistance. potential elements of an agreement that several Members, in particular developing countries, Prospects for 2004 have singled out as an area of particular concern. Regardless of how the Doha negotiations proceed, Both elements relate to the enforcement of an ensuring transparency in government procure- agreement: domestic review procedures and the ment remains a priority for the United States in its application of WTO dispute settlement proce- pursuit of broader initiatives aimed at promoting dures. The United States made a written the international rule of law, combating interna- submission to the Working Group in 2003 to tional bribery and corruption, and supporting the address these two potential elements. good governance practices that many countries have adopted as part of their overall structural The U.S. submission and the discussions of the reform programs. The United States will continue issue in the Working Group pointed out that an to incorporate transparency in government agreement on transparency in government procurement provisions in its negotiations of procurement could accommodate different bilateral FTAs. In addition, the United States will Members existing independent administrative or continue to work to enhance the transparency judicial tribunals and review procedures, and that provisions of the plurilateral WTO Government an agreement could be tailored to preclude the Procurement Agreement (GPA). challenge of individual contract awards under the DSU. In addition, transition periods could be 2. Trade Facilitation used to phase-in application by developing coun- tries of certain provisions of an agreement, Status including application of the DSU. The Fourth Ministerial Conference at Doha established an ambitious work program on Trade The Working Group’s discussions confirmed that Facilitation, including a mandate for the Council many WTO Members consider these elements to on Trade in Goods to “review and as appropriate, be fundamental to ensuring efficient and account- clarify and improve relevant aspects of Article V, able procurement systems and have already VIII, and X of GATT 1994 and identify the trade incorporated these elements, in their existing facilitation needs and priorities of Members, in procurement laws, regulations, and practices. particular developing and least developed coun- tries.” At Doha, it was agreed that negotiations The draft ministerial text presented to Ministers at on Trade Facilitation would take place after the the Cancun Ministerial reaffirmed that negotia- Fifth Ministerial Conference, based upon a deci- tions of a multilateral agreement on transparency sion to be taken at that Ministerial on the in government procurement would be limited to modalities of negotiations. the transparency aspects and would not restrict

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Major Issues in 2003 the merit of a launch of negotiations. While the In 2003, the Council for Trade in Goods (CTG) Cancun Ministerial conference featured strident held two formal sessions on Trade Facilitation opposition to commencing negotiations from a before the Cancun Ministerial in September. number of developing countries, particularly There was a continuing consensus that systemic those from Africa, a number of such Members reforms related to increased transparency and have subsequently signaled informally that the efficiency in the conduct of border transactions Cancun position was a generalized approach would increase trading opportunities and driven by strong negative views relating specifi- diminish corruption, while providing the addi- cally to several other so-called Singapore issues, tional benefit of enhancing administrative rather than Trade Facilitation. capabilities that ensure effective compliance with Many developing countries have joined the various customs-related requirements, ranging United States and other Members in the view that from the environment to security. Much of the achieving a negotiated agreement on Trade discussion was devoted to developing country Facilitation could be one of the most important concerns, with key submissions by Canada, Japan development-related achievements emerging and the United States. In particular, a submission from the Doha Development Agenda. A broad by the United States on Special and Differential array of development levels can also be seen Treatment fostered a robust exchange of views among the members of the so-called “Colorado and elicited a wide range of positive responses to Group,” which has worked together for several a proposed three point approach to (1) deal with years toward a launch of WTO negotiations on varied needs and abilities of Members to imple- Trade Facilitation. Members of the Colorado ment results of negotiations through Group include: the United States, Australia, individualized transition periods; (2) create Canada, Chile, Colombia, Costa Rica, European workable partnerships among Members and Union, Hong Kong China, , Japan, Korea, other institutions to support technical assistance Morocco, New Zealand, Norway, Paraguay, needs; and (3) ensure effective enforcement of Singapore, and Switzerland. prospective Trade Facilitation commitments. India and a few other Members have suggested At the Cancun Ministerial Conference, no deci- that future WTO work on Trade Facilitation sion was taken on commencing negotiations on should not lead to new and strengthened WTO Trade Facilitation. The United States joined many disciplines, but should only aim at non-binding others in supporting elements of the draft or voluntary results. The United States is joined Ministerial Declaration text put forward by the by many other Members in citing experience that Chairman of the Conference which would have shows how a rules-based border environment is launched negotiations on Trade Facilitation, an essential element for all Members in securing leading to the clarification and improvement of market access gains, and how such improve- GATT Articles V, VIII and X. ments can serve in particular to maximize Prospects for 2004 opportunities for south-south trade. A number of developing countries have also joined the United Notwithstanding the overall impasse at the States in recognizing that small and medium size Cancun Ministerial Conference, there emerged enterprises (SMEs) have become important new broad-based support for commencing nego- stakeholders in advancing WTO agenda in the tiations on Trade Facilitation. While the direction area of Trade Facilitation. SMEs are poised to and pace of moving forward on Trade Facilitation take advantage of opportunities provided by the will likely be contingent on the more general digital economy and ever-improving efficiencies advancement of the Doha Agenda, at Cancun a in the movement of goods, while at the same time number of previously-resisting developing are particularly disadvantaged when border country Members began to openly acknowledge procedures are opaque and overly burdensome.

20 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT 3. Working Group on Trade and Ministerial. As of year-end 2003 there has not Competition Policy been agreement on a new mandate for further work by the Working Group, and it is not clear Status whether the Working Group will continue its In 2003, the WTO Working Group on the work in 2004, and, if so, what its mandate will be. Interaction between Trade and Competition Policy (the “Working Group”) held its seventh Major Issues in 2003 year of work under the oversight of the WTO The Working Group held two meetings in General Council. The Working Group was estab- February and May 2003. The Working Group lished by WTO Trade Ministers at their first continued to organize its work on the basis of Ministerial Conference in Singapore in December written contributions from Members, supple- 1996. Its mandate was to “study issues raised by mented by discussion and commentary offered by Members relating to the interaction between delegations at the meetings and, where requested, trade and competition policy, including anti- factual information and analysis from the WTO competitive practices, in order to identify any Secretariat and observer organizations such as the areas that may merit further consideration in the OECD and UNCTAD. As in 2002, the Working WTO framework.” In December 1998, the Group’s discussions focused on the issues speci- General Council authorized the Working Group fied in paragraphs 24 and 25 of the Doha to continue its work on the basis of a more Declaration—technical assistance and capacity focused framework of issues. This framework building; provisions on hardcore cartels and continued to serve as the basis of the Working modalities for voluntary cooperation; and core Group’s work until the Doha Ministerial principles, including transparency, non-discrimi- Conference in 2001. nation and procedural fairness. The Working Group also addressed the nature and scope of In the November 2001 Doha Ministerial compliance mechanisms that might be included Declaration, the Ministers agreed that a decision under a multilateral framework on competition was to be taken at the Fifth Session of the policy, and possible elements of progressivity and Ministerial Conference, by explicit consensus, as flexibility that might be included in such a multi- to the modalities of negotiations on trade and lateral framework. In 2003, seventeen written competition policy. The Ministerial Declaration submissions were contributed by twelve provided that work leading up to the Fifth Session Members (counting the European Union and its would focus on the clarification of: core princi- 15 Member States as one contributor): Australia, ples, including transparency, non-discrimination Canada, China, Cuba, the European Union, Hong and procedural fairness; (2) provisions on hard- Kong China, Japan, Kenya, Korea, Kuwait, core cartels; modalities for voluntary Malaysia, and the United States. cooperation; and support for progressive rein- forcement of competition institutions in Despite the extensive work conducted on these developing countries through capacity building. issues, there remain major differences among The Ministers recognized the needs of developing Members as to how to proceed on trade and and least developed countries for technical assis- competition policy. The European Union’s tance and capacity building in this area, and submissions to the Working Group advocated a pledged to work in cooperation with other inter- multilateral WTO agreement on competition governmental organizations, including policy with substantive disciplines subject to UNCTAD, to provide assistance to respond to WTO dispute settlement. Several other Members, these needs. including Japan and Korea, likewise advocated a multilateral framework. However, a number of Ministers were unable to reach agreement on developing country Members responded that trade and competition policy at the Cancun they were not ready to proceed to negotiation of a

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multilateral agreement, stating that they did not Singapore issues. As of early 2004, the status of the want to be required to have a competition law and WGTI and of any future WTO work plan on authority until they were ready. The United States investment were unclear. played an active role in the Working Group, submitting a paper in May on the benefits for all Major Issues in 2003 Members of a possible WTO competition “peer The Doha Declaration tasked the WGTI with review” process. examining seven issues, including the scope and definition of investment; transparency; non- These divergent viewpoints expressed in the discrimination; approaches to the treatment of Working Group were reiterated during prepara- investment prior to establishment, based on a tions for the Cancun Ministerial. In light of these GATS-type, positive list; development provisions; differences in views, the revised draft Ministerial exceptions and balance-of-payments safeguards; text circulated in Cancun called for further clari- and consultation and the settlement of disputes fication of the issues in the Working Group, between Members. The Doha Declaration also including consideration of possible modalities for stated that “negotiations will take place after the negotiations, with the Working Group to report Fifth Session of the Ministerial Conference on the to the General Council by a specified date. basis of a decision to be taken, be explicit However, as noted above, Ministers were ulti- consensus, at that Session on modalities of nego- mately unable to reach agreement on trade and tiations.” WTO Members addressed the Doha competition policy. Declaration issues during several WGTI sessions in 2002 and during two formal WGTI meetings Prospects for 2004 and several informal consultations in 2003. The Given the absence of Ministerial direction at Working Group also discussed WTO activities Cancun for further work on trade and competi- relating to technical assistance on trade and tion policy, it is not clear whether the Working investment issues. Group will continue its work in 2004, and, if so, what its mandate will be. The EU and Japan continued in 2003 to be the strongest advocates for the launch of WTO 4. Working Group on Trade and investment negotiations. Korea, Switzerland, and Investment several developing countries, including Mexico, Chile, Singapore, and Costa Rica also advocated Status investment negotiations. The Working Group on Trade and Investment (WGTI) was established at the Singapore The EU and Japan argued in 2002 and 2003 that Ministerial in 1996. At the conclusion of the Doha multilateral investment disciplines would stimu- meeting, Ministers extended the WGTI’s mandate late increased flows of investment as well as trade, and agreed that investment negotiations “will take which increasingly follows investment. They place after the next Session of the Ministerial highlighted the fact, which they described as an Conference on the basis of a decision to be taken, unfortunate anomaly, that investment to supply by explicit consensus, at that Session on the services enjoyed substantial multilateral protec- modalities of negotiations.” During the period tions under the GATS while investment between the Doha and Cancun Ministerials, U.S. to manufacture benefited from only minimal contributions to the work of the WGTI were protections under WTO agreements. aimed at promoting understanding of the benefits of open investment policies and of the contribu- The United States made similar arguments about tion of investment to economic development. the value of multilateral investment disciplines, WTO Members could not agree in Cancun on a but chose not to be a demandeur for a mandate for negotiating on investment and other WTO investment agreement. Some domestic

22 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT stakeholders expressed concern during 2002 and was no “explicit consensus” as required by the 2003 that WTO investment negotiations would Declaration to allow negotiations to commence. not produce a high-standards agreement. The United States circulated one formal proposal to Developing countries were substantially unified in the WGTI during the period between the Doha their opposition to the EU/Japan negotiating and Cancun Ministerials, a 2002 paper arguing proposal. In the days before the Cancun meeting, that the disciplines of a multilateral investment many developing countries united around a agreement should extend to portfolio as well as counter-proposal rejecting the launch of invest- direct investment. ment negotiations in favor of continuing working group discussions under the Doha Declaration Most developing country WTO Members mandates. The United States also opposed consistently opposed all but the most limited elements of the EU/Japan proposal that appeared proposals for WTO investment negotiations to foreclose the possibility of achieving high stan- tabled either formally or informally during 2003. dards in certain areas. For example, the EU/Japan Developing countries argued that multilateral proposal failed to clearly endorse coverage of port- disciplines would restrict their ability to regulate folio investment in a potential WTO agreement. foreign investment in ways designed to promote economic development objectives. They The WTO Secretariat sought to reconcile the contended that investment disciplines were EU/Japan and developing country positions by beyond both the mandate and the competence of proposing an additional period for consideration the WTO. Pointing to the international financial of possible negotiating modalities, but this crises of the 1990s, some developing countries proposal failed to satisfy either side. The conflict also argued that multilateral disciplines could between the two positions gave rise to one of the increase their vulnerability to increasingly rapid most difficult disputes in Cancun and and volatile cross-border flows of portfolio contributed significantly to the breakdown of investment capital. negotiations. A decision by the EU and Japan in the final hours of the Ministerial to abandon their In the weeks before the Cancun Ministerial, the effort to achieve the launch of investment negoti- EU and Japan, joined by Korea and Switzerland, ations came too late to have a positive effect on proposed the launch of negotiations on a multi- the Cancun negotiating dynamic. lateral framework that would include each of the seven elements in the Doha Declaration, as well Prospects for 2004 as other issues or elements that WTO Members WTO members had yet to settle on a course of might wish to propose. The EU/Japan proposal action on investment and other Singapore issues also called for provisions that would extend by the beginning of 2004. The EU shifted direc- special and differential treatment to developing tion near the end of 2003, announcing that it countries, clarify the relationship between an would be willing to negotiate plurilateral agree- investment agreement and other WTO agree- ments on investment and other Singapore issues, ments, and clarify the relationship between a but a number of developing countries continued WTO investment agreement and existing bilat- to oppose the launch of investment negotiations, eral and regional investment agreements. whether on a multilateral or plurilateral basis. WTO members also continue to differ on the Countries advocating WTO investment negotia- mission of the WGTI, with some arguing that it tions asserted that a decision had already been should resume efforts at identifying possible taken at Doha to launch negotiations on the basis negotiating modalities, others arguing that it of the issues identified in the Doha Declaration, should limit itself to the further clarification of but most developing countries asserted issues in the Doha Declaration, and a third group that, because they opposed a negotiation, there arguing that it should be disbanded.

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5. Work Program on Electronic problem of external indebtedness of developing Commerce and least developed countries. The Group was also instructed to consider possible steps to Status strengthen the coherence of international trade The Work Program on Electronic Commerce and financial policies, with a view to safeguarding continued to meet through a series of dedicated the multilateral trading system from the effects of discussions under the auspices of the General financial and monetary instability. Council. Three discussions were held during 2003. Major Issues in 2003 Major Issues in 2003 In 2003, the Working Group held two formal As in previous years, most of the sessions focused meetings to prepare a report to the Fifth on the classification of certain electronically Ministerial Conference. Members reached a downloadable products, and the trade implica- consensus on a list of themes for further discus- tions that might result from a decision to classify sion should Minsters agree to continue the these products as goods or services, including the working group. This list of themes included trade fiscal implications of classifying something as a liberalization as a source of growth; WTO rules good or service and how that might impact the and financial stability; the importance of market current practice of not imposing customs duties access and the reduction of other trade barriers in on electronic transmissions. The United States the Doha Development Agenda negotiations; submitted a contribution to the Work Program trade and financial markets; trade-financing; outlining key principles that could serve as a better coherence in the design and implementa- useful guide in developing trade policies in the tion of trade-related reforms and monitoring; the area of electronic commerce. inter-linkages between external liberalization and internal reform; and external financing, Prospects for 2004 commodity markets and export diversifications. The United States supports active involvement in the on-going negotiations that are important to Prospects for 2004 the development of electronic commerce. The Following a resumptions of Doha negotiations, United States will continue to be an active partic- Working Group Members may be asked to ipant in the depicated discussions. In addition, continue discussions of the agreed themes and the United States supports extending the current related issues reported to the Fifth Ministerial practice of not imposing customs duties on elec- Conference. tronic transmissions with a view to making that permanent and binding in the future. 7. Working Group on Trade and Transfer of Technology 6. Working Group on Trade, Debt, and Finance Status At the Fourth Ministerial Conference in Doha, Status WTO Ministers agreed to an “examination…of Ministers established the mandate for the the relationship between trade and transfer of Working Group on Trade, Debt and Finance technology, and of any possible recommendations (TDF) at the Doha ministerial. Ministers on steps that might be taken within the mandate instructed the Working Group to examine the of the WTO to increase flows of technology to relationship between trade, debt and finance, and developing countries.” The TNC established the to examine recommendations on possible steps, Working Group on Trade and Technology within the mandate and competence of the WTO, Transfer (WGTTT) under the auspices of the to enhance the capacity of the multilateral trading General Council, asking it to report on its system to contribute to a durable solution to the progress to the Fifth Session of the Ministerial

24 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Conference (Cancun). The WGTTT was not able paper’s suggestion that some WTO agreements to achieve consensus on any recommendations were hindering the transfer of technology. for consideration by ministers in Cancun, nor was any decision on the WGTTT’s future work During 2003, the WGTTT continued to receive program taken in Cancun or during the written inputs from other WTO bodies on issues December 2003 meeting of the General Council. relating to trade and technology transfer. Nine The United States believes the WGTTT can play a WTO bodies reported having performed or role in helping WTO Members identify ways to planned work in this area. The WGTTT also promote the increased transfer and absorption of received three case studies on technology transfer technology through trade, investment, and the that had been prepared by UNCTAD. provision of technical assistance, but the United The United States and other developed countries States opposes national or multilateral mandates have argued that market-based trade and invest- for the transfer of private or government- ment are the most efficient means of promoting controlled technology. technology transfer and that governments should Major Issues in 2003 resist mandates for the transfer of proprietary technology. In the U.S. view, the contribution of The WGTTT met formally three times in 2003, trade and investment to technology transfer rein- considering inputs from the Secretariat, WTO forces the case for continued trade and members, other WTO bodies, and other inter- investment liberalization. The United States and governmental organizations. During its March others also argued that developing countries need meeting, the WGTTT began its consideration of a to take steps to enhance their ability to absorb paper prepared by the Secretariat, entitled, “A foreign technologies, and that technical assis- Taxonomy of Country Experiences on tance from developed countries could promote International Technology Transfers,” which technology transfer and absorption. suggested a framework for classifying the policies that governments have adopted to promote tech- Prospects for 2004 nology transfer. The Secretariat paper also As of early 2004, the post-Cancun status of the included case studies of national experiences WGTTT had not yet been resolved. The United with technology transfer policies. States will support a continuation of the WGTTT’s Several WTO members also circulated papers for work under the Doha mandate. The United States discussion in the WGTTT. A March submission will work with other countries to examine the by the EU, “Reflection Paper on Transfer of relationship between trade and the transfer of Technology to Developing and Least-Developed technology, but will continue to oppose proposals Countries” highlighted the importance to tech- for the mandated transfer of technology. nology transfer of commercial trade and investment, effective IPR protection, and the D. General Council Activities absorptive capacities of host countries. India, Pakistan, and several other developing countries Status submitted a paper in May entitled, “Possible The WTO General Council is the highest deci- Recommendations on Steps that Might be Taken sion-making body in the WTO that meets on a within the Mandate of the WTO to Increase Flows regular basis during the year. It exercises all of the of Technology to Developing Countries.” The authority of the Ministerial Conference, which is United States and several other Members objected required to meet once every two years. (The Fifth to this paper during the WGTTT’s May and July Ministerial Conference met most recently in sessions, arguing that it appeared to endorse Cancun, Mexico). The General Council and mandates for the transfer of proprietary tech- Ministerial Conference consist of representatives nology. The United States also objected to the of all WTO Members. Only the Ministerial

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Conference and the General Council have the Heads of Delegation of the entire WTO authority to adopt authoritative interpretations of Membership and a wide variety of smaller group- the WTO Agreements, submit amendments to the ings. In the latter half of the year, these Agreements for consideration by Members, and consultations were convened frequently with a grant waivers of obligations. All accessions to the view to finding consensus on both substantive and WTO must be approved by the General Council procedural elements that would enable forward or the Ministerial Conference. Technically, meet- movement on the Doha Development Agenda. ings of both the Dispute Settlement Body (DSB) and the Trade Policy Review Body (TPRB) are Major Issues in 2003 meetings of the General Council convened for the Ambassador Carlos Perez del Castillo served as purpose of discharging the responsibilities of the Chairman of the General Council in 2003. The DSB and TPRB respectively. major focus of Chairman Perez del Castillo and the General Council were the preparations for the Fifth Three major bodies report directly to the General Ministerial Conference in Cancun in September, as Council: the Council for Trade in Goods, the well as the effort to bring all sides back to work in Council for Trade in Services, and the Council line with the Cancun Ministerial mandate in the for Trade-Related Aspects of Intellectual months following the Conference. These substan- Property Rights. In addition, the Committee on tive issues involved in these activities are reviewed Trade and Environment, the Committee on Trade in the section on the Trade Negotiations and Development, the Committee on Balance of Committee and the Doha Development Agenda. Payments Restrictions, the Committee on The following issues also figured prominently in Budget, Finance and Administration, and the the General Council activities: Committee on Regional Trading Arrangements report directly to the General Council. The Coherence: Article III(5) of the Marrakesh Working Groups established at the First Agreement Establishing the WTO provides for Ministerial Conference in Singapore to examine coherence in global economic policy making investment, trade and competition policy, and through WTO cooperation with the International transparency in government procurement also Monetary Fund (IMF) and the World Bank. At report directly to the General Council. A number the May 2003 session of the General Council, of subsidiary bodies report through the Council both the IMF Managing Director Horst Kohler for Trade in Goods or the Council for Trade in and World Bank President James Wolfensohn Services to the General Council. The Doha participated in exchange of views with WTO Ministerial Declaration formed a number of new Members. The discussion centered on the link- work programs and working groups which have ages among trade, finance and development been given mandates to report to the General policies at both the national and international Council such as the Working Group on Trade, level. Many WTO Members noted the importance Debt, and Finance and the Working Group on of a successful conclusion to the DDA in Trade and Transfer of Technology. The mandates promoting more coherent policymaking that are part of DDA and these were reviewed earlier would advance the shared objectives of sustain- in this chapter. able growth, development and poverty reduction.

The General Council uses both formal and Review of the U.S. Jones Act: Paragraph 3 of informal processes to conduct the business of the GATT 1994 mandates the General Council to WTO. Informal groupings, which generally conduct a review every two years to ascertain include the United States, can play an important whether the original conditions creating the need role in consensus-building. In 2003, the for this exemption “still prevail.” The exemption Chairman of the General Council conducted provided in Paragraph 3 applies to certain statu- extensive informal consultations, with both the tory provisions (collectively referred to as the

26 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT “Jones Act”) notified to the WTO that prohibit previously agreed waivers, including those foreign-built or repaired ships from engaging in applicable to the United States for the Caribbean the coastwise trade (i.e., cabotage). The United Basin Economic Recovery Act, and preferences States would lose this exemption if the Jones Act for the Former Trust Territories of the Pacific were amended to become less WTO-consistent. Islands. The General Council also approved The General Counsel conducted its third review several other waivers, as described in the section of Paragraph 3 in December 2003. During this on the Council on Trade in Goods (CTG). Annex review, some WTO Members requested clarifica- II contains a detailed list of Article IX waivers tions on data provided by the United States on currently in force. U.S. shipyard orders and deliveries. Other WTO Members sought more information on the 2003 Capacity Building through Technical appropriations legislation (Pub. L. 108-7), which Cooperation: The General Council continued its provided the legal grounds for up to three cruise supervision of technical assistance for the ships constructed to completion in a shipyard purpose of capacity building in developing coun- located outside of the United States to receive a tries (i.e., modernizing their government coastwise endorsement to operate in regular operations to facilitate effective participation in service transporting passengers between or the negotiation and implementation of WTO among the islands of Hawaii. More generally, a Agreements). For its part, the United States number of WTO Members expressed the view directly supports the WTO’s trade-related tech- that the review should have provided an opportu- nical assistance (TRTA). In Cancun, the United nity to examine from a substantive point of view States pledged an additional $1.2 million for whether the conditions giving rise to the invoca- WTO TRTA. This contribution augmented $1 tion of this exemption still exist. The General million given earlier in 2003, bringing total U.S. Council took note of the statements made during support for WTO TRTA to more than $3 million this year’s review and agreed that the next review since the launch of Doha negotiations in would begin in 2005. November 2001. This money was in direct support of programs like the annual WTO Trade in Textiles and Clothing: The General Technical Assistance Plan. Council considered communications from several Members on changes in textiles quotas. Venue for the Sixth Ministerial Conference: In These involved submissions of textile-exporting October 2003, the General Council accepted the countries on (1) the reduction in potential invitation extended by Hong Kong to host the market (quota) access in 2004 due to the lack of Sixth Ministerial Conference. The date of this carry forward in the quota phase-out program conference has not yet been determined. required by the Agreement on Textiles and S&D Review: At the February 2003 General Clothing, and (2) the imposition of limitations Council session, the Committee on Trade and on future antidumping actions against textile Development put forward a progress report on imports from developing countries that they the S&D review which noted that the Committee expect will be brought beginning in January had not concluded discussions on a final package 2005 after the Textiles sector is fully integrated of recommendations, but took note of some into the WTO and quotas currently in effect have recommendations that had been agreed in prin- expired. No consensus emerged among Members ciple. The General Council decided to take up on these submissions. discussion of outstanding agreement-specific Waivers of Obligations: As part of the annual proposals under the leadership of Chairman review required by Article IX of the WTO Carlos Perez del Castillo, in the spring and Agreement, the General Council considered summer of 2003. The Chair focused on a set of reports on the operation of a number of recommendations that might yield an early

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agreement and involved the expertise of other makes all its decisions by “consensus.” Annex II WTO bodies in the consideration of relevant provides more background information on the proposals. Renewed efforts by heads of delegation WTO dispute settlement process. in the spring and summer helped advance a set of recommendations that were later put forward Major Issues in 2003 by the Chair, although not adopted, at the The DSB met 22 times in 2003 to oversee disputes Cancun Ministerial. and to address responsibilities such as consulting on proposed amendments to the Appellate Body Prospects for 2004 working procedures and approving additions to The General Council will continue its important the roster of governmental and non-govern- role in overseeing implementation of the WTO mental panelists. Agreements and the forward movement of nego- tiations on the Doha Development Agenda. Roster of Governmental and Non-Governmental Management of the WTO, especially with respect Panelists: Article 8 of the DSU makes it clear that to public outreach efforts, consultations with panelists may be drawn from either the public or Members, and its work with other institutions on private sector and must be “well-qualified,” such capacity building, will figure prominently in as persons who have served on or presented a case Council discussions over the next year. The to a panel, represented a government in the WTO Council will meet at least quarterly. or the GATT, served with the Secretariat, taught or published in the international trade field, or The requirement for ministerial meetings was served as a senior trade policy official. Since 1985, established in the Uruguay Round to assure the Secretariat has maintained a roster of non- regular, political level review by ministers of the governmental experts for GATT 1947 dispute operation of the WTO, similar to the practice of settlement, which has been available for use by other international organizations. Ministerial parties in selecting panelists. In 1995, the DSB Conferences were convened in Singapore (1996), agreed on procedures for renewing and main- Geneva (1998), Seattle (1999), Doha (2001) and taining the roster, and expanding it to include Cancun (2003). The General Council has the governmental experts. In response to a U.S. authority to add issues to the WTO’s agenda, proposal, the DSB also adopted standards whether for a work program or negotiation. increasing and systematizing the information submitted by roster candidates. These modifica- 1. Dispute Settlement Understanding tions will aid in evaluating candidates’ qualifications and encouraging the appointment Status of well-qualified candidates who have expertise The Understanding on Rules and Procedures in the subject matters of the Uruguay Round Governing the Settlement of Disputes (Dispute Agreements. In 2003, the DSB approved by Settlement Understanding or DSU), which is consensus a number of additional names for the annexed to the WTO Agreement, provides a roster. The United States scrutinized the creden- mechanism to settle disputes under the Uruguay tials of these candidates to assure the quality of Round Agreements. Thus, it is key to the enforce- the roster. ment of U.S. rights under these Agreements. The present WTO panel roster appears in the The DSU is administered by the Dispute background information in Annex II. The list in Settlement Body (DSB), which is empowered to the roster notes the areas of expertise of each establish dispute settlement panels, adopt panel roster member (goods, services and/or TRIPS). and Appellate Body reports, oversee the imple- mentation of panel recommendations adopted by Rules of Conduct for the DSU: The DSB completed the DSB and authorize retaliation. The DSB work on a code of ethical conduct for WTO

28 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT dispute settlement and on December 3, 1996, question; (2) professional interests; (3) other active adopted the Rules of Conduct for the Understanding interests; (4) considered statements of personal on Rules and Procedures Governing the Settlement of opinion on issues relevant to the dispute in Disputes. A copy of the Rules of Conduct was question; and (5) employment or family interests. printed in the Annual Report for 1996 and is avail- able on the WTO and USTR websites. There were Appellate Body: The DSU requires the DSB to no changes in these Rules in 2003. appoint seven persons to serve on an Appellate Body, which is to be a standing body, with The Rules of Conduct elaborate on the ethical members serving four-year terms, except for three standards built into the DSU, and to maintain the initial appointees determined by lot whose terms integrity, impartiality and confidentiality of expired at the end of two years. At its first meeting proceedings conducted under the DSU. The Rules on February 10, 1995, the DSB formally estab- of Conduct require all individuals called upon to lished the Appellate Body, and agreed to participate in dispute settlement proceedings to arrangements for selecting its members and staff. disclose direct or indirect conflicts of interest They also agreed that Appellate Body members prior to their involvement in the proceedings, and would serve on a part-time basis, and sit periodi- to conduct themselves during their involvement cally in Geneva. The original seven Appellate in the proceedings so as to avoid such conflicts. Body members, who took their oath on December The Rules of Conduct also provide parties to a 11, 1995, were: Mr. James Bacchus of the United dispute an opportunity to address potential mate- States, Mr. Christopher Beeby of New Zealand, rial violations of these ethical standards. The Professor Claus-Dieter Ehlermann of , coverage of the Rules of Conduct exceeds the Dr. Said El-Naggar of Egypt, Justice Florentino goals established by Congress in section 123(c) of Feliciano of the Philippines, Mr. Julio Lacarte- the Uruguay Round Agreements Act (URAA), Muró of Uruguay, and Professor Mitsuo which directed the USTR to seek conflict of Matsushita of Japan. On June 25, 1997, it was interest rules applicable to persons serving on determined by lot that the terms of Messrs. panels and members of the Appellate Body. The Ehlermann, Feliciano and Lacarte-Muró would Rules of Conduct cover not only panelists and expire in December 1997. The DSB agreed on the Appellate Body members, but also: (1) arbitra- same date to reappoint them for a final term of tors; (2) experts participating in the dispute four years commencing on 11 December 1997. settlement mechanism (e.g., the Permanent On October 27, 1999 and November 3, 1999, the Group of Experts under the Subsidies DSB agreed to renew the terms of Messrs. Bacchus Agreement); (3) members of the WTO Secretariat and Beeby for a final term of four years, assisting a panel or assisting in a formal arbitra- commencing on December 11, 1999, and to tion proceeding; (4) the Chairman of the Textile extend the terms of Dr. El-Naggar and Professor Monitoring Body (“TMB”) and other members of Matsushita until the end of March 2000. On April the TMB Secretariat assisting the TMB in formu- 7, 2000, the DSB agreed to appoint Mr. Georges lating recommendations, findings or Michel Abi-Saab of Egypt and Mr. A.V. Ganesan of observations under the Agreement on Textiles India to a term of four years commencing on June and Clothing; and (5) support staff of the 1, 2000. On May 25, 2000, the DSB agreed to the Appellate Body. appointment of Professor Yasuhei Taniguchi of Japan to serve through December 10, 2003, the As noted above, the Rules of Conduct established remainder of the term of Mr. Beeby, who passed a disclosure-based system. Examples of the types away on March 19, 2000. On September 25, 2001, of information that covered persons must disclose the DSB agreed to appoint Mr. Luiz Olavo Baptista are set forth in Annex II to the Rules, and include: of Brazil, Mr. John S Lockhart of Australia and Mr. (1) financial interests, business interests, and Giorgio Sacerdoti of to a term of four years property interests relevant to the dispute in commencing on December 19, 2001. On

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November 7, 2003, the DSB agreed to appoint 64 complaints against other Members’ measures Professor Merit Janow of the United States to a and received 77 complaints on U.S. measures. A term of four years commencing on December 11, number of disputes commenced in earlier years 2003, to reappoint Professor Taniguchi for a final remained active in 2003. A description of those term of four years commencing on December 11, disputes in which the United States was either a 2003, and to reappoint Mr. Abi-Saab and Mr. complainant, defendant, or third party during the Ganesan for a final term of four years past year follows below. commencing on June 1, 2004. The names and biographical data for the Appellate Body Prospects for 2004 members are included in Annex II of this report. In 2004, we expect that the DSB will continue to focus on the administration of the dispute settle- The Appellate Body has also adopted Working ment process in the context of individual Procedures for Appellate Review. On February disputes. Experience gained with the DSU will be 28, 1997, the Appellate Body issued a revision of incorporated into the U.S. litigation and negotia- the Working Procedures, providing for a two-year tion strategy for enforcing U.S. WTO rights, as term for the first Chairperson, and one-year terms well as the U.S. position on DSU reform. DSB for subsequent Chairpersons. In 2001 the Members will continue to consider reform Appellate Body amended its working procedures proposals in 2004. to provide for no more than two consecutive terms for Chairperson. Mr. Lacarte-Muró, the a. Disputes Brought by the United States first Chairperson, served until February 7, 1998; One of the most important components of U.S. Mr. Beeby served as Chairperson from February trade policy is to ensure U.S. exporters receive 7, 1998 to February 6, 1999; Mr. El-Naggar open access and fair treatment in foreign markets. served as Chairperson from February 7, 1999 to In 2003, the United States continued to be one of February 6, 2000; Mr. Feliciano served as the most active participants in the WTO dispute Chairperson from February 7, 2000 to February settlement process. This section includes brief 6, 2001; Mr. Ehlermann served as Chairperson summaries of dispute settlement activity in 2003 from February 7, 2001 to December 10, 2001; Mr. where the United States was a complainant. As Bacchus served as Chairperson from December demonstrated by these summaries, the WTO 15, 2001 to December 10, 2003; Mr. Abi-Saab’s dispute settlement process generally has proven term as Chairperson runs from December 13, to be an effective tool in combating barriers to 2003 to December 12, 2004. U.S. exports and advancing our goal of ensuring a In 2003, the Appellate Body issued six reports, of level playing field for American goods and serv- which four involved the United States as a party ices. Indeed, in a number of cases the United and are discussed in detail below. The two other States has been able to achieve satisfactory reports concerned the European Union’s outcomes invoking the consultation provisions of antidumping measures on bed linens from India the dispute settlement procedures, without and on pipe fittings from Brazil. The United States recourse to formal panel proceedings. participated in both of these proceedings as an Argentina—Patent and test data protection for interested third party. pharmaceuticals and agricultural chemicals Dispute Settlement Activity in 2003: During its (DS171/196) first nine years in operation, 305 requests for On May 6, 1999, the United States filed a consul- consultations (22 in 1995, 42 in1996, 46 in 1997, tation request challenging Argentina’s failure to 44 in 1998, 31 in 1999, 30 in 2000, 27 in 2001, 37 provide a system of exclusive marketing rights for in 2002, and 26 in 2003) were filed with the pharmaceutical products, and to ensure that WTO. During that period, the United States filed changes in its laws and regulations during its

30 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT transition period do not result in a lesser degree of European Union regarding the same matter, and consistency with the provisions of the Agreement decided to pursue its own case as well. The on Trade-Related Aspects of Intellectual Property United States held consultations with Brazil on Rights (“TRIPS Agreement”). Consultations were July 18, 2000, and continued to monitor the held on June 15, 1999, and again on July 27, situation in 2003. 1999. On May 30, 2000, the United States expanded its claims in this dispute to include new Canada—Export subsidies and tariff-rate concerns that arose as a result of Argentina’s quotas on dairy products (DS103) failure to fully implement its remaining TRIPS The United States prevailed on its claim that obligations as required on January 1, 2000. These Canada is providing subsidies to exports of dairy concerns include Argentina’s failure to protect products in violation of its Uruguay Round confidential test data submitted to government commitment to reduce the quantity of subsidized regulatory authorities for pharmaceuticals and exports of dairy products. The United States initi- agricultural chemicals; its denial of certain exclu- ated this dispute in 1998, contending that Canada sive rights for patents; its failure to provide such was providing export subsidies on dairy products provisional measures as preliminary injunctions in excess of its commitment levels and was main- to prevent infringements of patent rights; and its taining a tariff-rate quota (TRQ) on fluid milk exclusion of certain subject matter from under which it only permitted the entry of milk in patentability. Consultations began July 17, 2000. retail-sized containers by Canadian residents for On May 31, 2002, the United States and their personal use. On August 12, 1998, the Argentina notified the DSB that a partial settle- following panelists were selected, with the ment of this dispute had been reached. Of the ten consent of the parties, to review the U.S. claims: claims raised by the United States, eight were Professor Tommy Koh, Chairman; Mr. Guillermo settled. The United States reserved its rights with Aguilar Alvarez and Professor Ernst-Ulrich respect to two remaining issues: protection of test Petersmann, Members. On May 17, 1999, the data against unfair commercial use and the appli- panel issued its report upholding U.S. arguments cation of enhanced TRIPS Agreement rights to by finding that Canada’s export subsidies are patent applications pending as of the entry into inconsistent with the Agreement on Agriculture, force of the TRIPS Agreement for Argentina and that Canada’s practice of restricting the (January 1, 2000). The dispute remains in the import of milk to retail-sized containers imported consultation phase with respect to these issues. by Canadian residents is inconsistent with its obligations under the GATT 1994. On October Brazil—Customs valuation (DS197) 13, 1999, the Appellate Body issued its report The United States requested consultations on upholding the panel’s finding that Canada’s May 31, 2000 with Brazil regarding its customs export subsidies are inconsistent with its GATT valuation regime. U.S. exporters of textile prod- obligations. The panel and Appellate Body reports ucts reported that Brazil uses officially- were adopted by the Dispute Settlement Body established minimum reference prices both as a (DSB) on October 27, 1999. On December 22, requirement to obtain import licenses and/or as a 1999, the parties reached agreement on the time base requirement for import. In practice, this period for implementation by Canada. Under this system works to prohibit the import of products agreement, Canada was to complete full imple- with declared values below the established mentation of the DSB’s recommendations and minimum prices. This practice appears inconsis- rulings no later than January 31, 2001. tent with Brazil’s WTO obligations, including those under the Agreement on Customs While Canada eliminated one of the export Valuation. The United States participated as an subsidies subject to the DSB findings, it intro- interested third party in a dispute initiated by the duced its “commercial export milk” scheme

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under which exporters have access to milk at Canada—Measures Relating to Exports of prices that are below domestic market levels in Wheat And Treatment of Imported Grain Canada. Therefore, on February 16, 2001, the (DS276) United States, along with New Zealand, requested On December 17, 2002, the United States that the DSB reestablish the panel to review requested consultations with Canada concerning Canada’s compliance measures. At the same time, the export of wheat by the Canadian Wheat Board the United States requested authorization to and the treatment accorded by Canada to grain withdraw concessions benefiting goods from imported into Canada. The Government of Canada if the panel agreed that Canada had failed Canada established the Canadian Wheat Board to comply with the rulings against it. The panel and granted to this enterprise exclusive and was reestablished on March 1, 2001, with Mr. special privileges, including the exclusive rights Peter Paleka replacing Professor Koh, who was no to purchase and sell Western Canadian wheat for longer available to serve, and with Professor human consumption. The actions of the Petersmann serving as Chairman. The panel Government of Canada and the Canadian Wheat found that the steps Canada took to implement Board appear to be inconsistent with the obliga- the adverse rulings regarding its dairy export tions of the Government of Canada under Article practices were insufficient and that Canada XVII of the GATT 1994. Furthermore, with regard continued to subsidize its dairy exports at a level to the treatment of grain that is imported into that is inconsistent with its WTO commitments. Canada, the United States considers that Canada appealed the panel’s findings. On Canadian measures discriminate against December 3, 2001, the Appellate Body concluded imported grain, including grain that is the that it did not have enough facts to make a ruling product of the United States, in breach of the against Canada. GATT 1994. Consultations were held January 31, 2003. The United States requested the establish- As a result, the United States, along with New ment of a panel on March 6, 2003. The DSB Zealand, requested on December 6, 2001 that the established a panel on March 31, 2003. The panel be reconvened again to allow the Director General composed the panel as follows: complaining parties to present additional factual Ms. Claudia Orozco, Chair, and Mr. Alan information. The panel was reestablished on Matthews and Mr. Hanspeter Tschaeni, Members. December 18, 2001, with Mr. Peter Pale?ka and Following a preliminary procedural ruling, the Mr. Guillermo Aguilar Alvarez serving as DSB established a second panel on July 11, 2003, panelists, and with Professor Petersmann serving with the same panelists and the same schedule. as Chairman. On July 26, 2002, the panel found that the steps Canada took to implement the Egypt—Apparel Tariffs (WT/DS305) adverse rulings regarding its dairy export prac- On December 23, 2003, the United States tices were insufficient and that Canada continued requested consultations with Egypt regarding the to subsidize its dairy exports at a level that is duties that Egypt applies to certain apparel and inconsistent with its WTO commitments. Canada textile imports. During the Uruguay Round, appealed the panel’s findings. On December 20, Egypt agreed to bind its duties on these imports 2002, the Appellate Body upheld the panel’s find- (classified under HS Chapters 61, 62 and 63) at ings. The DSB adopted the panel and Appellate rates of less than 50 percent (ad valorem) in 2003 Body reports on January 17, 2003. In order to and thereafter. The United States believes the permit time for consultations, Canada and the duties that Egypt actually applies, on a “per United States agreed to suspend further arbitra- article” basis, greatly exceed Egypt’s bound rates tion proceedings. A settlement of the dispute was of duty. Consultations are being scheduled. notified to the DSB on May 9, 2003.

32 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT European Union—Regime for the importation, The European Union implemented an additional sale and distribution of bananas (DS27) change to the tariff-rate quota by January 1, 2002, The United States, along with Ecuador, which resulted in further increases of licenses allo- Guatemala, Honduras, and Mexico, successfully cated to US operators. challenged the EU banana regime under WTO dispute settlement procedures. The regime was European Union—Measures concerning meat designed, among other things, to take away a and meat products (hormones) (WT/DS26, 48) major part of the banana distribution business of The United States and Canada challenged the EU U.S. companies. On May 29, 1996, at the request ban on imports of meat from animals to which of the complaining parties, the Director-General any of six hormones for growth promotional selected the following panelists to serve in this purposes had been administered. On July 2, 1996, dispute: Mr. Stuart Harbinson, Chairman; Mr. the following panelists were selected, with the Kym Anderson and Mr. Christian Häberli, consent of the parties, to review the U.S. claims: Members. On May 22, 1997, the panel found that Mr. Thomas Cottier, Chairman; Mr. Jun Yokota the EU banana regime violated WTO rules; the and Mr. Peter Palecka, Members. The panel found Appellate Body upheld the panel’s decision on that the EU ban is inconsistent with the EU’s obli- September 9, 1997. At the request of the gations under the Agreement on the Application complaining parties, the compliance period was of Sanitary and Phytosanitary Measures (“SPS set by arbitration and expired on January 1, 1999. Agreement”), and that the ban is not based on However, on January 1, 1999, the European science, a risk assessment, or relevant interna- Union adopted a regime that perpetuated the tional standards. Upon appeal, the Appellate WTO violations identified by the panel and the Body affirmed the panel’s findings that the EU ban Appellate Body. The United States sought WTO fails to satisfy the requirements of the SPS authorization to suspend concessions with Agreement. The Appellate Body also found that respect to certain products of the European while a country has broad discretion in electing Union, the value of which is equivalent to the what level of protection it wishes to implement, nullification or impairment sustained by the in doing so it must fulfill the requirements of the United States. The European Union exercised its SPS Agreement. In this case the ban imposed is right to request arbitration concerning the not rationally related to the conclusions of the amount of the suspension and on April 6, 1999, risk assessments the EU had performed. the arbitrators determined the level of suspension to be $191.4 million. On April 19, 1999, the DSB Because the EU did not comply with the authorized the United States to suspend such recommendations and rulings of the DSB by May concessions, and the United States imposed 100 13, 1999, the final date of its compliance period as percent ad valorem duties on a list of EU products set by arbitration, the United States sought WTO with an annual trade value of $191.4 million. authorization to suspend concessions with respect to certain products of the EU, the value of On April 11, 2001, the United States and the which represents an estimate of the annual harm European Union agreed to an Understanding that to U.S. exports resulting from the EU’s failure to identified the means by which the dispute could be lift its ban on imports of U.S. meat. The EU exer- resolved. Pursuant to the Understanding, the cised its right to request arbitration concerning European Union implemented a revised import the amount of the suspension. On July 12, 1999, licensing regime for its banana tariff-rate quota on the arbitrators determined the level of suspension July 1, 2001, and allocated a significantly increased to be $116.8 million. On July 26, 1999, the DSB number of licenses to U.S. operators. The United authorized the United States to suspend such States thereupon suspended its increased duties. concessions and the United States proceeded to

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impose 100 percent ad valorem duties on a list of panel examine these measures. The panel was EU products with an annual trade value of $116.8 established on September 16, 2002. million. On May 26, 2000, USTR announced that it was considering changes to that list of EU prod- European Union—Measures affecting the ucts. While discussions with the EU to resolve approval and marketing of biotech products this matter are continuing, no resolution has been (WT/DS291) achieved yet. On November 3, 2003, the EU noti- On May 13, 2003, the United States filed a fied the WTO of its plans to make permanent the consultation request with respect to the EU’s ban on one hormone, oestradiol. moratorium on all new biotech approvals, and bans of six member states (Austria, France, European Union—Protection of trademarks Germany, Greece, Italy and ) on and geographical indications for agricultural imports of certain biotech products previously products and foodstuffs (DS174) approved by the EU. The moratorium is not EU Regulation 2081/92, as amended, does not supported by scientific evidence, and the EU’s provide national treatment with respect to refusal even to consider any biotech applications geographical indications for agricultural prod- for final approval constitutes “undue delay.” The ucts and foodstuffs; it also does not provide national import bans of previously EU-approved sufficient protection to pre-existing trademarks products appear not to be based on sufficient that are similar or identical to such geographical scientific evidence. Consultations were held June indications. The United States considers this 19, 2003. The United States requested the estab- measure inconsistent with the European Union’s lishment of a panel on August 7, 2003, and the obligations under the TRIPS Agreement and the DSB established a panel on August 29, 2003. GATT 1994. The United States requested consul- tations regarding this matter on June 1, 1999. Japan—Measures Affecting the Importation Consultations were first held July 9, 1999, and of Apples (DS245) continued through mid-2003. On April 4, 2003, On March 1, 2002, the United States requested the United States requested consultations on the consultations with Japan regarding Japan’s meas- additional issue of the EU’s national treatment ures restricting the importation of U.S. apples in obligations under the GATT 1994. The United connection with fire blight or the fire blight States and Australia held joint consultations with disease-causing organism, Erwinia amylovora. the EU on May 27, 2003. The United States These restrictions include: the prohibition of requested the establishment of a panel on August imported apples from U.S. states other than 18, 2003, and a panel was established on Washington or Oregon; the prohibition of October 2, 2003. imported apples from orchards in which any fire European Union—Provisional Safeguard blight is detected; the prohibition of imported Measure on Imports of Certain Steel Products apples from any orchard (whether or not it is free (DS260) of fire blight) should fire blight be detected within a 500 meter buffer zone surrounding such On May 30, 2002, the United States requested orchard; the requirement that export orchards be consultations with the European Union inspected three times yearly (at blossom, fruitlet, concerning the consistency of the European and harvest stages) for the presence of fire blight Union’s provisional safeguard measures on certain for purposes of applying the above-mentioned steel products with the General Agreement on prohibitions; a post-harvest surface treatment of Tariffs and Trade (1994) and with the WTO exported apples with chlorine; production Agreement on Safeguards. Consultations were requirements, such as chlorine treatment of held on June 27 and July 24, 2002, but did not containers for harvesting and chlorine treatment resolve the dispute. Therefore, on August 19, of the packing line; and the post-harvest separa- 2002, the United States requested that a WTO tion of apples for export to Japan from those

34 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT apples for other destinations. Consultations were considers that, by maintaining restrictions on the held on April 18, 2002, and a panel was estab- importation of live swine weighing 110 kilo- lished on June 3, 2002. The Director-General grams or more, Mexico was acting contrary to its selected as panelists Mr. Michael Cartland, Chair, obligations under the Agreement on Agriculture, and Ms. Kathy-Ann Brown and Mr. Christian the SPS Agreement, the Agreement on Technical Haeberli, Members. Barriers to Trade (“TBT Agreement”), and the GATT 1994. Consultations were held September In its report issued on July 15, 2003, the panel 7, 2000. Subsequent to the consultations, Mexico agreed with the United States that Japan’s fire issued a protocol which has allowed a resump- blight measures on U.S. apples are inconsistent tion of U.S. shipments of live swine weighing with Japan’s WTO obligations. In particular, the 110 kilograms or more into Mexico. At about the panel found that: (1) Japan’s measures are main- same time, Mexico self-initiated a review of its tained without sufficient scientific evidence, threat of injury determination based on informa- inconsistent with Article 2.2 of the SPS tion, including a shortage of slaughter hogs, that Agreement; (2) Japan’s measures cannot be provi- suggests that market conditions have changed sionally maintained under Article 5.7 of the SPS substantially in Mexico. On May 23, 2003, Agreement (an exception to the obligation under Mexico terminated the antidumping duty. Article 2.2); and (3) Japan’s measures are not based on a risk assessment and so are inconsistent Mexico—Measures affecting with Article 5.1 of the SPS Agreement. Japan telecommunications services (DS204) appealed the panel’s report on August 28, 2003. On August 17, 2000, the United States requested consultations with Mexico regarding its commit- The Appellate Body issued its report on ments and obligations under the General November 26, 2003, upholding panel findings Agreement on Trade in Services (``GATS’’) with that Japan’s phytosanitary measures on U.S. respect to basic and value-added telecommunica- apples, allegedly to protect against introduction tions services. The U.S. consultation request of the plant disease fire blight, are inconsistent covered a number of key issues, including the with Japan’s WTO obligations. In particular, the Government of Mexico’s failure to: (1) maintain Appellate Body upheld the three panel findings, effective disciplines over the former monopoly, detailed above, that Japan had appealed. The DSB Telmex, which is able to use its dominant position adopted the panel and Appellate Body reports on in the market to thwart competition; (2) ensure December 10, 2003. timely, cost-oriented interconnection that would Mexico—Measures affecting trade in live permit competing carriers to connect to Telmex swine (DS203) customers to provide local, long-distance, and international service; and (3) permit alternatives On July 10, 2000, the United States requested to an outmoded system of charging U.S. carriers consultations with Mexico regarding Mexico’s above-cost rates for completing international calls October 20, 1999, definitive antidumping into Mexico. Prior to such consultations, which measure involving live swine from the United were held on October 10, 2000, the Government States as well as sanitary and other restrictions of Mexico issued rules to regulate the anti- imposed by Mexico on imports of live swine competitive practices of Telmex (Mexico’s major weighing more than 110 kilograms. The United telecommunications supplier) and announced States considers that Mexico made a determina- significant reductions in long-distance intercon- tion of threat of material injury that appears nection rates for 2001. Nevertheless, given that inconsistent with the Antidumping Agreement, Mexico still had not fully addressed U.S. concerns, and that other actions by Mexico in the conduct particularly with respect to international telecom- of its investigation are also in violation of the munications services, on November 10, 2000, the Agreement. In addition, the United States United States filed a request for establishment of a

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panel as well as an additional request for consulta- concerning its import licensing systems and prac- tions on Mexico’s newly issued measures. Those tices that restrict agricultural imports from the consultations were held on January 16, 2001. The United States. The United States considers that United States requested the establishment of a Venezuela’s system creates a discretionary import panel on March 8, 2002. The panel was estab- licensing regime that appears to be inconsistent lished on April 17, 2002. On August 26, 2002, the with the Agreement on Agriculture, the TRIMS Director-General appointed as chairperson Mr. Agreement, and the Import Licensing Agreement. Ulrich Petersmann (Germany), and Mr. Raymond The United States held consultations with Tam (Hong Kong, China) and Mr. Björn Wellenius Venezuela on November 26, 2002. (Chile) as panelists. b. Disputes Brought Against the United Mexico—Definitive antidumping measures on States beef and rice (WT/DS295) Section 124 of the URAA requires, inter alia, that On June 16, 2003, the United States requested the Annual Report on the WTO describe, for the consultations on Mexico’s antidumping measures preceding fiscal year of the WTO, each on rice and beef, as well as certain provisions of proceeding before a panel or the Appellate Body Mexico’s Foreign Trade Act and its Federal Code that was initiated during that fiscal year regarding of Civil Procedure. The specific U.S. concerns Federal or State law, the status of the proceeding, include: (1) Mexico’s injury investigations in the and the matter at issue; and each report issued by two antidumping determinations; (2) Mexico’s a panel or the Appellate Body in a dispute settle- failure to terminate the rice investigation after a ment proceeding regarding Federal or State law. negative preliminary injury determination and its This section includes summaries of dispute settle- decision to include firms that were not dumping ment activity in 2003 when the United States was in the coverage of the antidumping measures; (3) a defendant. Mexico’s improper application of the “facts avail- able”; (4) Mexico’s improper calculation of the United States—Foreign Sales Corporation antidumping rate applied to non-investigated (“FSC”) tax provisions (DS108) exporters; (5) Mexico’s improper limitation of the The European Union challenged the FSC provi- antidumping rates it calculated in the beef inves- sions of the U.S. tax law, claiming that the tigation; (6) Mexico’s refusal to conduct reviews provisions constitute prohibited export subsidies of exporters’ antidumping rates; and (7) Mexico’s and import substitution subsidies under the insufficient public determinations. The United Subsidies Agreement, and that they violate the States also challenged five provisions of Mexico’s export subsidy provisions of the Agreement on Foreign Trade Act. The United States alleges Agriculture. A panel was established on violations of various provisions of the September 22, 1998. On November 9, 1998, the Antidumping Agreement, the Agreement on following panelists were selected, with the Subsidies and Countervailing Measures, and the consent of the parties, to review the EU claims: GATT 1994. Consultations were held July 31 and Mr. Crawford Falconer, Chairman; Mr. Didier August 1, 2003. The United States requested the Chambovey and Mr. Seung Wha Chang, establishment of a panel on the measure on rice Members. The panel found that the FSC tax on September 19, 2003, and the DSB established exemption constitutes a prohibited export a panel on November 7, 2003. Consultations on subsidy under the Subsidies Agreement, and also the measure on beef continue. violates U.S. obligations under the Agreement on Agriculture. The panel did not make findings Venezuela—Import Licensing Measures on regarding the FSC administrative pricing rules or Certain Agricultural Products (DS275) the EU’s import substitution subsidy claims. The On November 7, 2002, the United States panel recommended that the United States with- requested consultations with Venezuela draw the subsidy by October 1, 2000. The panel

36 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT report was circulated on October 8, 1999 and the States had challenged this amount by requesting United States filed its notice of appeal on arbitration. Under a September 2000 procedural November 26, 1999. The Appellate Body circu- agreement between the United States and the lated its report on February 24, 2000. The European Union, the arbitration was suspended Appellate Body upheld the panel’s finding that the pending the outcome of the EU’s challenge to the FSC tax exemption constitutes a prohibited WTO-consistency of the ETI Act. With the adop- export subsidy under the Subsidies Agreement, tion of the panel and Appellate Body reports, the but, like the panel, declined to address the FSC arbitration automatically resumed. On August administrative pricing rules or the EU ‘s import 30, 2002, the arbitrator circulated its decision. substitution subsidy claims. While the Appellate The arbitrator found that the countermeasures Body reversed the panel’s findings regarding the sought by the European Union were “appro- Agreement on Agriculture, it found that the FSC priate” within the meaning of Article 4.10 of the tax exemption violated provisions of that Subsidies Agreement because, according to Agreement other than the ones cited by the panel. the arbitrator, they were not “disproportionate to The panel and Appellate Body reports were the initial wrongful act to which they are adopted on March 20, 2000, and on April 7, 2000, intended to respond.” the United States announced its intention to respect its WTO obligations. On November 15, Following the adoption of the panel and 2000, the President signed the FSC Repeal and Appellate Body reports, legislation was intro- Extraterritorial Income Exclusion Act of 2000 duced in the U.S. House of Representatives to (“the ETI Act”), legislation that repealed and repeal the ETI Act. After holding hearings, both replaced the FSC provisions. However, the the House Ways and Means Committee and the European Union claimed that the new legislation Senate Finance Committee reported out bills. failed to bring the US into compliance with its On May 7, 2003, the DSB authorized the WTO obligations. European Communities (“EC”) to impose coun- On January 14, 2002, the Appellate Body issued termeasures up to a level of $4.043 billion in the its report with respect to the ETI Act. The form of an additional 100 percent ad valorem duty Appellate Body affirmed the findings of the panel on various products imported from the United that: (1) the ETI Act’s tax exclusion constituted a States. On December 8, 2003, the Council of the prohibited export subsidy under the WTO European Union adopted Council Regulation Subsidies Agreement; (2) the tax exclusion (EC) No. 2193/2003, which provides for the constituted an export subsidy that violated U.S. graduated imposition of countermeasures begin- obligations under the WTO Agriculture ning on March 1, 2004. Agreement; (3) the ETI Act’s foreign article/labor limitation provides less favorable treatment to United States—1916 Revenue Act “like” imported products in violation of Article (DS136/162) III:4 of GATT 1994; and (4) the ETI Act’s transi- Title VII of the Revenue Act of 1916 (15 U.S.C. §§ tion rules resulted in a failure to withdraw the 71-74, entitled “Unfair Competition”), often subsidy as recommended by the DSB under referred to as the Antidumping Act of 1916, Article 4.7 of the Subsidies Agreement. The DSB allows for private claims against, and criminal adopted the panel and Appellate Body reports on prosecutions of, parties that import or assist in January 29, 2002. importing goods into the United States at a price substantially less than the actual market value or In November 2000, the European Union had wholesale price. On April 1, 1999, the following sought authority to impose countermeasures in panelists were selected, with the consent of the the amount of $4.043 billion as a result of the parties, to review the EU claims: Mr. Johann alleged U.S. non-compliance, and the United Human, Chairman; Mr. Dimitrij Grçar and Mr.

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Eugeniusz Piontek, Members. On January 29, agreement of the parties to serve as Arbitrator: 1999, the panel found that the 1916 Act is incon- Mr. Dimitrij Grcar, Chair; Mr. Brendan sistent with WTO rules because the specific McGivern and Mr. Eugeniusz Piontek, intent requirement of the Act does not satisfy the Members. At the request of the United States, material injury test required by the Antidumping the Arbitrator suspended its work on March 4, Agreement. The panel also found that civil and 2002, in light of on-going efforts to resolve the criminal penalties in the 1916 Act go beyond the dispute. On September 19, 2003, the EU provisions of the Antidumping Agreement. The requested that its arbitration resume. panel report was circulated on March 31, 2000. Separately, Japan sought its own rulings on the United States—Section 110(5) of the same matter from the same panelists; that report Copyright Act (DS160) was circulated on May 29, 2000. On the same day, As amended in 1998 by the Fairness in Music the United States filed notices of appeal for both Licensing Act, section 110(5) of the U.S. cases, which were consolidated into one Copyright Act permits certain retail establish- Appellate Body proceeding. The Appellate Body ments to play radio or television music without report, issued August 28, 2000, affirmed the paying royalties to songwriters and music panel reports. This ruling, however, has no effect publishers. The European Union claimed that, as on the U.S. antidumping law, as codified in the a result of this exception, the United States is in Tariff Act of 1930, as amended. The panel and violation of its TRIPS obligations. Consultations Appellate Body reports were adopted by the DSB with the European Union took place on March 2, on September 26, 2000. On November 17, 2000, 1999. A panel on this matter was established on the European Union and Japan requested arbitra- May 26, 1999. On August 6, 1999, the Director- tion to determine the period of time to be given General composed the panel as follows: the United States to implement the panel’s recom- Ms. Carmen Luz Guarda, Chair; Mr. mendation. By mutual agreement of the parties, Arumugamangalam V. Ganesan and Mr. Ian F. Mr. A.V. Ganesan was appointed to serve as arbi- Sheppard, Members. The panel issued its final trator. On February 28, 2001, he determined that report on June 15, 2000, and found that one of the deadline for implementation was July 26, the two exemptions provided for in section 2001. On July 24, the DSB approved a U.S. 110(5) is inconsistent with the United States’ proposal to extend the deadline until the earlier of WTO obligations. The panel report was adopted the end of the then-current session of the U.S. by the DSB on July 27, 2000, and the United Congress or December 31, 2001. Legislation to States has informed the DSB of its intention to repeal the Act and terminate cases pending under respect its WTO obligations. On October 23, the Act was introduced in the House on 2000, the European Union requested arbitration December 20, 2001 and in the Senate on April 23, to determine the period of time to be given the 2002, but legislative action was not completed. United States to implement the panel’s recom- Legislation repealing the Act and terminating mendation. By mutual agreement of the parties, pending cases was again introduced in the Senate Mr. J. Lacarte-Muró was appointed to serve as on May 19, 2003, and repeal legislation that arbitrator. He determined that the deadline for would not terminate pending cases was intro- implementation should be July 27, 2001. On July duced in the House on March 4, 2003 and in the 24, 2001, the DSB approved a U.S. proposal to Senate on May 23, 2003. extend the deadline until the earlier of the end of the then-current session of the U.S. Congress or On January 17, 2002, the United States objected December 31, 2001. to proposals by the EU and Japan to suspend concessions, thereby referring the matter to On July 23, 2001, the United States and the arbitration. On February 20, 2002, the European Union requested arbitration to deter- following individuals were selected by mutual mine the level of nullification or impairment of

38 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT benefits to the European Union as a result of was circulated on August 6, 2001, rejecting 13 of section 110(5)(B). In a decision circulated to the EU’s 14 claims and finding that, in most WTO Members on November 9, 2001, the arbi- respects, section 211 is not inconsistent with the trators determined that the value of the benefits obligations of the United States under the TRIPS lost to the European Union in this case is $1.1 Agreement. The European Union appealed the million per year. On January 7, 2002, the decision on October 4, 2001. The Appellate Body European Union sought authorization from the issued its report on January 2, 2002. The DSB to suspend obligations vis-à-vis the United Appellate Body reversed the panel’s one finding States. The United States objected to the details of against the United States, and upheld the panel’s the EU request, thereby causing the matter to be favorable findings that WTO Members are referred to arbitration. However, because the entitled to determine trademark and trade name United States and the European Union have been ownership criteria. The Appellate Body found engaged in discussions to find a mutually accept- certain instances, however, in which section 211 able resolution of the dispute, the arbitrators might breach the national treatment and most suspended the proceeding pursuant to a joint favored nation obligations of the TRIPS request by the parties filed on February 26, 2002. Agreement. The panel and Appellate Body reports were adopted on February 1, 2002. On March 28, On June 23, 2003, the United States and the EU 2002, the United States and the European Union notified to the WTO a mutually satisfactory notified the DSB that they had agreed that the temporary arrangement regarding the dispute. reasonable period of time for the United States to Pursuant to this arrangement, the United States implement the DSB’s recommendations and made a lump-sum payment of $3.3 million to the rulings would expire on December 31, 2002, or EU, to a fund established to finance activities of on the date on which the current session of the general interest to music copyright holders, in U.S. Congress adjourns, whichever is later, and in particular awareness-raising campaigns at the no event later than January 3, 2003. On national and international level and activities to December 19, 2003, the EU and the United States combat piracy in the digital network. The agreed to extend the reasonable period of time for arrangement covers the three-year period ending implementation until December 31, 2004. December 21, 2004. United States—Antidumping measures on United States—Section 211 Omnibus certain hot-rolled steel products from Japan Appropriations Act (DS176) (DS184) Section 211 addresses the ability to register or Japan alleged that the preliminary and final deter- enforce, without the consent of previous owners, minations of the Department of Commerce and trademarks or trade names associated with busi- the USITC in their antidumping investigations of nesses confiscated without compensation by the certain hot-rolled steel products from Japan, Cuban government. The EU questioned the issued on November 25 and 30, 1998, February consistency of Section 211 with the TRIPS 12, 1999, April 28, 1999, and June 23, 1999, were Agreement, and it requested consultations on July erroneous and based on deficient procedures 7, 1999. Consultations were held September 13 under the U.S. Tariff Act of 1930 and related regu- and December 13, 1999. On June 30, 2000, the lations. Japan claimed that these procedures and European Union requested a panel. A panel was regulations violate the GATT 1994, as well as the established on September 26, 2000, and at the Antidumping Agreement and the Agreement request of the European Union the WTO Establishing the WTO. Consultations were held Director-General composed the panel on October on January 13, 2000, and a panel was established 26, 2000, as follows: Mr. Wade Armstrong, on March 20, 2000. In May 1999, the Director- Chairman; Mr. François Dessemontet and Mr. General composed the panel as follows: Mr. Armand de Mestral, Members. The panel report Harsha V. Singh, Chairman; Mr. Yanyong

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Phuangrach and Ms. Lidia di Vico, Members. On panelists: Mr. Dariusz Rosati, Chairman and February 28, 2001, the panel circulated its report, Robert Azevedo and Eduardo Bianchi, Members. in which it rejected most of Japan’s claims, but The panel report was circulated on October 29, found that, inter alia, particular aspects of the 2001. The panel found that the U.S. measure antidumping duty calculation, as well as one violates the Safeguards Agreement, but at the aspect of the U.S. antidumping duty law, were same time rejected several of Korea’s claims inconsistent with the WTO Antidumping related to both the measure itself and the investi- Agreement. On April 25, 2001, the United States gation. The U.S. notice of appeal was filed with filed a notice of appeal on certain issues in the the WTO Appellate Body on November 19, 2001. panel report. The Appellate Body report was issued on July 24, 2001, reversing in part and The Appellate Body issued its report on February affirming in part. The reports were adopted on 15, 2002. It rejected some of the panel’s findings August 23, 2001. Pursuant to a February 19, 2002, in favor of the United States, but also upheld arbitral award, the United States was given 15 several of those findings. The DSB adopted the months, or until November 23, 2002, to imple- panel report, as modified by the Appellate Body ment the DSB’s recommendations and rulings. report, on March 8, 2002. The United States and On November 22, 2002, the Department of Korea reached agreement in the dispute on July Commerce issued a new final determination in the 29, 2002. Pursuant to that agreement, the United hot-rolled steel antidumping duty investigation, States increased the quantity of Korean line pipe which implemented the recommendations and exempt from the safeguard measure to 17,500 rulings of the DSB with respect to the calculation tons per quarter, effective September 1, 2002. The of antidumping margins in that investigation. In safeguard measure remained unchanged with view of other DSB recommendations and rulings, regard to other import sources. On March 18, after consultations with Japan, the United States 2003, the United States notified the DSB that the requested that the “reasonable period of time” in safeguard measure at issue was terminated on this dispute be extended until December 31, 2003, March 1, 2003. or until the end of the first session of the next Congress, whichever is earlier. That request was United States—Antidumping measures and approved by the DSB at its meeting of December 5, countervailing measures on steel plate from 2002. On December 10, 2003, the DSB agreed India (DS206) to extend the reasonable period of time for India contended that the Department of implementation until July 31, 2004. Commerce made several errors in its final deter- minations regarding certain cut-to-length carbon United States—Definitive safeguard measures quality steel plate products from India, dated on imports of circular welded carbon quality December 13, 1999 and amended on February line pipe from Korea (DS202) 10, 2000. India also argued that the USITC made On June 13, 2000, Korea requested consultations errors with respect to the negligibility, cumula- regarding safeguard measures imposed by the tion, and material injury caused by such United States on imports of circular welded products. India claimed that these errors were carbon quality line pipe. These measures were based on deficient procedures contained in the proclaimed by the United States on February 18, U.S. antidumping and countervailing duty laws, 2000, and introduced on March 1, 2000. Korea and thus raised questions concerning the obliga- argued that such measures were inconsistent with tions of the United States under the Antidumping the Agreement on Safeguards and the GATT Agreement, the GATT 1994, the Subsidies 1994. Consultations were held July 28, 2000. On Agreement, and the Agreement Establishing the September 14, 2000, Korea requested the estab- WTO. India requested consultations with the lishment of a panel. A panel was established on United States regarding this matter on October 4, October 23, 2000, and composed of the following 2000. The United States and India held

40 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT consultations in November 2000 and in July Section 771(5)(F) of the Tariff Act of 1930. At the 2001. India then filed a panel request, which request of the European Union, the WTO focused on a subset of the claims it had raised Director-General composed the panel on during consultations. On June 21, 2002, the November 5, 2001, as follows: Mr. Gilles Gauthier, Panel issued its report in the dispute, rejecting Chairman; Ms. Marie-Gabrielle Ineichen-Fleisch most of India’s claims. The Panel agreed with and Mr. Michael Mulgrew, Members. India that one aspect of the challenged determi- nation was not consistent with the Antidumping On July 31, 2002, the panel circulated its final Agreement. It found that the Department of report. In a prior dispute concerning leaded bar Commerce had failed to explain why it would from the United Kingdom, the European Union have been “unduly difficult” to use certain infor- successfully challenged the application of an mation that the Indian respondent submitted. earlier version of Commerce’s methodology, The DSB adopted the report on July 29, 2002. On known as “gamma.” In this dispute, the panel August 27, 2002, the United States announced it found that Commerce’s current “same person” intentions on implementing the DSB’s rulings and methodology (as well as the continued applica- recommendations arising from the report. The tion of the “gamma” methodology in several United States and India subsequently reached cases) was inconsistent with the Subsidies agreement on a reasonable period of time for Agreement. The panel also found that section implementation, ending on December 29, 2002. 771(5)(F) of the Tariff Act of 1930—the “change of ownership” provision in the U.S. statute—was On February 7, 2003, the United States imple- WTO-inconsistent. The United States appealed, mented the DSB’s recommendations and rulings and the Appellate Body issued its report on by issuing a new determination in the investiga- December 9, 2002. The Appellate Body reversed tion at issue. The authorities examined and the panel with respect to section 771(5)(F), considered all of the data on the record, and finding that it did not mandate WTO-inconsis- provided a thorough explanation of their treat- tent behavior. The Appellate Body affirmed the ment of this data, thereby fully complying with panel’s findings that the “gamma” and “same U.S. WTO obligations. person” methodologies are inconsistent with the Subsidies Agreement, although it modified the United States—Countervailing duty measures panel’s reasoning. concerning certain products from the European Communities (DS212) On January 27, 2003, the United States informed On November 13, 2000, the European Union the DSB of its intention to implement the DSB’s requested WTO dispute settlement consultations recommendations and rulings in a manner that in 14 separate U.S. countervailing duty proceed- respects U.S. WTO obligations. U.S. implementa- ings covering imports of steel and certain other tion proceeded in two stages. First, Commerce products from member states of the European modified its methodology for analyzing a privati- Union, all with respect to the Department of zation in the context of the CVD law. Commerce Commerce’s “change in ownership” (or “privati- published a notice announcing its new, WTO- zation”) methodology that was challenged consistent methodology on June 23, 2003. See successfully by the European Union in a WTO Notice of Final Modification of Agency Practice dispute concerning leaded steel products from the Under Section 123 of the Uruguay Round UK. Consultations were held December 7, 2000. Agreements Act, 68 Fed. Reg. 37,125. Second, Further consultations were requested on February Commerce applied its new methodology to the 1, 2001, and held on April 3. A panel was estab- twelve determinations that had been found to be lished at the EU’s request on September 10, 2001. WTO-inconsistent. On October 24, 2003, In its panel request, the European Union chal- Commerce issued revised determinations under lenged 12 separate US CVD proceedings, as well as section 129 of the Uruguay Round Agreements

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Act. As a result of this action, Commerce: (1) favor of the United States: (1) the EU claims revoked two CVD orders in whole; (2) revoked regarding “expedited sunset reviews” and “ample one CVD order in part; and (3) in the case of five opportunity” for parties to submit evidence were CVD orders, revised the cash deposit rates for not identified in the panel request, and were certain companies. See Notice of Implementation therefore outside the panel’s terms of reference; Under Section 129 of the Uruguay Round (2) because Article 21.3 of the Subsidies Agreements Act; Countervailing Measures Agreement contains no evidentiary standard for Concerning Certain Steel Products from the the self-initiation of sunset reviews, the automatic European Communities, 68 Fed. Reg. 64,858 (Nov. self-initiation of sunset reviews by Commerce 17, 2003). was not a violation; and (3) the U.S. CVD law “as such” is not inconsistent with Article 21.3 with On November 7, 2003, the United States respect to the obligation that authorities informed the DSB of its implementation of the “determine” the likelihood of continuation or DSB’s recommendations and rulings. recurrence of subsidization in a sunset review. Disagreeing with the United States, however, a United States—Countervailing duties on majority of the panel found that the Subsidies certain corrosion-resistant carbon steel flat Agreement’s one percent de minimis standard for products from Germany (DS213) the investigation phase of a CVD proceeding On November 13, 2000, the European Union applies to sunset reviews. Because U.S. law requested dispute settlement consultations with applies a 0.5 percent de minimis standard in respect to the Department of Commerce’s coun- reviews, the majority found a violation with tervailing duty order on certain corrosion- respect to U.S. law “as such” and as applied in the resistant flat rolled steel products from Germany. German steel sunset review. In a rare step, one In a “sunset review”, the Department of panelist dissented from this finding. The panel Commerce declined to revoke the order based on also found that Commerce’s determination of a finding that subsidization would continue at a likelihood of continuation or recurrence of subsi- rate of 0.54 percent. The European Union alleged dization in the German steel sunset review lacked that this action violates the Subsidies Agreement, “sufficient factual basis,” and therefore was asserting that countervailing duty orders must be inconsistent with the obligation to “determine” revoked where the rate of subsidization found is under Article 21.3. less than the 1 percent de minimis standard for initial countervailing duty investigations. The The United States appealed the de minimis finding, United States and the European Union held but not the case-specific finding concerning consultations pursuant to this request on Commerce’s determination of likelihood. The December 8, 2000. A second round of consulta- European Union cross-appealed on the findings it tions was held on March 21, 2001, in which the lost. The Appellate Body issued its report on European Union made a new allegation that the November 28, 2002, and found in favor of the automatic initiation of sunset reviews by the United States on all counts. The DSB adopted the United States is inconsistent with the SCM panel and Appellate Body reports on December Agreement. A panel was established at the EU’s 19, 2002. On January 17, 2003, the United States request on September 10, 2001. The panel was informed the DSB of its intent to implement the composed of: Mr. Hugh McPhail, Chair, and Mr. DSB’s recommendations and rulings. Wieslaw Karsz, Member (selected by agreement of the parties); and Mr. Ronald Erdmann, United States—Safeguard measures on Member (selected by the Director-General). imports of line pipe and wire rod from the European Communities (DS214) In its final report, which was circulated on July 3, On December 1, 2000, the European Union 2002, the panel made the following findings in requested consultations with the United States

42 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT regarding U.S. safeguard measures on imports of five principal claims brought by the complaining circular welded carbon quality line pipe and wire parties. Specifically, the panel found that the rod. The European Union argued that these meas- CDSOA constitutes a specific action against ures are inconsistent with the Agreement on dumping and subsidies and therefore is inconsis- Safeguards and the GATT 1994. The European tent with the WTO Antidumping and SCM Union also claimed that certain aspects of the Agreements as well as GATT Article VI. The panel underlying U.S. safeguards legislation—Sections also found that the CDSOA distorts the standing 201 and 202 of the Trade Act of 1974—and determination conducted by the Commerce Section 311 of the NAFTA Implementation Act Department and therefore is inconsistent with the prevented the United States from respecting standing provisions in the Antidumping and SCM certain provisions of the Agreement on Agreements. The United States prevailed against Safeguards and the GATT 1994. Consultations the complainants’ claims under the Antidumping were held on January 26, 2001, and informal and SCM Agreements that the CDSOA distorts consultations continued thereafter. A panel was the Commerce Department’s consideration of established at the EU’s request on September 10, price undertakings (agreements to settle AD/CVD 2001, but it has not yet been composed. investigations). The panel also rejected Mexico’s actionable subsidy claim brought under the SCM United States—Continued Dumping and Agreement. Finally, the panel rejected the Subsidy Offset Act of 2000 (CDSOA) complainants’ claims under Article X:3 of the (DS217/234) GATT, Article 15 of the Anti-dumping On December 21, 2000, Australia, Brazil, Chile, Agreement, and Articles 4.10 and 7.9 of the SCM the European Union, India, Indonesia, Japan, Agreement. The United States appealed the Korea, and Thailand requested consultations panel’s adverse findings on October 1, 2002. The with the United States regarding the Continued Appellate Body issued its report on January 16, Dumping and Subsidy Offset Act of 2000 (19 USC 2003, upholding the panel’s finding that the 754), which amended Title VII of the Tariff Act of CDSOA is an impermissible action against 1930 to transfer import duties collected under dumping and subsidies, but reversing the panel’s U.S. antidumping and countervailing duty orders finding on standing. The DSB adopted the panel from the U.S. Treasury to the companies that filed and Appellate Body reports on January 27, 2003. the antidumping and countervailing duty peti- At the meeting, the United States stated its inten- tions. Consultations were held on February 6, tion to implement the DSB recommendations and 2001. On May 21, 2001, Canada and Mexico also rulings. On March 14, 2003, the complaining requested consultations on the same matter, parties requested arbitration to determine a which were held on June 29, 2001. On July 12, reasonable period of time for U.S. implementa- 2001, the original nine complaining parties tion. On June 13, 2003, the arbitrator determined requested the establishment of a panel, which was that this period would end on December 27, established on August 23. On September 10, 2003. On June 19, 2003, legislation to bring the 2001, a panel was established at the request of Continued Dumping and Subsidy Offset Act into Canada and Mexico, and all complaints were conformity with U.S. obligations under the AD consolidated into one panel. The panel was Agreement, the SCM Agreement and the GATT of composed of: Mr. Luzius Wasescha, Chair 1994 was introduced in the U.S. Senate (S. 1299). (selected by mutual agreement of the parties); and Mr. Maamoun Abdel-Fattah and Mr. United States—Countervailing duties on William Falconer, Members (selected by the certain carbon steel products from Brazil Director-General). (DS218) On December 21, 2000, Brazil requested The panel issued its report on September 2, 2002, consultations with the United States regarding finding against the United States on three of the U.S. countervailing duties on certain carbon steel

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products from Brazil, alleging that the United States acted consistently with the SCM Department of Commerce’s “change in owner- Agreement and GATT 1994 in determining that ship” (or “privatization”) methodology, which the programs at issue provided a financial contri- was ruled inconsistent with the WTO Subsidies bution and that those programs were “specific” Agreement when applied to leaded steel products within the meaning of the SCM Agreement. It also from the UK, violates the Subsidies Agreement as found, however, that the United States had calcu- it was applied by the United States in this coun- lated the benefit incorrectly and had improperly tervailing duty case. Consultations were held on failed to conduct a “pass-through” analysis to January 17, 2001. determine whether subsidies granted to one producer were passed through to other producers. United States—Antidumping duties on The United States appealed these issues to the seamless pipe from Italy (DS225) WTO Appellate Body on October 21, 2003, and On February 5, 2001, the European Union Canada appealed the “financial contribution” requested consultations with the United States issue on November 5. The Appellate Body report regarding antidumping duties imposed by the is expected to issue on January 19, 2004. United States on seamless line and pressure pipe from Italy, complaining about the final results of a United States—Calculation of dumping “sunset” review of that antidumping order, as well margins (DS239) as the procedures followed by the Department of On September 18, 2001, the United States Commerce generally for initiating “sunset” received from Brazil a request for consultations reviews pursuant to Section 751 of the Tariff Act regarding the de minimis standard as applied by of 1930 and 19 CFR §351. The European Union the U.S. Department of Commerce in conducting alleges that these measures violate the WTO reviews of antidumping orders, and the practice Antidumping Agreement. Consultations were of “zeroing” (or, not offsetting “dumped” sales held on March 21, 2001. with “non-dumped” sales) in conducting investi- gations and reviews. Brazil submitted a revised United States—Final countervailing duty request on November 1, 2001, focusing specifi- determination with respect to certain cally on the antidumping duty order on silicon softwood lumber from Canada (DS257) metal from Brazil. Consultations were held on On May 3, 2002, Canada requested consultations December 7, 2001. with the United States regarding the U.S. Department of Commerce’s final countervailing United States—Definitive safeguard duty determination concerning certain softwood measures on imports of certain steel products lumber from Canada. Among other things, (DS248-49, 251-54, 258-59) Canada challenged the evidence upon which the By Presidential Proclamation 7529 of March 5, investigation was initiated, claimed that the 2002, the United States imposed safeguard Commerce Department imposed countervailing measures on ten products: certain carbon flat- duties against programs and policies that are not rolled steel, hot-rolled bar, cold-finished bar, subsides and are not “specific” within the meaning rebar, certain welded pipe, carbon and alloy of the Agreement on Subsidies and Countervailing fittings and flanges, stainless steel bar, stainless Measures, and that the Commerce Department steel rod, stainless steel wire, and tin mill steel. failed to conduct its investigation properly. The measures consisted for the most part of Consultations were held on June 18, 2002, and a supplemental tariffs, with one type of certain panel was established at Canada’s request on carbon flat-rolled steel (steel slab) being subject October 1, 2002. The panel was composed of Mr. to a tariff-rate quota (“TRQ”). All measures are Elbio Rosselli, Chair, and Mr. Weislaw Karsz and scheduled to remain in effect until March 21, Mr. Remo Moretta, Members. In its report, circu- 2005, with the tariff rates being decreased by lated on August 29, 2003, the panel found that the one-fifth in the second and third years. (For the

44 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT slab TRQ, the in-quota quantity would increase of the safeguard measures that the United States: by 3 percent each year). Our FTA partners (1) failed to demonstrate that the injurious (Canada, Mexico, Israel and Jordan), along with imports were the result of unforeseen develop- developing country WTO Members that account ments and (2) failed to establish that, after for less than three percent of total imports, are exclusion of our FTA partners, imports from the not subject to these measures. remaining countries by themselves caused serious injury to the relevant U.S. industries. The The EC, Japan, Korea, China, Switzerland, and Appellate Body also upheld the panel’s finding Norway requested consultations under the WTO that the ITC failed to provide an adequate expla- Dispute Settlement Understanding in March and nation of its finding that imports of certain carbon early April of 2002. Consultations were held on flat-rolled steel, stainless steel rod, and hot-rolled 11-12 April 2002 with these countries as bar increased. In light of these findings, the complaining parties, and Canada, Mexico, New Appellate Body did not address the U.S. appeal Zealand, and Venezuela as third parties. These regarding the panel’s conclusions on causation. countries requested the formation of panels, The DSB adopted the panel and Appellate Body which were established and consolidated with reports on December 10, 2003. each other in June and July of 2002. New Zealand requested consultations on the steel safeguard Chinese Taipei requested consultations on measures on May 14, and Brazil on May 21. November 1, 2002. Chinese Taipei alleged viola- Consultations were held simultaneously with tions of Articles 2, 3, 4, and 5 of the Safeguards both on June 13. Panels were established in Agreement, as well as Articles I:1 and XIX:1(a) of response to the New Zealand and Brazil requests, the GATT 1994. Consultations were held and consolidated with the panels in the other December 12, 2002. disputes. The United States reached agreement with the complaining parties to request that the United States—Rules of origin for textiles and panel adopt an extended briefing schedule. The apparel products (DS243) Director-General appointed the panelists on July Section 334 of the Uruguay Round Agreements 25, 2002, as follows: Ambassador Stefan Act established statutory rules of origin for textile Johannesson, Chairman, and Mr. Mohan Kumar, and apparel products. Section 405 of the Trade and Ms. Margaret Liang, Members. and Development Act of 2000 amended Section 334. On January 11, 2002, India requested In a report issued on July 11, 2003, the Panel consultations regarding the rules set out in found that each of the ITC determinations was Section 334 and Section 405, claiming that they inconsistent with WTO rules because the ITC did distorted textile trade and were protectionist in not properly establish that imports caused injury violation of the Agreement on Rules of Origin. to domestic steel producers, or that any injury Consultations with India took place on February was the result of “unforeseen developments.” 7, 2002, February 28, 2002 and March 26, 2002. Having found against the ITC determination, the A panel on this matter was established on June Panel did not address the Administration’s deci- 24, 2002, and composed by agreement of the sions on what safeguard measures to apply in parties on October 10, 2002. The members were response to the ITC determinations. as follows: Mr. Lars Anell, Chair; Mr. Donald McRae and Ms. Elizabeth Chelliah. In a report The United States appealed the report on August circulated on June 20, 2003, the panel found that 11, 2003. The Appellate Body issued its report on the U.S. rules of origin for textile and apparel November 10, 2003, and upheld the Panel’s ulti- products are entirely consistent with the United mate conclusion that each of the ten U.S. States’ WTO obligations. The DSB adopted the safeguard measures imposed is inconsistent with report on July 21, 2003. WTO rules. Specifically, it found with regard to all

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United States—Sunset review of antidumping “Equalizing Excise Tax” imposed by the State of duties on corrosion-resistant carbon steel flat Florida on processed orange and grapefruit products from Japan (DS244) products produced from citrus fruit grown On January 30, 2002, Japan requested consulta- outside the United States—Section 601.155 tions with the United States regarding the final Florida Statutes. Consultations were held with determination of both the United States Brazil on May 2, 2002, and June 27, 2002, and a Department of Commerce and the United States panel was established on October 1, 2002, but is International Trade Commission on the full sunset not yet composed. review of corrosion-resistant carbon steel flat products from Japan, issued on August 2, 2000 United States—Sunset reviews of antidumping and November 21, 2000, respectively. and countervailing duties on certain steel Consultations were held on March 14, 2002. A products from France and Germany (DS262) panel was established at Japan’s request on May 22, On July 25, 2002, the European Union requested 2002. The Director-General selected as panelists consultations with the United States with respect Mr. Dariusz Rosati, Chair, and Mr. Martin Garcia to anti-dumping and countervailing duties and Mr. David Unterhalter, Members. imposed by the United States on imports of corro- sion-resistant carbon steel flat products In its report circulated on August 14, 2003, the (“corrosion resistant steel”) from France (dealt panel found that the United States acted consis- with under US case numbers A-427-808 and C- tently with its international obligations under the 427-810) and Germany (dealt with under US case WTO in conducting this sunset review. The panel numbers A-428-815 and C-428-817), and on found that Commerce may automatically initiate imports of cut-to-length carbon steel plate (“cut- a sunset review; that U.S. law contains proper to-length steel”) from Germany (dealt with under standards for conducting sunset reviews; that the US case numbers A-428-816 and C-428-817). de miminis and negligibility provisions in the Consultations were held on September 12, 2002. Antidumping Agreement apply only to investiga- tions, not sunset reviews; that U.S. administrative United States—Final dumping determination practice can only be challenged with respect to its on softwood lumber from Canada (DS264) application in a particular sunset review, not “as On September 13, 2002, Canada requested WTO such”; and that Commerce and the ITC properly dispute settlement consultations concerning the conducted this particular sunset review. Japan amended final determination by the U.S. appealed the report on September 15, 2003. Department of Commerce of sales at less than fair value with respect to certain softwood lumber The Appellate Body issued its report on December from Canada, as published in the May 22, 2002 15, 2003. The Appellate Body agreed that the United Federal Register, along with the antidumping States may maintain the antidumping duty order at duty order with respect to imports of the subject issue. The Appellate Body, however, concluded that products. Canada alleged that Commerce’s initia- the panel had not fully considered relevant argu- tion of its investigation concerning the subject ments in finding that the Sunset Policy Bulletin can products, as well as aspects of its methodology not be challenged “as such,” and reversed the in reaching its final determination, violated finding on that basis. The DSB adopted the panel the GATT 1994 and the Agreement on and Appellate Body reports on January 9, 2004. Implementation of Article VI of GATT 1994. Consultations were held on October 11, 2002. On United States—Equalizing excise tax imposed December 6, 2002, Canada requested establish- by Florida on processed orange and grapefruit ment of a panel, and the DSB established the products (DS250) panel on January 8, 2003. On February 25, 2003, On March 20, 2002, Brazil requested consulta- the parties agreed on the panelists, as follows: Mr. tions with the United States regarding the

46 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Harsha V. Singh, Chairman, and Mr. Gerhard country tubular goods (OCTG) from Argentina, Hannes Welge and Mr. Adrian Makuc, Members. issued on November 7, 2000, and June 2001, respectively, and the USDOC’s determination to United States—Subsidies on upland cotton continue the antidumping duty order on OCTG (DS267) from Argentina, issued on July 25, 2001. On September 27, 2002, Brazil requested WTO Consultations were held on November 14, 2002, consultations pursuant to Articles 4.1, 7.1 and 30 and December 17, 2002. Argentina requested the of the Agreement on Subsidies and Countervailing establishment of a panel on April 3, 2003. The Measures, Article 19 of the Agreement on DSB established a panel on May 19, 2003. On Agriculture, Article XXII of the General September 4, 2003, the Director General Agreement on Tariffs and Trade 1994, and Article composed the panel as follows: Mr. Paul 4 of the Understanding on Rules and Procedures O’Connor, Chairman, and Mr. Bruce Cullen and Governing the Settlement of Disputes. The Mr. Faizullah Khilji, Members. Brazilian consultation request on U.S. support measures that benefit upland cotton claims that United States—Investigation of the U.S. these alleged subsidies and measures are inconsis- International Trade Commission in softwood tent with U.S. commitments and obligations under lumber from Canada (DS277) the Agreement on Subsidies and Countervailing On December 20, 2002, Canada requested Measures, the Agreement on Agriculture, and the consultations concerning the May 16, 2002 deter- General Agreement on Tariffs and Trade 1994. mination of the U.S. International Trade Consultations were held on December 3, 4 and 19 Commission (notice of which was published in of 2002, and January 17, 2003. the May 22, 2002 Federal Register) that imports of softwood lumber from Canada, which the U.S. On February 6, 2003, Brazil requested the estab- Department of Commerce found to be subsidized lishment of a panel. Brazil’s panel request pertains and sold at less than fair value, threatened an to “prohibited and actionable subsidies provided industry in the United States with material injury. to US producers, users and/or exporters of upland Canada alleged that flaws in the U.S. International cotton, as well as legislation, regulations and Trade Commission’s determination caused the statutory instruments and amendments thereto United States to violate various aspects of the providing such subsidies (including export credit GATT 1994, the Agreement on Implementation of guarantees), grants, and any other assistance to Article VI of GATT 1994, and the Agreement on the US producers, users and exporters of upland Subsidies and Countervailing Measures. cotton” [footnote omitted]. The Dispute Consultations were held January 22, 2003. Canada Settlement Body established the panel on March requested the establishment of a panel on April 3, 18, 2003. On May 19, 2003, the Director General 2003, and the DSB established a panel on May 7, appointed as panelists Dariusz Rosati of Poland, 2003. On June 19, 2003, the Director General Chair; Daniel Moulis of Australia and Mario composed the panel as follows: Mr. Hardeep Singh Matus of Chile, Members. Puri, Chairman, and Mr. Paul O’Connor and Ms. Luz Elena Reyes De La Torre, Members. United States—Sunset reviews of antidumping measures on oil country tubular goods from United States—Countervailing duties on steel Argentina (DS268) plate from Mexico (WT/DS280) On October 7, 2002, Argentina requested consul- On January 21, 2003, Mexico requested consulta- tations with the United States regarding the final tions on an administrative review of a determinations of the United States Department countervailing duty order on carbon steel plate in of Commerce (USDOC) and the United States sheets from Mexico. Mexico alleges that the International Trade Commission in the sunset Department of Commerce used a WTO-inconsis- reviews of the antidumping duty order on oil tent methodology—the “change-in-ownership”

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methodology—to determine the existence of determinations of Commerce and the ITC. countervailable benefits bestowed on a Mexican Mexico also challenges certain provisions and steel producer. Mexico alleges inconsistency with procedures contained in the Tariff Act of 1930, various articles of the WTO Agreement on the regulations of Commerce and the ITC, and Subsidies and Countervailing Measures. Commerce’s Sunset Policy Bulletin, as well as the Consultations were held April 2-4, 2003. Mexico URAA Statement of Administrative Action. The requested the establishment of a panel on August focus of this case appears to be on the analytical 4, 2003, and the DSB established a panel on standards used by Commerce and the ITC in August 29, 2003. sunset reviews, although Mexico also challenges certain aspects of Commerce’s antidumping United States—Anti-dumping measures on methodology. Consultations were held April 2-4, cement from Mexico (WT/DS281) 2003. Mexico requested the establishment of a On January 31, 2003, Mexico requested consul- panel on July 29, 2003, and the DSB established a tations regarding a variety of administrative panel on August 29, 2003. determinations made in connection with the antidumping duty order on gray portland cement United States—Measures Affecting the and cement clinker from Mexico, including Cross-Border Supply of Gambling and seven administrative review determinations by Betting Services (DS285) Commerce, the sunset determinations of On March 13, 2003, Antigua & Barbuda Commerce and the ITC, and the ITC’s refusal to requested consultations regarding its claim that conduct a changed circumstances review. Mexico U.S. federal, state and territorial laws on gambling also referred to certain provisions and proce- violate U.S. specific commitments under the dures contained in the Tariff Act of 1930, the General Agreement on Trade in Services (“GATS”), regulations of Commerce and the ITC, and as well as Articles VI, XI, XVI, and XVII of the Commerce’s Sunset Policy Bulletin, as well as the GATS, to the extent that such laws prevent or can URAA Statement of Administrative Action. prevent operators from Antigua & Barbuda from Mexico cited a host of concerns, including case- lawfully offering gambling and betting services in specific dumping calculation issues; Commerce’s the United States. Consultations were held on practice of zeroing; the analytical standards used April 30, 2003. Antigua & Barbuda requested the by Commerce and the ITC in sunset reviews; the establishment of a panel on June 12, 2003. The U.S. retrospective system of duty assessment, DSB established a panel on July 21, 2003. At the including the assessment of interest; and the request of the Antigua & Barbuda, the WTO assessment of duties in regional industry cases. Director-General composed the panel on August Consultations were held April 2-4, 2003. Mexico 25, 2003, as follows: Mr. B. K. Zutshi, Chairman, requested the establishment of a panel on July and Mr. Virachai Plasai and Mr. Richard Plender, 29, 2003, and the DSB established a panel on Members. August 29, 2003. United States—Laws, regulations and United States—Anti-dumping measures on oil methodology for calculating dumping country tubular goods (OCTG) from Mexico margins (“zeroing”) (WT/DS294) (WT/DS282) On June 12, 2003, the European Union requested On February 18, 2003, Mexico requested consul- consultations regarding the use of “zeroing” in the tations regarding several administrative calculation of dumping margins. Consultations determinations made in connection with the were held July 17, 2003. The EU requested antidumping duty order on oil country tubular further consultations on September 8, 2003. goods from Mexico, including the sunset review Consultations were held October 6, 2003.

48 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT United States—Countervailing duty helpful in improving their own trade policy investigation on dynamic random access formulation and coordination. The current memory semiconductors (DRAMS) from process reflects improvements to streamline the Korea (WT/DS296) TPRM and gives it broader coverage and greater On June 30, 2003, Korea requested consultations flexibility. Reports cover the range of WTO agree- regarding determinations made by Commerce ments including goods, services, and intellectual and the ITC in the countervailing duty investiga- property and are available to the public on the tion on DRAMS from Korea, and related laws and WTO’s web site at www.wto.org. Documents are regulations. Consultations were held August 20, filed on the site’s Document Distribution Facility 2003. Korea requested further consultations on under the document symbol “WT/TPR.” August 18, 2003, which were held October 1, 2003. Korea requested the establishment of a Major Issues in 2003 panel on November 19, 2003. The panel request During 2003, the TPRB conducted the following covered only the Commerce and ITC determina- 17 reviews: , El Salvador, Canada, tions made in the DRAMS investigation. Burundi, South African Custom’s Union (comprised of Botswana, Lesotho, Namibia, South 2. Trade Policy Review Body Africa, and Swaziland), New Zealand, Morocco, Indonesia, Niger/Senegal (reviewed together as Status West-African Monetary Union members), The Trade Policy Review Body (TPRB), a Honduras, Bulgaria, Guyana, Haiti, Thailand, subsidiary body of the General Council, was Chile, and Turkey. This group included six least- created by the Marrakesh Agreement Establishing developed country Members and seven Members the WTO to administer the Trade Policy Review reviewed for the first time. As of the end of 2003, Mechanism (TPRM). The TPRM is a valuable the TPRM had conducted 182 reviews, covering resource for improving the transparency of 110 out of 146 Members (counting the European Members’ trade and investment regimes and in Union as fifteen) and representing approximately ensuring adherence to WTO rules. The TPRM 87 percent of world merchandise trade. examines national trade policies of each Member on a schedule designed to cover the full WTO Reviews have emphasized the macroeconomic Membership on a frequency determined by trade and structural context for trade policies, including volume. The process starts with an independent the effects of economic and trade reforms, trans- report by the WTO Secretariat on the trade poli- parency with respect to the formulation and cies and practices of the Member under view. This implementation of trade policy, and the current Member works closely with the Secretariat to economic performance of Members under review. provide relevant information for the report. The Another important issue has been the balance Secretariat report is accompanied by another between multilateral, bilateral, regional and report prepared by the government undergoing unilateral trade policy initiatives. Closer attention the review. Together these reports are discussed has been given to the link between Members’ trade by the WTO Membership in a TPRB session. At policies and the implementation of WTO this session, the Member under review will Agreements, focusing on Members’ participation discuss the report and answer questions on its in particular Agreements, the fulfillment of notifi- trade policies and practices. The express purpose cation requirements, the implementation of of the review process is to strengthen Members TRIPS, the use of antidumping measures, govern- observance of WTO provisions and contribute to ment procurement, state-trading, the introduction the smoother functioning of the multilateral by developing-countries of customs valuation trading system. A number of Members have methods, the adaptation of national legislation to remarked that the preparations for the review are WTO requirements and technical assistance.

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As of the end 2003, twenty of the WTO’s 30 least- encourage Members to meet their obligations developed country Members have been reviewed. and to adopt further trade liberalizing measures. For least developed countries, the reports repre- The program for 2004 calls for conducting sent the first comprehensive analysis of their 16 reviews, including the United States and the commercial policies, laws and regulations and European Union, as well as, Brazil, Belize, have implications and uses beyond the meeting of Jamaica, Korea, Norway, Singapore, Sri Lanka, the TPRB. The TPRB’s report to the Singapore Suriname, and the Custom’s territory of Ministerial Conference recommended greater Switzerland and Liechtenstein. In addition, five attention be paid to LDCs in the preparation of LDC Members will be reviewed as well—Benin, the TPRB timetable, and a 1999 appraisal of the Burkina Faso, Gambia, Mali, and Rwanda. operation of the TPRM also drew attention to this matter. Trade Policy Reviews of LDCs have increasingly performed a technical assistance E. Council for Trade in Goods function and have been useful in broadening the Status understanding of LDC’s trade policy structure. The WTO Council for Trade in Goods (CTG) These reviews tend to enhanced understanding of oversees the activities of 12 committees WTO Agreements, enabling better compliance (Agriculture, Antidumping Practices, Customs and integration in the multilateral trading system. Valuation, Import Licensing Procedures, In some cases, the TPR has facilitated better inter- Information Technology, Market Access, Rules of action between government agencies. The Origin, Safeguards, Sanitary and Phytosanitary TPRM’s comprehensive coverage of trade policies Measures, Subsidies and Countervailing also enables Members to identify shortcomings in Measures, Technical Barriers to Trade and Trade- specific areas where further technical assistance related Investment Measures (TRIMS)) in may be required. addition to the Textiles Monitoring Body (TMB), and the Working Party on State Trading. The seminars and the technical assistance involve close cooperation between LDCs and the WTO Major Issues in 2003 Secretariat. This cooperation continues to respond more systematically to technical assis- In 2003, the CTG held five formal meetings. As tance needs of LDCs. The review process for an the central oversight body in the WTO for all LDC now includes a multi-day seminar for its agreements related to trade in goods, the CTG officials on the WTO and, in particular, the trade primarily devoted its attention to providing policy review exercise and the role of trade in formal approval of decisions and recommenda- economic policy; such seminars were held in tions proposed by its subsidiary bodies. The CTG 2003 for the review process of Gambia and also served as a forum for airing initial complaints Rwanda, a similar seminar has been held for regarding actions taken by individual Members Guyana.. Similar exercises have been conducted with respect to the operation of agreements. in Benin, Burkina Faso, Mali. Belize and Many of these complaints were resolved through Suriname. The Secretariat Report for an LDC consultation. In addition, four major issues were review includes a section on technical assistance extensively debated in the CTG in 2003: needs and priorities with a view to feeding this Waivers: The CTG approved several requests for into the Integrated Framework process. waivers, including those related to the implemen- tation of the Harmonized Tariff System, Prospects for 2004 renegotiation of tariff schedules, and waivers for The TPRM will continue to be an important tool the implementation of the Kimberly Process. A for monitoring Members’ adherence to WTO list of waivers currently in force can be found commitments and an effective forum in which to in Annex II.

50 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT TRIMS Article 9 Review: The Council met several 1. Committee on Agriculture times, formally and informally, to consider proposals by India and Brazil to lower the level of Status obligations for developing countries under the In 1995, the WTO formed the Committee on TRIMS agreement. Developed countries expressed Agriculture to oversee the implementation of the their opposition to rewriting the agreement. Agreement on Agriculture and to provide a forum for Members to consult on matters related to China Transitional Review: On November 26, the provisions of the Agreement. In many cases, the CTG conducted China’s Transitional Review Committee resolves problems without needing (TRM) as mandated by the Protocol on the dispute settlement. The Committee also has Accession of the People’s Republic of China to the responsibility for monitoring the parties to the WTO. China supplied the CTG with information, Marrakesh Ministerial Decision on Measures answered questions posed by Members and Concerning the Possible Negative Effects of the reviewed the TRM reports of CTG subsidiary Reform Program on Least Developed and Net bodies. (See Chapter IV Section F on China for Food-Importing Developing Countries (or more detailed discussion of its implementation of “NFIDC Decision”). WTO commitments). Major Issues in 2003 Trade Facilitation: CTG met twice in 2003 in The Committee held four formal meetings in sessions dedicated to this issue. The CTG March, June, September, and November 2003, to discussed how to improve and clarify Article X review progress on the implementation of (transparency), Article VIII on fees and formali- commitments negotiated in the Uruguay Round. ties, and Article V (transit). Progress was made in This review was undertaken on the basis of notifi- all of these areas. cations by Members in the areas of market access, domestic support, export subsidies, export prohi- Textiles: The CTG considered two proposals from bitions and restrictions, and general matters developing countries concerning textile trade. relevant to the implementation of commitments. Developing countries proposed that Members maintaining textile restraints increase quota In total, 171 notifications were subject to review growth rates for the remainder of the ATC. during 2003. The United States actively partici- However, Members maintaining textile restraints pated in the notification process and raised argued that they had followed the provisions of specific issues concerning the operation of the ATC precisely when calculating the appro- Members’ agricultural policies. For example, the priate quota levels. Developing country Members United States raised questions concerning also proposed that Members maintaining textile elements of domestic support programs used by restraints grant carry forward for the year 2004. the European Union, Canada, Norway, South However, these Members rejected this proposal Africa, and India; identified restrictive import citing the fact that all quotas are eliminated begin- licensing and tariff-rate quota administration ning in January 2005 and the ATC does not practices by China, the European Union, Norway, provide for carry forward in 2004. New Zealand, South Africa, and Barbados; ques- tioned Chinese Taipei’s use of the special Prospects for 2004 agricultural safeguard; and raised concerns with The CTG will continue to be the focal point for India’s export policies. The Committee also discussing agreements in the WTO dealing with proved to be an effective forum for raising issues trade in goods. Outstanding waiver requests will relevant to the implementation of Members’ also be further examined. commitments. For example, the United States

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identified concerns with India’s soybean oil Committee, on the basis, inter alia, of Table NF:1 tariffs, the Dominican Republic’s import licensing notifications by donor Members as well as scheme, and China’s export subsidies, value- contributions by the observer organizations. added tax policies, and TRQ allocation processes. Prospects for 2004 In the framework of the follow-up to the Decision The United States will continue to make full use by the Doha Ministerial Conference on of the Committee on Agriculture to ensure trans- Implementation-Related Issues and Concerns, parency through timely notification by Members the following agricultural implementation- and to enhance enforcement of Uruguay Round related issues were further considered by the commitments as they relate to export subsidies, Committee: (1) the development of internation- market access, domestic support or any other ally agreed disciplines to govern the provision of trade-distorting practices by WTO Members. In export credits, export credit guarantees, or insur- addition, the Committee will continue to monitor ance programs pursuant to Article 10.2 of the and analyze the impact of the possible negative Agreement on Agriculture, taking into account effects of the reform process on least developed the effect of such disciplines on net food- and net food-importing developing countries in importing countries; (2) improving the accordance with the Agreement on Agriculture. effectiveness of the implementation of the NFIDC Decision; and (3) enhancing Members’ notifica- 2. Committee on Antidumping tions on tariff-rate quotas (TRQs) in accordance Practices with the General Council’s decision regarding the administration of TRQ regimes in a transparent, Status equitable, and non-discriminatory manner. The Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade On the basis of its formal and informal discus- 1994 (the Antidumping Agreement) sets forth sions regarding short-term financing difficulties detailed rules and disciplines prescribing the by least-developed and net food-importing manner and basis on which Members may take developing countries, a number of recommenda- action to offset the injurious dumping of products tions were adopted by the Committee. These imported from another Member. Implementation recommendations were approved by the General of the Agreement is overseen by the Committee Council at its meeting on 24-25 July. on Antidumping Practices, which operates in conjunction with two subsidiary bodies, the At its March meeting, the Committee decided to Working Group on Implementation (formerly accept the application by Namibia to be included the Ad Hoc Group on Implementation) and the in the WTO list of net food-importing developing Informal Group on Anticircumvention. countries. This list currently comprises the least- developed countries as recognized by the United The Working Group is an active body which Nations and the following 24 developing country focuses on practical issues and concerns relating Members of the WTO: Barbados, Botswana, Côte to implementation. Based on papers submitted by d’Ivoire, Cuba, Dominica, Dominican Republic, Members on specific topics for discussion, the Egypt, Honduras, Jamaica, Jordan, Kenya, activities of the Working Group permit Members Mauritius, Morocco, Namibia, Pakistan, Peru, to develop a better understanding of the similari- Saint Kitts and Nevis, Saint Lucia, Saint Vincent ties and differences in their policies and practices and the Grenadines, Senegal, Sri Lanka, Trinidad for implementing the provisions of the and Tobago, Tunisia and Venezuela. Antidumping Agreement. Where possible, the Working Group endeavors to develop draft The annual monitoring exercise on the follow-up recommendations on the topics it discusses, to the NFIDC Decision as a whole was under- which it forwards to the Antidumping Committee taken at the November meeting of the

52 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT for consideration. To date, the Committee has by Members confronted with what they consider adopted Working Group recommendations on: to be circumvention; and (3) to what extent (1) pre-initiation notifications under Article 5.5 circumvention can be dealt with under existing of the Agreement; (2) the periods used for data WTO rules and what other options may be collection in investigations of dumped imports deemed necessary. and of injury caused or threatened to be caused by such imports; (3) extensions of time to supply Major Issues in 2003 information; (4) the timeframe to be used in The Antidumping Committee is an important calculating the volume of dumped imports for venue for reviewing Members’ compliance with making the determination under Article 5.8 of the the detailed provisions in the Antidumping Agreement as to whether the volume of such Agreement, improving mutual understanding of imports is negligible; and (5) guidelines for the those provisions, and providing opportunities to improvement of annual reviews under Article exchange views and experience with respect to 18.6 of the Agreement. Members’ application of antidumping remedies.

The last two recommendations listed above, both In 2003, the Antidumping Committee held two agreed upon in November 2002, addressed issues meetings, in May and October. At its meetings, referred to the Committee by the 2001 the Committee focused on implementation of the Ministerial Decision on Implementation-Related Antidumping Agreement, in particular, by Issues and Concerns. In 2003, the Committee continuing its review of Members antidumping and a number of WTO Members, including the legislation. The Committee also reviewed reports United States, began implementing those recom- required of Members that provide information as mendations. Many Members, including the to preliminary and final antidumping measures United States, filed notifications with respect to and actions taken in each case over the preceding their practices as to the timeframe under Article six months. 5.8 of the Agreement, in accordance with the Committee’s recommendation on that issue. In Among the more significant activities under- addition, pursuant to the Committee’s recom- taken in 2003 by the Antidumping Committee, mendation under Article 18.6 designed to the Working Group on Implementation and improve transparency in the Committee’s annual the Informal Group on Anticircumvention are reviews, in 2003 a number of Members, the following: including the United States, provided additional information in their semi-annual reports to the Notification and Review of Antidumping Committee, and the Committee’s annual report Legislation: To date, 75 Members of the WTO reflected this additional information. have notified that they currently have antidumping legislation in place, while 29 At Marrakesh in 1994, Ministers adopted a Members have notified that they maintain no Decision on Anticircumvention directing the such legislation. In 2003, the Antidumping Antidumping Committee to develop rules to Committee reviewed notifications of new or address the problem of circumvention of amended antidumping legislation submitted by antidumping measures. In 1997, the , China, Costa Rica, Dominican Antidumping Committee agreed upon a frame- Republic, , the European Union (EU), work for discussing this important topic and , , Mexico, New Zealand, established the Informal Group on , Pakistan, Peru and Zimbabwe. Anticircumvention. Under this framework, the Members, including the United States, were active Informal Group held meetings in April and in formulating written questions and in making October 2003 to discuss the topics of: (1) what follow-up inquiries at Committee meetings. constitutes circumvention; (2) what is being done

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Notification and Review of Antidumping Actions: member-states of the EU to cover imports into the In 2003, 32 WTO Members notified that they had territory of the 25 member-states after expansion taken antidumping actions during the latter half would be consistent with the Antidumping of 2002, whereas 27 Members did so with respect Agreement, particularly in the absence of an addi- to the first half of 2003. (By comparison, 35 tional determination of injury covering the Members notified that they had not taken any territory of the 25 member-states. At the antidumping actions during the latter half of Committee’s October 2003 meeting, the EU 2002, and 26 Members notified that they had responded orally to the U.S. questions, and taken no actions in the first half of 2003). These several other Members raised additional actions, in addition to outstanding antidumping questions and concerns on this issue. measures currently maintained by WTO Members, were identified in semi-annual reports Working Group on Implementation: The Working submitted for the Antidumping Committee’s Group held two rounds of meetings in April and review and discussion. October 2003. The Working Group’s principal focus in 2003 was the selection of new topics for China Transitional Review: At the October 2003 discussion, and then the first discussion of those meeting, the Committee undertook, pursuant to topics. In April 2003, the Working Group consid- the Protocol on the Accession of the People’s ered various possible topics, and, upon its Republic of China, its second annual transitional recommendation, the Committee in May 2003 review with respect to China’s implementation of approved four topics for the Working Group to the Agreement. Several Members, including the discuss beginning at the fall meeting: (1) export United States, presented written and oral ques- prices to third countries vs. constructed value tions to China with respect to China’s under Article 2.2 of the Antidumping Agreement; antidumping laws and practices, particularly (2) foreign exchange fluctuations under Article emphasizing concerns about a lack of trans- 2.4.1; (3) conduct of verifications under Article parency in some of China’s practices, with China 6.7; and (4) judicial, arbitral or administrative orally providing information in response to these reviews under Article 13. At its October 2003 questions at the October 2003 meeting. The meeting, the Working Group held its first discus- United States also submitted several sets of ques- sion of these topics, with the United States tions to China with respect to its notifications to submitting papers on the topics of foreign the WTO of its antidumping regulations and exchange fluctuations, conduct of verifications, rules, as part of the regular Committee review of and judicial, arbitral or administrative review. In notifications of antidumping legislation, and addition to these topics, the Group also consid- submitted follow-up questions to China in late ered at the April and October 2003 meetings a 2003 after receiving China’s initial responses. draft recommendation on conditions of competi- tion relevant to cumulation under Article 3.3. No European Union Expansion: At both its May and agreement has been reached by the Group on this October 2003 meetings, the Committee discussed draft recommendation, but it is expected that the issues pertaining to the status of outstanding Group will consider this issue again in 2004. antidumping measures of the EU in light of the future expansion of the EU from 15 members to The Working Group continues to serve as an 25 members in 2004. The United States filed active venue for work regarding the practical written questions to the EU on this issue, raising implementation of WTO antidumping provi- concerns about whether the EU’s announced sions. It offers important opportunities for intention to extend automatically, upon expan- Members to examine issues and candidly sion, its antidumping measures now covering exchange views and information across a broad imports into the territory of the 15 current range of topics. It has drawn a high level of partic-

54 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT ipation by Members and, in particular, by capital- Prospects for 2004 based experts and officials of antidumping Work will proceed in 2004 on the areas that the administering authorities, many of whom are Antidumping Committee, the Working Group on eager to obtain insight and information from their Implementation and the Informal Group on peers. Since the inception of the Working Group, Anticircumvention addressed this past year. The the United States has submitted papers on most Antidumping Committee will pursue its review of topics, and has been an active participant at all Members’ notifications of antidumping legisla- meetings. Implementation concerns and tion, and Members will continue to have the questions stemming both from one’s own admin- opportunity to submit additional questions istrative experience and from observing the concerning previously reviewed notifications. practices of others are equally addressed. While This ongoing review process in the Committee is not a negotiating forum in either a technical or important to ensuring that antidumping laws formal sense, the Working Group serves an around the world are properly drafted and important role in promoting improved under- implemented, thereby contributing to a well- standing of the Agreement’s provisions and functioning, liberal trading system. As exploring options for improving practices among notifications of antidumping legislation are not antidumping administrators. restricted documents, U.S. exporters will continue to enjoy access to information about the Informal Group on Anticircumvention: The antidumping laws of other countries that should Antidumping Committee’s establishment of the assist them in better understanding the operation Informal Group on Anticircumvention in 1997 of such laws and in taking them into account in marked an important step towards fulfilling the commercial planning. Decision of Ministers at Marrakesh to refer this matter to the Committee. At its two meetings in The preparation by Members and review in the 2003, the Informal Group on Anticircumvention Committee of semi-annual reports and reports of continued its useful discussions on the first three preliminary and final antidumping actions will items of the agreed framework of (1) what consti- also continue in 2004. These reports are tutes circumvention; (2) what is being done by becoming accessible to the general public, in Members confronted with what they consider to keeping with the objectives of the Uruguay be circumvention; and (3) to what extent can Round Agreements Act. (Information on circumvention be dealt with under the relevant accessing WTO notifications is included in WTO rules? To what extent can it not? And what Annex II). This promotes improved public other options may be deemed necessary? knowledge and appreciation of the trends in and focus of all WTO Members’ antidumping actions. Members submitted papers and made presentations outlining scenarios based on Discussions in the Working Group on factual situations faced by their investigating Implementation will continue to play an impor- authorities, and exchanged views on how their tant role as more and more Members enact laws respective authorities might respond to such and begin to apply them. There has been a sharp situations. Moreover, those Members, such as the and widespread interest in clarifying under- United States, that have legislation intended to standing of the many complex provisions of the address circumvention, responded to inquiries Antidumping Agreement. Tackling these issues in from other Members as to how such legislation a serious manner will require the involvement of operates and the manner in which certain issues the Working Group, which is the forum best may be treated. For the October 2003 meeting of suited to provide the necessary technical and the Informal Group, the United States submitted administrative expertise. Indeed, it is only in the a paper summarizing its experience in two Antidumping Committee and the Working recent circumvention investigations that it Group that Members can devote the considerable had conducted.

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time and resources needed to conduct a respon- Major Issues in 2003 sible examination of these questions. For these The Agreement is administered by the WTO reasons, the United States will continue to rely Committee on Customs Valuation, which held upon the Working Group to learn in greater detail three formal meetings in 2003. The Agreement about other Members’ administration of their established a Technical Committee on Customs antidumping laws, especially as that forum Valuation under the auspices of the World provides opportunities to discuss not only the Customs Organization (WCO). In accordance laws, as written, but also the operational practices with a 1999 recommendation of the WTO which Members employ to implement them. Working Party on Preshipment Inspection that Therefore, as Members continue to submit papers was adopted by the General Council, the on the topics being considered and participate Committee on Customs Valuation continued to actively in the discussions, the Group’s utility provide a forum for reviewing the operation of should continue to grow. In 2004, the Working various Members’ preshipment inspection Group will continue its discussion of the four regimes and the implementation of the WTO topics that it began discussing at its October 2003 Agreement on Preshipment Inspection. In April meeting: (1) export prices to third countries vs. 2003, the WTO Secretariat compiled information constructed value under Article 2.2 of the indicating that 31 Members were using preship- Agreement; (2) foreign exchange fluctuations ment inspection regimes. under Article 2.4.1; (3) conduct of verifications under Article 6.7; and (4) judicial, arbitral or Experience continues to demonstrate that the administrative reviews under Article 13. implementation of the Agreement on Customs Valuation by developing countries often repre- The work of the Informal Group on sents their first concrete and meaningful step Anticircumvention will also continue in 2004 toward reforming their customs regimes, and according to the framework for discussion on ultimately moving to a rules-based border envi- which Members agreed. Many Members, ronment for conducting trade transactions. including the United States, recognize the impor- Because the Agreement precludes the use of arbi- tance of using the Informal Group to pursue the trary customs valuation methodologies, an 1994 decision of Ministers at Marrakesh, who additional positive result is to diminish one of the expressed the desirability of achieving uniform incentives for corruption by customs officials. rules in this area as soon as possible. For all of these reasons, as part of an overall strategic approach to trade facilitation, the United 3. Committee on Customs Valuation States has taken an aggressive role at the WTO on Status matters related to customs valuation. The purpose of the WTO Agreement on the U.S. exporters across all sectors—including Implementation of GATT Article VII (known as agriculture, automotive, textile, steel, and infor- the WTO Agreement on Customs Valuation) is to mation technology products—have experienced ensure that determinations of the customs value difficulties related to the conduct of customs for the application of duty rates to imported valuation regimes outside of the disciplines set goods are conducted in a neutral and uniform forth under the WTO Agreement on Customs manner, precluding the use of arbitrary or ficti- Valuation. U.S. exporters to many developing tious customs values. Adherence to the countries have had market access gains Agreement is important for U.S. exporters, partic- undermined through the application of arbi- ularly to ensure that market access opportunities trarily-established minimum import prices, often provided through tariff reductions are not used as a crude, broad-brush type of trade remedy negated by unwarranted and unreasonable - one that provides no measure of administrative “uplifts” in the customs value of goods to which transparency or procedural fairness. The use of tariffs are applied.

56 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT arbitrary and inappropriate “uplifts” in the valua- In 2003, in accord with the Doha Ministerial tion of goods by importing countries when mandate on “Implementation-Related Issues and applying tariffs can result in an unwarranted Concerns,” the Committee continued to examine doubling or tripling of duties. It is notable that the five proposals from India pertaining to the opera- use of minimum import prices, a practice incon- tion of several provisions of the Agreement. sistent with the operation of the Agreement on Support for these proposals from other WTO Customs Valuation, continues to diminish as Members has been limited, and Members did not more developing countries undertake full imple- come to consensus on these issues in 2003. The mentation of the Agreement. Committee also actively worked to meet another Doha implementation-related mandate to “identify Achieving universal adherence to the WTO and assess practical means” for addressing Agreement on Customs Valuation has been a concerns by several Members on the accuracy of longstanding and important objective of the declared values of imported goods. The Technical United States, dating back more than twenty Committee was requested to provide this input, years. The Agreement was initially negotiated in and in May 2003 it submitted its report along with the Tokyo Round, but its acceptance was volun- a draft “Guide To the Exchange of Customs tary as a “code,” until mandated as part of Valuation Information.” The Committee’s work in membership in the WTO. Under the Uruguay this area will continue in 2004. Round Agreement, special transitional measures were provided for developing country Members, An important part of the Committee’s work is the allowing for delayed implementation of the examination of implementing legislation. As of Agreement on Customs Valuation and resulting November 2003, 74 Members had notified their in individual implementation deadlines for such national legislation on customs valuation. During Members beginning in 2000. 2003, the Committee concluded the examina- tions of amendments to Australia’s legislation, While many developing country Members under- and the legislation of Bolivia, Brunei Darussalam, took timely implementation of the Agreement, China, Côte d’Ivoire, Cuba, Morocco and the Committee continued throughout 2003 to Slovakia. In November 2003, the Committee also address various individual Member requests for conducted a Transitional Review in accordance either a transitional reservation for implementa- with Paragraph 18 of the Protocol of China’s tion methodology, or for a further extension of accession to the WTO. time for overall implementation. Working with key trading partners, the United States led the The Committee’s work throughout 2003 consultations for most such requests, which continued to reflect a cooperative focus among all resulted in the development of a detailed decision Members toward practical methods to address the tailored to the situation of the requesting Member. specific problems of individual Members. As part Each decision has included an individualized of its problem-solving approach, the Committee benchmarked work program toward full imple- continued to take an active role in exploring how mentation, along with requirements to report on best to ensure effective technical assistance, progress and specific commitments on other including with regard to meeting post-implemen- implementation issues important to U.S. export tation needs of developing country Members. interests. The United Arab Emirates maintains an extension of the delay period in accordance with Prospects for 2004 the provisions of paragraph 1, Annex III. El The Committee’s work in 2004 will include a Salvador, Guatemala, Madagascar, and Sri Lanka review of the relevant implementing legislation maintain reservations that have been granted and regulations notified by Members, along with under paragraph 2, Annex III for minimum addressing any further requests by other Members values, or under the Article IX waiver provisions. concerning implementation deadlines. The

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Committee will monitor progress by Members Its obligations establish disciplines to protect the with regard to their respective work programs that importer against unreasonable requirements or were included in the decisions granting transi- delays associated with the licensing regime. The tional reservations or extensions of time for Agreement’s provisions are intended to ensure implementation. The Committee will also work that the use of such procedures by Members does toward conclusion of its examination of the imple- not create additional barriers to trade beyond mentation-related proposals by India. In this what was intended by the requirements them- regard, the Committee will continue to provide a selves. The notification requirements and the forum for sustained focus on issues arising from system of regular Committee reviews seek to practices of all Members that have implemented increase the transparency and predictability the Agreement, to ensure that such Members’ of Members’ licensing regimes. While the customs valuation regimes do not utilize arbitrary Agreement’s provisions do not directly address or fictitious values such as through the use of the WTO consistency of the underlying measures minimum import prices. Finally, the Committee that licensing systems regulate, they establish the will continue to address technical assistance issues base line of what constitutes a fair and non- as a matter of high priority. discriminatory application of the procedures. The Agreement covers both “automatic” licensing 4. Committee on Import Licensing systems, which are intended only to monitor imports, not regulate them, and “non-automatic” Status licensing systems where certain conditions must The Committee on Import Licensing was be met before a license is issued. Governments established to administer the Agreement on often use non-automatic licensing to administer Import Licensing Procedures and to monitor import restrictions, for quotas and tariff-rate compliance with the mutually agreed rules for the quotas (TRQs) or to administer safety or other application of these widely used measures. The requirements (e.g., for hazardous goods, arma- Committee meets at least twice a year to review ments, antiquities, etc.). Requirements for information on import licensing requirements permission to import that act like import licenses, submitted by WTO Members in accordance with such as certification of standards and sanitary and the obligations of the Agreement. The Committee technical regulations, are also subject to the rules also receives questions from Members on the of the Agreement. licensing regimes notified by other Members, and addresses specific observations and complaints Major Issues in 2003 concerning Members’ licensing systems. While At its meetings in May and October 2003, the not a substitute for dispute settlement proce- Committee reviewed 64 initial or revised notifica- dures, these consultations on specific issues allow tions, completed questionnaires on procedures, Members to clarify problems and possibly to and replies to questions from Committee resolve them before they become disputes. Since members from 59 WTO Members (including EU the accession of China to the WTO in December Member States), a slight decline in the number of 2001, the Committee has also conducted an notifications from 2002 but bringing the number annual review of China’s compliance with acces- of Members notifying at least once to an all time sion commitments in the area of import licensing high. The United States notified its licensing as part of the Transitional Review Mechanism requirements for imports subject to the safeguard provided for in the Protocol of Accession. measures on steel products. Written questions were also submitted on Indonesia’s non-auto- Background matic licensing system for selected textile The Agreement on Import Licensing Procedures products, first notified during 2002. The United establishes rules for all WTO Members that use States sought information and explanations from import licensing systems to regulate their trade. Indonesia on the operation of this licensing

58 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT system; the administration of the restrictions; the Prospects for 2004 number and nature of import licences granted Both in the context of the Doha Development over a recent period; the distribution of such Agenda and in the day-to-day administration of licences among supplying countries; and avail- current obligations, consideration of import able import statistics with respect to the products licensing procedures is likely to intensify, princi- subject to import licensing. pally with regard to the administration of agricultural TRQs, safeguard measures, and The Committee continued discussions on how technical and sanitary requirements applied to the number and frequency of notifications by imports. The Committee also will continue to be Members could be increased. The Chairman the point of first contact in the WTO for Members reported that at the end of 2003, only 26 of 146 with complaints or questions on the licensing Members (counting EU member states individu- regimes of other Members. As use of import ally), had never submitted a notification to the licensing increases, e.g., to enforce national secu- Committee, bringing the percentage of WTO rity, environmental, and technical requirements, members with at least an initial notification to 83 to administer TRQs, or to manage safeguard meas- percent. Concern remained, however, that notifi- ures, utilization of the Committee as a forum for cations were not being submitted with the discussion and review will increase. As demon- frequency required by the Agreement. strated by the recent increase in requests for Since the September 2002 Committee meeting, formal consultations, this could have the effect of four WTO Members have submitted requests for increasing the number of dispute settlement cases consultations initiating dispute settlement cases on import licensing requirements as well. concerning import licensing procedures. The The Committee will continue discussions to Philippines, the United States, and Nicaragua encourage enhanced compliance with the notifi- requested consultations with Australia, cation and other transparency requirements of Venezuela, and Mexico respectively, concerning the Agreement, with renewed focus on securing licensing requirements on agricultural products. timely revisions of the notifications, including the The EU sought consultations addressing import questionnaire, and responses to written ques- restrictions in India’s import and export trade tions, as required by the Agreement. The policy in the period 2002-2007. Committee will also continue to conduct annual At its October meeting, the Committee carried reviews of China’s import licensing operations in out its second annual review of China’s imple- support of the TRM. mentation of its WTO commitments relating to import licensing procedures as part of the 5. Committee on Market Access Transitional Review Mechanism (TRM) included Status in the terms of China’s accession protocol. The In January 1995, WTO Members established the United States and other WTO Members, Committee on Market Access, consolidating the including the EU, Japan and Chinese Taipei, work under the GATT system of the Committee raised questions and concerns regarding China’s on Tariff Concessions and the Technical Group implementation in several areas, including on Quantitative Restrictions and other Non-Tariff trading rights, China’s administration of import Measures. The Committee on Market Access quotas for automobiles, China’s administration of supervises the implementation of concessions on TRQs for bulk agricultural commodities and tariffs and non-tariff measures (where not explic- fertilizer, and China’s use of import inspection itly covered by another WTO body, e.g., the permits for a range of agricultural products. A Textiles Monitoring Body. The Committee also is report on the meeting was transmitted for use by responsible for verification of new concessions on the General Council conducting the overall market access in the goods area. The Committee review in December. reports to the Council on Trade in Goods.

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Major Issues in 2003 the schedules of certain Members which had During 2003, WTO Members continued imple- adopted the HS in the years following its intro- menting the tariff reductions agreed in the duction on January 1, 1988. Uruguay Round with the Committee having Using the same procedures, the Committee also responsibility for verifying that implementation is began to review Members’ WTO amendments proceeding on schedule. The Committee held which took effect on January 1, 2002 (HS2002). two formal meetings in 2003, resumed a Drawing from the experience of HS96, the suspended formal meeting held over from Committee, working with the Secretariat, has November 2002, and held five informal meetings developed electronic procedures that will facilitate to discuss the following topics: (1) the ongoing and expedite the process of reviewing and review of WTO tariff schedules to accommodate approving the 373 proposed amendments under updates to the Harmonized System (HS) tariff HS2002. The United States submitted its proposed nomenclature; (2) the WTO Integrated Data Base; changes to the Secretariat in December 2001. (3) finalizing consolidated schedules of WTO tariff concessions in current HS nomenclature; Integrated Data Base (IAB): The Committee (4) reviewing the status of notifications on quan- addressed issues concerning the IAB, which is to titative restrictions and reverse notifications of be updated annually with information on the non-tariff measures; and, (5) implementation tariffs, trade data, and non-tariff measures main- issues related to “substantial interest.” The tained by WTO Members. Members are required Committee also conducted its second annual to provide this information as a result of a General transitional review of China’s implementation of Council Decision adopted in July 1997. The U.S. its WTO accession commitments. objectives are to achieve full participation in the IAB by all WTO Members and, ultimately, to Updates to the Harmonized System (HS) of tariff develop a method to make the trade and tariff nomenclature: In 1993, the Customs Cooperation information publicly available. In recent years, Council—now known as the World Customs the United States has taken an active role in Organization (WCO)—agreed to approximately pressing for a more relevant database structure 400 sets of amendments to the HS, which were to with the aim of improving the trade and tariff data enter into effect on January 1, 1996. These supplied by WTO Members. amendments result in changes to the WTO sched- ules of tariff bindings. Using agreed examination During 2003, the separate Negotiating Group on procedures, Members have the right to object to Non-Agricultural Market Access also took up this any proposed nomenclature change affecting issue and developed procedures to facilitate the bound tariff items on grounds that the new transfer of applicable tariff and trade data from nomenclature (as well as any increase in tariff other sources. As a result, participation has levels for an item above existing bindings) repre- continued to improve. As of December 2003, 95 sents a modification of the tariff concession and Members and three acceding countries had can pursue unresolved objections under GATT provided IAB submissions. 1994 Article XXVIII. Consolidated schedule of tariff concessions (CTS): Since 1996, successive waivers have been granted The Committee continued work to implement an by decisions of the General Council until imple- electronic structure for tariff and trade data. The mentation procedures can be finalized. The CTS includes: tariff bindings for each WTO majority of WTO Members have completed the Member that reflects Uruguay Round tariff process, but a few Members continue to require concessions; HS96 updates to tariff nomenclature waivers. The Committee also examined issues and bindings; and any other modifications to the related to the transposition and renegotiation of WTO schedule (e.g., participation in the

60 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Information Technology Agreement). The data 6. Committee on Rules of Origin base also includes agricultural support tables. The CTS will be linked to the IAB and will serve as the Status vehicle for conducting Doha negotiations in agri- The objective of the WTO Agreement on Rules of culture and non-agricultural market access. Origin is to increase transparency, predictability, and consistency in both the preparation and China Transitional Review: In October 2003, the application of rules of origin. The Agreement on Committee conducted the second annual review Rules of Origin provides important disciplines for of China’s implementation of its WTO commit- conducting preferential and non-preferential ments on market access. The review touched origin regimes, such as the obligation to provide upon issues such as implementation of China’s binding origin rulings upon request to traders schedule of tariff commitments, tariff-rate quota within 150 days of request. In addition to setting administration, management of industrial quotas, forth disciplines related to the administration of and China’s application of value added and rules of origin, the Agreement provides for a work consumption taxes. program leading to the multilateral harmoniza- tion of rules of origin used for non-preferential Implementation Issues: The Committee trade regimes. The harmonization work program continued a discussion from 2002 on two imple- is more complex than initially envisioned under mentation issues referred by the General Council. the Agreement, which originally set for the work The first, a proposal by St. Lucia, dealt with the to be completed within three years after its definition of “substantial supplier” in the context commencement in July 1995. This work program of quota allocations. Several developing countries continued throughout 2003 and will continue expressed concern that the proposal could under- into 2004. mine the rights and obligations of some Members. The Secretariat undertook several The Agreement is administered by the WTO analyses of the substantial supplier issue. The Committee on Rules of Origin, which met Committee also examined the issue of redistribu- formally and informally throughout 2003. The tion of negotiating rights. After lengthy Committee also served as a forum to exchange discussion on these topics, the Committee views on notifications by Members concerning reported back to the General Counsel that it their national rules of origin, along with those could not reach a consensus on either issue. relevant judicial decisions and administrative rulings of general application. The Agreement Prospects for 2004 also established a Technical Committee on Rules The ongoing work program of the Committee, of Origin in the World Customs Organization to while highly technical, will ensure that all WTO assist in the harmonization work program. Members’ schedules are up-to-date and available in electronic spreadsheet format. The As of the end of 2003, 84 WTO Members notified Committee will likely explore technical assis- the WTO concerning non-preferential rules of tance needs related to data submissions. As origin, of which 43 Members notified that they Members finalize HS96 updates, the Committee had non-preferential rules of origin and 41 will turn to reviewing Members’ amended Members notified that they did not have a non- schedules based on the HS2002 revision. The preferential rules of origin regime. 89 Members electronic verification process, which incorpo- notified the WTO concerning preferential rules of rates the CTS data, will facilitate the review origin, of which 86 notified about their preferen- process and help developing countries to tial rules of origin and four notified that they did generate their own HS2002 submissions. not have preferential rules of origin.

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Major Issues in 2003 Specific origin questions among these “core The WTO Committee on Rules of Origin policy issues” include, for example, how to deter- continued to focus on the work program on the mine the origin of fish caught in an Exclusive multilateral harmonization of non-preferential Economic Zone, or whether the refinement, frac- rules of origin. U.S. proposals for the WTO origin tionation, and hydrogenation substantially harmonization work program have been devel- transform oil and fat products to a degree appro- oped under the auspices of a Section 332 study priate to confer country of origin. A cross-cutting being conducted by the U.S. International Trade unresolved “core policy issue” continues to arise Commission pursuant to a request by the U.S. from the apparent absence of common under- Trade Representative. The proposals reflect input standing among Members concerning the received from the private sector and ongoing Agreement’s prospective obligation, upon consultations with the private sector as the nego- completion of the harmonization and implemen- tiations have progressed from the technical stage tation of the results, for Members to “apply rules to deliberations at the WTO Committee on Rules of origin equally for all purposes.” As a result, of Origin. Representatives from several U.S. positions have sometimes been divided between a Government agencies continue to be actively strictly neutral analysis under the criterion of involved in the WTO origin harmonization work ‘substantial transformation’ and an advocacy of program, including the Bureau of Customs and restrictiveness for certain product-specific rules Border Protection (formally the U.S. Customs that would be unwarranted for application to the Service), the U.S. Department of Commerce, and normal course of trade but is perceived as neces- the U.S. Department of Agriculture. sary for the operation of certain regimes or measures covered by other Agreements. In addition to the October 2003 formal meeting, the Committee conducted numerous informal Prospects for 2004 consultations and working party sessions related Virtually all issues and problems cited by U.S. to the harmonization work program negotiations. exporters as arising under the origin regimes of The Committee proceeded in accordance with a U.S. trading partners arise from administrative December 2001 mandate from the General practices that result in non-transparency, discrim- Council, which extended the harmonization ination, and a lack of predictability. Attention will work program while specifically requesting that continue to be given to the implementation of the the Committee on Rules of Origin focus during Agreement’s important disciplines related to trans- the first half of 2002 on identifying core policy parency, which are recognized elements of what issues arising under the harmonization work are considered to be “best customs practices.” program that would require attention of the General Council. Further progress in the harmonization work program will remain contingent on achieving The Committee continued to make progress in appropriate resolution of the “core policy issues” reducing the number of issues that remained identified by the Committee. In accordance with outstanding under the harmonization work a decision taken by the General Council in July program, and proceeding on a track toward 2003, work will continue on addressing these achieving consensus on product-specific rules of issues. The General Council, at its meeting in origin for more than 5000 tariff lines. In 2003, the July 2003, extended the deadline for completion Committee focused on approximately 90 unre- of the 94 core policy issues to July 2004. The solved issues identified as “core policy issues.” General Council also agreed that following reso- Many of these issues are particularly significant lution of these core policy issues, the CRO would due to their broad application across important complete its remaining technical work by product sectors, including steel, beef products, December 31, 2004. sugar, automotive goods, and dairy products.

62 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT 7. Committee on Safeguards been utilized by countries to avoid GATT disciplines and which adversely affected Status third-country markets. The Committee on Safeguards was established to administer the WTO Agreement on Safeguards. Major Issues in 2003 The Agreement establishes rules for the applica- During its two regular meetings in April and tion of safeguard measures as provided in Article October 2003, the Committee continued its XIX of GATT 1994. Effective safeguards rules are review of Members’ laws, regulations, and admin- important to the viability and integrity of the istrative procedures, based on notifications multilateral trading system. The availability of a required by Article 12.6 of the Agreement. The safeguards mechanism gives WTO Members the Committee reviewed new or amended legislative assurance that they can act quickly to help indus- texts from China, Costa Rica, , the tries adjust to import surges, thus providing them European Union, Indonesia, Japan, Latvia, with flexibility they would not otherwise have to Mexico, and Chinese Taipei. open their markets to international competition. At the same time, WTO safeguard rules ensure The Committee reviewed Article 12.1(a) that such actions are of limited duration and are notifications, regarding the initiation of a safe- gradually less restrictive over time. guard investigatory process relating to serious injury or threat thereof and the reasons for it, The Agreement on Safeguards incorporates into from the following Members: Bulgaria on iron WTO rules many of the concepts embodied in and steel; Ecuador on fibreboard, smooth U.S. safeguards law (section 201 of the Trade Act ceramics and ceramics and porcelains; Estonia of 1974, as amended). The Agreement requires all on swine meat, the European Union on certain WTO Members to use transparent and objective prepared or preserved mandarins; Hungary on procedures when taking safeguard actions to ammonium nitrate and white sugar; India on prevent or remedy serious injury to a domestic bisphenol A; Jordan on aerated water; Moldova industry caused by increased imports. on sugar; the Philippines on glass mirrors, figured glass and float glass; Poland on matches; Among its key provisions, the Agreement: and Venezuela on footwear.

• requires a transparent, public process for The Committee reviewed Article 12.1(b) notifica- making injury determinations; tions, regarding a finding of serious injury or • sets out clearer definitions than GATT threat thereof caused by increased imports, from Article XIX of the criteria for injury the following Members: Bulgaria on ammonium determinations; nitrate; China on certain steel products; the Czech Republic on sugar, tubes & pipes, and • requires safeguard measures to be steadily ammonium nitrate; Hungary on certain steel liberalized over their duration; products and ammonium nitrate; India on edible • establishes an eight-year maximum duration vegetable oils; Jordan on sanitary ware products for safeguard actions, and requires a review and pasta; Latvia on swine meat; the Philippines no later than the mid-term of any measure on glass mirrors, figured glass and float glass; with a duration exceeding three years; Poland on certain steel products, calcium carbide and water heaters; the Slovak Republic on • allows safeguard actions to be taken for three ammonium nitrate. years, without the requirement of compensa- tion or the possibility of retaliation; and The Committee reviewed Article 12.1(c) notifi- • prohibits so-called “grey area” measures, cations, regarding a decision to apply or extend a such as voluntary restraint agreements and safeguard measure, from the following Members: orderly marketing agreements, which had Bulgaria on crown corks and ammonium nitrate;

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China on certain steel products; the Czech In addition to its comments during the transi- Republic on sugar, tubes & pipes, and ammo- tional review, the United States also submitted nium nitrate; Ecuador on fibreboard and several sets of written questions to China as part matches; Hungary on certain steel products and of the regular Committee reviews of notifications ammonium nitrate; India on epichlorohydrin; of safeguards legislation and notifications of safe- Jordan on sanitary ware products and pasta; guard actions, in order to obtain further Latvia on live pigs and pork; the Philippines on information on China’s safeguard rules and cement; Poland on certain steel products, practices. China submitted written responses in calcium carbide and water heaters; and the October 2003, and we expect to follow up in 2004 Slovak Republic on ammonium nitrate. with respect to these issues.

The Committee received notifications from the Implementation: At both the April and October following Members of the termination of a safe- 2003 meetings, the Committee discussed various guard investigation with no safeguard measure issues pertaining to Article 9.1 of the Agreement, imposed: Bulgaria on urea and steel; the Czech concerning the exclusion of developing country Republic on wires, ropes and cables; certain steel Members from the application of safeguard meas- products, and citric acid, Hungary on certain steel ures when certain criteria are met. In addition, products and ammonium nitrate; and from Jordan pursuant to the direction of the General Council, on ceramic tiles, electric accumulators and two the Committee considered a proposal by the types of cooking appliances and aerated water. Africa Group with respect to special and differen- tial treatment for developing country Members The Committee reviewed a notification from the under paragraphs 1 and 2 of Article 9 of the United States on the results of the mid-term Agreement. The Committee adopted a report to review of its safeguard measures on steel. the General Council on this issue at a special meeting in July 2003, stating that it was unable to The Committee reviewed Article 12.4 notifica- reach consensus with respect to the proposal. tions, regarding the application of a provisional safeguard measure, from the following Members: Prospects for 2004 Chile on fructose; the Czech Republic on ammo- The Committee’s work in 2004 will continue to nium nitrate; Ecuador on smooth ceramics; focus on the review of safeguard actions that have Hungary on ammonium nitrate and white sugar; been notified to the Committee and on the review the Philippines on glass mirrors, figured glass and of notifications of any new or amended safe- float glass; and Venezuela on iron/steel “U” guards laws. Among the notifications in late 2003 sections and footwear. that the Committee will be reviewing in 2004 are China Transitional Review: At the October 2003 notifications by the EU of its provisional safe- meeting, the Committee undertook, pursuant to guard measure on certain prepared or preserved the Protocol on the Accession of the People’s mandarins, and by Brazil of its intention to extend Republic of China, its second transitional review its safeguard measure on toys. with respect to China’s implementation of the Agreement. Several Members, including the 8. Committee on Sanitary and United States, addressed questions and Phytosanitary Measures comments to China, with a particular emphasis Status on transparency concerns, relating to China’s The WTO Agreement on the Application of notification of its safeguard regulations and rules, Sanitary and Phytosanitary (SPS) Measures estab- and to China’s safeguard measure with respect to lishes rules and procedures to ensure that sanitary certain steel products. China’s representatives and phytosanitary measures address legitimate provided oral responses at the October meeting.

64 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT human, animal and plant health concerns; do not by G/SPS/N (“N” stands for “notification”)/USA arbitrarily or unjustifiably discriminate between (which, in this case stands for the United States of Members’ agricultural and food products; and are America; three letter symbols will be used to not disguised restrictions on international trade. designate the WTO Member originating the noti- SPS measures protect against risks associated fication)/X (where “x” will indicate the numerical with plant or animal borne pests and diseases, sequence for that country). Parties in the United additives; contaminants; toxins and disease- States interested in submitting comments to causing organisms in foods, beverages, or foreign governments on their proposals should feedstuffs. Fundamentally, the Agreement send them through the U.S. inquiry point shown requires that such measures be based on science in the box below. Reports of Committee meetings and developed through systematic risk assess- are issued as “G/SPS/R/...” (followed by a ment procedures. At the same time, the SPS number). Submissions by Members (e.g., state- Agreement preserves every WTO Member’s right ments; informational documents; proposals; etc.) to choose the level of protection it considers and other working documents of the Committee appropriate with respect to SPS risks. are issued as “G/SPS/W/...” (followed by a number). As a general rule, written information The SPS Committee is a forum for consultation on provided by the United States to the Committee is Members’ existing or proposed SPS measures that provided on an “unrestricted” basis and available affect international trade, the implementation and to the public on the WTO’s website. administration of the Agreement, technical assis- tance, and the activities of the international Major Issues in 2003 standard-setting bodies. It also includes discus- In 2003, the Committee met three times and the sions of the Agreement’s provisions related to Secretariat convened a workshop on the opera- transparency in the development and application tion of inquiry points immediately following the of SPS measures, special and differential treat- November meeting. These meetings are used ment, technical assistance, and equivalence. increasingly by members to raise concerns regarding the new and existing SPS measures of Participation in the Committee is open to all WTO other Members. In addition, members are using Members. Certain non-WTO Members also the Committee meetings to exchange views and participate as observers, in accordance with guid- experiences in implementing various provisions ance agreed to by the General Council. In of the agreement such as equivalence, trans- addition, representatives of a number of interna- parency and regionalization. The United States tional organizations are invited to attend meetings views this as a positive development as it demon- of the Committee as observers on an ad hoc basis: strates growing familiarity with and the Food and Agriculture Organization (FAO), the implementation of the provisions of the SPS World Health Organization (WHO), the Agreement and increasing recognition of the FAO/WHO Codex Alimentarius Commission, the value of the Committee as a venue to discuss SPS- FAO International Plant Protection Convention related trade issues among Members. Secretariat (IPPC), the International Office of Epizootics (OIE), the International Organization With assistance from the United States and other for Standardization (ISO) and the International donors, the 34 countries participating in the Free Trade Center (ITC), and others. Trade Area of the Americas negotiations attended each of the meetings of the Committee in 2003. A number of documents relating to the work of This significantly expanded capital-based, and the SPS Committee are available to the public Geneva-based, participation in the Committee. directly from the WTO website: www.wto.org. Plans are being made to secure funding sources The SPS Committee documents are indicated by to continue this assistance for attendance at the symbols, “G/SPS/....” Beginning in 2000, noti- future meetings. fications of proposed SPS measures are indicated

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BSE-TSE2: The Committee also devoted consider- margins of the March and November Committee able time to discussing Members activities meetings to provide Members with the opportu- regarding BSE and TSE’s. Several Members have nity to discuss these new requirements with FDA proposed and introduced measures to protect experts. During the March Committee meeting, consumers and animals against BSE. The Members were encouraged to submit comments Committee discussed the need for these measures and concerns about the proposed rules on regis- to be based on science and that international stan- tration and prior notice before the close of the dards should be used as the basis of Members’ comment period on April 4, 2003. The concerns actions, unless Members have a scientific justifi- of Members were also noted by FDA and appro- cation for a more protective measure than that priate responses were provided. At the November provided by the international standard. The meeting, the major changes from the proposed United States anticipates that BSE will continue to rules that were reflected in the interim final rules be an issue of interest and concern of many and implementation requirements were Members and the Committee will have extensive explained both in the Committee meeting and at discussions about the nature of the disease and a special outreach meeting hosted by the United measures taken by Members to protect public States. Members were also informed that health and animal health. Several Members, although the implementation of the interim final including the United States, raised concerns rules could not be delayed (due to the automatic about the non-science based categorization of implementation provisions of the BTA on countries’ BSE-status and the use of this catego- December 12, 2003), the United States would rization to restrict trade. show flexibility regarding the enforcement of these requirements. Implementation of the Bioterrorism Act: At the November 2002 meeting and at each 2003 Equivalence: At the request of developing- meeting of the Committee, the United States country Members, the Committee held several provided information on the implementation of informal meetings on the provisions of Article 4 the Public Health Security and Bioterrorism of the Agreement—Equivalence. In 2001, the Preparedness Act of 2002, known simply as the United States submitted a paper (G/SPS/W/111) Bioterrorism Act (BTA). The primary require- outlining our views and the activities of regula- ments of the BTA which affect food imported into tory agencies as they relate to equivalence. This the United States are: the requirement for all food paper and submissions from other Members handling facilities (including foreign facilities if enabled the Committee to develop and approve a they export to the United States), with some decision of the Committee (G/SPS/19) which exceptions such as farms and restaurants, to outlines steps designed to make it easier for register with the U.S. Food and Drug Members to make use of the provisions of Article Administration (FDA); and to provide prior 4 of the Agreement. In 2002, the Committee notice of all food consignments imported into the began discussions on certain aspects of this deci- United States. Under the leadership of FDA, sion which need clarification. The Committee various U.S. agencies have conducted outreach adopted a work plan for the next two years on the and education to other countries to ensure clarification of this decision. exporters to the United States are aware of these requirements and know how to comply. Part of Notifications: During several discussions in the this effort included the presentation of informa- Committee regarding specific trade concerns tion at each meeting of the SPS Committee and among Members and equivalence, Members special outreach sessions conducted on the indicated that a specific discussion on the

______2 Bovine Spongiform Encephalopathy and Transmissible Spongiform Encephalopathy

66 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT notification requirements and process would be helpful. The Committee decided to have U.S. Inquiry Point informal meetings on notifications and trans- Office of Food Safety and Technical Services parency in 2002. At the June meeting, the Attention: Carolyn F. Wilson Committee adopted a revision to the notification Foreign Agricultural Service form and added space for Members to describe U.S. Department of Agriculture measure recognized to be equivalent. AG Box 1027 Room 5545 South Agriculture Building 14th and Independence Avenue, S.W. Technical Assistance: In June 2000, the United Washington, DC 20250-1027 States submitted information (G/SPS/W/181) on technical assistance which had been provided to Telephone: (202) 720-2239 Members on SPS issues. This information is Fax: (202) 690-0677 updated on an annual basis to reflect assistance email: [email protected] provided since the previous report in July 2001 (G/SPS/W/181add.1), June 2002 (add.2) and an official notification authority, as required by in June 2003 (add.3). Committee meeting, the Agreement, and to ensure that the the United States provided updated informa- Agreement’s notification requirements are fully tion((G/SPS/W/181add.2) describing the and effectively implemented. Each Member is technical assistance provided by U.S. agencies also required to establish a central contact point, since the last report. known as an inquiry point, to be responsible for China’s Transitional Review Mechanism: The responding to requests for information or making United States participated in the Committee’s the appropriate referral. This inquiry point circu- second review of China’s implementation of its lates notifications received under the Agreement WTO under paragraph 18 of the Protocol on the to interested parties for comment. The SPS Accession of the People’s Republic of China. The inquiry point for the United States is: United States submitted questions regarding China’s notification procedures, scientific basis Prospects for 2004 for some of its SPS measures, national treatment The Committee will continue to monitor imple- and import inspection and approval procedures mentation of the Agreement by WTO Members. (G/SPS/W/139). This paper and those of other As mentioned above, the number of specific trade Members formed the basis of the Committee’s concerns raised in the Committee appears to be discussions at the November meeting. China increasing and the Committee has been a useful provided oral responses to the questions raised by forum for Members to raise concerns and then the United States and other Members and restated work bilaterally to resolve specific trade its commitment to implement the provisions of concerns. The number of concerns in this area is the SPS Agreement. evidence of the importance and usefulness Members place on the effective operation of the Transparency: The SPS Agreement provides a Agreement. The Committee will continue to be process whereby WTO Members can obtain an important forum for Members to provide information on other Members’ proposed SPS information about efforts to manage and control regulations and control, inspection, and approval food safety and animal health emergencies as well procedures, and the opportunity to provide as ongoing food safety, animal and plant health comments on those proposals before imple- activities that affect international trade. menting Members’ make their final decisions. These transparency procedures have proved In addition, during 2004, the United States extremely useful in preventing trade problems expects the Committee to continue discussions associated with SPS measures. The United States on technical assistance and notifications. To date, continued to press all WTO Members to establish developed countries have submitted most of the

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papers and the United States will be encouraging duty (CVD) action—to address subsidized trade developing-country Members to participate more that causes harmful commercial effects. The actively in both formal meetings and informal Agreement nominally divides subsidy practices consultations to identify improvements. At the among three classes: prohibited (red light) subsi- November meeting, Committee agreed to an dies; permitted yet actionable (yellow light) informal meeting in March 2004 on Article 6, subsidies; and permitted, non-actionable (green Regionalization. Members have been invited to light) subsidies.4 Export subsidies and import submit papers on their experiences with these substitution subsidies are prohibited. All other provisions of the Agreement. These discussions subsidies are permitted, yet are also actionable are expected to continue throughout 2004. As a (through CVD or dispute settlement action) if result of implementation discussions in the they are (i) “specific”, i.e., limited to a firm, General Council, the Committee will need to industry or group thereof within the territory of a address plans for conducting a review of the WTO Member and (ii) found to cause adverse Agreement as agreed upon by the General trade effects, such as material injury to a domestic Council. The Committee will continue to industry or serious prejudice to the trade interests monitor the development of international stan- of another WTO3 Member. With the expiration of dards, guidelines and recommendations by the Agreement’s provisions on green light subsi- standard-setting organizations. The Committee dies, at present, the only non-actionable subsidies will seek to identify areas where the development are those which are not specific, as defined above. of additional or new standards would facilitate international trade and provide this information Major Issues in 2003 to the appropriate standard-setting organization The Committee held two regular meetings in for consideration. The Committee will also 2003. In addition to its routine activities prepare for and conduct a review of China’s concerned with reviewing and clarifying the implementation of the SPS Agreement. consistency of WTO Members’ domestic laws, regulations and actions with Agreement require- 9. Committee on Subsidies and ments, the Committee continued to accord Countervailing Measures3 special attention to the general matter of subsidy notifications and the process by which such noti- Status fications are made to and considered by the The Agreement on Subsidies and Countervailing Subsidies Committee. In this regard, the Measures (Subsidies Agreement) provides rules Committee took action to address the poor and and disciplines for the use of government subsi- declining state of compliance with subsidy notifi- dies and the application of remedies—through cations in an effort to find a long-term solution to either WTO dispute settlement or countervailing the problem. During the fall meeting, the

______3 For further information, see also the Joint Report of the United States Trade Representative and the U.S. Department of Commerce, Subsidies Enforcement Annual Report to the Congress, February 2004. 4 Prior to 2000, Article 8 of the Agreement provided that certain limited kinds of government assistance granted for industrial research and development (R&D), regional development, or environmental compliance purposes would be treated as non- actionable subsidies so long as such assistance conformed to the applicable terms and conditions set forth in Article 8. In addition, Article 6.1 of the Agreement provided that certain other subsidies, referred to as dark amber subsidies, could be presumed to cause serious prejudice. These were: (i) subsidies to cover an industry’s operating losses; (ii) repeated subsidies to cover a firm’s operating losses; (iii) the direct forgiveness of debt (including grants for debt repayment); and (iv) when the ad valorem subsidization of a product exceeds five percent. If such subsidies were challenged on the basis of these dark amber provisions in a WTO dispute settlement proceeding, the subsidizing government would have the burden of showing that serious prejudice had not resulted from the subsidy. However, as explained in our1999 report, a mandatory review was conducted in 1999 under Article 31 of the Agreement to determine whether to extend the application of these provisions beyond December 31 of that year. They expired on January 1, 2000 because a consensus could not be reached among WTO Members on whether to extend or the terms by which these provisions might be extended beyond their five-year period of provisional application.

68 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Committee also undertook its second transitional As for CVD measures, six WTO Members notified review with respect to China’s implementation of CVD actions taken during the latter half of 2002, the Agreement. Other issues addressed in the and eleven Members notified actions taken in the course of the year included: the examination of first half of 2003. Specifically, the Committee the export subsidy program extension requests of reviewed actions taken by Argentina, Australia, certain developing countries, the methodology Brazil, Canada, Costa Rica, the European Union, for the calculation of the per capita GNP Latvia, Mexico, New Zealand, Peru, South Africa, threshold in Annex VII of the Agreement, the the United States and Venezuela. With respect to ramifications of European Union enlargement on subsidy notifications, 34 Members provided new existing trade remedy measures, and the election and full notifications for 2003. (Importantly, the of two persons to the Permanent Group of United States submitted its subsidy notification in Experts. Further information on these various 2003, continuing to be in compliance with its activities is provided below. subsidy notification obligations under the Agreement.) Twenty-two of these notifications Review and Discussion of Notifications: were reviewed in the fall of 2003. The remainder Throughout the year, Members submitted notifi- will be reviewed next year. In 2003, the cations of: (i) new or amended CVD legislation Committee continued its examination of new and and regulations; (ii) CVD investigations initiated full notifications submitted for 1998 and 2001, as and decisions taken; and (iii) measures which well as updating notifications submitted for 1999 meet the definition of a subsidy and which are and 2000. specific to certain recipients within the territory of the notifying Member. Notifications of CVD Although WTO Membership was 146 as of legislation and actions, as well as subsidy notifi- December 2003, as noted above, only 34 cations, were reviewed and discussed by the Members provided new and full notifications for Committee at both of its regular meetings. In 2003. Only 59 Members submitted new and full reviewing notified CVD legislation and subsidies, subsidy notifications for 2001, while 47 and 43 Committee procedures provide for the exchange Members, respectively, submitted updating noti- in advance of written questions and answers in fications for the 1999 and 2000 periods. Notably, order to clarify the operation of the notified meas- numerous Members have never made a subsidy ures and their relationship to the obligations of notification to the WTO, although many are the Agreement. To date, 97 Members of the WTO lesser developed countries. (counting the European Union as one) have noti- fied that they currently have CVD legislation in In view of the ongoing difficulties experienced by place, while 35 Members have not yet notified Members, in meeting the Agreement’s subsidy that they maintain such legislation. Among the notification obligations, a three-prong strategy notifications of CVD laws and regulations has been employed to address the problem. The reviewed in 2003 were those of: Antigua and first prong was to examine alternative practical Barbuda; Argentina; Brazil; China; Costa Rica; approaches to the frequency and nature of Czech Republic; Dominican Republic; the subsidy notifications, as well as their review. In European Communities; Grenada; Japan; 2001, Members decided to devote maximum Lithuania; Mexico; New Zealand; Nicaragua; effort to submitting new and full notifications, Pakistan; Turkey; and, Zimbabwe5. The notifica- every two years, and to de-emphasize the review tions of Armenia and Peru were scheduled to be of the annual updating notifications. reviewed at the fall 2003 regular meeting but were Examination of the format for a subsidy notifica- postponed until next year. tion constituted the second prong of the strategy.

______5 In keeping with WTO practice, the review of legislative provisions which pertain or apply to both antidumping and CVD actions by a Member generally took place in the Antidumping Committee.

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Efforts in this regard were made in 2002 and Extension of the transition period for the phase culminated in the adoption in 2003 of a revised, out of export subsidies: Under the Agreement, simplified format. The third prong was the organ- most developing countries were obligated to ization of a subsidy notification seminar, geared eliminate their export subsidies by December 31, to participation by capital-based officials respon- 2001. Article 27.4 of the Agreement allows for an sible for notification which was held in 2002. extension of this deadline provided consultations Pursuant to an informal U.S. initiative, several were entered into with the Subsidies Committee developed country Members have offered tech- by December 31, 2002. The Committee has the nical assistance to neighboring developing authority to decide whether an extension is justi- country Members experiencing difficulty in fied. In making this determination, the assembling and submitting subsidy notifications. Committee must consider the “economic, finan- Implementation of this initiative will hopefully cial and development needs” of the developing provide the needed impetus for those developing country Member. If the Committee grants an countries in need to meet their obligations under extension, annual consultations with the the Subsidies Agreement and thereby address, at Committee must be held to determine the neces- least in part, the relatively poor record of WTO sity of maintaining the subsidies.6 If the Members in submitting notifications of their Committee does not affirmatively sanction a subsidy programs. continuation, the export subsidies must be phased out within two years. China Transitional Review: At the fall meeting, the Committee undertook, pursuant to the Protocol In an attempt to try and address the concerns of on the Accession of the People’s Republic of small exporter developing countries, a special China, the second annual transitional review with procedure within the context of Article 27.4 of respect to China’s implementation of its WTO the Agreement, was adopted at the Fourth obligations in the areas of subsidies, counter- Ministerial Conference under which countries vailing measures and pricing policies. A number whose share of world exports was not more than of Members, including the United States, 0.10 percent and whose Gross National Income presented written and oral questions and concerns was not greater than $20 billion could be granted to China in these areas. China provided substan- a limited extension for particular types of export tial information with respect to its countervailing subsidy programs subject to rigorous trans- duty laws and regulations, as well as some infor- parency and standstill provisions. Members mation regarding its pricing policies. While China meeting all the qualifications for the agreed upon orally described some of its subsidy programs in special procedures are eligible for a five-year response to Members’ inquiries during the transi- extension of the transition period, in addition to tional review, it has not submitted a subsidies the two years referred to under Article 27.4.7 notification since becoming a WTO Member, citing numerous practical difficulties in assem- In 2002, Colombia, El Salvador, Panama and bling and submitting the appropriate information. Thailand made requests under the normal exten- During the transitional review, the United States sion process provided for in the Agreement. and others expressed concern that China had not Antigua and Barbuda, Barbados, Belize, Bolivia, yet submitted a subsidies notification and urged it Costa Rica, Dominica, Dominican Republic, El to do so as soon as possible. Salvador, Grenada, Guatemala, Honduras,

______6 Any extension granted by the Committee would only preclude a WTO dispute settlement case from being brought against the export subsidies at issue. A Member’s ability to bring a countervailing duty action under its national laws would not be affected. 7 In addition to agreement on the specific length of the extension, it was also agreed at the Fourth Ministerial Conference, in essence, that the Committee should look favorably upon the extension requests of Members which do not meet all the specific eligibility criteria for the special small exporter procedures but which are similarly situated to those that do meet all the criteria. This provision added at the request of Colombia.

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Jamaica, Jordan, Kenya, Mauritius, Panama, identifies certain lesser developed countries that , St. Kitts and Nevis, St. Lucia, are eligible for particular special and differential St. Vincent and Grenadines, Sri Lanka, and treatment. Specifically, the export subsidies of Suriname made requests under the special proce- these countries are not prohibited and, therefore, dures adopted at the Fourth Ministerial are not actionable under the dispute settlement Conference for small exporter developing coun- process. Secondly, a higher de minimis threshold tries.8 Uruguay requested an extension for one is provided for in countervailing duty investiga- program under both the normal and special tions of imports from these countries, although procedures. Additionally, Colombia sought an this standard expired at the end of 2002.10 The extension for two of its export subsidies programs countries identified in Annex VII include those under a procedure agreed to at the Fourth WTO Members designated by the United Nations Ministerial Conference analogous to that as “least developed countries” (Annex VII(a)) as provided for small exporter developing countries. well as countries that had, at the time of the nego- tiation of the Agreement, a per capita GNP under In 2003, no requests were made for extensions $1,000 per annum and are specifically listed in 9 under the normal Article 27.4 procedures. Annex VII(b).11 A country automatically “gradu- Requests were made however, by all the countries ates” from Annex VII(b) status when its per which had received extensions under the special capita GNP rises above the $1,000 threshold. procedures adopted at the Fourth Ministerial When a Member crosses this threshold it Conference for small exporter developing coun- becomes subject to the subsidy disciplines of tries. Colombia also requested an extension for other developing country Members. two of its export subsidies programs for which extensions were granted under the procedure Since the adoption of the Agreement in 1995, agreed to at the Fourth Ministerial Conference. the de facto interpretation by the Committee of All these requests required, inter alia, a detailed the $1,000 threshold was current (i.e., nominal examination of whether the applicable standstill or inflated) dollars. The concern with this inter- and transparency requirements had been met. In pretation, however, was that a Member could total, the Committee conducted a detailed review graduate from Annex VII on the basis of infla- of more than 46 export subsidy programs. At the tion alone, rather than on the basis of real end of the process, all of the requests under the economic growth. special procedures were granted. Throughout the review and approval process, the United States In 2001, the Chairman of the Committee, in took a leadership role in ensuring close conjunction with the WTO Secretariat, developed adherence to all of the preconditions necessary an approach based on certain World Bank data for continuation of the extensions. that were used by the Uruguay Round negotiators in 1990 in developing Annex VII(b). While The Methodology for Annex VII(b) of the many Members expressed the view that they Agreement: Annex VII of the Agreement could accept this proposed methodology, other

______8 Bolivia, Guatemala, Honduras, Kenya and Sri Lanka are all listed in Annex VII of the Subsidies Agreement and thus, may continue to provide export subsidies until their “graduation”. Therefore, these countries have only reserved their rights under the special procedures in the event they graduate during the five-year extension period contemplated by the special procedures. Because these countries are only reserving their rights at this time, the Committee did need to make any decisions as to whether their particular programs qualify under the special procedures. 9 As a result, the export subsidy programs of Colombia, El Salvador, Panama and Thailand which had been granted normal Article 27.4 extensions in 2002, must be phased out within two years (i.e., the end of 2005). 10 This de minimis for Annex VII countries was 3 percent, compared with the 2 percent for other developing countries. 11 Annex VII(b) countries are Bolivia, Cameroon, Congo, Cote d’Ivoire, Dominican Republic, Egypt, Ghana, Guatemala, Guyana, India, Indonesia, Kenya, Morocco, Nicaragua, Nigeria, Pakistan, Philippines, Senegal, Sri Lanka, and Zimbabwe. In recogni- tion of the technical error made in the final compilation of this list and pursuant to a General Council decision, Honduras was formally added to Annex VII(b) on January 20, 2001.

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Members indicated that it was more appropriate EU on this issue, raising concerns about whether to rely on more recently available data. Thus, it the EU’s announced intention to extend was not possible to reach a consensus on the automatically, upon expansion, its counter- question of methodology. vailing duty measures now covering imports into the territory of the 15 current member-states of At the Fourth Ministerial Conference, it was agreed: the EU to cover imports into the territory of the 25 member-states after expansion would be ... that Annex VII(b) to the Agreement consistent with the Agreement, particularly in on Subsidies and Countervailing the absence of an additional determination of Measures includes the Members that are injury covering the territory of the 25 member- listed therein until their GNP per capita states. The EU responded orally to the U.S. reaches U.S. $1,000 in constant 1990 questions, and several other Members raised dollars for three consecutive years. This additional questions and concerns on this issue. decision will enter into effect upon the Discussion will continue in 2004. adoption by the Committee on Subsidies and Countervailing Measures of an Permanent Group of Experts: Article 24 of the appropriate methodology for calculating Agreement directs the Committee to establish a constant 1990 dollars. If, however, Permanent Group of Experts (PGE), “composed the Committee on Subsidies and of five independent persons, highly qualified in Countervailing Measures does not reach the fields of subsidies and trade relations.” The a consensus agreement on an appro- Agreement articulates three possible roles for the priate methodology by 1 January 2003, PGE: (i) to provide, at the request of a dispute the methodology proposed by the settlement panel, a binding ruling on whether a Chairman of the Committee set forth in particular practice brought before that panel G/SCM/38, Appendix 2 shall be applied. constitutes a prohibited subsidy, within the A Member shall not leave Annex VII(b) meaning of Article 3 of the Agreement; (ii) to so long as its GNP per capita in current provide, at the request of the Committee, an advi- dollars has not reached U.S. $1000 based sory opinion on the existence and nature of any upon the most recent data from the subsidy; and (iii) to provide, at the request of a World Bank.12 WTO Member, a “confidential” advisory opinion No alternative methodology was proposed in on the nature of any subsidy proposed to be intro- 2002. Therefore, the Chairman’s methodology duced or currently maintained by that Member. proposed in 2001 has been in effect since January To date, the PGE has not yet been called upon to 1, 2003. The WTO Secretariat updated the calcu- perform any of the aforementioned duties. Article lations later in the year.13 24 further provides for the Committee to elect the experts to the PGE, with one of the five experts European Union Expansion: At the fall meeting, being replaced every year. At of the beginning of the Committee discussed issues pertaining to the 2002, the members of the Permanent Group of status of outstanding countervailing duty meas- Experts were: Professor Okan Aktan; Mr. Jorge ures of the EU in light of the future expansion of Castro Bernieri; Dr. Marco Bronckers; Professor the EU from 15 members to 25 members in 2004. R.G. Flores Jr.; and Mr. Hyung-Jin Kim. The United States filed written questions to the Professor Flores’ term as a member of the PGE

______12 The addition of the phrase “for three consecutive years” was added at the request of Honduras which was concerned that their possible graduation from Annex VII in the near future might place them in a worse position than those Members which avail themselves of the special procedures under Article 27.4 for small developing country exporters. 13 See G/SCM/110.

72 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT expired in the spring of 2003. In addition, Mr. Castro-Bernieri, who was elected to the PGE for U.S. Inquiry Point the term 2001-2006, resigned upon his National Center for Standards and appointment to the WTO Secretariat. Mr. Certification Information Terence P. Stewart—a recognized international National Institute of Standards and trade law practitioner from the United States— Technology (NIST) and Mr. Yuji Iwasawa were elected to replace Mr. 100 Bureau Drive, Stop 2150 Gaithersburg, MD 20899-2150 Castro-Bernieri and Professor Flores to the PGE, assuming terms until spring 2006, and spring Telephone: (301) 975-4040 2008, respectively. Fax: (301) 926-1559 email: [email protected] Prospects for 2004 NIST offers a free web-based service, In 2004, the United States will continue to work Export Alert!, that provides U.S. customers with others to try to identify ways to rationalize with the opportunity to review and the burdens of subsidy notification for all WTO comment on proposed foreign technical Members without diminishing transparency or regulations that can affect them. By regis- tering for the Export Alert! Service, U.S. taking away from the other substantive benefits of customers receive, via e-mail, notifications the notification obligation and to provide tech- of drafts or changes to foreign regulations nical assistance when available and where for a specific industry sector and/or appropriate. Second, the United States will partic- country. To register on-line contact: ipate actively in the review of other WTO Members’ CVD legislation and actions, as well as China’s Transitional Review, and will bring to procedures regarding the development, adoption, Members’ and the Committee’s attention any and application of voluntary product standards, concerns which may arise about such laws or mandatory technical regulations, and the proce- actions, whether in general or in the context of dures (such as testing or certification) used to specific proceedings. Thirdly, the United States determine whether a particular product meets will continue to ensure the close adherence to the such standards or regulations. Its aim is to provisions of the agreed upon export subsidy prevent the use of technical requirements as extension procedures for small exporter devel- unnecessary barriers to trade. The Agreement oping countries. Finally, the United States is applies to a broad range of industrial and agricul- prepared to take a leadership role in addressing tural products, though sanitary and any technical questions that the Subsidies phytosanitary (SPS) measures and specifications Committee may be asked to consider in the for government procurement are covered under context of issues that may arise within the Rules separate agreements. It establishes rules that help Negotiating Group. to distinguish legitimate standards and technical regulations from protectionist measures. 10. Committee on Technical Barriers Standards, technical regulations and conformity to Trade assessment procedures are to be developed and applied on a non-discriminatory basis, developed Status and applied transparently, and should be based on The Agreement on Technical Barriers to Trade relevant international standards and guidelines, (the TBT Agreement) establishes rules and when appropriate.

II. THE WORLD TRADE ORGANIZATION | 73 The TBT Committee14 serves as a forum for for “notification”)/USA (which in this case stands consultation on issues associated with the for the United States of America; three letter implementation and administration of the symbols will be used to designate the WTO Agreement. This includes discussions and/or Member originating the notification)/X (where presentations concerning specific standards, “x” will indicate the numerical sequence for that technical regulations and conformity assess- country or Member).15 Parties in the United ment procedures maintained by a Member that States interested in submitting comments to are creating adverse trade consequences and/or foreign governments on their proposals should are perceived to be violations of the Agreement. send them through the U.S. inquiry point at the It also includes an exchange of information on address above. Minutes of the Committee meet- Member government practices related to imple- ings are issued as “G/TBT/M/...” (followed by a mentation of the Agreement and relevant number). Submissions by Members (e.g., state- international developments. ments, informational documents, proposals, etc.) and other working documents of the Committee Transparency and Availability of WTO/TBT are issued as “G/TBT/W/...” (followed by a Documents: A key opportunity for the public number). As a general rule, written information resulting from the TBT Agreement is the ability to provided by the United States to the Committee is obtain information on proposed standards, tech- provided on an “unrestricted” basis and is avail- nical regulations and conformity assessment able to the public on the WTO’s website. procedures, and to provide written comments for consideration on those proposals before they are Major Issues in 2003 finalized. Members are also required to establish a The TBT Committee met three times in 2003. At central contact point, known as an inquiry point, the meetings, the Committee addressed imple- which is responsible for responding to requests mentation of the Agreement, including an for information on technical requirements or exchange of information on actions taken by making the appropriate referral. Members domestically to ensure implementation and ongoing compliance. A number of Members A number of documents relating to the work of used the Committee meetings to raise concerns the TBT Committee are available to the public about specific technical regulations which directly from the WTO website: www.wto.org. affected, or had the potential to affect, trade TBT Committee documents are indicated by the adversely and were perceived to create unneces- symbols, “G/TBT/....” Notifications by Members sary barriers to trade. U.S. interventions were of proposed technical regulations and conformity primarily targeted at a variety of proposals from assessment procedures which are available for the European Commission that could seriously comment are issued as: G/TBT/N (the “N” stands disrupt trade.

______14 Participation in the Committee is open to all WTO Members. Certain non_WTO Member governments also participate, in accordance with guidance agreed on by the General Council. Representatives of a number of international intergovernmental organizations were invited to attend meetings of the Committee as observers: the International Monetary Fund (IMF), the United Nations Conference on Trade and Development (UNCTAD); the International Trade Center (ITC); the International Organization for Standardization (ISO); the International Electrotechnical Commission (IEC); the Food and Agriculture Organization (FAO); the World Health Organization (WHO); the FAO/WHO Codex Alimentarius Commission; the International Office of Epizootics (OIE); the Organization for Economic Cooperation and Development (OECD); the UN Economic Commission for Europe (UN/ECE); and the World Bank. The International Organization of Legal Metrology (OIML), the United Nations Industrial Development Organization (UNIDO), the Latin American Integration Association (ALADI), the European Free Trade Association (EFTA) and the African, Caribbean and Pacific Group of States (ACP) have been granted observer status on an ad hoc basis, pending final agreement by the General Council on the application of the guidelines for observer status for international intergovernmental organizations in the WTO. 15 Before 2000, the numbering of notifications of proposed technical regulations and conformity assessment procedures read: “G/TBT/Notif./...” (followed by a number).

74 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT The Committee conducted its Eighth Annual working with other relevant international and Review of the Implementation and Operation of regional organizations. To this end, the the Agreement based on background documenta- Committee developed and conducted a tion contained in G/TBT/12, and its Eighth Questionnaire for a Survey to Assist Developing Annual Review of the Code of Good Practice for Country Members to Identify and Prioritize their the Preparation, Adoption and Application of Specific Needs in the TBT Field (G/TBT/W/178). Standards (Annex 3 of the Agreement) based on To date, over 50 WTO Members responded to the background documentation contained in survey. The Secretariat prepared an un-restricted G/TBT/CS/1/Add.7 and G/TBT/CS/2/Rev.9. summary of the survey responses received prior Decisions and recommendations adopted by the to the October 17, 2002, meeting of the Committee are contained in G/TBT/1/Rev.8. Committee (G/TBT/W/186). On March 18, 2003 the Committee held a Workshop on Technical Follow-up to the Second Triennial Review of Assistance which included presentations on assis- the Agreement: Beyond bilateral trade tance needs, case studies on successful concerns discussed under “Statements on approaches, and a discussion of future strategies. Implementation,” the work of the Committee has focused on issues identified in the Second Labeling: The Committee intensified its exchange Triennial Review of the Agreement (see of information on issues associated with labeling G/TBT/9). The review provided the opportunity requirements, noting the frequency with which for WTO Members to review and discuss all of the specific concerns regarding mandatory labeling provisions of the Agreement, which facilitated a were raised at meetings of the Committee during common understanding of their rights and obli- discussions on implementation, and stressing that gations under the Agreement. In follow-up to that although such requirements can be legitimate review, priority attention has been given to tech- measures, they should not become disguised nical assistance and the implementation needs of restrictions on trade. Since the conclusion of the developing countries, as well as to trade effects Second Triennial Review, a number of Members resulting from labeling requirements. presented papers on their views, including submission from the United States Technical Assistance: In the Second Triennial (G/TBT/W/165). Although Switzerland and the Review, the Committee recognized the impor- European Union suggested the need for clarifica- tance of ensuring that solutions to tion of TBT disciplines to better address labeling implementation problems were targeted at the concerns, their view gained little support, with specific priorities and needs identified by indi- most WTO Members including the United States vidual or groups of developing country Members. emphasizing the need to comply with existing This called for effective coordination at the obligations. In response to a request from the national level between authorities, agencies, and Committee, the Secretariat prepared two back- other interested parties to identify and assess the ground papers to inform the discussions: a priority infrastructure needs of a specific compilation of notifications made since 1995 Member. The Committee recognized the need for (G/TBT/W/183), and a compilation of specific coordination and cooperation between donor trade concerns related to labeling raised at meet- Members and organizations, as well as between ings of the TBT Committee (G/TBT/W/184). The the Committee, other relevant WTO bodies, and Secretariat estimates some 723 notifications have donor organizations. In order to enhance the been made between January 1, 1995 and August effectiveness of technical assistance and coopera- 31, 2002 which involved labeling proposals. The tion, the Committee agreed to develop a Committee held a “Learning Event” on labeling demand-driven technical cooperation program on October 21-22, 2003. The event was focused beginning with the identification and prioritiza- on case studies, with a particular focus on devel- tion of needs by developing countries, and oping countries’ concerns.

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Third Triennial Review: At its meeting on 11. Committee on Trade-Related November 7, 2003, the Committee concluded its Investment Measures Third Triennial Review of the Agreement (G/TBT/13). The review reflected discussions Status undertaken by the Committee since the conclu- The Agreement on Trade-Related Investment sion of the Second Triennial Review in 2000. The Measures (TRIMS) prohibits investment meas- Review focused on the following topics: (a) imple- ures that violate the GATT Article III obligation to mentation and administration of the Agreement; treat imports no less favorably than domestically (b) good regulatory practice; (c) transparency produced products and the GATT Article XI obli- procedures; (d) conformity assessment proce- gation not to impose quantitative restrictions on dures; (e) technical assistance and special and imports. The TRIMS Agreement thus requires the differential treatment; and, (f) other elements. elimination of certain measures imposing Among other things, the Committee agreed to requirements on, or linking advantages to, the intensify its exchange of information on performance of foreign investors, such as meas- conformity assessment , including implementation ures that require, or provide benefits for, the of supplier’s declaration of conformity and other incorporation of local inputs in manufacturing approaches to facilitate the acceptance of processes (“local content requirements”) or conformity assessment results through future measures that restrict a firm’s imports to an workshops. It will also explore ways to facilitate amount related to the quantity of its exports or of coordination within the WTO and with other its foreign exchange earnings (“trade balancing bodies technical assistance in response to identi- requirements”). The Agreement includes an illus- fied needs. The United States submission for the trative list of measures that violate its obligations. Triennial Review is contained in G/TBT/W/220. The TRIMS Agreement required formal notifica- The Triennial Review includes a listing of all the tion and eventual elimination of TRIMS measures submissions made by Members in the context of that existed at the time the agreement came into the review and which are available at www.wto.org. force in January 1995. Developed countries were It also includes information, by Member, on required to eliminate notified TRIMS by the whether they have established an enquiry point beginning of 1997, developing countries by the and provided a Statement regarding domestic steps beginning of 2000, and least developed countries that have been taken to implement the Agreement. by the beginning of 2002. In 2001, eight devel- oping countries were granted up to four Prospects for 2004 additional years (retroactive to the beginning of The Committee will continue to monitor imple- 2000) to eliminate notified TRIMS. These exten- mentation of the Agreement by WTO Members. sions expired at the end of 2003. The number of specific trade concerns raised in the Committee appears to be increasing. The Developments relating to the TRIMS Agreement are Committee has been a useful forum for Members monitored and discussed both in the CTG and in to raise concerns and facilitate bilateral resolu- the CTG Committee on Trade-Related Investment tion of specific concerns. In 2004, the Measures (TRIMS Committee). The United States Committee is expected to host at least one work- focused its work on TRIMS issues in several areas shop on conformity assessment in follow-up to during 2003: the review of the operation of the the Third Triennial Review. Follow-up on issues TRIMS Agreement mandated under Article 9; raised in past reviews, or discussion of new issues monitoring compliance with the agreement; in preparation for the Fourth Review, are driven proposals for the provision of special and differen- by Members statements and submissions. The tial treatment relating to the TRIMS Agreement; U.S. priorities are likely to continue to focus on and a review of China’s compliance efforts. good regulatory practice, transparency and technical assistance.

76 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Major Issues in 2003 As part of the review of special and differential The TRIMS Committee held three formal meet- treatment provisions, the Chairman of the ings during 2003. TRIMS issues were also General Council considered several TRIMS- discussed during several meetings of the CTG. related proposals submitted by a group of African countries. One proposal stated that WTO The CTG continued its review of the operation of Members should interpret and apply the TRIMS the TRIMS Agreement mandated by Article 9 of Agreement in a manner that supports WTO- the Agreement. Members discussed proposals by consistent measures taken by developing and several developing countries—including a 2002 least-developed countries to safeguard their paper from Brazil and India submitted under the balance of payments. Under the second proposal, Doha Ministerial Declaration mandate (paragraph least-developed or other low-income WTO 12(b)) to review the implementation of WTO Members experiencing balance-of-payments agreements—recommending that the TRIMS difficulties would be permitted to maintain meas- Agreement be amended to allow developing coun- ures inconsistent with the TRIMS Agreement for tries to use TRIMS for development purposes. periods of not less than six years. The final African proposal would have required the CTG to The United States and several other WTO grant new requests from least-developed coun- members opposed proposals to amend the TRIMS tries and certain other developing countries for Agreement, arguing that TRIMS had been shown the extension of transition periods or for fresh to distort trade flows and to discourage foreign transition periods for the notification and elimi- investment, harming developing countries. Given nation of TRIMS. the lack of consensus on proposals to amend the TRIMS Agreement, the United States argued that The African S&D proposals were discussed the Article 9 review should be concluded. The during several TRIMS Committee meetings in United States also argued that individual WTO June and July. The United States argued that any Members experiencing difficulty complying with TRIMS measures imposed for balance-of the Agreement should seek relief under existing payments purposes must follow existing WTO WTO waiver mechanisms. rules on balance-of-payments safeguards. The United States also said that it would not be appro- During meetings of the TRIMS Committee and of priate to adopt fixed time periods for maintaining the CTG in late 2002 and 2003, the United States TRIMS measures in response to balance-of- sought to verify whether the eight WTO Members payments crises and that, given the lack of that received extensions of their TRIMS phase- requests for TRIMS extensions from least-devel- out deadlines in 2001 had eliminated notified oped countries to date, it was not convinced that measures and come into full compliance with the a policy of automatically granting requests for Agreement. In November 2003, six of these coun- longer TRIMS transition periods was warranted. tries (Argentina, Colombia, Mexico, Philippines, Following extensive consultations, the Chairman Romania, and Thailand) reported that they had concluded that it would be possible to reach eliminated outstanding measures or were on agreement on the first African proposal, but that track to do so by the end of the year. The compromise on the other proposals was not Malaysian delegation was not able to describe the attainable. The Chairman noted the absence of current status of its efforts to phase-out remaining consensus in a July report to the General Council. TRIMS. Pakistan reported that it would not elim- inate certain auto-related TRIMS by the end of Pursuant to paragraph 18 of the Protocol on the 2003. In December, Pakistan requested that its Accession of the People’s Republic of China to the deadline for eliminating certain measures in the WTO, the TRIMS Committee conducted its automotive sector be extended again, until the second annual review in 2003 of China’s imple- end of 2006. mentation of the TRIMS Agreement and related

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provisions of the Protocol. The United States’ or not they were signatories to the MFA, and only principal objectives were to obtain information Members of the WTO are entitled to the benefits and clarification regarding China’s WTO compli- of the ATC. The ATC is a ten-year arrangement ance efforts and to convey to China, in a which provides for the gradual integration of the multilateral setting, the concerns that it has textile and clothing sector into the WTO and regarding Chinese practices and/or regulatory provides for improved market access and the measures that may not be in accordance with gradual and orderly phase-out of the special China’s WTO commitments. During the October quantitative arrangements that have regulated meeting of the TRIMS Committee, U.S. questions trade in the sector among the major exporting focused on China’s regulation of the auto sector. and importing nations. U.S. agencies are analyzing China’s policies and its responses to U.S. questions in an effort to The United States has implemented the ATC in a decide whether and how to pursue these issues manner which ensures that the affected U.S. during future meetings of the CTG or the TRIMS industries and workers as well as U.S. importers Committee. and retailers have a gradual, stable and predictable regime under which to operate during Prospects for 2004 the quota phase-out period. At the same time, the In early 2004, the United States will seek to verify United States has aggressively sought to ensure the elimination of TRIMS by the countries that full compliance with market-opening commit- received extensions of the transition period until ments by U.S. trading partners, so that U.S. the end of 2003. The United States will also exporters may enjoy growing opportunities in engage other WTO Members in efforts to foreign markets. promote compliance with the TRIMS Agreement. Under the ATC, the United States is required to “integrate” products which accounted for speci- 12. Textiles Monitoring Body fied percentages of 1990 imports in volume over Status three stages during the course of the transition The Textiles Monitoring Body (TMB), established period—that is, to designate those textile and in the Agreement on Textiles and Clothing (ATC), apparel products for which it will henceforth supervises the implementation of all aspects of observe full GATT disciplines. Once a WTO the Agreement. Pursuant to the provisions of the Member has “integrated” a product, the Member ATC, the 10-year period for phasing out textile may not impose or maintain import quotas on restraints ends on December 31, 2004. After that that product other than under normal GATT date, all remaining textile restraints maintained procedures, such as Article XIX. As required by under the provisions of the ATC will be elimi- Section 331 of the Uruguay Round Agreements nated and the TMB will cease to exist. In 2003, Act, the United States selected the products for TMB membership was composed of appointees early integration after seeking public comment, and alternates from the United States, the and published the list of items at the outset of the European Union, Japan, Canada, Turkey, Peru, transition period, for purposes of certainty and Indonesia, China, India, and Korea. Each TMB transparency. The integration commitments for member serves in a personal capacity. stages one and two were completed in 1995 and 1998. The United States notified the TMB in 2001 The ATC succeeded the Multifiber Arrangement of the integration commitments for stage three (MFA) as an interim arrangement establishing and implemented these commitments on January special rules for trade in textile and apparel prod- 1, 2002. The list for all three stages may be found ucts on January 1, 1995. All Members of the WTO in the Federal Register, volume 60, number 83, are subject to the disciplines of the ATC, whether pages 21075-21130, May 1, 1995.

78 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Also as part of the ATC, with each “stage” is a the WTO. In addition, the United States will requirement that the United States and other continue to respond to surges in imports of textile importing Members increase the annual growth products which cause or threaten serious damage rates applicable to each quota maintained under to U.S. domestic producers. The United States will the Agreement by designated factors. Under the also continue efforts to enhance cooperation with ATC, the weighted average annual growth rate for U.S. trading partners and improve the effective- WTO Members’ quotas increased from ness of customs measures to ensure that restraints 4.9 percent in 1994 to 9.3 percent in 2002. on textile products are not circumvented through illegal transshipment or other means. Major Issues in 2003 A considerable portion of the TMB’s time in 2003 13. Working Party on State Trading was spent reviewing notifications made under Status Article 2 of the ATC dealing with textile products integrated into normal GATT rules and no longer Article XVII of GATT 1994 requires Members to subject to the provisions of the ATC. WTO place certain restrictions on the behavior of state Members wishing to retain the right to use the trading firms and on private firms to which they Article 6 safeguard mechanism were required in accord special or exclusive privileges to engage in 2001 to submit a list of products comprising at importation and exportation. Among other least 18 percent (calculated by trade volume) of things, Article XVII requires Members to ensure the products included in the annex to the ATC. A that “state trading enterprises” act in a manner number of these notifications were defective for consistent with the general principle of non- various reasons and in a number of cases the discriminatory treatment, make purchases or TMB’s review has carried into 2003. The TMB sales solely in accordance with commercial expressed concern that a number of countries considerations, and abide by other GATT disci- which announced their intention to retain the plines. To address the ambiguity regarding which right to use Article 6 safeguards failed to make the types of firms fall within the scope of “state required integration notification. TMB documents trading enterprises,” an agreement was reached in are available on the WTO’s web site: the Uruguay Round referred to as “The http://www.wto.org. Documents are filed in the Understanding on the Interpretation of Article Document Distribution Facility under the docu- XVII” (the “Understanding”). The Understanding ment symbol “G/TMB.” The TMB also reviewed defines a state trading enterprise and instructs notifications from the United States, the European Members to notify the Working Party of all enter- Union, Canada and Turkey concerning their prises in their territory that fall within the agreed textile restraints on China. These notifications definition, whether or not such enterprises have were made to the TMB following the accession of imported or exported goods. China to the WTO in December 2001. A WTO Working Party was established in 1995 to review, inter alia, the notifications of state trading Prospects for 2004 enterprises and the coverage of state trading Although the TMB will dissolve at the end of 2004, enterprises that are notified, and to develop an the United States will continue to monitor compli- illustrative list of relationships between Members ance by trading partners with market opening and state trading enterprises and the kinds of commitments, and will raise concerns regarding activities engaged in by these enterprises, which the implementation of these commitments may be relevant for the purposes of Article XVII through 2004 in the TMB and in other WTO fora, of GATT 1994. All Members are required under as appropriate. The United States will also pursue Article XVII of GATT 1994 and paragraph 1 of further market openings, including in negotiations the Understanding to submit annual notifications with WTO applicants in the process of acceding to of their state trading activities.

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The WTO Agreement on Agriculture marked an notifications. It also adopted a recommendation important step in bringing the activities of agri- to the Council for Trade in Goods to change the cultural state trading entities under the same periodicity of notifications from new and full disciplines that apply to non-agricultural prod- notifications every three years with updating ucts. Before the Uruguay Round, agricultural notifications in the intervening years, to new and products were effectively outside the disciplines full notifications every two years with an elimina- of GATT 1947. This also limited review of state tion of the updating notifications. trading enterprise activities, since many state trading enterprises directed trade in agricultural In October 2003, the United States submitted a products. The lack of tariff bindings on agricul- request for information from Egypt regarding the tural products in most countries also limited the operations of the Alexandria Cotton Exporters’ scope of GATT 1947 disciplines because without Association (ALCOTEXCA) and its members, tariff bindings governments could raise import pursuant to Article XVII:4(c) of GATT 1994. duties and state trading enterprises could impose Article XVII:4(c) provides that a Member that has domestic mark-ups on imported products. reason to believe its interests are being adversely affected by the operations of a state trading enter- Under the Agreement on Agriculture, all agricul- prise may request that the Member establishing, tural tariffs (including tariff-rate quotas (TRQs)) maintaining or authorizing such enterprise are now bound. While further work is needed on supply information about its operations related to the administration of TRQs, bindings act to limit carrying out the provisions of GATT 1994. The the scope of state traders to manipulate imports. United States believes that its interests are being Likewise, the disciplines on export competition, adversely affected by the operations of the including value and quantity ceilings on export (ALCOTEXCA) and its members. subsidies, apply fully to state trading enterprises. U.S. agricultural producers and exporters have Prospects for 2004 expressed concerns about the operation of certain As part of the agricultural negotiations in the state trading enterprises, particularly single-desk WTO, the United States proposed specific disci- importers or exporters of agricultural products, plines on both import and export agricultural and have called for more meaningful disciplines. state trading enterprises that would expand trans- parency and competition for these entities. Major Issues in 2003 Specifically, the United States has proposed the New and full notifications were first required in elimination of exclusive trading rights of single 1995 and, subsequently, every third year thereafter. desk exporters, stronger notification require- updating notifications indicating any changes are ments, and the elimination of the use of to be made in the intervening years. The notifica- government funds or guarantees to finance tions submitted by WTO Members as of November potential operational deficits or to otherwise 11, 2003 were: 40 Updating Notifications for 2000; insulate export state trading enterprises from 49 New and Full Notifications for 2001; 31 market or pricing risk. Updating Notifications for 2002; and 12 Updating Notifications for 2003. On November 24, 2003, the In 2004, the Working Party on state trading enter- United States submitted New and Full prises will contribute to the ongoing discussion of Notifications of its state trading enterprises for these and other state trading issues through its 1998 and 2001 and Updating Notifications for review of new notifications and its examination of 1999, 2000, 2002 and 2003. what further information could be submitted as part of the notification process to enhance trans- The Working Party held one formal meeting in parency of state trading enterprises. November 2003 where it reviewed Member

80 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT F. Council for Trade in Services implementation of its GATS commitments in the distribution, express delivery, and telecommuni- Status cations sectors during regular CTS meetings and The General Agreement on Trade in Services as part of the Transitional Review of China’s imple- (GATS) is the first multilateral, legally enforce- mentation of its services commitments. able agreement covering trade and investment in the services sector. It is designed to reduce or The CTS continued to discuss proposals by some eliminate governmental measures that prevent WTO Members for a technical review of Article services from being freely provided across XX:2 of the GATS. At its July meeting, the national borders or that discriminate against Council referred the matter for consideration by locally-established services firms with foreign the Committee on Specific Commitments, which ownership. The Agreement provides a legal is due to report back to the Council at its first framework for addressing barriers to trade and informal meeting in 2004. Discussion has investment in services. It includes specific continued on Members’ concerns that the sched- commitments by WTO Members to restrict their uling provisions in Article XX:2 may produce use of those barriers and provides a forum for unintended confusion regarding the relationship further negotiations to open services markets between commitments in the Market Access and around the world. These commitments are National Treatment columns of Member contained in national schedules, similar to the Schedules. national schedules for tariffs. The Council for Trade in Services (CTS) oversees implementation The first air transport review, which is required of the GATS and reports to the General Council. under the GATS Annex on Air Transport Services, Ongoing negotiations take place in the CTS examined developments in the air transport meeting in Special Session, described earlier in sector and the operation of the Annex with a view this chapter. The following section discusses to considering the possible further application of work of the CTS regular session. the GATS in the air transport sector. The review began in late 2000 and was concluded at the CTS Major Issues in 2003 Regular Session meeting in October 2003. In October 2001, the United States submitted a The Fifth Protocol of the GATS (Financial written statement presenting its views that to Services) was reopened for three new members date, bilateral and plurilateral venues outside the during 2003: the Dominican Republic, Uruguay, WTO have proven to be effective in promoting and Poland. liberalization in this important sector (available India tabled a paper concerning implementation at http://docsonline.wto.org. Documents are filed of GATS Article VII, regarding Mutual in the WTO Document Distribution Facility Recognition. Several developing country under the document symbol: S/C/W/198). The Members argued that lack of mutual recognition Council decided to formally commence the agreements regarding the qualifications of service second review at its last regular meeting in 2005, providers effectively limits market access. In without prejudice to Members’ views on the inter- particular, India argued that Members must inves- pretation of the Annex. tigate whether some non-governmental entities In April 2003, the European Union formally noti- were delegated powers by the government to fied the Chair of the Special Session under Article conclude mutual recognition agreements and V of the GATS regarding the consolidation of the therefore required notification pursuant to Article European Union (15) to include Austria, Finland, VII. This issue is especially, but not exclusively and . As a result of the consolidation, relevant to providers of professional services. several GATS commitments made by the three The United States, with the support of other WTO countries were withdrawn or modified. The Members, raised concerns regarding China’s Council addressed the issue of the EU Article V

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notification at its July meeting. A number of Several WTO Members, including Hong Kong, Members voiced concerns about the notification China, Switzerland, Peru, Malaysia and Turkey process used by the EU, which constituted the reported on developments under their financial first use of GATS Article XXI. A large number of services regimes, including issues such as e- Members also voiced concern about apparent EU finance. The IMF and the World Bank made intent to introduce new most favored nation special presentations on financial services issues, (MFN) exemptions as a result of this enlarge- the IMF focusing on issues connected with finan- ment. Concerns were generally raised about the cial sector stability and the World Bank, on how use of Article XXI, especially in light of EU intent openness of the banking sector contributes to to enlarge further in 2004. To allow more time for overall economic growth. consultations and examination, the EU and Members claiming an interest pursuant to Article In December, 2003, the CTFS carried out a review XXI mutually agreed to extend the period of of China’s implementation of its WTO financial negotiations until June 1, 2004. services commitments as part of China’s Transitional Review Mechanism. The United Prospects for 2004 States and other WTO members expressed The CTS Regular Session will continue to discuss concerns with China’s implementation of certain work related to ongoing implementation of the commitments in the insurance, motor vehicle GATS, including with regard to Article VII and financing, and banking sectors. Article XXI. Once the CSC reports on its discus- sions of Article XX.2, the CTS will decide whether 2. Working Party on Domestic to continue discussion of the issue. Regulation Status 1. Comittee on Trade in Financial GATS Article VI, on Domestic Regulation, directs Services the CTS to develop any necessary disciplines Status relating to qualification requirements and proce- The Committee on Trade in Financial Services dures, technical standards, and licensing (CTFS) enables WTO Members to explore any requirements and procedures A 1994 Ministerial financial services market access or regulatory Decision assigned priority to the professional issue deemed appropriate, including implemen- services sector, for which the Working Party on tation of existing trade commitments. Professional Services (WPPS) was established. The WPPS developed Guidelines for the Major Issues in 2003 Negotiation of Mutual Recognition Agreements in the Accountancy Sector, adopted by the WTO The CTFS met five times in 2003. During the in May 1997. The WPPS completed Disciplines reporting period, the Dominican Republic, on Domestic Regulation in the Accountancy Poland and Uruguay ratified their commitments Sector in December 1998 (The texts are available under the 1997 Financial Services Agreement and at www.wto.org). completed procedures at the WTO to make those commitments binding under the GATS (accepted After the completion of the Accountancy the “Fifth Protocol”). Brazil, Jamaica and the Disciplines, in May 1999 the CTS established a Philippines are now the only remaining partici- new Working Party on Domestic Regulation pants from the 1997 negotiations that have not (WPDR) which also took on the work of the yet accepted the Fifth Protocol. WTO Members predecessor WPPS and its existing mandate. The urged those three countries to accept the Fifth WPDR is now charged with determining whether Protocol as quickly as possible and, in the mean- these or similar disciplines may be more gener- time, to provide detailed information on the ally applicable to other sectors. The Working status of their domestic ratification efforts.

82 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Party shall report its recommendations to agreed to hold a workshop on domestic the CTS not later than the conclusion of the regulations for trade policy experts and regula- services negotiations. tors; The workshop is scheduled to occur in 2004.

Major Issues in 2003 Prospects for 2004 With respect to the development of generally The Working Party will continue discussion of applicable regulatory disciplines, Members possible regulatory disciplines, both horizontal discussed a possible Annex to the GATS, which and sector-specific, to promote the GATS objec- would consist of horizontal disciplines on tive of effective market access. A workshop on licensing procedures and requirements, technical domestic regulations for Member’s trade policy standards, qualification procedures and require- and regulatory experts is planned for early 2004. ments, and transparency. Such regulatory Some Members may want to pursue additional disciplines would be aimed at ensuring that regu- negotiations, including extending the lations are not in themselves a restriction on the “Guidelines for the Negotiation of Mutual supply of services. The United States has Recognition Agreements in the Accountancy supported negotiating horizontal transparency Sector” to other sectors. disciplines, however it has signaled its interest in pursuing a sector specific approach with respect 3. Working Party on GATS Rules to the other elements. Status The United States has supported focusing the The Working Party on GATS Rules was Working Party’s discussion on examples of prob- established to determine whether the GATS lems or restrictions for which new disciplines should include new disciplines on emergency would be appropriate, before defining the disci- safeguards, government procurement, or subsi- plines themselves. Some Members have dies. The Working Party held five formal suggested that any regulatory disciplines should meetings in 2003. Of the three issues, the GATS only apply to sectors in which countries have established a deadline only for safeguards which scheduled specific commitments. The Working has since then been extended to March 15, 2004. Party has also reviewed the relationship between any future regulatory disciplines and existing Major Issues in 2003 transitional mechanisms, recognition issues, and Members provided a progress report on licensing procedures based on submissions from safeguards negotiations in March 2003 and Singapore, India, and the EU. progress reports on government procurement and subsidies in July 2003 in preparation for the Fifth Members continued to solicit views on the Ministerial Conference. accountancy disciplines from their relevant domestic professional bodies, exploring whether The Working Party continued its examination of the accountancy disciplines might serve as a the desirability and feasibility of an emergency model for those professions. The Secretariat has safeguard for services, as well as the scope of also conducted similar consultations with Article X’s mandate to negotiate on “the question International Organizations. The results varied; of” emergency safeguard measures. Members in some professions, the accountancy disciplines evaluated different safeguard-type provisions could be applied, with perhaps a few modifica- contained in economic integration agreements tions; in other professions, the accountancy and in statements made by Members in previous disciplines were not applicable. During these meetings. The Working Party also discussed a consultations however, some Members found a hypothetical example presented by ASEAN of a general lack of familiarity with the GATS and/or situation justifying the use of an emergency safe- the accountancy disciplines. The Working Party guard. Discussions on these issues also reviewed

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submissions made by Switzerland and the EU, a possible Annex or set of disciplines. The United documents produced by the Chair and States will need to ensure that any transparency Secretariat, and Members’ previous submissions. disciplines for government procurement or commitments affecting services government On government procurement, the EU proposed procurement, are in line with those applied to negotiating an annex which would lay out condi- government procurement of goods. Subsidies tions under which certain GATS provisions discussions will likely focus on Member’s ability would apply to government procurement of serv- to obtain information on different types of serv- ices. Members continue to disagree on whether ices subsidies, from different sources, and use the scope of Article XIII excludes negotiations on examples to examine “trade distortive” aspects. market access, national treatment and most favored nation. Members reviewed different 4. Committee on Specific government procurement related provisions Commitments included in economic integration agreements. The United States continued to support commit- Status ments for transparency of government The Committee on Specific Commitments exam- procurement of services and goods, and building ines ways to improve the technical accuracy of on work conducted in the WTO Working Group scheduling commitments, primarily in prepara- on Transparency in Government Procurement. tion for the GATS negotiations, and oversees application of the procedures for the modification With respect to subsidies, the Working Party of schedules under Article XXI of the GATS. The examined possible definitions of what could be Committee also oversees implementation of considered a subsidy, as well as what could be commitments in Member schedules in sectors for considered “trade distortive.” Members sought to which there is no sectoral body, currently all obtain more information on subsidies in services sectors except financial services. The Committee sectors, including from other international organ- works to improve the classification of services so izations. The Chair issued an updated “Checklist” that scheduled commitments reflect the services on Subsidies” for Members to submit additional activities, particularly to ensure coverage of information. The Secretariat updated an earlier evolving services. compilation of subsidy disciplines included in economic integration agreements. Major Issues in 2003 Before the submission of offers by June 30 as Prospects for 2004 mandated by the Doha Declaration, the Chair of Discussion on all three issues will continue in the CSC provided guidance on the parameters for 2004. Given the March 15, 2004 deadline, and the submission of offers. developing countries strong interest in emer- gency safeguards, these negotiations will be At its July 2003 meeting, the Council for Trade in poised either for another extension or suspension Services referred consideration of issues relating of Article X’s mandate, or a political decision on to Article XX:2 of the GATS to the CSC. The the scope of Article X’s mandate (i.e. definitive primary issue of concern is the relationship decision on whether to an emergency safeguard between Market Access and National Treatment mechanism will be construed). We can expect commitments, particularly the interpretation of a that developing countries will tie progress on Members’s Schedule where one column reads further services liberalization commitments to an “None” while the other reads “Unbound.” The acceptable resolution on emergency safeguards. Committee held discussions on the topic at its Members will also continue to gather further meetings in September and December, and is information for government procurement and scheduled to report back to the Council in 2004. subsidies negotiations, and discuss proposals for

84 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT The Committee also continued work on country Members generally had to implement improving classification of services in individual fully by January 1, 2000; and least-developed sectors for which problems have been identified. country Members must implement by January 1, In particular, the Committee addressed classifica- 2006. Based on a proposal made by the United tion issues in legal services and energy services. States at the Doha WTO Ministerial Conference, however, the transition period for least developed Prospects for 2004 countries to implement or apply Sections 5 and 7 Work will continue on technical issues and other of Part II of the TRIPS Agreement with respect to issues raised by Members. pharmaceutical products, or to enforce rights with respect to such products, was extended by the TRIPS Council until January 1, 2016. The G. Council on Trade-Related WTO General Council, on the recommendation Aspects of Intellectual Property of the TRIPS Council, similarly waived until 2016 Rights the obligation for least developed country Members to provide exclusive marketing rights Status for certain pharmaceutical products if those The Agreement on Trade-Related Aspects of Members did not provide product protection for Intellectual Property Rights (the TRIPS pharmaceutical inventions. Agreement) is a multilateral agreement that sets minimum standards of protection for copyrights The WTO TRIPS Council monitors implementa- and neighboring rights, trademarks, geographical tion of the TRIPS Agreement, provides a forum in indications, industrial designs, patents, inte- which WTO Members can consult on intellectual grated-circuit layout designs, and undisclosed property matters, and carries out the specific information. The TRIPS Agreement also estab- responsibilities assigned to the Council in the lishes minimum standards for the enforcement of TRIPS Agreement. The TRIPS Agreement is intellectual property rights through civil actions important to U.S. interests and has yielded signif- for infringement and, at least in regard to copy- icant benefits for U.S. industries and individuals, right piracy and trademark counterfeiting, in from those engaged in the pharmaceutical, agri- criminal actions and actions at the border. The cultural, chemical, and biotechnology industries TRIPS Agreement requires as well that, with very to those producing motion pictures, sound limited exceptions, WTO Members provide recordings, software, books, magazines, and national and most-favored-nation treatment to the consumer goods. nationals of other WTO Members with regards to the protection and enforcement of intellectual Major Issues in 2003 property rights. Disputes between WTO Members In 2003, the TRIPS Council held four formal regarding implementation of the TRIPS meetings, including “special negotiation Agreement can be settled using the procedures of sessions” on the establishment of a multilateral the WTO’s Dispute Settlement Understanding. system for notification and registration of geographical indications for wines and spirits The TRIPS Agreement entered into force on called for in Article 23.4 of the Agreement (See January 1, 1995, and its obligations to provide separate discussion of this topic elsewhere in “most favored nation” and national treatment Chapter IV and below). In addition to continuing became effective on January 1, 1996 for all its work reviewing the implementation of the Members. Most substantive obligations are Agreement by developing countries and newly- phased in based on a Member’s level of develop- acceding Members, the Council’s work in 2003 ment. Developed-country Members were focused on TRIPS issues addressed in the Doha required to implement the obligations of the Ministerial Declaration and the Declaration on Agreement fully by January 1, 1996; developing the TRIPS Agreement and Public Health.

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Review of Developing Country Members’ TRIPS WTO Members to address public health crises. Implementation: As a result of the Agreement’s The declaration sends a strong message of staggered implementation provisions, the TRIPS support for the TRIPS Agreement, confirming Council during 2003 devoted considerable time that it is an essential part of the wider national to reviewing the Agreement’s implementation by and international response to the public health developing country Members and newly acceding crises that afflict many developing and least Members as well as to providing assistance to developed Members of the WTO, in particular developing country Members so they can fully those resulting from HIV/AIDS, tuberculosis and implement the Agreement. In particular, the malaria and other epidemics. Ministers worked in TRIPS Council called for developing country a cooperative and constructive fashion to produce Members to respond to the questionnaires a political statement that answers the questions already answered by developed-country Members identified by certain Members regarding the flex- regarding their protection of geographical indica- ibility inherent in the TRIPS Agreement. This tions and implementation of the Agreement’s strong political statement demonstrates that enforcement provisions, and to provide detailed TRIPS is part of the solution to these crises. The information on their implementation of Article statement does so, without altering the rights and 27.3(b) of the Agreement. This article permits obligations of WTO Members under the TRIPS Members to exclude from patentability plants, Agreement, by reaffirming that Members are animals, and essential biological processes for maintaining their commitments under the producing plants and animals. The Council also Agreement while at the same time highlighting concentrated on institution building internally the flexibilities in the Agreement. Ministers and with the World Intellectual Property agreed on the need for a balance between the Organization (WIPO). During the TRIPS Council needs of poor countries without the resources to meetings, the United States continued to press for pay for cutting-edge pharmaceuticals and the full implementation of the TRIPS Agreement by need to ensure that the patent rights system developing country Members and participated which promotes the continued development and actively during the reviews of legislation by high- creation of new lifesaving drugs is promoted. lighting specific concerns regarding individual Members’ implementation of their obligations. The United States is pleased that the Declaration reflects and confirms our profound conviction During 2003, the TRIPS Council completed that the exclusive rights provided by Members as reviews of the implementing legislation of China required under the TRIPS Agreement are a (as part of China’s transitional review), Brazil, powerful force supporting public health objec- Cameroon, Kenya and the Philippines, and noted tives. As a consequence of Ministers’ efforts, we new responses received from and the outstanding believe those Members suffering under the effects material required to complete the reviews of 15 of the pandemics of HIV/AIDS, tuberculosis and other Members.. malaria, particularly those in sub-Saharan Africa, should have greater confidence in meeting their Intellectual Property and Access to Medicines: At responsibilities to address these crises. The the Doha Ministerial Conference, Ministers United States will continue working with the acknowledged the serious public health problems international community to ensure that addi- afflicting Africa and other developing and least tional funding and resources are made available to developed countries, especially those resulting the least developed and developing country from HIV/AIDS, malaria, tuberculosis, and other Members to assist them in addressing their public epidemics. In doing so, WTO Ministers adopted health care problems. the Declaration on the TRIPS Agreement and Public Health, clarifying the flexibilities available One major part of the Doha Declaration was the in the TRIPS Agreement that may be used by agreement to provide an additional ten-year tran-

86 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT sition period (until 2016) for least developed countries to override drug patents to treat a wide countries, which was first proposed by the United range of concerns, such as obesity. The United States. On June 27, 2002, the TRIPS Council States was seriously concerned that this approach implemented this aspect of the Doha Declaration could substantially undermine the WTO rules on by taking a decision that least developed country patents which provide incentives for the develop- Members will not be obliged, with respect to ment of new pharmaceutical products. pharmaceutical products, to implement or apply sections 5 and 7 of Part II of the TRIPS Agreement While pledging to continue to work with other or to enforce rights provided for under these WTO Members to try to find a solution within the Sections until January 1, 2016. This decision is WTO, on December 20, the United States made without prejudice to the right of least devel- announced an immediate practical solution to oped country Members to seek other extensions allow African and other developing countries to of the period provided for in paragraph 1 of gain greater access to pharmaceuticals and Article 66 of the TRIPS Agreement. HIV/AIDS test kits when facing public health crises. The United States pledged to permit these In paragraph 6 of the Declaration on the TRIPS countries to override patents on drugs produced Agreement and Public Health, Ministers recog- outside their countries in order to fight nized the complex issues associated with the HIV/AIDS, malaria, tuberculosis, and other types ability of certain Members lacking domestic of infectious epidemics, including those that may manufacturing capacity to make use of the flexi- arise in the future. Specifically, the United States bilities in the TRIPS Agreement. Ministers pledged not to challenge any WTO Member that directed the TRIPS Council to find an expeditious contravenes WTO rules to export drugs produced solution to the difficulties certain Members might under compulsory license to a country in need, face in using compulsory licensing if they lacked and called on others to join the United States in sufficient manufacturing capacity in the pharma- this moratorium on dispute settlement. ceutical sector and to report to the WTO General Council by the end of 2002. Intensive discussions The United States notified the WTO in early were undertaken on a solution that, with appro- January 2003 of the specific terms and conditions priate provisions on scope, safeguards and of the moratorium. The key elements of this transparency, would waive the obligation in para- moratorium include a commitment not to pursue graph 31(f) that requires that compulsory dispute settlement against a Member that notifies licenses, when granted, be predominantly for the the TRIPS Council of its intention to issue a supply of the domestic market, since it is this compulsory license to permit the production and limitation that could make it difficult for a export of a patented pharmaceutical product or Member lacking manufacturing capacity of its HIV/AIDS test kit to eligible importing own to obtain a needed pharmaceutical if that economies. Eligible importing economies will be product were patented in the Member from which those economies, other than those classified by supply was being sought. the world bank as “high income economies,” that: (1) are facing a grave public health crisis associ- Throughout the ensuing negotiations to develop ated with HIV/AIDS, malaria or tuberculosis or such a solution, the United States remained other infectious epidemics of comparable scale committed to the Doha Declaration and worked and gravity, including those that may arise in the intensively to find a solution that would provide future; (2) have no or insufficient production life-saving drugs to those truly in need. As the capacities in the pharmaceutical sector; and (3) negotiations drew to a close, however, it became have so notified the TRIPS Council. The morato- clear that some WTO Members and advocacy rium also included measures to guard against organizations sought to expand the scope of product diversion, including steps to ensure that diseases beyond that intended at Doha to allow the product can be easily identified and a

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requirement that all countries, to the extent of protection of trademarks and geographical their ability, act to ensure that the drugs are not indications for agricultural products and food- diverted from countries in need. stuffs. At its meeting of 2 October 2003, the United States and Australia presented their Following intensive consultations in 2003, the second request, and the WTO Dispute Settlement TRIPS Council, at its meeting of 28 August 2003, Body agreed to established the panel. The United approved the draft Decision on “Implementation States and Australia mentioned their serious of Paragraph 6 of the Doha Declaration on the concerns about the discriminatory nature of the TRIPS Agreement and Public Health”, along with EU regulation. The United States complained that the text of a statement to be read by the General the regulation did not allow the registration of Council Chairman at its adoption by the WTO non-EU geographical indications unless the General Council. On 30 August 2003, the geographical indication was from a country that General Council adopted the Decision in the light offered geographical indication protection that of the statement read out by its Chairman. The was equivalent to that of the EU. Australia argued statement describes members’ “shared under- that the EU regime was inconsistent with existing standing” on how the decision is to be interpreted WTO rules prohibiting discriminatory treatment, and implemented. It says the decision should be did not give due protection to trademarks, and used in good faith to protect public health and not was overly complex and prescriptive. The EU said for industrial or commercial policy objectives and that its regulation was fully compatible with that all reasonable measures should be taken to WTO rules. The DSB established a single panel prevent medicines from being diverted away from and the following countries requested to be third those countries for which they are intended to be parties: Australia, United States, Mexico, New provided. The decision takes the form of an Zealand, Guatemala, India, Chinese Taipei, interim waiver of Article 31(f), which allows Turkey and Colombia. countries producing generic copies of patented products under compulsory licenses to export the There are a number of other WTO Members that products to eligible importing countries where likewise appear not to be in full compliance with certain procedures are followed. The waiver will their TRIPS obligations. The United States, for last until the WTO’s intellectual property agree- this reason, is still considering initiating dispute ment is amended. At its meeting of November 18, settlement procedures against several Members. the Chairman of the TRIPS Council launched We will continue to consult informally with these informal consultations with Members to discuss countries in an effort to encourage them to how best to amend the TRIPS Agreement. The resolve outstanding TRIPS compliance concerns United States pledged its full support to the as soon as possible. We will also gather data on Chairman in order to transform the Agreement in these and other countries’ enforcement of their August, including the Perez-Motta text and TRIPS obligations and assess the best cases for Chairman’s Statement, into an amendment of the further action if consultations prove unsuc- TRIPS Agreement with a view to its adoption cessful. within six months, if not sooner. Geographical Indications: The Doha Declaration TRIPS-related WTO Dispute Settlement Cases: directed the TRIPS Council to discuss “issues During the year, the United States continued to related to extension” of Article 23-level protec- pursue consultations with the European Union tion to geographical indications for products regarding its failure to provide TRIPS-consistent other than wines and spirits and to report to the protection of geographical indications of U.S. Trade Negotiations Committee by the end of 2002 nationals, and on 29 August 2003, the United for appropriate action. Because no consensus States and Australia each requested the establish- could be reached in the TRIPS Council on how ment of a panel to examine EU rules on the the Chair should report to the TNC on the issues

88 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT related to extension of Article 23-level protection No further progress has been made on the Article to geographical indications for products other 24.2 review of the application by Members of than wines and spirits, and, in light of the strong TRIPS provisions on geographical indications in divergence of positions on the way forward on spite of the review continuing to be on the TRIPS geographical indications and other implementa- Council’s agenda. At each of the 2003 TRIPS tion issues, the TNC Chair closed the discussion Council meetings, the United States urged devel- by saying he would consult further with oping country Members that have not yet Members. Throughout 2003, the United States provided information on their regimes for the and many like-minded Members continued to protection of geographical indications, and most argue that demandeurs had not established that of them have not, to do so. The United States also the protection provided geographical indications continued to support a proposal by New Zealand for products other than wines and spirits was in 2000, and by Australia in 2001, that the inadequate and thus proposals for expanding GI Council conduct the review by addressing each protection were unwarranted. The United States article of the TRIPS Agreement covering and other Members noted that the administrative geographical indications in light of the experi- costs and burdens of proposals to expand protec- ence of Members as reflected in the responses to tion would be considerable for those Members the “checklist.” The TRIPS Council Chairman that did not have a longstanding statutory regime intends to consult with Members on how to for the protection of geographical indications, proceed with the review in 2004. and that the benefits accruing to those few Members that had longstanding statutory regimes Review of Current Exceptions to Patentability for for the protection of geographical indications Plants and Animals: TRIPS Article 27.3(b) would represent a windfall, while other Members permits Members to except from patentability with few or no geographical indications would plants and animals and biological processes for receive no counterbalancing benefits. The draft the production of plants and animals. Members Declaration for the WTO 5th Ministerial may not, however, except from patentability Conference in Cancun, Mexico, would have micro-organisms and non-biological and micro- extended the mandate to discuss “issues related biological processes. As called for in the to extension” but not create a new mandate for GI Agreement, the TRIPS Council initiated a review negotiations. While willing to continue the dialog of this provision in 1999 and, because of the in TRIPS Council, the United States believes that interest expressed by some Members, the discus- discussion of the issues has been exhaustive and sion continued through 2000 and 2001. In 1999, that no consensus has emerged with regard to in order to facilitate the review by enabling easy extension of Article 23-level protection to prod- comparisons, the Secretariat had prepared a ucts other than wines and spirits. synoptic table of information provided by devel- oped Members on their practices. This portion of The United States and other Members have also the review revealed that there was considerable steadfastly resisted efforts by some Members to uniformity in the practices of the developed obtain new GI protections in the WTO agricul- Members. During the discussion, the United ture negotiations. We view such initiatives as States noted that the ability to patent efforts to take back the names of many famous micro-organisms and non-biological and micro- products, such as feta and parmesan, from U.S. biological processes, as well as plants and producers who have invested considerable time animals, had given rise to a whole new industry and resources to make these names famous and that has brought inestimable benefits in health who are currently using such terms in a manner care, agriculture, and protection of the environ- fully consistent with international intellectual ment in those countries providing patent property agreements. protection in this area. In 2001, the United States

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again called for developing country Members to impairment complaints related to the TRIPS provide this same information so that the Council Agreement, to make recommendations to the would have a more complete picture on which to Fifth Ministerial Conference, and, during the base its discussion. Regrettably, most developing intervening period, not to make use of such country Members have chosen not to provide complaints. Throughout the year, the Council such information and have raised topics that fall continued to discuss the operation of non-viola- outside the scope of Article 27.3(b), such as the tion nullification and impairment complaints in relationship between the TRIPS Agreement and the context of the TRIPS Agreement. Some the Convention on Biological Diversity (CBD), Members argued that the possibility of such and traditional knowledge. complaints created uncertainty. As in past years, the United States continued to support the auto- The Doha Declaration directs the Council for matic expiration of the moratorium at the 5th TRIPS, in pursuing its work program under the Ministerial meeting as no more uncertainty was review of Article 27.3(b) to examine, inter alia, the created by non-violation cases in the TRIPS relationship between the TRIPS Agreement and context than was the case with other WTO agree- the CBD, and the protection of traditional knowl- ments, and that Article 26 of the Dispute edge and folklore. The Council, at its March 2002 Settlement Understanding and GATT decisions meeting, agreed to handle each of these topics as a on non-violation provide sufficient guidance to separate agenda item, in order to avoid confusion, enable a panel or the Appellate Body to make but the discussions have tended to overlap. Since appropriate determinations in such cases. No the review began in 1999, the United States has consensus on a recommendation to establish introduced five separate papers discussing various scope and modalities or to extend the aspects of the subjects under discussion, moratorium emerged by the time of the 5th including a paper discussing in depth the provi- Ministerial meeting. sions of the CBD that might have any relationship to the TRIPS Agreement and describing how the Electronic Commerce: The TRIPS Council CBD’s provisions regarding access to genetic continued discussing the provisions of the TRIPS resources and benefit sharing can be implemented Agreement most relevant to electronic commerce through an access regime based on contracts that and explored how these provisions apply in the would spell out the conditions of access, including digital world. The United States specifically benefit sharing and reporting. Other papers suggested that the Secretariat might usefully describe the practices of the National Cancer undertake a study of how Members are imple- Institute and the access regime of the U.S. menting TRIPS with respect to the Internet National Park Service as examples of how a environment. The United States will continue to contractual access regime would function. The support discussion of the application of the United States has suggested that any Member that TRIPS Agreement in the digital environment, and has a question about whether a particular CBD encourage countries to implement the “Internet” implementation proposal would run afoul of Treaties of the World Intellectual Property TRIPS obligations raise the issue with the Council Organization (WIPO), i.e., the WIPO Copyright so that it might obtain the views of other Treaty and the WIPO Performances and Members. Updated information on organization Phonograms Treaty. activities was submitted from the FAO, the CBD, UNCTAD, UPOV, WIPO and the World Bank. Further Reviews of the TRIPS Agreement: Article 71.1 calls for a review of the Agreement in light of Non-violation: The Doha Declaration on experience gained in implementation, beginning Implementation directs the TRIPS Council to in 2002. The Council continues to consider how continue its examination of the scope and the review should best be conducted in light of modalities for non-violation nullification and the Council’s other work. The Doha Ministerial

90 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Declaration directs that, in its work under this U.S. objectives for 2004 continue to be: Article, the Council is also to consider the rela- tionship between intellectual property and the • to transform the Chairman’s Statement and CBD, traditional knowledge, folklore, and other the Perez-Motta text into an amendment of relevant new developments raised by Members the TRIPS Agreement; pursuant to Article 71.1. • to resolve differences through dispute settle- ment consultations and panels, where Technical Cooperation and Capacity Building: As appropriate; in each past year, the United States and other Members provided reports on their activities in • to continue its efforts to ensure full TRIPS connection with technical cooperation and implementation by developing-country capacity building. Members; and • to ensure that provisions of the TRIPS Implementation of Article 66.2: Article 66.2 Agreement are not weakened. requires developed countries to provide incen- tives for enterprises and institutions in their territories to promote and encourage technology H. Other General Council transfer to least developed Members in order to Bodies/Activities enable them to create a sound and viable techno- logical base. This provision was reaffirmed in the 1. Committee on Trade and Doha Decision on Implementation-related Issues Environment and Concerns and the TRIPS Council was Status directed to put in place a mechanism for ensuring The Committee on Trade and Environment monitoring and full implementation of the obli- (CTE) was created by the WTO General Council gation. During 2003, the TRIPS Council adopted on January 31, 1995, pursuant to the Marrakesh a Decision calling on developed countries to Ministerial Decision on Trade and Environment. provide detailed reports every third year, with Following the Doha Ministerial Conference annual updates, on these incentives. The reports concluded in November 2002, the CTE in regular are to be reviewed in the TRIPS Council at its last session continued discussion of many of the meeting each year. The United States had given issues under consideration in recent years with a detailed reports on specific U.S. Government focus on issues identified in the Doha institutions (the African Development Declaration, including market access for issues Foundation and Agency for International associated with environmental measures; TRIPS Development) and incentives as required. and environment, and labeling for environmental Prospects for 2004 purposes under paragraph 32; capacity-building and environmental reviews under paragraph 33; In 2004, the TRIPS Council will continue to focus and discussion of the environmental aspects of on transforming the August 30 agreement on Doha negotiations under paragraph 51. These compulsory licensing for export into an amend- issues in the Doha Declaration are separate from ment of the TRIPS Agreement, its built-in agenda those that are subject to specific negotiating and the additional mandates established in Doha, mandates in the Declaration and that are being including on issues related to the extension of taken up by the CTE in Special Session. Article 23-level protection for geographical indi- cations for products other than wines and spirits, Major Issues in 2003 on the relationship between the TRIPS In 2003, the CTE met in Regular Session four Agreement and the CBD, and on traditional times. The United States continued its active role knowledge and folklore, as well as other relevant in discussions, as discussed below. new developments.

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Market Access under Doha Sub-Paragraph 32(i): environment, particularly given the complexity The CTE in Regular Session continued to struc- of some of these issues. The United States ture discussions on both a general and sectoral submitted a related paper that sought to highlight basis. In general, however, discussions demon- some of the themes that had emerged from these strated a low level of interest in these issues discussions, including the potential benefits asso- compared to those that took place in 2002. The ciated with national environmental reviews of more limited discussions in 2003 related specifi- trade negotiations. Most Members agreed that a cally to submissions by Japan regarding the key aspect of capacity building in this area fisheries and forestry sectors. Most delegations involves increasing communication and coordi- questioned assertions by Japan that these nation between trade and environment officials at sectors might be excluded from market access national levels. Additionally, the United States negotiations due to considerations of and Canada continued to update the CTE in sustainable development. Regular Session on their respective reviews of the WTO negotiations, while the European TRIPS and Environment under Doha Union provided additional information on its Sub-Paragraph 32(ii): Discussions under this sustainability impact assessments. item continued to focus, as they had prior to the Doha Ministerial Conference, on whether there Discussion of Environmental Effects of may be any inherent conflicts between the TRIPS Negotiations under Doha Paragraph 51: During Agreement and the Convention on Biological the course of 2003, the CTE in Regular Session Diversity (CBD) with respect to genetic resources received updates from key WTO Secretariat offi- and traditional knowledge. In this regard, the cials on developments in other areas of European Communities presented its ideas negotiations, including agriculture, non- regarding access to, and benefit sharing associ- agricultural market access, services and rules. ated with, genetic resources and traditional knowledge. In general, Members reiterated that Prospects for 2004 the TRIPS Council was the most appropriate It is unlikely that discussion of these environ- forum to consider these issues. mental issues identified in the Doha Declaration that do not have a negotiating mandate will Labeling for Environmental Purposes under Doha increase in focus or intensity, although prospects Sub-Paragraph 32(iii): During 2003, there was could increase for more concrete discussions on considerable discussion among Members how to enhance developing countries’ capacities regarding proposals from the European to increase coordination at national levels between Communities for future work on environmental trade and environmental officials. Additionally, labeling. Most Members continued to question the CTE in Regular Session may devote increasing the rationale for singling out environmental attention to the substance of the mandate in labeling for special consideration separate from paragraph 51 of the Doha Declaration. ongoing work in the Committee on Technical Barriers to Trade on labeling more generally. As a 2. Committee on Trade and result, there was no consensus in the CTE prior to Development the Cancun Ministerial for intensifying its ongoing work on environmental labeling. Status In 1965, the GATT established the Committee on Capacity Building and Environmental Reviews Trade and Development (CTD or the under Doha Paragraph 33: Many developing “Committee”) to strengthen its role in the country Members stressed the importance of economic development policies of less-developed benefiting from technical assistance related to Contracting Parties. Today, the CTD is a negotiations in the WTO on trade and subsidiary body of the WTO General Council.

92 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT The Committee provides Members an opportu- reviews for regional trade agreements among nity to discuss trade issues from a development developing countries. The United States voiced perspective, in contrast to most other WTO support for greater transparency through more committees which are responsible for implemen- in-depth examination of these agreements. tation of particular WTO Agreements. In 2002, the General Council instructed the CTD, as part In the summer of 2003, several Members of a DDA, to develop a work program to examine launched a renewed discussion of global trends in the issues surrounding fuller integration of small commodity prices. Commodity dependant and vulnerable economies into the multilateral producers submitted a paper outlining the diffi- trading system. culties posed by volatile and declining world prices for many primary products. The United Following the First Ministerial Conference in States and other Members gave the view that price Singapore in 1996, the WTO formed a CTD trends are functions of markets. To address prob- subcommittee on Least-Developed Countries lems of commodity volatility, Members should (LDCs) to implement a Ministerial initiative to look to market-based strategies over efforts to help integrate LDCs into the multilateral trading manage supply. The proper role for the WTO as system. The plan of action outlines an “Integrated an institution in addressing this issue should be to Framework” (IF) to better coordinate trade-related focus efforts on trade policy-related aspects that technical assistance activities of donors to LDCs play a role in commodity price trends and from six core international organizations: the volatility. International Monetary Fund, the International Trade Center, the United Nations Conference on WTO Technical Assistance Plan: Working closely Trade and Development, the United Nations with the newly created Institute for Training and Development Program, the World Bank and the Technical Cooperation, the Committee WTO. The IF process also encourages the partici- continued efforts to improve the WTO’s Trade- pation of the broader development community Related Technical Assistance (TRTA) programs. through a consultative group of bilateral donors The WTO received over 1045 requests from 120 and other multilateral organizations. The Doha countries (reflecting all levels of development) as Declaration, in order to continue progress toward input into the 2003 Plan. The WTO was on track this goal, instructed the subcommittee to design a to deliver the 441 activities in the 2003 Technical work plan to consider issues of importance to Assistance despite the effects of SARS and war in LDCs including further coordination of technical Iraq. Activities generally took the form of regional assistance through the IF and additional steps to or national seminars and workshops, trade policy facilitate LDCs in joining the WTO. courses, or internships, and covered topics ranging from accession and market access issues Major Issues in 2003 to technical barriers to trade. In 2003, the Committee held four formal sessions The United States directly supports the WTO’s leading up to the Cancun Ministerial and an addi- TRTA. At the Cancun Ministerial, the United tional two sessions by year’s end. A continuing States pledged an additional $1.2 million for focus of the CTD and LDC Subcommittee has WTO TRTA. This contribution augmented $1 been monitoring the on-going efforts of the million given earlier in 2003, bringing total U.S. WTO, the International Trade Center (ITC), and support for WTO TRTA to more than $3 million the IF in providing trade-related technical assis- since the launch of Doha negotiations in tance to developing-country Members. As November 2001. This money was in direct standing items on the Committee’s agenda, support of programs like the annual WTO Members considered the development aspects of Technical Assistance Plan. In 2003, the WTO also Doha negotiations and electronic commerce. The finished implementing two grants, totaling United States also initiated discussion of WTO

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$1.02 million, under the Africa Trade and participation of LDCs in the Multilateral Trading Investment Policy Program (ATRIP), supporting System, the IF and WTO programs on trade- WTO training for Africans. The grants funded related technical assistance, accessions of LDCs dispute settlement courses, computer-based into the WTO, and market access for LDCs. training modules on WTO agreements, WTO training for Africans in Ghana and two regional LDC Accession: The LDC subcommittee initiated seminars on agriculture and services. regular reports from Chairs of working parties of an LDC accession. These discussions focused on The United States has worked out an agreement progress toward meeting the requirements of with the International Trade Center (ITC) to WTO Membership. Establishment of regular make the ITC’s Interactive TradeMap database Chair reports follows the adoption of guidelines available to all countries where USAID has a by the General Council in 2002 to streamline and Mission or presence. The Interactive TradeMap simplify the accession process for LDC appli- provides on-line access to the world’s largest trade cants. The United States participated actively in database. USAID will also work with the ITC to discussions with Working Party Chairs. The ensure that developing and transition countries United States urged continued support from have access to market analysis tools and training donors of those LDC applicants undertaking courses on trade in services. reforms, and encouraged LDCs to use the acces- sion process to improve its trading environment. Small Economy Issues: The Doha Declaration Efforts by Members to streamline the accession mandates an examination of small economy process have yielded tangible results. The United trade-related issues. The Committee continued States and the WTO Membership welcomed the this examination by discussing proposals first two LDCs–Nepal and Cambodia–as they submitted by Members of the small economies joined the WTO at the Cancun Ministerial. group and others. The United States has engaged actively in this dialogue. Overall, Committee The “Integrated Framework”(IF): The IF is the Members recognized the potential benefits of mechanism for coordinating the work of six Doha negotiations for smaller economies, which multilateral agencies (IBRD, IMF, UNCTAD, rely on an open trading system to foster growth. WTO, ITC and UNDP) in mainstreaming trade The United States, in particular, encouraged small into the development strategies of LDCs. The IF economies to consider regional cooperation and process starts with a Diagnostic Trade Integration resource sharing as a way to address institutional Study (DTIS), which analyzes the technical assis- limitations due to size. The CTD recommended tance requirements for each country. The World that discussion of this topic in dedicated session Bank has completed DTIS for Cambodia, continue, and asked that Members of the small Lesotho, Madagascar, Mauritania, Malawi, economies group rework proposals in light of Senegal and Yemen. USAID has completed a recent exchanges. comparable diagnostic study for Mozambique, and has contributed a series of in-depth sector Implementation: As part of the Doha work plan studies in support of the World Bank’s DTIS for on implementation, the Committee also consid- Mali. Additional DTISs are currently scheduled ered a proposal to review GATT provisions that for Burundi, Djibouti, Eritrea, Ethiopia, Guinea, allow Members in early stages of development Mali and Nepal. Twelve other LDCs have under certain circumstances to undertake restric- requested to participate in the IF process, and tive trade measures. No consensus was reached to their requests are being evaluated according to undertake a formal review of these provisions. criteria agreed by the IF Steering Committee. The United States contributed funds for the past three Sub-Committee on Least-Developed Countries: years to the Integrated Framework Trust Fund in In 2003, the Sub-Committee on Least-Developed order to finance the DTIS. This includes $200,000 Countries focused discussions on enhancing the

94 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT of the $1.2 million pledged at the Cancun involve examining a country’s trade restrictions Ministerial specifically reserved for the Trust and balance of payments situation, while simpli- Fund. The United States provided more than $31 fied consultations provide for more general million for trade capacity building activities in IF reviews. Full consultations are held when restric- countries in Fiscal Year 2003, through USAID’s tive measures are introduced or modified, or at bilateral assistance programs. Most of this assis- the request of a Member in view of improvements tance addressed “supply side” capacity building in the balance of payments. priorities identified by least developed countries in the IF process. Major Issues in 2003 Following the establishment of the WTO in 1995, Prospects for 2004 the BOP Committee has demonstrated that the The CTD will continue its function as the forum Uruguay Round Understanding on BOP provides for trade-related development issues within the Members with additional, effective tools to enforce WTO. Particular emphasis is likely to be placed on international obligations. During 2003, no Member efforts to improve the quality of WTO TRTA. As imposed new Balance of Payment restrictions. part of this work, the CTD must insist on enhanced mechanisms for monitoring, evaluating, The BOP Committee held one meeting during the outsourcing, and delivering TRTA in a way that is year, in November, to conduct the second review flexible and responsive to requests from Members. of China’s accession commitments as part of the More broadly, the Committee will seek to improve annual Transitional Review Mechanism (TRM). the participation of developing-countries Members To date, China has not notified the Committee of in the Multilateral Trading System. Resumption of any BOP restrictions. Since China holds signifi- Doha negotiations would reinvigorate work on cant foreign reserves, it is not anticipated that small-economy issues and discussion of the devel- China could justify BOP restrictions. During the opmental aspects of the DDA. first TRM in 2002, the United States and the EU posed questions regarding China’s progress in The Subcommittee will continue to take steps to liberalizing controls on its capital account. At the improve the opportunities available to LDCs to November 2003 TRM, Chinese Taipei asked addi- further their integration into the trading system. tional questions on China’s use of capital Resumption of Doha negotiations would renew controls. In response, China noted that it does not attention to efforts in technical cooperation, restrict converting currency for current account market access, LDC accession, and the IF process. transactions. However in regards to the outward remittance of earnings or dividends of foreign 3. Committee on Balance of Payments firms, these can only be converted if firms provide Restrictions relevant documents that meet the “bona fide test” of earnings under China’s laws on Foreign Status Invested Enterprises. According to China, this The Uruguay Round Understanding on Balance policy is designed to reduce money laundering of Payments (BOP) substantially strengthened and curb hot money. For purposes of trans- GATT provisions on BOP measures. Under the parency, China has committed to publish WTO, any Member imposing restrictions for information on Foreign Exchange measures on balance of payments purposes must consult regu- the web and via the news media. China has larly with the BOP Committee to determine published all laws, regulations and measures on whether the use of such restrictions are necessary the administration of foreign exchange through or desirable to address a country’s balance of the Foreign Trade and Economic Cooperation payments difficulties. The BOP Committee works Gazette and the website of the State closely with the International Monetary Fund in Administration of Foreign Exchange conducting consultations. Full consultations (www.safe.gov.cn). The United States will

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continue to monitor China’s compliance with its Major Issues in 2003 WTO commitments under BOP Agreement and New Salary Modalities: In May 2003, the General its accession protocal. Council adopted a recommendation by the Committee to use a new salary methodology in As part of the work program agreed at Doha, future salary adjustments. The Committee’s Committee Members continued to consider recommendation was based on a review that was proposals by delegations and certain suggestions provided for in the WTO’s Staff Regulations. The provided by the Chair to clarify the respective review determined that the WTO salary scale roles of the IMF and BOP Committee in balance lagged behind those in comparable international of payment proceedings. The BOP Committee did organizations. The salary commitments in the not arrive at a consensus on this issue in 2003. 2004 and 2004 WTO budget are based on this Prospects for 2004 new methodology. Should other Members resort to new BOP meas- Biennial Budgeting: In August 2003, the General ures, WTO rules require a thorough program of Council adopted a Committee recommendation consultation with this Committee. The United to move to a biennial budget cycle. In the view of States expects the Committee to continue to WTO Members, biennial budgeting will allow for ensure that BOP provisions are used as intended better planning and strategic thinking. It will also to address legitimate problems through the impo- provide both Members and the WTO Secretariat sition of temporary, price-based measures. with greater predictability with regard to the financial requirements of the WTO. Members 4. Committee on Budget, Finance, also felt that a biennial budgeting process could and Administration be a more efficient use of time resources for both Members and the WTO Secretariat. Status WTO Members are responsible for establishing Agreed Budget for 2004 and 2005: The demand and presenting to the General Council for for budgetary resources created by (1) the statu- approval the budget for the WTO Secretariat via tory commitments with regard to salary, the Budget Committee. The Committee meets contribution to the pension fund and other staff throughout the year to address the financial costs; (2) the replenishment of the Appellate requirements of the organization. In 2003, the Body Operating Fund; and (3) the need to allo- Secretariat presented a biennial budget, setting cate annually the costs of Ministerial Conferences out budget proposals for both 2004 and 2005. As were the major issues facing the Budget is the practice in the WTO, decisions on budg- Committee and the WTO members in deter- etary issues are taken by consensus. mining the appropriate level of increase. The Committee proposed, and the General Council The United States is an active participant in the approved, a budget for the WTO Secretariat and Budget Committee and the largest contributor to Appellate Body of CHF 161,776,500 in 2004 and the WTO budget. For the 2004 budget, the U.S. CHF 166,804,200 in 2005. assessment rate is 15.735 percent of the total assessment, or Swiss Francs (CHF) 25,863,615 5. Committee on Regional Trade (about $19.9 million). The total assessments of Agreements WTO Members are based on the share of WTO Members’ trade in goods, services, and intellec- Status tual property. Details on the WTO’s budget The Committee on Regional Trade Agreements required by Section 124 of the Uruguay Round (CRTA), a subsidiary body of the General Agreements Act are provided in Annex II. Council, was established in early 1996 as a central

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body to oversee all regional agreements to which cases. With respect to the formation of a CU, the Members are party. The CRTA is charged with parties must notify Members to negotiate conducting reviews of individual agreements, compensation to other Members for exceeding seeking ways to facilitate and improve the review their WTO bindings with market access conces- process, implementing the biennial reporting sions. An analogous compensation requirement requirements established by the Uruguay Round exists for services. agreements, and considering the systemic impli- cations of such agreements and regional Major Issues in 2003 initiatives on the multilateral trading system. During 2003, the Committee held two formal Prior to 1996, these reviews were typically meetings. The Committee has 147 agreements conducted by a “working party” formed to review under review, 119 referred by the Council on a specific agreement. Trade in Goods, 27 by the Council for Trade in Services, and 1 by the Committee on Trade and The WTO addresses regional trade agreements in Development.16 The Committee has completed more than one agreement. In the GATT 1947, its factual examination for over 82 agreements Article XXIV was the principal provision but has a backlog of draft reports, as Members do governing Free Trade Areas (FTAs), Customs not agree on the nature of appropriate conclu- Unions (CUs), and interim agreements leading to sions. In November 2003, the Committee held a an FTA or CU. Additionally, the 1979 Decision on seminar for Geneva delegates and visiting Differential and More Favorable Treatment, capital-based representatives to hear academic Reciprocity and Fuller Participation of and other views on the impact of RTAs on the Developing Countries, commonly known as the multilateral trading system. “Enabling Clause,” provides a basis for certain agreements between or among developing coun- Prospects for 2004 tries. The Uruguay Round added two more The Doha Declaration paragraph 29 calls for clar- provisions: the Understanding on the ifying and improving rules for regional trade Interpretation of Article XXIV, which clarifies and agreements, a mandate that is being undertaken enhances the requirements of GATT Article by the Rules Negotiating Group. Accordingly, the XXIV; and Article V of the General Agreement on discussion of systemic issues and improving the Trade in Services (GATS), which governs services examination process in the CRTA has, in effect, economic integration agreements. been delayed. In the interim, two meetings have FTAs and CUs are authorized departures from the been scheduled for 2004, during which the principle of MFN treatment if certain require- Committee will continue to review the new ments are met. First, tariffs and other restrictions regional trade agreements notified to the WTO on trade must be eliminated on substantially all and referred to the Committee. The European trade between the parties. Second, duties and Union is expected to notify the WTO under other restrictions of commerce applied to third Article XXIV early in 2004 of its May 2004 countries upon the formation of a CU must not, enlargement to include ten additional countries on the whole, be higher or more restrictive than (Cyprus, the Czech Republic, Estonia, Hungary, was the case before the agreement. For an FTA, no Latvia, Lithuania, , Poland, the Slovak duties or restrictions may be higher. Finally, while Republic and Slovenia). Some CRTA Members are interim agreements leading to FTAs or CUs are likely to be interested in a prompt CRTA review of permissible, transition periods to full FTAs or the enlargement following notification. CUs can exceed ten years only in exceptional

______16 A list of all regional trade agreements notified to the GATT/WTO and in force is included in Annex II to this report.

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The biennial reporting requirement on the opera- Countries and separate customs territories tion of agreements has been shifted by a year, to seeking to join the WTO must negotiate the terms 2004. Nineteen reports are due on July 31, 2004, of their accession with current Members, as including a report on the United States-Israel FTA. provided for in Article XII of the WTO Agreement. It is widely recognized that the accession process, 6. Accessions to the World Trade with its emphasis on implementation of WTO Organization provisions and the establishment of stable and Status predictable market access for goods and services, provides a proven framework for adoption of poli- Armenia and Macedonia (officially known as the cies and practices that encourage growth, Former Yugoslav Republic of Macedonia) development, and investment. became the 145th and 146th WTO Members on February 5 and April 4 respectively. In addition, The accession process strengthens the interna- the Fifth Minister Conference at Cancun, tional trading system by ensuring that new Mexico, approved the accession packages of Members understand and can implement WTO Cambodia and Nepal, both of which will become rules from the outset, and it offers current members after their respective parliaments ratify Members the opportunity to secure expanded their accession commitments. Significant market access opportunities and to address progress towards completion of negotiations also outstanding trade issues in a multilateral context. was recorded with a number of the other twenty- In a typical accession negotiation, the applicant four applicants with established Working submits an application to the WTO General Parties. Russia, Ukraine, and made Council, which establishes a Working Party to major progress towards completion of market review information on the applicant’s trade regime access negotiations and in terms of legislative and to conduct the negotiations. Accession nego- implementation of WTO provisions. This tiations can be time consuming and technically progress provided support and momentum for complex, involving a detailed review of the appli- development of draft Working Party documents cant’s entire trade regime by the Working Party and Protocol commitments. Substantial work and negotiations for import market access. was also recorded on the accession packages of Applicants need to be prepared to make legislative Samoa and Tonga, Ethiopia and Afghanistan changes to implement WTO institutional and requested accession. regulatory requirements, to eliminate existing WTO-inconsistent measures, and to make trade By the end of 2003, of the accession applicants liberalizing specific commitments on market with established Working Parties, only the access for goods, services, and agriculture. Bahamas and Ethiopia had not yet submitted initial descriptions of their trade regimes. Bhutan, The terms of accession developed with Working Cape Verde, and Tajikistan provided this essential Party members in these bilateral and multilateral comprehensive information in 2003. Initial negotiations are recorded in an accession working parties convened for the accessions of “protocol package” consisting of a Working Party Sudan and Bosnia and Herzegovina for a first report and Protocol of Accession, consolidated review of the information submitted on their schedules of specific commitments on market foreign trade regimes. Working Party meetings access for imported goods and foreign service and/or bilateral market access negotiations were suppliers, and agriculture schedules that include also held during 2003 with Algeria, Belarus, commitments on export subsidies and domestic Cambodia, Kazakhstan, Lebanon, Nepal, Russia, supports. The Working Party adopts the Samoa, Tonga, Ukraine, and Vietnam. The chart completed protocol package containing the nego- included in the Annex to this section reports the tiated terms of accession and transmits it with its current status of each accession negotiation. recommendation to the General Council or

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Ministerial Conference for approval. After streamlined and accelerated accession negotia- General Council approval, accession applicants tions with least developed country (LDC) normally submit the package to their domestic accession applicants could work in practice.17 The authorities for ratification. Thirty days after the General Council had developed these guidelines applicant’s instrument of ratification is received in to address the unique challenges that the acces- Geneva, WTO Membership becomes effective. sion process posed for countries with extremely low levels of income and economic development, The United States provides a broad range of tech- lack of human resources to conduct the negotia- nical assistance to countries seeking accession to tions, infra-structure deficiencies, and a general the WTO to help them meet the requirements and lack of capacity to implement WTO provisions challenges presented, both by the negotiations without additional time and technical assistance. and the process of implementing WTO provisions By tying full implementation of WTO provisions in their trade regimes. This assistance is provided to transitional arrangements and technical assis- through USAID and the Commercial Law tance, and making full use of existing WTO Development Program (CLDP) of the U.S. flexibilities and special provisions for LDCs, Department of Commerce. The assistance can current WTO Members sought to use the WTO include short-term technical expertise focused on accession process to promote reform and build specific issues, e.g., Customs, IPR, or TBT, and/or trade capacity in the applicant economic regimes a WTO expert in residence in the acceding while simplifying and streamlining the country. Current WTO Members that received accession process. technical assistance in their accession process from the United States include Albania, Armenia, Cambodia and Nepal were the first accession Bulgaria, Estonia, Georgia, Jordan, Kyrgyz applicants to complete the accession process Republic, Latvia, Lithuania, Macedonia, and under the new guidelines. Both countries will Moldova. Most had U.S.-provided resident complete implementation of WTO provisions experts for some portion of the process. Among over transition periods with extensive technical current accession applicants, the United States assistance. Market access commitments were provides a resident WTO expert for the acces- substantial and will, over time, provide for better sions of Azerbaijan, Cape Verde, Lebanon, market access for imported goods and services on Ukraine, and Serbia and Montenegro, and a U.S.- a basis that supports economic development. The funded WTO expert resident in the Kyrgyz Fifth Ministerial Conference at Cancun approved Republic provides WTO accession assistance to the accession packages of Cambodia and Nepal in Kazakhstan, Uzbekistan, and Tajikistan on an “as September 2003. During 2003 there was also requested” basis, and other forms of technical and intensive work on the accessions of Samoa expert support on WTO accession issues to (another LDC) and Tonga. Algeria, Bosnia and Herzegovia, Nepal, Russia, and Vietnam Continuing the accelerated pace initiated in 2002, the Working Party on Russia’s WTO Major Issues in 2003 Accession met five times to revise the draft WTO Members sought to demonstrate that the Working Party report text, as well as to review new guidelines approved in December 2002 for legislative implementation of WTO provisions

______17 Twenty-nine LDCs are already WTO members. The accession packages of Nepal and Cambodia were approved by the Fifth Ministerial Conference at Cancun, and Vanuatu has completed negotiations but not submitted the results to the General Council for approval. Negotiations with Samoa are advanced and moving forward. Bhutan, Cape Verde, Ethiopia, Laos, Sudan, and Yemen have not yet commenced negotiations. All but Ethiopia have submitted initial documentation, and Sudan has had a first WP meeting. Afghanistan has applied for accession, but no WP has been established. Of the nine remaining LDCs that have not applied for WTO membership, two (Equatorial Guinea and Sao Tome and Principe) are WTO observers.

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and progress in bilateral market access negotia- access for U.S. exports, to encourage trade liber- tions. Taking note of Russia’s commitment to alization in developing and transforming intensify its efforts to complete negotiations by economies, to promote trade capacity building in the end of 2004, Ukraine, Belarus, and LDC applicants, and to support a high standard of Kazakhstan also sought to intensify negotiations implementation of WTO provisions by both new during 2003, and work was initiated on their draft and current Members. Working Party reports. After a hiatus of almost three years, work on Saudi Arabia’s accession resumed at an accelerated pace in October. By the I. Plurilateral Agreements end of the year, a revised draft Working Party 1. Committee on the Expansion of report was in circulation and Saudi Arabia was Trade in Information Technology making good progress in market access negotia- Products tions with WP members. Work on the Doha Ministerial agenda and preparations for the Fifth Status Ministerial Conference intensified after mid-year, The Information Technology Agreement, or ITA, however, and work on other accessions was concluded at the WTO’s First Ministerial slowed considerably. Conference at Singapore in December 1996. The Agreement eliminated tariffs as of January 1, 2000 Prospects for 2004 on a wide range of information technology prod- Russia, Ukraine, and Saudi Arabia are deeply ucts. Currently, the ITA has 61 participants engaged in legislative implementation of WTO representing 95 percent of world trade in infor- provisions and market access negotiations to mation technology products.18 The Agreement establish their schedules of concessions for covers computers and computer equipment, elec- market access in goods and services. While much tronic components including semiconductors, work remains, they have all indicated that they computer software products, set-top boxes, hope to complete their accession negotiations in telecommunications equipment, semiconductor 2004 and it is likely that Members’ efforts on manufacturing equipment and computer-based accession will be focused on these countries analytical instruments. during 2004. Other accession applicants, including a number of LDCs, will continue to Major Issues in 2003 press for additional meetings and negotiating The WTO Committee of ITA Participants held time with WTO Members in order to promote four formal meetings in 2003, during which the progress in their accession negotiations. In addi- Committee reviewed the implementation status tion to Tonga, Belarus, and Kazakhstan, whose of the Agreement. While most participants have accession work is advanced, Algeria, Lebanon, fully implemented tariff commitments, a few and Vietnam are likely to be active. Other active countries are still awaiting the completion of accessions should include Samoa, Cape Verde, domestic procedural requirements or have not yet and Bhutan (all LDCs), Bosnia and Herzegovian submitted the necessary documentation. and Tajikistan. U.S. representatives will remain key players in all accession meetings, as the nego- Four new members (Egypt, China, Bahrain and tiations provide opportunities to expand market Morocco) joined the ITA in 2003, reflecting the

______18 ITA participants are: Albania, Australia, Bahrain, Bulgaria, Canada, China, Costa Rica, Croatia, Cyprus, Czech Republic, Egypt, El Salvador, Estonia, European Union (on behalf of 15 Member States), Georgia, Hong Kong China, Iceland, India, Indonesia, Israel, Japan, Jordan, Republic of Korea, Krygyz Republic, Latvia, Lithuania, , Malaysia, Mauritius, Moldova, Morocco, New Zealand, Norway, Oman, Panama, Philippines, Poland, Romania, Singapore, Slovak Republic, Slovenia, Switzerland and Liechtenstein, Chinese Taipei, Thailand, Turkey, and the United States. Armenia and Macedonia have indicated their intention to join the ITA.

100 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT growing interest of developing country Members will continue to consult with each other infor- in trade in information technology products. In mally on the possibility of expanding product addition, two international non-governmental coverage for new technologies that have been organizations, the International Trade Center developed since the ITA was founded. (ITC) and the Organization for Economic Throughout 2004, the Committee will continue Cooperation and Development (OECD) have to undertake its mandated work, including been granted observer status in the Committee, as reviewing new applicants’ tariff schedules for ITA has the World Customs Organization (WCO), for participation, along with addressing further tech- meetings where the issues of HS classification and nical classification issues. In addition, the HS amendments are included in the agenda. Committee will continue to monitor implementa- tion of the Agreement, including undertaking any The Committee continued its work to reconcile necessary clarifications. The next formal meeting classifications by ITA participants of certain infor- on the Committee will be in February 2004. A mation technology products where Members number of additional WTO Members are actively have applied divergent HS classification. The working on proposals to join the ITA in 2004. Secretariat updated and categorized its compila- tion of the list of divergences. Customs experts 2. Committee on Government will continue to meet on these issues in 2004 and Procurement discuss the treatment of each category of prod- ucts. The Committee agreed that one item will be Status sent to the WCO for a classification opinion. The WTO Government Procurement Agreement Work on classification divergences is expected to (GPA) is a “plurilateral” agreement included in continue at the next Committee meeting in 2004. Annex 4 to the WTO Agreement. As such, it is not part of the WTO’s single undertaking and its The Committee also made progress on the Non- membership is limited to WTO Members that Tariff Measures (NTMs) Work Program, affecting specifically signed the GPA in Marrakesh or that trade in ITA products. As part of its work on one have subsequently acceded to it. WTO Members of the key issues identified by Members, electro- are not required to join the GPA, but the United magnetic compatibility and electro-magnetic States strongly encourages all WTO Members to interference (EMC/EMI), the Committee held a participate in this important Agreement. The 28 workshop in April, which was well-attended by current signatories are: the United States; the Member Government’s trade and regulatory European Union and its member states (Austria, authorities and included observers from the , , Finland, France, Germany, private sector. More than 20 participants Greece, Ireland, Italy, Luxembourg, the responded to the survey on EMC/EMI, which the , , , Sweden, United Secretariat used to update a report describing the Kingdom); the Netherlands with respect to Aruba; nature of the problem. Further work on this issue Canada; Hong Kong China, China; Iceland; Israel; is expected to continue in 2004. Japan; Liechtenstein; Norway; the Republic of Korea; Singapore; and Switzerland. Albania, Prospects for 2004 Bulgaria, Chinese Taipei, Estonia, Georgia, The Committee’s work program on non-tariff Jordan, the Kyrgyz Republic, Latvia, Lithuania, measures continues to proceed in step with tariff Moldova, Oman, Panama, and Slovenia are in the implementation issues, but members have begun process of negotiating GPA accession. an active consultation process to determine whether there are other issues that should be Major Issues in 2003 pursued and how work on non-tariff measures in GPA Article XXIV:7(b) and (c) calls for the Parties the ITA context relates to similar activities in the to undertake further negotiations with a view to context of Doha negotiations. Participants also improving both the text of the Agreement and

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achieving the greatest possible extension of its By spring of 2004, the Committee intends to coverage among all Parties and eliminating reach provisional agreement on a revised text of remaining discriminatory measures and prac- the GPA. In the first half of 2004, the Committee tices. With regard to the text of the Agreement, will hold three informal meetings with the aim of the United States has continued to take the lead in completing work on the text. One of the impor- advocating significant streamlining and clarifica- tant issues in the review of the text that will tion of the GPA’s procedural requirements, while require further work is the treatment that devel- continuing to ensure full transparency and oping countries should be given upon accession predictable market access. Much of the existing to the GPA, with the aim of facilitating additional text of the GPA was developed in the late 1970s accessions by developing countries. during the negotiations on the original GATT Government Procurement Code. As the current 3. Committee on Trade in Civil review of the Agreement has proceeded, the Aircraft Status Committee has recognized that the GPA text The Agreement on Trade in Civil Aircraft (“Aircraft needs to be modified to reflect ongoing modern- Agreement”), concluded in 1979, is a plurilateral ization of the Parties’ procurement systems and agreement. The Aircraft Agreement is part of the technologies, and to encourage other Members to WTO Agreements, however, it is in force only for accede to it. those Members who have accepted it. In August and February 2003, the Committee The Aircraft Agreement requires Signatories to held formal meetings and informal meetings in eliminate tariffs on civil aircraft, their engines, February, May, June, August and November. The subassemblies and parts, ground flight simulators Parties focused primarily on the simplification and their components, and to provide these bene- and improvement of the GPA, with the overall fits on a non-discriminatory or MFN basis to all objective of promoting expanded membership of WTO Members. The Signatories have also provi- the GPA by making it more accessible to non- sionally agreed to duty-free treatment for ground Parties. During 2003, the Committee made maintenance simulators, although not a covered significant progress in its revision of the text, and item under the current agreement. In areas other has reached provisional agreement on the basic than tariffs, the Aircraft Agreement establishes structure and drafting style of the Agreement. international obligations concerning government As provided for in the GPA, the Committee moni- intervention in aircraft and aircraft component tors participants’ implementing legislation. In development, manufacture and marketing. 2003, the Committee completed its review of the As of January 1, 2004, there were 30 signatories to national implementing legislation of Iceland. the Aircraft Agreement: Austria, Belgium, Prospects for 2004 Bulgaria, Canada, Chinese Taipei, Egypt, Estonia, the European Union, Denmark, France, Georgia, In February 2004, the Committee plans to reach Germany, Greece, Ireland, Italy, Japan, Latvia, agreement on modalities for negotiations relating Lithuania, Luxembourg, Macau, Malta, the to extension of coverage and elimination of Netherlands, Norway, Portugal, Romania, Spain, discriminatory measures and practices. It will Sweden, Switzerland, the United Kingdom, and commence market access negotiations after work the United States. Albania and Croatia committed on the text is completed. In 2004, the Committee to become parties upon accession to the WTO, will also continue its review of the legislation of the and Oman agreed to become a party within three Netherlands with respect to Aruba, and its consid- years of accession. eration of ways to improve accession procedures.

102 | 2004 TRADE POLICY AGENDA AND 2003 ANNUAL REPORT Major Issues in 2003 cally focusing on government actions related to The Committee on Trade in Civil Aircraft marketing in aircraft sales campaigns. The (Aircraft Committee), permanently established United States suggested exploring mechanisms under the Aircraft Agreement, provides the to improve communication to address perceived Signatories an opportunity to consult on the inconsistencies between Signatory actions and operation of the Aircraft Agreement, to propose the obligations of the Aircraft Agreement. amendments to the Agreement and to resolve any disputes. During 2003, the full Aircraft Prospects for 2004 Committee met twice. The United States will continue to seek new Signatories to the Aircraft Agreement, both from The Aircraft Committee continued to consider countries having civil aircraft industries and from proposals to modernize the provisions of the other countries procuring civil aircraft products Aircraft Agreement to conform with the WTO but not currently significant civil aircraft product and to change the definition of “civil” vs. “mili- manufacturers. The latter countries are being tary” aircraft to clarify the coverage of the encouraged to become Signatories to the Aircraft Aircraft Agreement, but was unable to reach Agreement in order to foster non-discriminatory consensus on either proposal. The United States and efficient selection processes for aircraft prod- requested that the Aircraft Committee consider ucts based solely upon commercial and ways to improve the operation of the Aircraft technological factors. Agreement to avoid market distortions, specifi-

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