<DOC>
[DOCID: f:63133.wais]



106th Congress                                                  S. Prt.
 2d Session              JOINT COMMITTEE PRINT                  106-45
_______________________________________________________________________

                                     

 
        COUNTRY REPORTS ON ECONOMIC POLICY AND TRADE PRACTICES

                               __________

                              R E P O R T

                            SUBMITTED TO THE

                     COMMITTEE ON FOREIGN RELATIONS

                          COMMITTEE ON FINANCE

                                 OF THE

                              U.S. SENATE

                                AND THE

                              COMMITTEE ON

                        INTERNATIONAL RELATIONS

                      COMMITTEE ON WAYS AND MEANS

                                 OF THE

                     U.S. HOUSE OF REPRESENTATIVES

                                 BY THE

                          DEPARTMENT OF STATE

       IN ACCORDANCE WITH SECTION 2202 OF THE OMNIBUS TRADE AND 
                      COMPETITIVENESS ACT OF 1988

                                     
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>





                      U.S. GOVERNMENT PRINTING OFFICE
63-133                        WASHINGTON : 2000




                     COMMITTEE ON FOREIGN RELATIONS

                 JESSE HELMS, North Carolina, Chairman
RICHARD G. LUGAR, Indiana            JOSEPH R. BIDEN, Jr., Delaware
CHUCK HAGEL, Nebraska                PAUL S. SARBANES, Maryland
GORDON H. SMITH, Oregon              CHRISTOPHER J. DODD, Connecticut
CRAIG THOMAS, Wyoming                JOHN F. KERRY, Massachusetts
ROD GRAMS, Minnesota                 RUSSELL D. FEINGOLD, Wisconsin
JOHN ASHCROFT, Missouri              PAUL D. WELLSTONE, Minnesota
BILL FRIST, Tennessee                BARBARA BOXER, California
SAM BROWNBACK, Kansas                ROBERT G. TORRICELLI, New Jersey
LINCOLN D. CHAFEE, Rhode Island
                   Stephen E. Biegun, Staff Director
                 Edwin K. Hall, Minority Staff Director
        
                              ----------                              


                          COMMITTEE ON FINANCE

                WILLIAM V. ROTH, Jr., Delaware, Chairman

CHARLES E. GRASSLEY, Iowa            DANIEL PATRICK MOYNIHAN, New York
ORRIN G. HATCH, Utah                 MAX BAUCUS, Montana
FRANK H. MURKOWSKI, Alaska           JOHN D. ROCKEFELLER IV, West 
DON NICKLES, Oklahoma                Virginia
PHIL GRAMM, Texas                    JOHN BREAUX, Louisiana
TRENT LOTT, Mississippi              KENT CONRAD, North Dakota
JAMES M. JEFFORDS, Vermont           BOB GRAHAM, Florida
CONNIE MACK, Florida                 RICHARD H. BRYAN, Nevada
FRED THOMPSON, Tennessee             J. ROBERT KERREY, Nebraska
PAUL COVERDELL, Georgia              CHARLES S. ROBB, Virginia

           Franklin G. Polk, Staff Director and Chief Counsel

        David Podoff, Minority Staff Director and Chief Counsel

                  COMMITTEE ON INTERNATIONAL RELATIONS

                 BENJAMIN A. GILMAN, New York, Chairman

WILLIAM F. GOODLING, Pennsylvania    SAM GEJDENSON, Connecticut
JAMES A. LEACH, Iowa                 TOM LANTOS, California
HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
DOUG BEREUTER, Nebraska              GARY L. ACKERMAN, New York
CHRISTOPHER H. SMITH, New Jersey     ENI F.H. FALEOMAVAEGA, American 
DAN BURTON, Indiana                  Samoa
ELTON GALLEGLY, California           MATTHEW G. MARTINEZ, California
ILEANA ROS-LEHTINEN, Florida         DONALD M. PAYNE, New Jersey
CASS BALLENGER, North Carolina       ROBERT MENENDEZ, New Jersey
DANA ROHRABACHER, California         SHERROD BROWN, Ohio
DONALD A. MANZULLO, Illinois         CYNTHIA A. McKINNEY, Georgia
EDWARD R. ROYCE, California          ALCEE L. HASTINGS, Florida
PETER T. KING, New York              PAT DANNER, Missouri
STEVE CHABOT, Ohio                   EARL F. HILLIARD, Alabama
MARSHALL ``MARK'' SANFORD, South     BRAD SHERMAN, California
Carolina                             ROBERT WEXLER, Florida
MATT SALMON, Arizona                 STEVEN R. ROTHMAN, New Jersey
AMO HOUGHTON, New York               JIM DAVIS, Florida
TOM CAMPBELL, California             EARL POMEROY, North Dakota
JOHN M. McHUGH, New York             WILLIAM D. DELAHUNT, Massachusetts
KEVIN BRADY, Texas                   GREGORY W. MEEKS, New York
RICHARD BURR, North Carolina         BARBARA LEE, California
PAUL E. GILLMOR, Ohio                JOSEPH CROWLEY, New York
GEORGE RADANOVICH, California        JOSEPH M. HOEFFEL, Pennsylvania
JOHN COOKSEY, Louisiana
THOMAS G. TANCREDO, Colorado

                    Richard J. Garon, Chief of Staff

          Kathleen Bertelsen Moazed, Democratic Chief of Staff

     Hillel Weinberg, Senior Professional Staff Member and Counsel

                   Kimberly Roberts, Staff Associate

                              ----------                              


                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 (iii)


                            C O N T E N T S

                              ----------                              
                                                                   Page

Foreword.........................................................   vii

Letter of Transmittal............................................    ix

Introduction.....................................................    xi

Text of Section 2202 of the Omnibus Trade and Competitiveness Act 
  of 1988........................................................  xiii

Notes on Preparation of the Reports..............................    xv

Some Frequently Used Acronyms....................................  xvii

                            COUNTRY REPORTS*

Africa:

    Ghana........................................................     1
    Nigeria......................................................     6
    South Africa.................................................    12

East Asia and the Pacific:

    Australia....................................................    17
    China, People's Republic of..................................    21
    Hong Kong*...................................................    28
    Indonesia....................................................    32
    Japan........................................................    38
    Korea, Republic of...........................................    44
    Malaysia.....................................................    50
    Philippines..................................................    57
    Singapore....................................................    63
    Taiwan*......................................................    69
    Thailand.....................................................    75

Europe:

    The European Union...........................................    81
    Austria......................................................    89
    Belgium......................................................    94
    Bulgaria.....................................................    99
    Czech Republic...............................................   105
    Denmark......................................................   110
    Finland......................................................   116
    France.......................................................   121
    Germany......................................................   125
    Greece.......................................................   129
    Hungary......................................................   135
    Ireland......................................................   139
    Italy........................................................   146
    The Netherlands..............................................   151
    Norway.......................................................   156
    Poland.......................................................   160
    Portugal.....................................................   165
    Romania......................................................   169
    Russia.......................................................   173
    Spain........................................................   180

                                  (v)

    Sweden.......................................................   186
    Switzerland..................................................   190
    Turkey.......................................................   193
    Ukraine......................................................   198
    United Kingdom...............................................   204

The Americas:

    Argentina....................................................   209
    Bahamas......................................................   214
    Bolivia......................................................   219
    Brazil.......................................................   224
    Canada.......................................................   230
    Chile........................................................   235
    Colombia.....................................................   241
    Costa Rica...................................................   248
    Dominican Republic...........................................   254
    Ecuador......................................................   260
    El Salvador..................................................   265
    Guatemala....................................................   270
    Haiti........................................................   274
    Honduras.....................................................   279
    Jamaica......................................................   285
    Mexico.......................................................   292
    Nicaragua....................................................   300
    Panama.......................................................   304
    Paraguay.....................................................   309
    Peru.........................................................   314
    Trinidad and Tobago..........................................   319
    Uruguay......................................................   324
    Venezuela....................................................   328

Near East and North Africa:

    Algeria......................................................   337
    Bahrain......................................................   341
    Egypt........................................................   345
    Israel.......................................................   352
    Jordan.......................................................   358
    Kuwait.......................................................   363
    Morocco......................................................   368
    Oman.........................................................   372
    Saudi Arabia.................................................   378
    Tunisia......................................................   383
    United Arab Emirates.........................................   388

South Asia:

    Bangladesh...................................................   395
    India........................................................   401
    Pakistan.....................................................   406

                               __________
*Reports also cover the following areas: Hong Kong and Taiwan.




                                FOREWORD

                              ----------                              

    The reports on individual country economic policy and trade 
practices contained herein were prepared by the Department of 
State in accordance with section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988 (P.L. 100-418).
    Modeled on the State Department's annual reports on country 
human rights practices, the reports are intended to provide a 
single, comparative analysis of the economic policies and trade 
practices of countries with which the United States has 
significant economic or trade relationships. Because of the 
increasing importance of, and interest in, trade and economic 
issues, these reports are prepared to assist Members in 
considering legislation in the areas of trade and economic 
policy.

                                               Jesse Helms,
                          Chairman, Committee on Foreign Relations.

                                      William V. Roth, Jr.,
                                    Chairman, Committee on Finance.

                                        Benjamin A. Gilman,
                    Chairman, Committee on International Relations.

                                               Bill Archer,
                             Chairman, Committee on Ways and Means.

                                 (vii)

                                     




                         LETTER OF TRANSMITTAL

                              ----------                              

                                  U.S. Department of State,
                                     Washington, DC, March 6, 2000.
Hon. Jesse Helms,
Chairman, Committee on Foreign Relations.

Hon. William V. Roth, Jr.,
Chairman, Committee on Finance.

Hon. Albert Gore, Jr.,
President, U.S. Senate.

Hon. Dennis Hastert,
Speaker, House of Representatives.

Hon. Benjamin A. Gilman,
Chairman, Committee on International Relations.

Hon. Bill Archer,
Chairman, Committee on Ways and Means.

    Dear Sirs: Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988 requires the Department of State to 
provide to the appropriate Committees of Congress a detailed 
report regarding the economic policy and trade practices of 
countries with which the U.S. has significant economic or trade 
relationships. In this regard, I am pleased to provide the 
enclosed report.

            Sincerely,
                                            Barbara Larkin,
                          Assistant Secretary, Legislative Affairs.
Enclosure.

                                  (ix)

                                     


                              INTRODUCTION

                              ----------                              


         Country Reports on Economic Policy and Trade Practices

    The Department of State is submitting to the Congress its 
Country Reports on Economic Policy and Trade Practices in 
compliance with Section 2202 of the Omnibus Trade and 
Competitiveness Act of 1988. As the legislation requires, we 
have prepared detailed reports on the economic policy and trade 
practices of countries with which the United States has 
significant economic or trade relationships. This is the 
Department of State's 11th annual report. It now includes 
reports on 76 countries, customs territories and customs 
unions.
    Each report contains nine sections.

  <bullet> Key Economic Indicators: Each report begins with a 
        table showing data for key economic indicators in the 
        national income, monetary, and trade accounts.
  <bullet> General Policy Framework: This first narrative 
        section gives an overview of macroeconomic trends.
  <bullet> Exchange Rate Policies: The second section describes 
        exchange rate policies and their impact on the price 
        competitiveness of U.S. exports.
  <bullet> Structural Policies: The third section examines 
        structural policies, highlighting changes that may 
        affect U.S. exports to that country.
  <bullet> Debt Management Policies: The fourth section 
        describes debt management policies and their 
        implications for trade with the U.S.
  <bullet> Significant Barriers to U.S. Exports and Investment: 
        The fifth section examines significant barriers, formal 
        and informal, to U.S. exports and investment.
  <bullet> Export Subsidies Policies: The sixth section focuses 
        on government actions, policies, and practices that 
        support exports from that country, including exports by 
        small businesses.
  <bullet> Protection of U.S. Intellectual Property: The 
        seventh section discusses the country's laws and 
        practices with respect to protection of intellectual 
        property rights.
  <bullet> Worker Rights: The final section has three parts.

        --The first (subsections a through e) outlines the 
        country's laws and practices with respect to 
        internationally recognized worker rights.
        --The second (subsection f) highlights conditions of 
        worker rights in goods-producing sectors where U.S. 
        capital is invested.

                                  (xi)

        --Finally, a table cites the extent of such investment 
        by sector where information is available.

    The country reports are based on information supplied by 
U.S. Embassies, which is analyzed and reviewed by the 
Department of State in consultation with other U.S. Government 
agencies. The reports are intended to serve as general guides 
to economic conditions in specific countries. We have worked to 
standardize the reports, but there are unavoidable differences 
reflecting large variations in data availability. In some 
cases, access to reliable data is limited, particularly in 
countries making transitions to market economies. Nonetheless, 
each report incorporates the best information currently 
available.
                                       Ryan Samuel,
                        Acting Assistant Secretary of State
                                 for Economic and Business Affairs.


 TEXT OF SECTION 2202 OF THE OMNIBUS TRADE AND COMPETITIVENESS ACT OF 
                                  1988

                              ----------                              

    ``The Secretary of State shall, not later than January 31 
of each year, prepare and transmit to the Committee on 
[International Relations]* and the Committee on Ways and Means 
of the House of Representatives, to the Committee on Foreign 
Relations and the Committee on Finance of the Senate, and to 
other appropriate committees of the Congress, a detailed report 
regarding the economic policy and trade practices of each 
country with which the United States has an economic or trade 
relationship. The Secretary may direct the appropriate officers 
of the Department of State who are serving overseas, in 
consultation with appropriate officers or employees of other 
departments and agencies of the United States, including the 
Department of Agriculture and the Department of Commerce, to 
coordinate the preparation of such information in a country as 
is necessary to prepare the report under this section. The 
report shall identify and describe, with respect to each 
country:

    1. The macroeconomic policies of the country and their 
impact on the overall growth in demand for United States 
exports;
    2. The impact of macroeconomic and other policies on the 
exchange rate of the country and the resulting impact on price 
competitiveness of United States exports;
    3. Any change in structural policies [including tax 
incentives, regulation governing financial institutions, 
production standards, and patterns of industrial ownership] 
that may affect the country's growth rate and its demand for 
United States exports;
    4. The management of the country's external debt and its 
implications for trade with the United States;
    5. Acts, policies, and practices that constitute 
significant trade barriers to United States exports or foreign 
direct investment in that country by United States persons, as 
identified under section 181(a)(1) of the Trade Act of 1974 (19 
U.S.C. 2241(a)(1));
    6. Acts, policies, and practices that provide direct or 
indirect government support for exports from that country, 
including exports by small businesses;
    7. The extent to which the country's laws and enforcement 
of those laws afford adequate protection to United States 
intellectual property, including patents, trademarks, 
copyrights, and mask works; and



    *In 1995, the Committee on Foreign Affairs changed its name to the 
Committee on International Relations.

                                 (xiii)

                                     

    8. The country's laws, enforcement of those laws, and 
practices with respect to internationally recognized worker 
rights (as defined in section 502(a)(4) of the Trade Act of 
1974), the conditions of worker rights in any sector which 
produces goods in which United States capital is invested, and 
the extent of such investment.''


                  NOTES ON PREPARATION OF THE REPORTS

                              ----------                              

    Subsections ``a.'' through ``e.'' of the Worker Rights 
section (section 8) are abridged versions of section 6 in the 
Country Reports on Human Rights Practices for 1999, submitted 
to the Committees on International Relations of the House of 
Representatives and on Foreign Relations of the U.S. Senate in 
January 1999. For a comprehensive and authoritative discussion 
of worker rights in each country, please refer to that report.
    Subsection ``f.'' highlights conditions of worker rights in 
goods-producing sectors where U.S. capital is invested. A table 
cites the extent of such investment by sector where information 
is available. The Bureau of Economic Analysis of the U.S. 
Department of Commerce has supplied information on the U.S. 
direct investment position at the end of 1997 for all countries 
for which foreign direct investment has been reported to it. 
Readers should note that ``U.S. Direct Position Abroad'' is 
defined as ``the net book value of U.S. parent companies' 
equity in, and net outstanding loans to, their foreign 
affiliates'' (foreign business enterprises owned 10 percent or 
more by U.S. persons or companies). Where a figure is negative, 
the U.S. parent owes money to the affiliate. The table does not 
necessarily indicate total assets held in each country. In some 
instances, the narrative refers to investments for which 
figures may not appear in the table.

                                  (xv)

                                     


                     SOME FREQUENTLY USED ACRONYMS

                              ----------                              

ADB--Asian Development Bank
BIS--Bank for International Settlements
CACM--Central American Common Market
CARICOM--Caribbean Common Market
CAP--Common Agricultural Policy (of the EU)
CCC--Commodity Credit Corporation (Department of Agriculture)
EBRD--European Bank for Reconstruction and Development
EFTA--European Free Trade Association
EMS--European Monetary System (of the EU)
ERM--Exchange Rate Mechanism (of the EU)
ESAF--Enhanced Structural Adjustment Facility
EU--European Union
EXIMBANK--U.S. Export-Import Bank
FOREX--foreign exchange
FY--fiscal year
GATS--General Agreement on Trade in Services
GATT--General Agreement on Tariffs and Trade
GDP--gross domestic product
GNP--gross national product
GSP--Generalized System of Preferences
IBRD--International Bank for Reconstruction and Development 
            (World Bank)
IFIs--international financial institutions (IMF, World Bank and 
            regional development banks)
ILO--International Labor Organization (of the United Nations)
IMF--International Monetary Fund
IDB--Inter-American Development Bank
IPR--intellectual property rights
LIBOR--London Interbank Offer Rate
MFN--most favored nation
NAFTA--North American Free Trade Agreement
NGOs--non-government organizations
NIS--Newly Independent States (of the former Soviet Union)
OECD--Organization for Economic Cooperation and Development
OPIC--U.S. Overseas Private Investment Corporation
PTT--Post, Telegraph and Telephone
SAP--Structural Adjustment Program (of the IMF/World Bank)
SDR--Special Drawing Rights (of the IMF)
STF--Structural Transformation Facility
TRIPs--WTO Agreement on Trade-Related Aspects of Intellectual 
            Property Rights

                                 (xvii)

UR--Uruguay Round of trade negotiations in the GATT
USD--U.S. Dollar
VAT--value-added tax
WIPO--World Intellectual Property Organization
WTO--World Trade Organization
                                 AFRICA

                              ----------                              


                                 GHANA

                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     6,884     7,630       N/A
  Real GDP Growth (pct) \3\...............       4.2       4.6       4.5
  GDP by Sector:
    Agriculture...........................     2,574     3,090       N/A
    Manufacturing.........................       640       656       N/A
    Services..............................     1,976     2,220       N/A
    Government............................       730       832       N/A
  Per Capita GDP (US$)....................       385       415       N/A
  Labor Force (000's).....................     8,240     8,480     8,734
  Unemployment Rate (pct).................        22        20        20

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      40.8      17.6       3.9
  Consumer Price Inflation (end-of-period)      20.8      15.7      12.6
  Exchange Rate (Cedis/US$ annual average)     2,250     2,346     3,100
   Interbank (mid-rate)...................

Balance of Payments and Trade:
  Total Exports FOB \4\...................     1,491     1,830     1,880
    Exports to U.S. \4\...................       154       144       140
  Total Imports CIF \4\...................     2,128     2,213     2,253
    Imports from U.S. \4\.................       314       223       253
  Trade Balance \4\.......................      -637      -383      -373
    Balance with U.S......................      -160       -79      -113
  External Public Debt....................     5,651     5,922     5,750
  Fiscal Deficit/GDP (pct)................       2.6       2.3       N/A
  Current Account Deficit/GDP (pct).......       8.5       3.5       N/A
  Debt Service Payments/GDP (pct).........       8.6       8.4       N/A
  Gold and Foreign Exchange Reserves......       508       508       364
  Aid from U.S............................        52        58        60
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on most recent data available.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Data not available.

1. General Policy Framework
    Ghana operates in a free market environment under a popularly 
elected civilian government. In December, 1996, Ghana had its second 
experience in multiparty elections since the inauguration of the 4th 
Republic in January, 1993. President Jerry John Rawlings was reelected 
for a second four-year term which will expire in December of 2000.
    Rawlings headed a ``provisional'' regime from the end of 1981 until 
January, 1993, when democratic government under a written constitution 
was restored. Unlike the first parliament, the present has an 
opposition presence with 67 seats out of 200. An independent judiciary 
acts as the final arbiter of Ghanaian laws. The next presidential and 
parliamentary elections are scheduled for the year 2000.
    Since 1983 Ghana has pursued an economic reform agenda aimed 
generally at reducing government involvement in the economy and 
encouraging private sector development. Inflationary pressures as a 
result of government expenditure overruns prior to 1992 and 1996 
presidential and parliamentary elections have been contained to some 
extent. However, fiscal performance by government in the third quarter 
of 1999 is the basis for concern since government has resorted to heavy 
domestic borrowing to make up for shortfalls from mainly non-tax 
revenue, leading to rising domestic interest rates.
    The Bank of Ghana is currently pursuing a tight monetary policy in 
an attempt to absorb excess liquidity in order to sustain the downward 
trend in inflation. Inflation, measured at about 71 percent at the end 
of 1995, has consistently declined to 9.4 percent at the end of May, 
1999, the lowest for 20 years before rising to 12.6 percent in October 
of 1999. Following the steady fall in inflation, the Central Bank 
cautiously made reductions in the bank rate or rediscount rate from 45 
percent in 1995, to 27 percent in April, 1999. Lending rates, which 
fell accordingly, have started rising as the Bank intensifies its open 
market operation to keep money supply within target. Increases in 
domestic prices of petroleum products to make up for corresponding 
increases in world crude oil prices, and the rapid depreciation of the 
local currency against major foreign currencies, are exerting intense 
inflationary pressures.
    The government's economic program has focused on the development of 
Ghana's private sector, which historically has been weak. Privatization 
of state-owned enterprises continues, with about two-thirds of 300 
enterprises sold to private owners. Despite the energy crisis in 1998, 
Ghana achieved real economic growth of 4.6 percent as against 4.2 
percent recorded in 1997. Growth in 1999 is expected to be lower than 
the government projection of 5.5 percent due to the effect of terms of 
trade shocks in 1999 arising from a decline in world prices of cocoa 
and gold and increases in oil prices. Agriculture (which still accounts 
for about 41 percent of GDP and employs about 60 percent of the work 
force) and manufacturing have recorded much slower growth. Other 
reforms adopted under the government's structural adjustment program 
include the elimination of exchange rate controls and the lifting of 
virtually all restrictions on imports. The establishment of an 
Interbank Foreign Exchange Market has greatly expanded access to 
foreign exchange. The elimination of virtually all local production 
subsidies is further indication of the government's intention to move 
toward a market orientation for the economy.
2. Exchange Rate Policy
    The foreign exchange value of the Ghanaian cedi is established 
independently through the use of Interbank Market and Foreign Exchange 
bureaus, and currency conversion is easily obtained. The foreign 
exchange auction procedure was abandoned in 1992. Ghana fully accedes 
to Article IV of the IMF convention on free current account 
convertibility and transfer. Through the Bank of Ghana's intervention, 
the cedi depreciated by about 13 percent in 1998 as compared to an 
annual average of about 25 percent during 1993 to 1997. Depletion of 
the Bank's foreign exchange reserves in 1999, mainly as a result of 
higher oil import bills and shortfall in external program assistance, 
has resulted in a sharp depreciation of the cedi and a shortage of 
major foreign exchange. In general, the exchange rate regime in Ghana 
does not have any particular impact on the competitiveness of U.S. 
exports. This may change, however, if the euro continues its fall in 
relation to the dollar.
3. Structural Policies
    Ghana progressively reduced import quotas and surcharges as part of 
its structural adjustment program. Tariff structures are being adjusted 
in harmony with the ECOWAS Trade Liberalization Program. With the 
elimination of import licensing in 1989, importers are now merely 
required to sign a declaration that they will comply with Ghanaian tax 
and other laws. Imported goods currently enjoy generally unfettered 
access to the Ghanaian market.
    The government professes strong support for the principle of free 
trade. However, it is also committed to the development of competitive 
domestic industries with exporting capabilities. The government is 
expected to continue to support domestic private enterprise with 
various financial incentives. Ghanaian manufacturers seek stronger 
protective measures and complain that Ghana's tariff structure places 
local producers at a competitive disadvantage relative to imports from 
countries enjoying greater production and marketing economies of scale. 
High local production costs frequently boost the price of locally 
manufactured items above the landed cost of goods imported from Asia 
and elsewhere. Reductions in tariffs have increased competition for 
local producers and manufacturers while reducing the cost of imported 
raw materials.
    The government successfully reintroduced value-added tax (VAT) in 
December, 1998, at a ten-percent rate. Government has proposed an 
increase to 12.5 percent to make up for anticipated revenue shortfalls 
in 2000. Additionally, government is expected to broaden the tax base 
and enhance compliance. All these, although significant, are not enough 
to reduce net domestic borrowings in order to ease pressure on 
inflation and domestic interest rates. In 1998, government's domestic 
interest payments were about 30 percent of its domestic revenue, more 
than the local budget for both health and education.
    Despite successful structural reform in other parts of the economy, 
one disappointment in Ghana's recent efforts has been that of its 
divestiture program. The Divestiture Implementation Committee (DIC) 
published an action plan in April 1999 detailing an agenda for the 
divestiture of several major enterprises and outlined specific annual 
targets for receipts. Since then, the actual implementation has 
included only two divestitures, that of the State Transport factory and 
that of GHACEM, a cement factory, totaling US$31.5 million.
4. Debt Management Policies
    Ghana's total outstanding external debt, including obligations to 
the IMF, totaled approximately USD 5.7 billion at the end of the second 
quarter of 1999. Outstanding obligations to the IMF under medium-term 
facilities stood at USD 305 million at the end of the same period. At 
that time, outstanding long-term debt was about USD 5 billion (about 88 
percent of total debt), of which USD 1.5 billion and USD 3.5 billion 
were owed to bilateral and multilateral institutions, respectively. The 
size of external debt as a proportion of GDP continues to decrease from 
its 1994 level of 97 percent to 79 percent of GDP in 1998. Ghana's debt 
service ratio in 1998 was 31 percent. In 1991 Ghana cleared all 
external debt arrears. Ghana is a heavily indebted poor country (HIPC) 
but has not asked to be the beneficiary of debt relief or rescheduling 
in recent times. To better manage its debt portfolio, since August, 
1997, government has applied a moratorium on public and public 
guaranteed non-concessional borrowings.
    Persistent balance of payments deficits have resulted in a 
continuing increase in foreign indebtedness. Swings in commodity 
prices, especially gold and cocoa, have a dramatic impact on Ghana's 
export revenues. In 1999, Ghana suffered from external shocks not only 
from the falling prices of these commodities but also the increase in 
the world price of crude oil. These are estimated to cumulatively 
affect the balance of payments by about 370 million dollars in 1999. 
This deficit is reflected in reduction in imports, lower GDP, and 
exchange rate adjustments. The government is expected to sustain its 
present level of external program assistance and increase receipts from 
the divestiture of state-owned enterprises to moderate the volatility 
of the cedi.
5. Significant Barriers to U.S. Exports
    Import licenses: Ghana eliminated its import licensing system in 
1989 but retains a ban on the importation of a narrow range of products 
that do not affect U.S. exports. Ghana is a member of the WTO.
    Services Barriers: The Ghanaian investment code prohibits foreign 
participation in the following sectors: small-scale wholesale and 
retail sales, taxi and car rental services with fleets of fewer than 
ten vehicles, lotteries, and barber and beauty shops. Current insurance 
law requires at least 40 percent Ghanaian ownership of insurance firms 
in Ghana.
    Standards, Testing, Labeling, and Certification: Ghana has 
promulgated its own standards for food and drugs. The Ghana Standards 
Board, the national testing authority, subscribes to accepted 
international practices for the testing of imports for purity and 
efficacy. Under Ghanaian law, imports must bear markings identifying in 
English the type of product being imported, the country of origin, the 
ingredients or components, and the expiration date, if any. Non-
complying goods are subject to government seizure. Several highly 
publicized seizures of goods (pharmaceuticals and food items) with 
expired shelf-life dates are occasionally carried out. The thrust of 
this law is to regulate imported food and drugs; however, by its terms 
the law applies to non-consumable imports as well. Locally manufactured 
goods are subject to comparable testing, labeling, and certification 
requirements. Four pre-shipment inspection firms contracted by 
government also perform testing and price verification for some 
selected imports that are above USD 5,000.
    Investment Barriers: The investment code guarantees repatriation of 
dividends, loan repayments, licensing fees and repatriation of capital. 
It also provides guarantees against expropriation or forced sale and 
sets forth dispute arbitration processes. Foreign investors are not 
subject to differential treatment on taxes, access to foreign exchange 
and credit, or importation of goods and equipment. Separate legislation 
covers investments in mining and petroleum and applies equally to 
foreign and Ghanaian investors. The investment code no longer requires 
project approval from the Ghana Investment Promotion Center (GIPC). The 
U.S. Embassy reports growing problems related to government violations 
of private sector landowning rights and property rights.
    Government Procurement Practices: Government purchases of equipment 
and supplies are usually handled by the Ghana Supply Commission (the 
official purchasing agency) through international bidding and, at 
times, through direct negotiations. Former government import monopolies 
have been abolished. However, parastatal entities continue to import 
some commodities. The parastatals no longer receive government 
subsidies to finance imports.
6. Export Subsidies Policies
    The Government of Ghana does not directly subsidize exports. 
Exporters are entitled to a 100 percent refund for duty paid on 
imported inputs used in the processing of exported goods. Bonded 
warehouses have been established which allow importers to avoid duties 
on imported inputs used to produce merchandise for export. Firms 
involved in exports enjoy some fiscal incentives such as tax holidays 
and preferential tax/duty treatment on imported capital equipment. 
Firms under the export processing zones all benefit from the same 
incentives.
7. Protection of U.S. Intellectual Property
    After independence in 1957, Ghana instituted separate legislation 
for copyright (1961) and trademark (1965) protection based on British 
law. Subsequently, the government passed modified copyright and patent 
legislation in 1985 and 1992, respectively. Prior to 1992 the patent 
laws of the United Kingdom applied in Ghana. Ghana is a member of the 
Universal Copyright Convention, the World Intellectual Property 
Organization, and the English-Speaking African Regional Intellectual 
Property Organization, and is also a signatory to the WTO Agreement on 
TRIPs. IPR holders have access to local courts for redress of 
grievances. Few infringement cases have been filed in Ghana in recent 
years. Ghana has not been identified as a priority country in 
connection with either the ``Special 301'' Watch List or Priority Watch 
List.
    Patents (Product and Process): Patent registration in Ghana 
presents no serious problems for foreign rights holders. Registration 
fees vary according to the nature of the patent, but local and foreign 
applicants pay the same rate.
    Trademarks: Ghana has not yet become a popular location for 
imitation designer apparel and watches. In cases where trademarks have 
been misappropriated, the price and quality disparity would be apparent 
to all but the most unsuspecting buyer.
    Copyrights: Enforcement of foreign copyrights may be pursued in the 
Ghanaian courts, but few such cases have actually been filed in recent 
years. The bootlegging of computer software is an example of copyright 
infringement taking place locally. There is no data available to 
quantify the commercial impact of this practice. Pirating of videotapes 
is another local practice that affects U.S. exports, but the evidence 
suggests that this is not being done on a large scale. There is no 
evidence of a significant export market for Ghanaian-pirated books, 
cassettes, or videotapes.
    In summary, infringement of intellectual property rights has not 
had a significant impact on U.S. exports to Ghana. Pirated computer 
software may become a more significant problem in the future, however, 
as computer use grows.
8. Worker Rights
    a. The Right of Association: Trade unions are governed by the 
Industrial Relations Act (IRA) of 1958, as amended in 1965 and 1972. 
Organized labor is represented by the Trades Union Congress (TUC), 
which was established in 1958. The IRA confers power on government to 
refuse to register a trade union, but the current government or the 
previous military regime has not exercised this right. No union leaders 
have been detained in recent years, nor has the right of workers to 
freely associate otherwise been circumscribed.
    b. The Right to Organize and Bargain Collectively: The IRA provides 
a framework for collective bargaining and protection against anti-union 
discrimination. Law prohibits civil servants from joining or organizing 
a trade union. However, in December, 1992, the government enacted 
legislation which allows each branch of the civil service to establish 
a negotiating committee to engage in collective bargaining for wages 
and benefits in the same fashion as trade unions in the private sector. 
While the right to strike is recognized in law and in practice, the 
government has on occasion taken strong action to end strikes, 
especially in cases involving vital government interests or public 
order. The IRA provides a mechanism for conciliation and arbitration 
before unions can resort to industrial actions or strikes. Over the 
past four years there have been several industrial actions involving 
salary increase demands, conditions of service, and severance awards. 
1999 saw a number of short-lived ``wild cat'' strikes by doctors and 
industrial workers.
    c. Prohibition of Forced or Compulsory Labor: Ghanaian law 
prohibits forced labor and it is not known to be practiced. The 
International Labor Organization (ILO) continues to urge the government 
to revise legislation that permits imprisonment with an obligation to 
perform labor for offenses that are not countenanced under ILO 
Convention 105, ratified by Ghana in 1958.
    d. Minimum Age of Employment of Children: Labor legislation in 
Ghana sets a minimum employment age of 15 and prohibits night work and 
certain types of hazardous labor for those under 18. The violation of 
child labor laws is common and young children of school age can often 
be found during the day performing menial tasks in the agricultural 
sector or in the markets. Observance of minimum age laws is eroded by 
local custom and economic circumstances that compel children to become 
wage earners at an early age. Inspectors from the Ministry of Labor and 
Social Welfare are responsible for enforcement of child labor laws. 
Employers who violate laws prohibiting heavy labor and night work by 
children are occasionally prosecuted.
    e. Acceptable Conditions of Work: In 1991 a Tripartite Commission 
composed of representatives from government, organized labor, and 
employers established minimum standards for wages and working 
conditions. The daily minimum wage combines wages with customary 
benefits such as a transportation allowance. The current daily minimum 
wage is Cedis 2,900, about 85 cents at the present rate of exchange. 
This sum does not permit a single wage earner to support a family and 
frequently results in multiple wage earners and other family-based 
commercial activity. A much-vaunted, government-commissioned study on 
reform of the civil service (including a serious revision of grades and 
salary levels) was implemented in June, 1999. By law the maximum 
workweek is 45 hours, but collective bargaining has established a 40-
hour week for most unionized workers.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Ghana 
is concentrated in the primary and fabricated metals sectors (gold 
mining and aluminum smelting), food and related products (tuna canning 
and beverage bottling), petroleum marketing, and telecommunications. 
Labor conditions in these sectors do not differ significantly from the 
norm, save that wage scales in the metals and mining sectors are 
substantially higher than elsewhere in the Ghanaian economy. U.S. firms 
have a good record of compliance with Ghanaian labor laws.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  -1
Total Manufacturing............  ..............  (\1\)
  Food & Kindred Products......  0               ...............................................................
  Chemicals & Allied Products..  0               ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  0
Banking........................  ..............  0
Finance/Insurance/Real Estate..  ..............  0
Services.......................  ..............  0
Other Industries...............  ..............  0
TOTAL ALL INDUSTRIES...........  ..............  (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                NIGERIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment:
  Nominal GDP \2\.........................      50.1      52.0       N/A
  Real GDP Growth (pct) \3\...............       3.2       2.4       N/A
  GDP by Sector (pct):
    Agriculture...........................      31.5      32.3       N/A
    Manufacturing.........................       6.3       6.1       N/A
    Services..............................       9.7       9.6       N/A
  Per Capita GDP (US$)....................       250       250       240
  Labor Force (millions)..................      43.0      40.0       N/A
  Unemployment Rate (pct).................       2.6       3.9       N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................      15.0      15.6       N/A
  Consumer Price Inflation................       8.5      10.0       8.0
  Exchange Rate (Naira/US$ annual average)
    Official..............................        22        82        95
    Parallel..............................        55        85       101

Balance of Payments and Trade:
  Total Exports FOB \4\...................      15.2       9.0       N/A
    Exports to U.S. \5\...................       6.3       4.2       N/A
  Total Imports FOB.......................      10.3       9.9       N/A
    Imports from U.S. \5\.................       0.8       0.8       N/A
  Trade Balance...........................       4.9      -2.0       N/A
    Trade Balance with U.S. \5\...........       5.5       3.4       N/A
  Current Account Deficit/GDP (pct).......       1.2      -3.5       N/A
  External Public Debt....................      27.1      28.7       N/A
  Debt Service Payments/GDP (pct).........       1.8       1.4       N/A
  Fiscal Deficit/GDP (pct)................       0.2       4.7       N/A
  Gold and Foreign Exchange Reserves......       7.6       7.1       N/A
  Aid from U.S. (US$ millions)............       N/A       N/A       N/A
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures, except exchange rates, are all estimates based on
  available monthly data in November.
\2\ GDP at factor cost. Conversion to U.S. dollars done with official
  exchange rate of 82 naira to the dollar for 1998/99.
\3\ Percentage changes calculated in local currency.
\4\ Merchandise trade.
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through November 1999.

1. General Policy Framework
    Nigeria is Africa's most populous nation and the United States' 
fifth largest oil supplier. It offers investors a low-cost labor pool, 
abundant natural resources, and one of the largest domestic markets in 
sub-Saharan Africa. On the other hand, inadequate infrastructure, 
corruption, and inconsistent regulations mean that considerable time, 
money and managerial effort are needed for a firm to begin operation 
and earn profits in Nigeria. Nigeria's basic infrastructure is 
extensive but inadequate for a population of over 100 million. Roads 
and bridges are crumbling, telephone service is erratic, and there are 
recurring shortages of water and electricity. Social unrest in some 
areas, widespread unemployment, a stagnant economy depressed by over-
reliance on oil, the lack of effective due process, and serious fraud 
and violent crime problems complicate business in Nigeria.
    After a period of moderate fiscal austerity in the late 1980s, the 
Nigerian government ran budget deficits of up to 12 percent of GDP 
beginning in 1990. The deficit decreased to seven percent in 1994 and, 
by postponing government spending (including for debt service), in 1995 
shrank to negligible proportions. In 1996, the budget had a surplus of 
1.6 percent of GDP. For the majority of 1997, the budget ran a reported 
surplus. The deficit reduction and ensuing surplus came about primarily 
through austerity--e.g., foregoing government projects and 
infrastructure maintenance--as well as stronger-than-expected oil 
revenue. Recommendations by international financial institutions 
include reducing large government fuel price subsidies (the official 
price of gasoline is currently about 20 cents per liter), shelving a 
number of government projects which are of doubtful economic value, and 
reducing leakage from government income due to corruption.
    In previous years, monetary policy had been driven by the need to 
accommodate the government's budget deficit and a desire to reduce the 
inflationary impact of the budget deficit on the economy. Deficits at 
the federal level had been financed primarily by borrowing from the 
Central Bank of Nigeria (CBN), which held 85.1 percent of the 
government's domestic debt at the end of 1997. Since the Central Bank 
monetizes much of the deficit, budgetary shortfalls have a direct 
impact on the money supply and on price levels, which had risen rapidly 
for several years but have since slowed. In 1996, the government also 
began releasing money from an extra-budgetary account called the 
Petroleum Trust Fund (PTF) for infrastructure and other projects. 
President Obasanjo has scrapped the fund and constituted a winding up 
committee to look into the activities of the PTF.
    In 1999, Nigeria has continued the policy of ``guided 
deregulation'' and privatization instituted in the 1995 budget. The 
former head of state, General Sani Abacha, had abandoned the 1986 
structural adjustment program reforms and instituted tight government 
control over key economic variables. In response to the economic 
downturn caused by those measures, Abacha's 1995 budget abandoned the 
tightly regulated economic policies enacted in 1994. Under the new 
policy, the Nigerian government reopened the Autonomous Foreign 
Exchange Market (AFEM), loosened controls on foreign investment and 
reduced tariffs and bans on some imports. The 1999 budget continued the 
trend of fiscal austerity and the slow deregulation of the economy. On 
the demise of General Abacha, General Abdulsalami Abubakar, also 
reiterated the government's intention to privatize major parastatals, 
including telecommunications and electricity (NITEL and NEPA 
respectively.) The 1998 budget promised privatization with 40 percent 
equity for the government, 20 percent equity for Nigerian citizens, and 
unrestricted sale of the remaining 40 percent. Invitations to invest 
were to be made to specific investors with relevant expertise. The 1998 
budget also targeted the reorganization of the electricity generating 
parastatal (NEPA.) In 1999, the government repealed and amended eleven 
decrees that inhibited competition or conferred monopoly powers on 
public enterprises in the petroleum, telecommunications, power and 
mineral sectors. However, the promised privatization exercise has not 
occurred and its present prospects are unclear. The Obasanjo government 
has declared its conditional support for eventual privatization and 
promised a transparent privatization program after evaluating and 
rehabilitating the parastatals' assets.
    In November 1999, the Obasanjo government released a Year 2000 
budget of 500 billion Naira (USD 5 billion). The budget was predicated 
on an oil price of $18 per barrel as against the $16.5 used in the 1999 
budget. The education sector got the highest allocation of 40.3 billion 
Naira. Next in allocation is the Defense Ministry with an allocation of 
34.1 billion Naira. Nigeria's external debt servicing is retained at 
$1.5 billion and external debt stood at $28.54 billion as at September 
30, 1999. External debt arrears currently stand at $18.86 billion, 
while the debt service commitment for the year 2000 is expected to be 
$1.98 billion.
2. Exchange Rate Policy
    In 1999, the autonomous foreign exchange market (AFEM) was fully 
deregulated. Dual exchange rates were scrapped and only AFEM rate 
prevails. Companies can now hold domiciliary accounts in private banks, 
with unfettered use of the funds. Foreign investors may bring capital 
into the country without Finance Ministry approval, and may service 
foreign loans and remit dividends. Bureau de change offices are 
functioning and transactions in the bureau de change offices have been 
increased to $10,000 per transaction. In addition, oil companies are 
allowed to sell foreign exchange directly to interested banks and 
private organizations. The Central Bank has continued to intervene at 
the weekly AFEM.
3. Structural Policies
    As stated in the December 1986 circular ``Industrial Policy of 
Nigeria,'' the Nigerian government maintains a system of incentives to 
foster the development of particular industries, to encourage firms to 
locate in economically disadvantaged areas, to promote research and 
development in Nigeria, and to favor the use of domestic labor and raw 
materials. The Industrial Development (Income Tax Relief) Act of 1971 
provides incentives to ``pioneer'' industries deemed beneficial to 
Nigeria's economic development. Companies given ``pioneer'' status may 
enjoy a non-renewable tax holiday of five years, or seven years if the 
pioneer industry is located in an economically disadvantaged area.
    In 1995, Nigeria promulgated the Nigerian Investment Promotion 
Commission Decree to replace the Enterprises Promotion Act. This decree 
liberalized the foreign investment regime, allowing 100 percent foreign 
ownership of firms outside the petroleum sector. Investment in the 
petroleum sector is still limited to the existing joint venture 
agreement or production-sharing contracts with the Nigerian government, 
though there has been discussion of the Nigerian government selling off 
some small parts of its joint venture equity. A foreign enterprise may 
now buy shares of any Nigerian firm except those on the ``negative 
list'': production of firearms, ammunition and narcotics, military and 
paramilitary apparel. The Investment Promotion Decree provides for the 
creation of an Investment Promotion Commission that will register 
companies for foreigners after incorporation under the Companies and 
Allied Matters Decree of 1990. The decree also abolishes the expatriate 
quota system (except in the oil sector) and prohibits any 
nationalization or expropriation of a foreign enterprise by the 
Nigerian government except for such cases determined to be in the 
national interest.
    Nigeria has partially implemented the 1995 money laundering decree, 
which introduced bank reporting procedures designed to inhibit this 
practice. There is also a decree against advance-fee fraud (called 419 
fraud after the relevant section of the Nigerian criminal code.) 
However, as of 1999, there has been only limited success in reducing 
financial fraud despite improving law enforcement actions against fraud 
perpetrators. The broad scope of business fraud has brought 
international notoriety to Nigeria and constitutes a serious 
disincentive to exporters.
4. Debt Management Policies
    Nigeria's foreign debt ballooned from $13 billion in 1981 to $24 
billion in 1986, when sharply lower oil revenues and continued high 
import levels escalated balance of payments deficits. Debt service 
obligations including payment of arrears, are projected to be over $8 
billion annually for the next several years. However, according to the 
1998 Central Bank of Nigeria's Annual Report, Nigeria's total external 
debt stock at the end of 1998 amounted to $28.774 billion, compared 
with $27.09 in 1997. The exact debt figure with multilateral financial 
institutions is still in dispute. The 1999 budget allowed only $2 
billion for foreign debt payments, thus ensuring continued build-up of 
arrears.
    In January 1992, in an effort to reduce its external debt, the 
Nigerian government concluded an agreement with the London club that 
gave commercial banks a menu of options from which to choose in 
reducing Nigeria's commercial debt. The menu included debt buy backs 
(currently at 45 cents to the dollar), new money bonds, and 
collateralized par bonds. As a result of the agreement, Nigeria was 
able to reduce its external debt by $3.9 billion since 1992, but the 
accumulation of arrears on other debt (especially Paris Club debt), 
which currently represent 70 percent of total debt stock, has kept 
external debt levels high.
    From 1986 to early 1992, on the basis of a comprehensive structural 
adjustment program, Nigeria reached three standby agreements with the 
IMF. The last one lapsed in 1992. Discussions with the IMF since then 
have shown some progress, as evidenced by the 1996 decapping of 
interest rates and removal of the mandatory sectoral credit allocations 
for banks. In 1999 Nigeria and the IMF resolved most issues standing in 
the way of a new standby arrangement. Nigeria's inadequate servicing of 
Paris Club debt remains a principal obstacle.
    Nigeria's most recent rescheduling agreement with the Paris Club 
expired at the same time as its standby agreement with the IMF, and 
debt repayment obligations on Paris Club debt have continued to grow. 
(Nigeria has kept up to date on its multilateral and London Club debt.) 
In 1992 Nigeria made payments of $2.7 billion against interest and 
principal payment obligations of $5 billion. However, faced with 
similar obligations in the following years, external debt service 
payments were only budgeted at $1.6 billion for 1993, $1.8 billion for 
1994, and $2 billion yearly from 1995 to 1998. In 1997, actual debt 
service payments were $503.5 million (or 25.2 percent) lower than the 
$2 billion budgeted. Although discussions with the IMF and World Bank 
continued on a medium term economic program, and Nigeria is making some 
progress at meeting their criteria, no new rescheduling agreement will 
be reached until an IMF program is in place.
5. Significant Barriers to U.S. Exports
    Nigeria abolished all export licensing requirements and cut its 
list of banned imports in 1986. However, as of November 1999, the 
importation of approximately 13 items is still banned. These bans were 
initially implemented to restore Nigeria's agricultural sector and to 
conserve foreign exchange. Although widespread smuggling compromises 
the bans, reduced availability of grains has raised prices for both 
banned commodities and locally produced substitutes. The government 
discontinued fertilizer subsidies for farmers in 1997, but reintroduced 
them in 1999. Widespread fertilizer shortages persist.
    In 1995, Nigeria announced a new tariff structure for the next five 
years. Revisions aimed to narrow the range of custom duties, increase 
rate coverage in line with WTO provisions, and decrease import 
prohibitions. In the 1999 budget, Nigeria's 1998 revised higher tariffs 
were reduced, but excise duties eliminated in 1998 were restored for 
certain goods. Excise duties of 40 percent were restored for 
cigarettes, cigars, tobacco, and spirits. Other commodity duty rates 
are: rice, 50 percent; day-old chicks and parent stock, 5 percent; 
sparkling wines, wine coolers, and champagne, 100 percent; fruits and 
fruit juices, reduced from 75 to 55 percent; jute, 10 percent; cotton, 
60 percent; fertilizers, 5 percent; textile fabrics 65 percent; and 
garments, 75 percent. For 1999, the 25 percent import duty rebate that 
was granted importers in late 1997 was abolished. Poultry and eggs, 
beer and stout, barley and malt, and mineral and similar waters, 
removed from the prohibited import list in 1998, never qualified for 
the rebate. However, duty rates for live, chilled or frozen poultry and 
eggs were slashed from 150 to 55 percent to reduce smuggling for these 
products and the consequent loss of significant duty revenue.
    Other import restrictions apply to aircraft and ocean-going 
vessels. A government authorized inspection agent must inspect all 
imported aircraft and ocean-going vessels. In addition, performance 
bonds and offshore guarantees must be arranged before either down 
payments or the Ministry of Finance authorizes subsequent payments.
    In 1996, to reduce congestion and corruption in Nigerian ports and 
following a reported shortfall in customs receipts, the Nigerian 
government changed the procedures by which goods enter or leave the 
country. All unaccompanied imports and exports regardless of value 
require pre-shipment inspection (PSI). Imports must be accompanied by 
an import duty report (IDR). The Nigerian government will confiscate 
goods arriving without an IDR. The PSI was abandoned temporarily in 
early 1999 in favor of destination inspection, but the new scheme was 
fraught with problems and was soon shelved for the PSI again. In 
addition, all goods are assessed a one-percent surcharge to cover the 
cost of inspection. The Obasanjo Administration has made some progress 
on its pledge to practice open and competitive contracting. Anti-
corruption is an energetic and central plank of the new government's 
policy. Foreign companies incorporated in Nigeria receive national 
treatment. Currently, tenders are published in newspapers for 
prospective contractors. Approximately five percent of all government 
procurement contracts are awarded to U.S. companies.
6. Export Subsidy Policies
    In 1976, the government established the Nigerian Export Promotion 
Council (NEPC) to promote non-oil exports from Nigeria. The Council 
administers incentive programs, including a duty drawback program, the 
export development fund, tax relief and capital assets depreciation 
allowances, and a foreign currency retention program. The duty drawback 
or manufacturing in-bond program is designed to allow the duty free 
importation of raw materials to produce goods for export, contingent on 
the issuance of a bank guarantee. The performance bond is discharged 
upon evidence of exportation and repatriation of foreign exchange. 
Though meant to promote industry and exportation, these schemes have 
been burdened by inefficient administration, confusion, and corruption, 
causing great difficulty and, in some cases, losses to those 
manufacturers and exporters who opted to use them.
    The NEPC also administers the export expansion grant program, a 
fund that provides grants to exporters of manufactured and semi-
manufactured products. Grants are awarded on the basis of the value of 
goods exported, and the only requirement for participation is that the 
export proceeds be repatriated to Nigeria. Though the grant amounts are 
small, ranging from two to five percent of total export value, they may 
constitute subsidies as defined by the WTO and raise questions about 
compliance with WTO obligations. In the 1999 budget, the government 
announced that the incentive schemes will be replaced by a non-cash 
incentive scheme termed ``negotiable duty credit certificate'' (NDCS), 
under which exporters' claims are credited against future imports. This 
measure will save the government from making annual budgetary 
allocations to the scheme and is in conformity with the WTO.
7. Protection of U.S. Intellectual Property
    Nigeria is a signatory to the Universal Copyright Convention and 
the Berne Convention. In 1993, Nigeria became a member of the World 
Intellectual Property Organization (WIPO), thereby becoming party to 
most of the major international agreements on intellectual property 
rights. Cases involving infringement of non-Nigerian copyrights have 
been successfully prosecuted in Nigeria, but enforcement of existing 
laws remains weak, particularly in the patent and trademark areas. 
Recently, Nigeria's active participation in international conventions 
has yielded positive results. Law enforcement agents occasionally carry 
out raids on suspected sites for production and sale of pirated tapes, 
videos, computer software and books. Piracy is widespread, but 
prosecution under the copyright law is slow. However, since the TRIPS 
(Trade Related Intellectual Property Rights) agreement was signed under 
the Uruguay round in 1993, the Nigerian Copyright Council has 
intensified efforts to combat piracy by organizing workshops for law 
enforcement agents on copyright issues.
    The Patents and Design Decree of 1970 governs the registration of 
patents, and the Standards Organization of Nigeria is responsible for 
issuing patents, trademarks, and copyrights. Once conferred, a patent 
conveys an exclusive right to make, import, sell, or use the products 
or apply the process. The Trademarks Act of 1965 governs the 
registration of trademarks. A trademark conveys the exclusive right to 
use the registered mark for a particular good or class of goods.
    The Copyright Decree of 1988, based on WIPO standards and U.S. 
copyright law, criminalizes counterfeiting, exporting, importing, 
reproducing, exhibiting, performing, or selling any work without the 
permission of the copyright owner. Progress on enforcing the 1988 law 
is slow. The expense and time necessary to pursue a copyright 
infringement case discourage prosecution of such cases.
    Few companies have sought trademark or patent protection in Nigeria 
because it is generally perceived as ineffective. Losses from piracy 
are substantial, although the exact cost is difficult to estimate. Most 
recordings sold in Nigeria are pirated, and the video industry is based 
on the sale and rental of pirated tapes. Satellite signal piracy is 
also common. Violation of patents on pharmaceuticals is a problem.
8. Worker Rights
    a. The Right of Association: Nigerian workers may join unions with 
the exception of members of the armed forces, police force, or 
government employees of the following departments and services: 
customs, immigration, prisons, currency printing and minting, central 
bank and telecommunications. A worker engaged in an essential service 
is required under penalty of law to provide his employer 15 days' 
advance notice of his intention to cease work. Essential service 
workers include federal and state civilian employees in the armed 
services, and public employees engaged in banking, telecommunications, 
postal services, transportation and ports, public health, fire 
prevention, and the utilities sector. Employees working in an export 
processing zone may not join a union for a period of ten years from the 
start-up of the enterprise.
    Under the law, a worker under a collective bargaining agreement may 
not participate in a strike unless his representative has complied with 
the requirements of the Trade Disputes Act, which include provisions 
for mandatory mediation and for referring the labor dispute to the 
government. The Act allows the government in its discretion to refer 
the matter to a labor conciliator, arbitration panel, board of inquiry, 
or the National Industrial Court. The Act also forbids any employer 
from granting a general wage increase to its workers without prior 
government approval. In practice, however, the Act does not appear to 
be effectively enforced as strikes, including in the public sector, are 
widespread, and private sector wage increases are not submitted to the 
government for prior approval.
    Nigeria has signed and ratified the International Labor 
Organization's (ILO) convention on freedom of association, but Nigerian 
law authorizes only a single central labor body, the Nigeria Labor 
Congress (NLC). Nigerian labor law controls the admission of a union to 
the NLC, and requires any union to be formally registered before 
commencing operations. Registration is authorized only where the 
Registrar of Trade Unions determines that it is expedient in that no 
other existing union is sufficiently representative of the interests of 
those workers seeking to be registered.
    b. The Right to Organize and Bargain Collectively: Nigerian labor 
laws permit the right to organize and bargain collectively. Collective 
bargaining is common in many sectors of the economy. Nigerian law 
protects workers from retaliation by employers (i.e. lockouts) for 
labor activity through an independent arm of the judiciary, the 
Nigerian Industrial Court. Trade unionists have complained, however, 
that the judicial system's slow handling of labor cases constitutes a 
denial of redress. The government retains broad authority over labor 
matters, and often intervenes in disputes it feels challenge its key 
political or economic objectives. However, the era of government 
appointed ``sole administrators'' of unions is now over, and the labor 
movement is increasingly active and vocal on issues seen to attest the 
plight of the common worker, such as deregulation, privatization, and 
the government's failure to advance its poverty alleviation program.
    c. Prohibition of Forced or Compulsory Labor: Section 34 of the 
1999 Constitution, and the 1974 Labor Decree, prohibit forced labor. 
Nigeria has also ratified the ILO convention prohibiting forced labor. 
However, there are occasional reports of instances of forced labor, 
typically involving domestic servants. The government has limited 
resources to detect and prevent violations of the forced labor 
prohibition.
    d. Minimum Age for Employment of Children: Nigeria's 1974 labor 
decree prohibits employment of children under 15 years of age in 
commerce and industry and restricts other child labor to home-based 
agricultural or domestic work. The law further stipulates that no 
person under the age of 16 may be employed for more than eight hours 
per day. The decree allows the apprenticeship of youths under specific 
conditions. Primary education is compulsory in Nigeria, though rarely 
enforced. Actual enrollment is declining due to the continuing 
deterioration of public schools. Increasing poverty and the need to 
supplement meager family incomes have forced also many children into 
the employment market, which is unable to absorb their labor due to 
high levels of unemployment. The use children as beggars, hawkers, or 
elsewhere in the informal sector is widespread in urban areas.
    e. Acceptable Conditions of Work: Nigeria's 1974 labor decree 
established a 40-hour workweek, prescribed 2 to 4 weeks of annual 
leave, set a minimum wage, and stipulated that workers are to be paid 
extra for hours worked over the legal limit. The decree states that 
workers who work on Sundays and legal holidays must be paid a full 
day's pay in addition to their normal wages. There is no law 
prohibiting excessive compulsory overtime. In 1998, the federal 
government raised for all federal employees the minimum monthly wage 
(salary and allowances) to N5, 280.00 (USD 60) from N450 (USD 5.00). 
The government later reversed the decision and reduced the minimum wage 
to N3,500.00 (USD 35) for federal workers and N3000.00 (USD 30) for 
state workers. However, many states are unable, or unwilling to pay the 
new minimum wage. Widespread reports of empty state treasuries 
inherited by the new civilian government threaten their ability to pay 
the new salary. Despite this, the Obasanjo government is considering 
plans to further increase the minimum wage. The 1974 decree contains 
general health and safety provisions. Employers must compensate injured 
workers and dependent survivors of those killed in industrial accidents 
but enforcement of these laws by the ministry of labor is largely 
ineffective.
    f. Rights in Sectors with U.S. Investment: Worker rights in 
petroleum, chemicals and related products, primary and fabricated 
metals, machinery, electric and electronic equipment, transportation 
equipment, and other manufacturing sectors are not significantly 
different from those in other major sectors of the economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,696
Total Manufacturing............  ..............  56
  Food & Kindred Products......  (\1\)           ...............................................................
  Chemicals & Allied Products..  20              ...............................................................
  Primary & Fabricated Metals..  -1              ...............................................................
  Industrial Machinery and       0               ...............................................................
   Equipment.
  Electric & Electronic          0               ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  0               ...............................................................
Wholesale Trade................  ..............  1
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  0
Other Industries...............  ..............  4
TOTAL ALL INDUSTRIES...........  ..............  1,925
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              SOUTH AFRICA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998     1999 (est)
------------------------------------------------------------------------
Income, Production and Employment:
 \1\
  Nominal GDP (at nominal prices)...       147.9       134.5       146.0
  Real GDP Growth (pct).............         2.5         0.5         0.9
  GDP by Sector:
    Agriculture.....................         5.2         4.3         4.6
    Mining and Quarrying............         8.9         7.7         8.3
    Manufacturing...................        27.5        23.0        25.1
    Wholesale/Retail Trade..........        18.5        15.7        17.1
    Financial Services..............        20.6        18.5        20.1
    Government......................        17.6        15.0        16.3
  Per Capita GDP (US$)..............       2,987                     N/A
  Labor Force (millions)............         9.8    10 (est)         N/A
  Unemployment Rate (pct)...........        22.9  23.0 (est)         N/A

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        18.7        13.6          10
  Consumer Price Index..............         8.6         6.9         5.5
  Exchange Rate (Rand/US$ annual
 average) \1\
  Unified...........................         4.6         5.5         6.2

Balance of Payments and Trade:
  Total Exports FOB \2\.............        25.6        24.6        23.4
    Exports to U.S. \3\.............         2.5         3.0         3.0
  Total Imports CIF \2\.............        28.9        27.4        23.1
    Imports from U.S. \3\...........         3.0         3.6         2.4
  Trade Balance \2\.................        -3.3        -2.5         0.3
    Trade Balance with U.S. \3\.....        -0.5        -0.6         0.6
  External Public Debt \4\..........         3.3         2.7         N/A
  Fiscal Deficit/GDP (pct)..........         4.2         5.5         N/A
  Current Account Deficit/GDP (pct).         1.5        -1.6        -0.5
  Debt Service Payments/GDP (pct)...         6.1         6.7         N/A
  Gold and Foreign Exchange Reserves         3.7         7.6         6.5
  Aid from U.S. (US$ millions) \5\..       110.5        71.3        53.4
  Aid from Other Countries \6\......         N/A         N/A         N/A
------------------------------------------------------------------------
\1\ The following exchange rates were used in the calculations: $1:R4.61
  for 1997, $1:R5.80 for 1998, and an estimated $1:R6.15.
\2\ All South African trade statistics include export and import data
  for the five members of the Southern African Customs Union (Botswana,
  Lesotho, Namibia, South Africa, and Swaziland) up to December 1997.
\3\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.
\4\ From IMF Yearbook, September 1999.
\5\ The figures represent aid from USAID only.
\6\ SA has received substantial aid from all over the world. However,
  there is no comprehensive audit of the total aid given to SA to date.

1. General Policy Framework
    South Africa is a middle-income developing country with well-
developed financial, legal, communications, energy, and transport 
sectors, a stock exchange which ranks among the 20 largest in the 
world, and a modern infrastructure supporting an efficient distribution 
of goods to major urban centers throughout the region. More than five 
years since the historic election of President Nelson Mandela in the 
country's first multi-racial elections, South Africa remains the 
largest economy in Africa, and is very important to U.S. trade and 
investment.
    Decades of apartheid-era policies resulted in the inefficient use 
of human resources, under-investment in human capital, labor 
rigidities, large budgetary outlays for duplicative layers of 
government and facilities, extensive governmental interference in the 
economy, and a lack of foreign investment and imported goods resulting 
from international sanctions. In the lead up to the 1994 elections, the 
South African economy started enjoying a period of recovery after more 
than four years of negative real GDP growth from 1988-1992. The economy 
has posted real GDP growth rates of 2.5 percent in 1994, 3.1 percent in 
1995, 4.2 percent in 1996 and 2.5 percent in 1997. The 1998 growth rate 
however came in at 0.5 percent largely due to the financial turmoil 
which hit almost all emerging markets. Some recovery is expected in 
1999 with many predicting a real GDP growth rate of 0.9 percent.
    South Africa faces daunting developmental problems resulting from 
apartheid-era policies. The government's objectives today are growth, 
jobs, black economic empowerment, promotion of small, medium, and micro 
enterprises, and the extension of telecommunications, transportation, 
and other infrastructure links to under-served rural and urban areas .
    The government demonstrated its commitment to open markets, 
privatization, and a favorable investment climate with the release of 
its macroeconomic strategy, GEAR, in June 1996. This strategy includes 
expansion of infrastructure, restructuring of state assets, 
conservative fiscal and monetary targets and continued reduction of 
tariffs to promote greater competition and industrial revitalization. 
These efforts, together with South Africa's implementation of its World 
Trade Organization (WTO) obligations, show that South Africa is moving 
steadily towards free market principles.
    Over the last decade, quantitative credit controls and 
administrative control of deposit and lending rates have largely 
disappeared. The South African Reserve Bank (SARB) now operates in much 
the same way as western central banks, influencing interest rates and 
controlling liquidity through its rates on funds provided to private 
sector banks, and to a lesser degree through the placement of 
government paper. In the past five years, restrictive monetary policy, 
through the maintenance of relatively high central bank lending rates, 
has curbed domestic spending on imports and reduced inflation to its 
lowest rates in twenty years.
    The government primarily finances its debt through the issuance of 
government bonds. To a lesser extent, the government has opted to 
finance some short-term debt obligations through the sale of foreign 
exchange and gold reserves. As a corollary to its restrictive financial 
policies, the government has not opted to finance deficit spending 
through loans from commercial banks.
2. Exchange Rate Policy
    Under South African exchange regulations, the SARB has substantial 
control over foreign currency. Exchange controls are administered by 
the SARB's Exchange Control Department and through commercial banks 
that have been authorized to deal in foreign exchange. All 
international commercial transactions must be accounted for through 
these ``authorized foreign exchange dealers.'' In addition, the SARB is 
a marketing agent for gold, which accounts for roughly 18 percent of 
export earnings. This provides the SARB wide latitude for determining 
short-term exchange rates. Monetary authorities normally allow the rand 
to adjust in an attempt to stabilize external accounts.
    While the SARB recognized that the low level of hard currency 
reserves necessitated continued inflow of long-term capital, the 
government of national unity eliminated the previous dual exchange rate 
and established a unified exchange rate on March 20, 1995. Nonetheless, 
South Africa still maintains several capital controls to prevent large 
capital outflows. The government is more likely to approve foreign 
exchange purchases for investment abroad if the foreign partner of the 
South African party conducts an asset swap, whereby an equivalent 
amount of foreign exchange is invested in South Africa by the foreign 
partner. Although domestic as well as foreign business concerns have 
lobbied hard for the lifting of the asset swap requirement, it is 
unlikely that the government will do so until foreign reserve levels 
approach the three-month coverage level. While foreign reserves are 
currently at about $6.5 billion, the SARB maintains a large Net Open 
Forward Position of $15.6 billion as of the end of September 1999.
3. Structural Policies
    Prices are generally market-determined with the exception of some 
petroleum products, electricity, transport services and certain 
agricultural goods. Purchases by government agencies and major private 
buyers are by competitive tender for projects or supply contracts. 
Bidders must pre-qualify, with some preferences allowed for local 
content.
    The main sources of government revenue in South Africa are income 
taxes and the Value-Added Tax (VAT). The VAT rate is 14 percent.
    The government has undertaken some measures in the past two years 
to ease the tax burden on foreign and domestic investors. It has 
steadily reduced the corporate primary income tax rate from 40 percent 
in 1994 to 30 percent in 1999. In addition, the Secondary Tax on 
Corporate Dividends was halved to 12.5 percent in March 1996.
4. Debt Management Policies
    At the end of 1998, the SARB reported that total foreign (public 
and private) debt amounted to approximately $38.8 billion. The ratio of 
total foreign debt to GDP has remained steady at around 26 to 30 
percent over the past three years, while interest payments as a 
percentage of total export earnings have remained at levels ranging 
from 7.3 percent in 1995 to 8.4 percent in 1998.
    South Africa is a member of the World Bank and International 
Monetary Fund (IMF) and continues Article IV consultations with the 
latter on a regular basis. In December 1993, after 27 years of economic 
isolation, South Africa obtained an $850 million IMF facility, which 
replenished South Africa's strained foreign exchange reserves and 
normalized its international financial relations. South Africa is also 
obtaining a modest World Bank loan, and is in discussions regarding 
other small grants or loans as well as greater use of World Bank 
advisory and training assistance to help with its ambitious development 
objectives.
5. Aid
    There is no comprehensive audit of the total aid given to SA to 
date. Besides the aid of $53.4 from USAID noted in the front table, the 
U.S. also provides military aid estimated at $1.65 million for FY 1998/
99.
6. Significant Barriers to U.S. Exports
    Under the terms of the Import and Export Control Act of 1963, South 
Africa's Minister of Trade and Industry may act in the national 
interest to prohibit, ration, or otherwise regulate imports. In recent 
years, the list of restricted goods requiring import permits has been 
reduced, but still includes such goods as certain foodstuffs, clothing, 
fabrics, wood and paper products, refined petroleum products and 
chemicals.
    The government remains committed to the simplification and eventual 
reduction of tariffs within the WTO framework, and maintains active 
discussions with that body and its major trading partners.
    The government is attempting to centralize and standardize the 
buying procedures of national, provincial, local, and state-owned 
corporate entities. Purchases are by competitive tender for project, 
supply and other contracts. As part of the government's policy to 
encourage local industry, a price preference schedule, based on the 
percent of local content in relation to the tendered price is employed 
to compare tenders. To claim preference for local content, tenders must 
enclose with their bid a certificate showing classification of supplies 
offered in terms of local content.
    An additional preference may be claimed if a product bears the mark 
of the South African Bureau of Standards. On tenders of less than R2 
million ($350,000), the government awards preference points to 
enterprises and companies operating in South Africa that demonstrate 
significant ownership or employment of previously disadvantaged 
individuals.
    Since late 1996, the Industrial Participation Program (IPP) has 
mandated a countertrade/offset package for all state and parastatal 
purchases of goods, services, and lease contracts in excess of $10 
million. Under the program, all bidders on government and parastatal 
contracts who exceed the imported content threshold must also submit an 
industrial participation package worth 30 percent of the imported 
content value. The bidder then has 7 years to discharge the industrial 
participation obligation. Non-performance of the contract is subject to 
a penalty of 5 percent of the outstanding industrial participation 
obligation.
7. Export Subsidies Policies
    The Export Marketing Assistance Scheme (EMA) offers financial 
assistance for the development of new export markets, through financing 
for trade missions and market research. The new Export Finance 
Guarantee Scheme for small exporters promotes small and medium 
exporters through credit guarantees with participating financial 
organizations. Provisions of the Income Tax Act also permit accelerated 
write-offs of certain buildings and machinery associated with 
beneficiation processes carried on for export, and deductions for the 
use of an export agent outside South Africa.
8. Protection of U.S. Intellectual Property
    Patents may be registered under the Patents Act of 1978 and are 
granted for 20 years. Trademarks can be registered under the Trademarks 
Act of 1973, and are granted for ten years with a possible renewal of 
an additional ten years. New designs may be registered under the 
Designs Act of 1967, which grants copyrights for five years. Literary, 
musical and artistic works, cinematographic films and sound recordings 
are eligible for copyrights under the Copyright Act of 1978. This act 
is based on the provisions of the Berne Convention as modified in Paris 
in 1971 and was amended in 1992 to include computer software. The 
government passed two IPR-related bills in parliament at the end of 
1997: the Counterfeit Goods Bill and the Intellectual Property Laws 
Amendment Bill, bringing South Africa's laws largely into conformity 
with its international trade obligations under the Trade Related 
Intellectual Property Agreement of the WTO. The Patents, Trademarks, 
Designs, and Copyrights Registrar of the Department of Trade and 
Industry administers these acts.
    South Africa is a member of the Paris Union and acceded to the 
Stockholm Text of the Paris Convention for the Protection of Industrial 
Property. South Africa is also a member of the World Intellectual 
Property Organization.
    Although South Africa's intellectual property laws and practices 
are generally in conformity with those of the industrialized nations, 
firms do experience some problems. The trademarks of a number of U.S. 
companies were misappropriated under the former government, when local 
firms took advantage of inadequate protection for famous marks. In 
April 1995, the U.S. Trade Representative placed South Africa on the 
``Special 301'' Watch List in an attempt to resolve these cases. South 
Africa was removed from the list in 1996 due to progress on several 
fronts. In May 1998, however, South Africa was placed back on the Watch 
List, in part because of a lack of adequate protection of undisclosed 
data and a law, passed in December 1997, which appeared to empower the 
Minister of Health to abrogate patent rights for pharmaceuticals. After 
extensive consultations, the US and South African governments reached 
an understanding on this Act in September 1999. USTR removed South 
Africa from the Watch List in December 1999.
    Software piracy occurs frequently in South Africa. The Business 
Software Alliance (BSA) estimates that as much as 50 percent of South 
Africa's business software is pirated, resulting in a loss of over 
$74.9 million to computer companies. Piracy in the video and sound 
industry is also an issue of concern, with a sound piracy rate of 40 
percent and a video piracy rate of 16 percent. Total annual losses due 
to audiovisual piracy in South Africa during 1998 are estimated to be 
$24.0 million.
9. Worker Rights
    a. The Right of Association: Freedom of association is guaranteed 
by the constitution and given statutory effect by the Labor Relations 
Act (LRA). All workers in the private sector and most in the public are 
entitled to join a union. Moreover, no employee can be fired or 
prejudiced because of membership in or advocacy of a trade union. 
Unions in South Africa have an approximate membership of 3.4 million or 
35 percent of the economically active population. The right to strike 
is guaranteed in the constitution, and is given statutory effect by the 
LRA. The International Labor Organization (ILO) readmitted South Africa 
in 1994. There is no government restriction against union affiliation 
with regional or international labor organizations.
    b. The Right to Organize and Bargain Collectively: South African 
law defines and protects the rights to organize and bargain 
collectively. The government does not interfere with union organizing 
and generally has not interfered in the collective bargaining process. 
The new LRA statutorily entrenches ``organizational rights,'' such as 
trade union access to work sites, deductions for trade union 
subscriptions, and leave for trade union officials.
    c. Prohibition of Forced or Compulsory Labor: Forced labor is 
illegal under the constitution, and is not practiced.
    d.Minimum Age for Employment of Children: Employment of minors 
under age 15 is prohibited by South African law. The LRA, however, 
grants the Minister of Welfare discretionary powers to permit 
employment of children under carefully described conditions in certain 
types of work, such as in the agricultural sector. Child labor is also 
used in the informal economy.
    e. Acceptable Conditions of Work: There is no legally mandated 
national minimum wage in South Africa. Instead, the LRA provides a 
mechanism for negotiations between labor and management to set minimum 
wage standards industry by industry. In those sectors of the economy 
not sufficiently organized to engage in the collective bargaining 
processes which establish minimum wages, the Basic Conditions of 
Employment Act, which went into effect in December 1998, gives the 
Minister of Labor authority to set wages, including for the first time 
wages for farm or domestic workers. Occupational health and safety 
issues remain a top priority of trade unions, especially in the mining 
and heavy manufacturing industries which are still considered hazardous 
by international standards.
    f. Worker Rights in Sectors with U.S. Investment: The worker rights 
conditions described above do not differ from those found in sectors 
with U.S. capital investment.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  864
  Food & Kindred Products......  139             ...............................................................
  Chemicals & Allied Products..  193             ...............................................................
  Primary & Fabricated Metals..  (\1\)           ...............................................................
  Industrial Machinery and       37              ...............................................................
   Equipment.
  Electric & Electronic          112             ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  293             ...............................................................
Wholesale Trade................  ..............  145
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  247
Services.......................  ..............  162
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  2,363
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                       EAST ASIA AND THE PACIFIC

                              ----------                              


                               AUSTRALIA

                         Key Economic Indicators
        [Billions of U.S. Dollars unless otherwise indicated] \1\
------------------------------------------------------------------------
                                              1997      1998    \2\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \3\.........................     405.2     364.0     390.7
  Real GDP Growth (pct)...................       5.2       4.6       3.0
  GDP by Sector: \4\
    Agriculture...........................      12.0      10.5      10.7
    Manufacturing.........................      96.3      85.0      88.9
    Services..............................     274.7     247.8     269.2
    Government............................      16.7      14.2      14.6
  Per Capita GDP (US$)....................    22,500    19,700    20,500
  Labor Force (000's).....................     9,220     9,345     9,461
  Unemployment Rate (pct).................       8.5       8.0       7.3

Money and Prices (annual percentage
 growth):
  Money Supply (M3).......................       6.3       7.6       8.8
  Consumer Price Inflation................      -0.2       1.6       2.5
  Exchange Rate (Aust$/US$ annual average)
    Official..............................       N/A       N/A       N/A
    Parallel..............................      1.36      1.59      1.56

Balance of Payments and Trade:
  Total Exports FOB.......................      62.5      55.9      60.4
    Exports to U.S........................       4.6       5.3       7.0
  Total Imports CIF.......................      61.5      60.9      64.3
    Imports from U.S......................      13.4      13.6      14.8
  Trade Balance...........................       1.0      -4.9      -3.8
    Balance with U.S......................      -8.7      -8.3      -7.7
  External Public Debt....................      44.2      33.7      25.7
  Fiscal Deficit/GDP (pct)................      -0.2      -0.5      -0.8
  Current Account Deficit/GDP (pct).......       3.1       4.8       5.5
  Debt Service Payments/GDP...............       2.2       1.8       1.8
  Gold and Foreign Exchange Reserves......      17.2      15.5      15.9
  Aid from U.S............................         0         0         0
  Aid from Other Countries................         0         0         0
------------------------------------------------------------------------
\1\ Exchange rate fluctuations must be considered when analyzing data.
  Percentage changes calculated in Australian Dollars.
\2\ 1999 figures are estimates based on available monthly data in
  November.
\3\ Income measure of GDP.
\4\ Production measure of GDP. ``Manufacturing'' includes manufacturing,
  mining, utilities, and construction.

1. General Policy Framework
    Australia's developed market economy is dominated by its services 
sector (65 percent of GDP), yet it is the agricultural and mining 
sectors (7 percent of GDP combined) that account for the bulk (58 
percent) of Australia's goods and services exports. Australia's 
comparative advantage in primary products is a reflection of the 
natural wealth of the Australian continent and its small domestic 
market: 19 million people occupy a continent the size of the contiguous 
United States. The relative size of the manufacturing sector has been 
declining for several decades, and now accounts for just under 12 
percent of GDP.
    The Asian economic downturn has yet to have a significant impact on 
economic growth, despite forcing many exporters to target alternative 
markets. With inflation well under control (Australia recorded annual 
price deflation for the first time in 35 years in 1997), the task for 
economic policy makers is to lower the unemployment rate, which remains 
stubbornly mired in the 8.0 percent range.
    The Liberal/National coalition government continued its program of 
fiscal consolidation in its budget for the 1999-2000 fiscal year, 
announcing a budget surplus of $3 billion.
2. Exchange Rate Policies
    Australian Dollar exchange rates are determined by international 
currency markets. There is no official policy to defend any particular 
exchange rate level, although the Reserve Bank of Australia (RBA) does 
operate in currency markets. The RBA is active in what it describes as 
``smoothing and testing'' foreign exchange rates, in order to provide a 
generally stable environment for fundamental economic adjustment 
policies.
    Australia does not have any major foreign exchange controls beyond 
requiring RBA approval if more than A$5,000 in cash is to be taken out 
of Australia at any one time, or A$50,000 in any form in one year. The 
purpose of this regulation is to prevent tax evasion and money 
laundering; authorization is usually automatic.
3. Structural Policies
    The government is continuing a program of economic reform, begun in 
the 1980s, that includes the reduction of import protection and 
microeconomic reform. Initially broad in scope, the program now focuses 
on industry-by-industry changes and reform of the labor market. The 
government is also continuing with the privatization of public assets. 
Federal Government ownership in telecommunications carrier Telstra has 
been reduced (via two public floats) to 51%.
    The General Tariff Reduction Program, begun in March 1991, has 
reached its conclusion, with most existing tariffs now at 5 percent. 
However, the passenger motor vehicles and textiles, clothing and 
footwear industries are still protected by high tariffs (17.5 and 17-28 
percent respectively). These tariffs are scheduled to decline to 15 and 
25 percent respectively by 2000 (where they will remain, pending 
further review, until 2005).
    The Liberal/National coalition government recently passed 
legislation altering the structure of Australia's income and sales tax 
system, and currently has before parliament legislation reforming the 
business taxation system.
4. Debt Management Policies
    Australia's net foreign debt has averaged between 30 and 45 percent 
of GDP for the past decade, and in mid-1998 totaled $145 billion (39 
percent of GDP). Australia's net external public debt is $28 billion, 
or 7 percent of GDP. The public sector accounts for 19 percent of 
Australia's external debt; the remainder is the responsibility of the 
private sector. The Federal Government is using its privatization 
receipts and budget surpluses to further reduce its debt obligations. 
The net debt-service ratio (the ratio of net income payable to export 
earnings) has remained at or below 10 pct since 1997, down from 21 
percent in 1990.
5. Significant Barriers to U.S. Exports
    Australia is a signatory to the WTO, but is not a member of the 
plurilateral WTO Agreement on Government Procurement.
    Services Barriers: The Australian services market is generally 
open, and many U.S. financial services, legal and travel firms are 
established there. The banking sector was liberalized in 1992, allowing 
foreign banks to be licensed as either branches or subsidiaries. 
Broadcast licensing rules were also liberalized in 1992, allowing up to 
20 percent of the time used for paid advertisements to be filled with 
foreign-sourced material (far greater than the percentage of non-
Australian messages actually broadcast).
    Local content regulations also require that 55 percent of a 
commercial television station's weekly broadcasts between the hours of 
6:00 a.m. and midnight must be dedicated to Australian-produced 
programs (The U.S. regrets that this requirement was recently increased 
from 50 percent). Regulations governing Australia's pay-TV industry 
require that channels carrying drama must devote 10 pct of program 
expenditure to new Australian-produced content (though they are not 
required to actually screen the programs produced).
    Standards: Australia became a signatory to the GATT Technical 
Barriers to Trade Agreement in 1992. However, Australia still maintains 
restrictive standards requirements and design rules for automobile 
parts, electronic and medical equipment, and some machine parts and 
equipment. Currently, all Australian standards are being rewritten to 
harmonize them where possible to international standards, with the 
objective of fulfilling all obligations of the GATT Technical Barriers 
to Trade Agreement.
    Labeling: Federal law requires that the country of origin be 
clearly indicated on the front label of some types of products sold in 
Australia. Various other federal and state labeling requirements are 
being reconsidered in light of compliance with GATT obligations, 
utility and effect on trade. The Federal and State Health Ministries, 
working with the Government of New Zealand, are currently reviewing 
proposals to label products containing genetically modified organisms 
and have agreed to consider issues of consumer information, health, 
implementation costs of a labeling regime, and potential impact on 
Australian exports.
    Commodity Boards: Several national and state commodity boards 
control the marketing and export of certain Australian agricultural 
products. Activities for these marketing authorities are financed by 
the producers, but some boards enjoy export monopoly powers conferred 
by the federal or state government. While some of the boards' domestic 
activities have been deregulated, the export of wheat and rice remains 
under the exclusive control of commodity boards. The government has 
indicated that the Australian wheat board (which strictly regulates 
wheat marketing abroad) may have its export monopoly reviewed during 
2000, though the terms of the review have yet to be announced. The 
export of barley from certain states likewise remains strictly 
regulated.
    Sanitary and Phytosanitary Restrictions: Australia's geographic 
isolation has allowed it to remain relatively free of exotic diseases. 
Australia imposes extremely stringent animal and plant quarantine 
restrictions. The WTO SPS agreement requires, among other things, that 
Australia's restrictions undergo a risk assessment to ensure that any 
restrictions are science-based, rather than disguised non-tariff 
barriers. Concerns remain with Australia's restrictions on chicken 
(fresh, cooked and frozen), pork, California table grapes, Florida 
citrus, stone fruit, apples, Pacific North-West cherries, timber and 
corn.
    Investment: The government requires notification of (but normally 
raises no objections to) investment proposals by foreign interests 
above certain notification thresholds, including: acquisitions of 
substantial interests in existing Australian businesses with assets of 
A$5 million or more (A$3 million for rural properties); new businesses 
involving an investment of A$10 million or more; portfolio investments 
in the media sector of 5 percent or more; all non-portfolio investments 
irrespective of size; takeovers of Australian companies valued at 
either A$20 million or more, or for more than 50 percent of the target 
company's total assets; and direct investment of foreign governments 
irrespective of size. Investment proposals for entities involving more 
than A$50 million in total assets are approved unless found contrary to 
the national interest. Special regulations apply to investments in the 
banking sector, the media sector, urban real estate and civil aviation.
    Divestment cannot be forced without due process of law. There is no 
record of forced divestment outside that stemming from investments or 
mergers that tend to create market dominance, contravene laws on equity 
participation, or result from unfulfilled contractual obligations.
    Government Procurement: Since 1991, foreign information technology 
companies with annual sales to the Australian Government of A$10-40 
million (US$6-24 million) have been required to enter into Fixed Term 
Arrangements (FTAs), and those with sales greater than A$40 million 
into Partnerships for Development (PFDs). Under an FTA, a foreign 
company commits to undertake local industrial development activities 
worth 15 percent of its projected amount of government sales over a 
four year period. Under a PFD, a foreign firm agrees to invest 5 
percent of its annual local turnover on research and development in 
Australia; export goods and services worth 50 percent of imports (for 
hardware companies) or 20 percent of turnover (for software companies); 
and achieve 70 percent local content across all exports within the 
seven year life of the PFD.
    Recent changes to Australian Government procurement policies have 
seen a significant decentralization of purchasing procedures, with the 
introduction of Endorsed Supplier Arrangements (ESA). Companies wishing 
to supply information technology (IT) products and major office 
machines to the Australian government must gain endorsement under the 
ESA. The industry development component of the new ESA requires 
evidence of product development, investment in capital equipment, 
skills development and service support, and sourcing services and 
product components, parts and/or input locally. In addition, applicants 
must demonstrate performance in either exports, research and 
development, development of strategic relationships with Australian or 
New Zealand suppliers/customers, or participation in a recognized 
industry development program.
    The Australian Government maintains its commitment to source at 
least 10 percent of its purchases from Australian small to medium size 
enterprises. The government will continue to require tenderers to 
include industry development objectives in tender documents, with model 
guidelines to be developed in consultation with industry.
    Motor Vehicles: The import of used vehicles manufactured after 1973 
for personal use is banned, except where the car was purchased and used 
overseas by the buyer for a minimum of three months. Commercial 
importers must apply for a ``compliance plate'' costing A$20,000 for 
each make of car imported. Left hand drive cars must be converted to 
right hand drive (only by licensed garages) before they may be driven 
in Australia.
6. Export Subsidies Policies
    Australia is a member of the WTO Agreement on Subsidies and 
Countervailing Measures.
    The coalition government has severely curtailed assistance schemes 
to Australian industry as part of its fiscal consolidation program. 
Under the Export Market Development Grants Scheme, the government gives 
grants to qualifying firms of up to A$200,000 to assist in offsetting 
marketing costs incurred when establishing new export markets. There 
are also schemes available for drawbacks of tariffs and sales and 
excise taxes paid on the imported components of exported products. Such 
schemes are available in the passenger motor vehicle and the textiles, 
clothing and footwear industries. Grants schemes and tariff concessions 
have also been subject to expenditure reductions. The Research and 
Development Tax Concession (available to firms undertaking eligible 
R&D) was reduced from 150 percent to 125 percent. The only remaining 
bounty (production subsidy) assists shipbuilders, and is due to expire 
on December 31, 2000.
    The Pharmaceutical Industry Investment Program is designed to 
compensate manufacturers of pharmaceutical products for the effects of 
the federal government's intervention (through the national health 
system) in the market for consumer pharmaceuticals. Under the scheme, 
approved producers receive higher prices for selected products in 
return for commitments to undertake domestic drug research and 
development.
7. Protection of U.S. Intellectual Property
    Australia is a member of the World Intellectual Property 
Organization (WIPO), and most multilateral IPR agreements, including: 
the Paris Convention for the Protection of Industrial Property; the 
Berne Convention for the Protection of Literary and Artistic Works; the 
Universal Copyright Convention; the Geneva Phonogram Convention; the 
Rome Convention for the Protection of Performers, Producers of 
Phonograms, and Broadcasting Organizations; and the Patent Cooperation 
Treaty. Australia has yet to take action on the new WIPO Copyright 
treaties. USTR has placed Australia on the ``Special 301'' Watch List 
because of limitations in its protection of test data and parallel 
imports, among other concerns.
    Patents: Patents are available for inventions in all fields of 
technology (except for human beings and biological processes relating 
to artificial human reproduction). They are protected by the Patents 
Act (1990), which offers coverage for 20 years subject to renewal. 
Trade secrets are protected by common law, such as by contract. Design 
features can be protected from imitation by registration under the 
Designs Act for up to 16 years (upon application).
    Test Data: In 1999, the government passed legislation providing 
five years of protection of test data for the evaluation of a new 
active constituent for agricultural and veterinary chemical product. No 
protection is provided for data submitted in regard to new uses and 
formulations.
    Trademarks and Copyrights: Australia provides TRIPs compatible 
protection for both registered and unregistered well known trademarks 
under the Trademark Act of 1995. The term of registration is ten years. 
Copyrights are protected under the Copyright Act of 1968 for a term of 
the life of the author plus 50 years. Computer programs can receive 
copyright protection. The Australian Copyright Act provides protection 
regarding public performances in hotels and clubs. In recent years, the 
government has passed legislation removing parallel import protection 
for sound recordings and for goods whose protection was based on the 
copyright of packaging and labeling, and allowing the decompilation of 
computer software.
    New Technologies: Infringement of new technologies does not appear 
to be a significant problem.
8. Worker Rights
    a. The Right of Association: Workers in Australia fully enjoy and 
practice the rights to associate, to organize and to bargain 
collectively. In general, industrial disputes are resolved either 
through direct employer-union negotiations or under the auspices of the 
various state and federal industrial relations commissions. Australia 
has ratified most major international labor organization conventions 
regarding worker rights.
    b. The Right to Organize and Bargain Collectively: Approximately 32 
percent of the Australian workforce belongs to unions. The industrial 
relations system operates through independent federal and state 
tribunals; unions are currently fully integrated into that process. 
Legislation reducing the powers of unions to represent employees and of 
the Industrial Relations Commission to arbitrate settlements was passed 
by Federal Parliament in November 1996. Further changes in industrial 
relations are under consideration in draft legislation currently before 
Parliament.
    c. Prohibition of Forced or Compulsory Labor: Compulsory and forced 
labor are prohibited by conventions which Australia has ratified, and 
are not practiced in Australia.
    d. Minimum Age for Employment of Children: The minimum age for the 
employment of children varies in Australia according to industry 
apprenticeship programs, but the enforced requirement in every state 
that children attend school until age 15 or 16 maintains an effective 
floor on the age at which children may be employed full time.
    e. Acceptable Conditions of Work: There is no legislatively-
determined minimum wage. An administratively-determined minimum wage 
exists, but is now largely outmoded, although some minimum wage clauses 
still remain in several federal awards and some state awards. Instead, 
various minimum wages in individual industries are specified in 
industry ``awards'' approved by state or federal tribunals. Workers in 
Australian industries generally enjoy hours, conditions, wages and 
health and safety standards that are among the best and highest in the 
world.
    f. Rights in Sectors with U.S. Investment: Most of Australia's 
industrial sectors enjoy some U.S. investment. Worker rights in all 
sectors are essentially identical in law and practice and do not 
differentiate between domestic and foreign ownership.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,344
Total Manufacturing............  ..............  6,387
  Food & Kindred Products......  662             ...............................................................
  Chemicals & Allied Products..  2,749           ...............................................................
  Primary & Fabricated Metals..  359             ...............................................................
  Industrial Machinery and       586             ...............................................................
   Equipment.
  Electric & Electronic          173             ...............................................................
   Equipment.
  Transportation Equipment.....  581             ...............................................................
  Other Manufacturing..........  1,278           ...............................................................
Wholesale Trade................  ..............  2,057
Banking........................  ..............  2,595
Finance/Insurance/Real Estate..  ..............  8,347
Services.......................  ..............  2,198
Other Industries...............  ..............  7,748
TOTAL ALL INDUSTRIES...........  ..............  33,676

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                       PEOPLE'S REPUBLIC OF CHINA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................     903.1     960.8   1,016.8
  Real GDP Growth (pct) \2\...............       8.8       7.8       6.9
  GDP by Sector: \3\
    Agriculture...........................     168.7     172.7     176.1
    Manufacturing.........................     444.1     472.8     510.7
    Services..............................     267.9     291.0     304.3
    Government............................      22.3      24.3      25.7
  Per Capita GDP (US$)....................     734.2     772.0     797.0
  Labor Force (millions)..................     697.0     705.0     713.0
  Unemployment Rate (pct) \4\.............       3.1       3.1       3.1

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................      19.6      14.8      15.3
  Consumer Price Inflation................       2.8      -0.8      -1.4
  Exchange Rate (RMB/US$ annual average)..       8.3       8.3       8.3

Balance of Payments and Trade:
  Total Exports FOB \5\...................     182.7     183.7     198.4
    Exports to U.S........................      62.5      71.2      81.9
  Total Imports CIF \5\...................     142.4     140.2     156.0
    Imports from U.S. FAS.................      12.8      14.3      15.0
  Trade Balance...........................      40.3      43.5      42.4
    Balance with U.S......................      49.7      56.9      66.9
  External Public Debt....................     131.0     146.0     149.0
  Fiscal Deficit/GDP (pct)................       1.5       3.5       3.2
  Current Account Surplus/GDP (pct).......       4.5       3.1       0.0
  Debt Service Payments/Exports (pct).....       7.3      10.9       9.0
  Payments/GDP (pct)......................       1.5       2.4       2.4
  Gold and Foreign Exchange Reserves......     139.9     145.0     152.0
  Aid from United States..................         0         0         0
  Aid from All Other Sources..............       0.4       0.6       0.6
------------------------------------------------------------------------
\1\ Estimated from third quarter and end October 1999 data.
\2\ Official growth rate published by State Statistical Bureau based on
  constant renminbi (RMB) prices using 1978 weights. All other income
  and production figures are converted into dollars at the exchange
  rate. Economic experts continue to debate the accuracy of these
  figures, with some arguing that real growth may be half or less the
  official rate.
\3\ Production and net exports are calculated using different accounting
  methods and do not tally to total GDP. Agriculture includes forestry
  and fishing; manufacturing includes mining.
\4\ ``Official'' urban unemployment rate; agricultural laborers are
  assumed to be totally employed in China's official labor data. Many
  economists believe the real rate is much higher.
\5\ U.S. Department of Commerce (U.S.-China bilateral trade data for
  U.S. trade; PRC Customs (Chinese global trade data and 1999
  estimates.)

Sources: State Statistical Bureau Yearbook, People's Bank of China
  quarterly Statistical Bulletin, U.S. Department of Commerce Trade
  Data, Embassy estimates.

1. General Policy Framework
    China's official GDP growth rate was 7.4 percent for the first 
three quarters of 1999, continuing the gradual slowdown from the 
double-digit economic growth of the early 1990s. Consumer spending 
languished despite a special two-year infrastructure spending program 
and a separate social welfare and civil service spending increase in 
mid-1999. State-Owned Enterprise (SOE) reform may have slowed, 
particularly in terms of shifting employment from the over-invested 
state-owned manufacturing sector to the underdeveloped services sector. 
Price deflation has persisted in 1999, with the retail price index down 
2.6 percent in October from a year earlier (up from a low of -3.5 
percent in the second quarter of 1999.) New bank lending grew more 
slowly in 1999, perhaps reflecting increased prudence on the part of 
the dominant state-owned banks, whose poor financial condition was a 
major concern.
    Export growth was the one bright spot in the overall economic 
picture. Exports grew 2.1 percent in the third quarter after 
consecutive declines through the end of June. China has maintained 
competitiveness in many of its major export products, although there 
are signs of weakness in textiles and steel. Chinese imports increased 
by 15.8 percent in the first three quarters, as China implemented an 
anti-smuggling campaign announced in late 1998 and official statistics 
captured former gray market imports. Real import levels are widely 
believed to have remained stable, and may have actually declined in 
some sectors. Inflows of foreign direct investment slumped by about ten 
percent, year on year, through the end of July. New commitments dropped 
even more substantially, by 20.5 percent through the end of July.
    Since late 1998, the Chinese government has employed a deficit-
financed fiscal stimulus program to encourage the expansion of the 
domestic economy. The stimulus program financed efforts to broaden the 
social safety net for retired and laid off workers, salary and pension 
increases for government workers, and infrastructure expenditures. In 
addition, the government experimented with policies to curb falling 
prices, stimulate household consumption, and promote exports and 
investment. While the program has had limited impact on economic 
expansion so far, the National People's Congress agreed in August of 
1999 to have the central government issue an additional RMB 60 billion 
in treasury bonds to underwrite more projects.
    As part of its effort to increase the profit making capability of 
state-owned enterprises, the Chinese government has experimented with 
administrative measures to counter falling prices for SOE products. The 
Government announced in mid-1999 that it would prosecute enterprises 
selling at below cost and limit approvals to build additional capacity 
in a range of over-saturated industries. Firms in industries in which 
competition has led to excessive price cuts have also been encouraged 
to limit production. An anti-smuggling campaign, begun in the fall of 
1998, has shut down black and gray market competition for domestically-
produced products such as televisions and home entertainment systems.
    China is committed to reforming its financial system in order to 
allocate the large amount of savings in the economy more efficiently. 
The failure of the Guangdong Trust and Investment Corporation (GITIC) 
in late 1998 prompted the Chinese government to rein in the operations 
of more than 200 other trust and investment companies and toughen the 
supervision of domestic banks, securities, insurance, and other 
financial institutions. The huge stock of non-performing loans to SOE's 
has complicated attempts to commercialize the state-owned banks. New 
lending to non-agricultural SOE's was about $72 billion in 1998, or 64 
percent of total lending. This percentage seemed to drop in 1999, a 
sign that banks were trying to find other customers. China's four large 
state banks also set up asset management companies in 1999, to 
liquidate or restructure older, non-performing loans.
    Increased access to China's financial markets for foreign 
institutions has grown slowly. China now has 165 foreign bank branches 
and sub-branches, including 20 U.S. bank branches. These offices are 
concentrated in coastal areas and large inland cities such as Beijing 
and Chengdu. Chinese authorities have expanded the number of provinces 
in which foreign banks are allowed to conduct local currency (Renminbi) 
business but severely circumscribe the activities in which foreign 
banks may engage. Foreign securities firms have also been barred from 
underwriting or trading domestic stocks or bonds. A few insurance firms 
have been granted experimental licenses.
2. Exchange Rate Policies
    Foreign-invested Enterprises (FIEs) and authorized Chinese firms 
have generally enjoyed liberal access to foreign exchange for trade-
related and approved investment-related transactions. FIEs may set up 
foreign currency deposits for trade and remittances. Since late 1997, 
Chinese firms earning more than 10 million dollars a year in foreign 
currency have been allowed to retain in foreign currency up to 15 
percent of their receipts. However, the Asia-wide economic slowdown and 
the growing evidence of unauthorized capital outflows prompted the 
government to tighten documentation requirements in mid-1998. U.S. 
firms reported that the extra delays caused by these measures had ended 
for the most part by mid-1999. China introduced currency convertibility 
for current account (trade) transactions in December 1996 (in accord 
with the IMF charter's Article VIII provisions). Capital account 
liberalization has been postponed indefinitely.
    The current exchange rate is described as a ``managed float'' by 
the authorities; it has behaved more like a pegged rate for the past 
three years. Since 1996, the renminbi has traded consistently at about 
RMB 8.3 per U.S. dollar. China uses the RMB/dollar exchange rate as the 
basic rate and sets cross rates against other currencies by referring 
to international markets. The central bank sets interest rates on all 
deposits and loans. Local interest rates in 1999 were now considerably 
lower than in the United States. As a result, ``black market'' trading 
is a small albeit regular feature of the Chinese system. Forward rates 
are available in the small, off-shore market.
3. Structural Policies
    In 1994, China issued a ``Framework Industrial Policy for the 
1990s.'' The framework included plans to issue policies for the key 
automotive, telecommunications, transportation, machinery, electronics, 
high technology, and construction sectors. Of these, only the 
automotive industrial policy has been published to date. Evidence 
suggests that the government may develop policies for the other 
industries that combine local content and other performance 
requirements and tax and investment incentives. In addition, 
regulations promulgated in July, 1995 established guidelines for 
buyer's and seller's credit programs operated by the Export and Import 
Bank of China (China EXIM). China EXIM announced in early 1999 that it 
would expand its program to finance the export of mechanical and 
electrical products, particularly to Africa and South East Asia.
    China announced in August of 1999 that it was considering new 
measures to attract additional foreign direct investment. The State 
Council is currently reviewing new investment stimulus measures that 
would provide tax breaks for high-technology industries, incentives to 
invest in China's central and western regions, and streamlined 
oversight of foreign investor operations. Frequent changes to and poor 
publication of investment guidelines contribute to a lack of 
transparency and uneven implementation. In the promotion of foreign 
investment, the Chinese government puts major emphasis on the so-called 
``pillar industries,'' i.e., capital-intensive and technology-intensive 
manufacturing industries. Foreign investment is restricted or 
prohibited in some areas including agricultural, forestry, 
telecommunications, and news media.
    The Chinese government, as part of its comprehensive reform of the 
economy, is gradually phasing out price controls. It nevertheless 
continues to influence prices of certain sensitive goods such as grain. 
To curb surplus production in 1999, grain and cotton prices were 
allowed to fall by as much as 20 percent, bringing domestic prices much 
closer to international levels. China maintains discriminatory pricing 
practices with respect to some services and inputs offered to foreign 
investors in China. On the other hand, foreign investors benefit from 
investment incentives, such as tax holidays and grace periods, which 
allow them to reduce substantially their tax burden.
    China provides to domestic and foreign investors a comprehensive 
program of tax incentives and concessions based primarily on such 
considerations as total investment, output, export potential, economic 
management and development, technology development, and general 
conduciveness to China's economic goals. Both foreign and domestic 
enterprises pay either value-added tax (VAT) or business tax depending 
on the nature of the their business and the type of products involved. 
The VAT of 17 percent applies to enterprises engaged in import-export, 
production, distribution or retailing activities. Under current 
regulations, different types of VAT refund methods apply to different 
enterprises. In an attempt to stimulate exports, the State Tax 
Administration increased VAT rebates several times in 1999, up to a 
full 17 percent for certain kinds of processed goods.
4. Debt Management Policies
    In mid-1999, China's external debt stood at $149 billion, or 78 
percent of exports, according to official Chinese data. In the context 
of China's export performance, investment inflows, and high foreign 
exchange reserve levels (projected at $153 billion by the end of 1999), 
the debt burden should remain in acceptable limits, absent external 
shocks that could force a devaluation. Still, the debt service ratio 
(principal and interest payments as a percentage of foreign exchange 
receipts) jumped four percentage points in 1998 to 11 percent.
    China's local bond market is in its infancy, with virtually no 
secondary market. This prevents the central bank from effectively 
regulating the money supply through indirect means. Interest rates on 
government bonds are fixed at about one percentage point above the 
comparable bank deposit rates, which are also fixed. As the government 
has increased its deficit, the percentage of the budget devoted to debt 
servicing has increased to about 28 percent of total expenditures.
5. Aid
    The United States has provided occasional disaster-relief 
assistance to China to help flood relief and other humanitarian efforts 
in recent years. In 1999, the U.S. Government donated $500,000 to the 
International Federation of the Red Cross to assist in flood relief 
efforts in the Yangtze River Valley. In addition, the United States 
operates a modest Peace-Corps-affiliated English-language training 
program in southwestern China's Sichuan and Guizhou provinces. China is 
a major recipient of assistance from other countries and multilateral 
donors. China's largest bilateral aid donor is Japan. Multilateral 
assistance includes but is not limited to programs operated by the 
World Bank; the World Food Program; United Nations Development Program 
and other United Nations-affiliated agencies and programs; and the 
Asian Development Bank. Non-governmental organizations have also 
expanded their presence in recent years, thanks in part to the 
promulgation of a new law in 1998 giving them official status.
6. Significant Barriers to U.S. Exports
    China concluded a bilateral market access agreement with the United 
States on November 15, 1999, but is not yet a member of the WTO. Once 
it becomes a member, it must fulfill its commitments to reduce current 
substantial barriers to the entry into China of U.S. goods and 
services. Meanwhile, China continued in 1999 its own unilateral reform 
efforts--a round of tariff cuts, reductions in the number of products 
subject to import quotas, a huge increase in the number and type of 
firms granted trading rights, an improved system of distribution 
rights, and an increase in the number of cities in which foreign bank 
branches are allowed to conduct Renminbi banking business. These 
measures improved access for U.S. goods and services, but 
liberalization of China's import regime still lags far behind that for 
exports.
    Despite considerable progress in the 1990s, non-tariff barriers to 
trade and trade-distorting measures persist. Non-tariff barriers (NTBs) 
include quotas, tariff rate quotas, import licensing, import 
substitution and local content policies, and unnecessarily restrictive 
certification and quarantine standards. Extra-legal trade barriers, 
such as export performance requirements, still distort trade. Foreign 
Invested Enterprises (FIEs) continue to report being forced to accept 
export performance requirements in investment contracts; they say that 
failure to meet these requirements can result in loss of licenses for 
foreign exchange or contract termination. Similarly, some firms report 
being forced to accept contracts mandating increased ``local content;'' 
government agencies strongly encourage firms under their control to 
``buy Chinese.''
    China's Customs General Administration announced an anti-smuggling 
campaign in the fall of 1998. The campaign has reduced trade through 
black and gray market channels and resulted in an increase in imports 
through legitimate channels. It has not, however, addressed the tariff 
and non-tariff barriers that created an environment conducive to 
smuggling in the first place. Further, in an effort to control illegal 
foreign exchange transactions and prevent capital flight, the Ministry 
of Finance announced regulations in late 1998 that place strict 
controls on foreign exchange transactions by foreign-invested firms.
    New regulatory initiatives announced in 1999 may also create 
significant barriers to the entry of U.S. goods and services into the 
Chinese market. Examples of these include:
    The Chinese government banned the import of nine generic medicines, 
including several varieties of antibiotics, pain relievers, and Vitamin 
C, in mid 1999 in an effort to control falling prices in the domestic 
market. In addition, in late 1998, it implemented price caps on 
pharmaceuticals, claiming it was doing so to contain health care costs. 
The regulations may drive some multinationals and bulk pharmaceutical 
exporters out of the $12-billion Chinese pharmaceutical market and push 
others into the red. The price caps are calculated on each drug's 
production costs, ignoring research spending and other shared 
overheads.
    For manufactured goods, China requires quality licenses before 
granting import approval, with testing based on standards and 
specifications often unknown or unavailable to foreigners and not 
applied equally to domestic products. For example, in mid-1999, the 
Ministry of Health imposed strict testing standards on imports of 
cosmetic products containing sunscreens, skin lighteners or hair 
restorers. Industry sources say the testing requirements create an 
effective import barrier as they are both obscure and expensive to 
carry out.
    Regulations published by the State Statistical Bureau (SSB) in 
July, 1999, require all foreign companies conducting market surveys in 
China to go through an annual registration process. Furthermore, the 
regulations stipulate that all survey activities undertaken by foreign 
institutions, or domestic agencies employed by foreigners, must first 
be approved by provincial statistical bureaus or the SSB. Finished 
survey results must also be cleared with the approving agency. The 
regulations are alarming not only because they will be expensive and 
time consuming to comply with but also because they have the potential 
to limit the freedom of legitimate firms to conduct market research. In 
addition, the potential for compromise of confidential business 
information is substantial.
    Regulations implemented in June 1999 further restrict the 
importation of certain commodities related to the processing trade. 
These measures are designed to shift the direction of China's 
processing trade towards products with higher technological content and 
higher value added potential. The regulations prohibit the import of 
used garments, certain kinds of used publications, toxic industrial 
waste, junk cars, used automobiles or components, seeds, seedlings, 
fertilizers, feed, additives, or antibiotics used in the cultivation or 
breeding of any export commodity. The regulations also restrict imports 
of plastic raw materials, raw materials for chemical fibers, cotton, 
cotton yarn, cotton cloth, and some steel products.
7. Export Subsidies
    China abolished direct subsidies for exports on January 1, 1991. 
Nonetheless, many of China's manufactured exports receive indirect 
subsidies through guaranteed provision of energy, raw materials or 
labor supplies. Exports of agricultural products, particularly corn and 
cotton, currently benefit from direct export subsidies. China has 
agreed to stop such subsidies once it becomes a member of the WTO, 
however. Other indirect subsidies are also available, for example bank 
loans that need not be repaid.
8. Protection of U.S. Intellectual Property
    China is a member of the World Intellectual Property Organization 
(WIPO) and is a signatory to the Paris Convention for the Protection of 
Intellectual Property, the Berne Convention for the Protection of 
Literary and Artistic Works, the Universal Copyright Convention, and 
the Patent Cooperation Treaty. China has also acceded to the Madrid 
Protocol.
    Since the signing of a U.S.-China agreement on the protection of 
intellectual property rights in February 1995, and the agreement in 
June 1996 on procedures for ensuring implementation of the bilateral, 
China has made progress in implementing IPR regulations, education, and 
enforcement. China was taken off all ``Special 301'' lists in 1996. 
However, China's practices continue to be watched under Section 306 of 
the Trade Act, which allows the United States to monitor China's 
compliance with its obligations.
    Although China has revised its laws to provide criminal penalties 
for IPR violations, the United States remains concerned that penalties 
imposed by Chinese courts do not act as a deterrent. Some U.S. 
companies estimate losses from Chinese counterfeiting equal 15 to 20 
percent of total sales in China. One U.S. consumer products company 
estimates that it loses $150 million annually due to counterfeiting. 
The destructive effect of counterfeiting has discouraged additional 
direct foreign investment and threatened the long-term viability of 
some U.S. business operations in China. The inferior quality of 
counterfeit products also creates serious health and safety risks for 
consumers.
    China's State Council, the highest executive organ of the 
government, issued a decree in 1999 admonishing Chinese government 
agencies to purchase only legal computer software. Nevertheless, end-
user piracy of computer software continues to cost U.S. companies 
millions of dollars each year. Regulations on the use of copyright 
agents by foreign companies have not yet been finalized; this 
effectively prevents foreign companies from using agents to register 
copyrights. A shortage of agents authorized to accept trademark 
applications from foreign companies makes it difficult for foreigners 
to register trademarks. The lack of clear procedures to protect 
unregistered well-known trademarks makes it extremely difficult to 
oppose or cancel well-known marks registered by an unauthorized party.
9. Worker Rights
    a. The Right of Association: China's constitution provides for 
``freedom of association,'' but in practice this provision does not 
entitle workers to organize freely. The Trade Union Law states that 
workers who wish to form a union at any level must receive approval 
from a higher-level trade organization. Approved trade unions are 
legally required to join the All-China Federation of Trade Unions 
(ACFTU), a national umbrella organization controlled by the Communist 
Party. Independent trade unions are illegal. Since China's signing of 
the International Covenant on Economic, Social, and Cultural Rights in 
1997, several labor activists have petitioned the Government to 
establish free trade unions, as allowed under the covenant. The 
Government has not yet ratified the Covenant nor approved any of these 
petitions to date.
    b. The Right to Organize and Bargain Collectively: The 1995 
National Labor Law permits collective bargaining for workers in all 
types of enterprises. The law also provides for workers and employers 
to sign individual as well as collective contracts. Collective 
contracts are to be worked out between ACFTU or worker representatives 
and management and specify such matters as working conditions, wage 
distribution, and hours of work. Individual contracts are then to be 
drawn up in line with the terms of the collective contract. According 
to the ACFTU, 72 million workers in over 310,000 enterprises held 
contracts that were negotiated in this fashion as of June, 1999.
    c. Prohibition of Forced or Compulsory Labor: Forced labor in penal 
institutions is a problem. The Chinese government employs judicial 
procedures to sentence criminals to prisons and reform-though-labor 
facilities. The Government also maintains a network of reeducation-
through-labor camps, to which persons are sentenced, without judicial 
review, through administrative procedures. Inmates of reeducation-
through-labor camps generally are required to work. Most reports 
conclude that work conditions in the penal system's light manufacturing 
facilities are similar to those in ordinary factories, but conditions 
on farms and in mines can be harsh.
    d. Minimum Age of Employment of Children: China's National Labor 
Law forbids employers to hire workers under 16 years of age and 
stipulates administrative review, fines, and revocation of licenses for 
businesses that hire minors. Good public awareness, a surplus of legal 
adult workers, nearly universal primary schooling, and more effective 
law enforcement reduce opportunities and incentives to hire child 
workers. The ILO and UNICEF maintain that there is not a significant 
child labor problem in the formal sector. Some Chinese academics, 
however, believe that child labor problems might exist in remote 
agricultural and mining areas, where labor law enforcement is sometimes 
difficult.
    e. Acceptable Conditions of Work: The Labor Law codifies many of 
the general principles of labor reform, setting out provisions on labor 
contracts, working hours, wages, skill development and training, 
dispute resolution, legal responsibility, supervision, and inspection. 
The law does not set a national minimum wage, but allows local 
governments to determine their own minimum wage standards. China has a 
40-hour workweek, excluding overtime, and a mandatory 24-hour rest 
period per week. The Chinese government claims to have implemented in 
over 600 cities a system that ensures disbursement of unemployment 
benefits to laid-off workers and basic living stipends for the poorest 
urban residents. In September 1999, the Government raised both 
unemployment benefits and basic living stipends by thirty percent, 
despite reports that some cities had had trouble providing these 
entitlements even before the hike.
    Every Chinese work unit must designate a health and safety officer, 
and the ILO has established a training program for these officers. 
China's Trade Union Law recognizes the right of unions to ``suggest 
that staff and workers withdraw from sites of danger'' and to 
participate in accident investigations. According to statistics 
released in 1999 by the Ministry of Labor and Social Security, 
industrial accidents declined 16 percent in 1998 to 15,372. Deaths 
stemming from such accidents likewise declined 16 percent to 14,660. 
The improvement in industrial safety was largely the result of a 
national campaign to shut down illegal mines, which have perennially 
accounted for more than half of all industrial accidents.
    f. Rights in Sectors with U.S. Investment: Worker rights practices 
in sectors with U.S. investment do not appear to vary substantially 
from those in other sectors of the economy. Unlike their Chinese 
counterparts, however, a number of U.S.-invested businesses have 
voluntarily adopted codes of conduct that provide for independent 
inspections of working conditions in their facilities.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  911
Total Manufacturing............  ..............  3,729
  Food & Kindred Products......  122             ...............................................................
  Chemicals & Allied Products..  325             ...............................................................
  Primary & Fabricated Metals..  167             ...............................................................
  Industrial Machinery and       463             ...............................................................
   Equipment.
  Electric & Electronic          1,472           ...............................................................
   Equipment.
  Transportation Equipment.....  175             ...............................................................
  Other Manufacturing..........  1,005           ...............................................................
Wholesale Trade................  ..............  372
Banking........................  ..............  127
Finance/Insurance/Real Estate..  ..............  771
Services.......................  ..............  31
Other Industries...............  ..............  407
TOTAL ALL INDUSTRIES...........  ..............  6,348

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               HONG KONG


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\.........................     171.7     162.6     160.1
  Real GDP Growth (pct)...................       5.3      -5.1       0.5
  GDP by Sector:
    Agriculture...........................       0.2       N/A       N/A
    Manufacturing.........................      10.3       N/A       N/A
    Services..............................     134.8       N/A       N/A
    Government............................      14.6      15.1       N/A
  Per Capita GDP (US$)....................    26,129    24,310    23,095
  Labor Force (000's).....................     3,216     3,359     3,393
  Unemployment Rate (pct).................       2.2       4.7       6.0

Money and Prices (annual percentage
 growth):
  Money Supply (M2) \3\...................       8.4      11.8       5.7
  Consumer Price Inflation (pct)..........       5.7       2.5      -3.5
  Exchange Rate(HK$/US$)
    Official..............................      7.74      7.75      7.75

Balance of Payments and Trade:
  Total Exports FOB \4\...................     188.1     172.8     167.6
    Exports to U.S. \5\...................      10.3      10.5      11.0
  Total Imports CIF.......................     210.9     214.1     176.3
    Imports from U.S. \5\.................      15.1      12.9      12.6
  Trade Balance...........................     -22.8     -10.4      -8.7
    Balance with U.S. \5\.................      -4.8      -2.4      -1.6
  External Public Debt....................         0         0         0
  Fiscal Balance/GDP (pct) \6\............       0.8       1.8       2.9
  Current Account Balance/GDP (pct).......      -3.4       0.5       2.0
  Debt Service Payments/GDP (pct).........         0         0         0
  Gold and Foreign Exchange Reserves
    (end of period) \7\...................      92.8      89.6      90.5
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ Estimates based on monthly data through August 1999.
\2\ Expenditure-based GDP estimates.
\3\ Money supply of Hong Kong Dollars and foreign currencies.
\4\ Of which domestic exports (as opposed to re-exports) constituted
  14.5 percent (1997), 14.0 percent (1998) and 13.0 percent (1999
  estimate based on data through August).
\5\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through August 1999. Hong Kong merchandise trade includes
  substantial re-exports (mainly from China) to the United States, which
  are not included in these figures.
\6\ As of Q2 1999.
\7\ As of September 1999; the Land Fund was included in the foreign
  exchange reserves effective July 1, 1997.

Source: Census and Statistics Department.

1. General Policy Framework
    Since becoming a Special Administrative Region of the People's 
Republic of China on July 1, 1997, Hong Kong has continued to manage 
its own financial and economic affairs, its own currency, and its 
independent role in international economic organizations and 
agreements.
    The Hong Kong Government generally pursues policies of 
noninterference in commercial decisions, low and predictable taxation, 
government spending increases within the bounds of real economic 
growth, competition subject to transparent laws (albeit without 
antitrust legislation) and consistent application of the rule of law. 
With few exceptions, the government allows market forces to set wages 
and prices, and does not restrict foreign capital flows or investment. 
It does not impose export performance or local content requirements, 
and allows free repatriation of profits. Hong Kong is a duty-free port, 
with few barriers to trade in goods and services.
    Until 1998, the government regularly ran budget surpluses and thus 
has amassed large fiscal reserves. The corporate profit tax is 16 
percent and personal income is taxed at a maximum of 15 percent. 
Property is taxed; interest, royalties, dividends, capital gains and 
sales are not.
    Because monetary policy is tied to maintaining the nominal exchange 
rate linked to the U.S. Dollar, Hong Kong's monetary aggregates have 
effectively been demand-determined. The Hong Kong Monetary Authority, 
responding to market pressures, occasionally adjusts liquidity through 
interest rate changes and intervention in the foreign exchange and 
money markets.
    Financial contagion spreading throughout Asia caused major 
downturns in Hong Kong in 1997 and 1998. The government made modest 
accommodations in its 1998 budget and halted government property sales 
from mid-1998 to mid-1999 to arrest a steady decline in property prices 
(which had sparked fears for the banking sector). In August 1998, the 
government made a ``one-time'' intervention in the stock, futures, and 
currency markets (spending about $15 billion) to defend itself from 
market manipulators. In October 1999, the government began to divest 
itself of the shares it acquired in this intervention through sales to 
the public. By late 1999, the Hong Kong economy had begun a modest 
recovery, but unemployment remained high and Hong Kong's services-
dependent market lagged behind some of its neighbors in shaking off the 
regional crisis.
2. Exchange Rate Policies
    The Hong Kong Dollar is linked to the U.S. Dollar at an exchange 
rate of HK$7.8 = US$1.00. The link was established in 1983 to encourage 
stability and investor confidence in the run-up to Hong Kong's 
reversion to Chinese sovereignty in 1997. PRC officials have supported 
Hong Kong's policy of maintaining the link.
    There are no foreign exchange controls of any sort. Under the 
linked exchange rate, the overall exchange value of the Hong Kong 
Dollar is influenced predominantly by the movement of the U.S. Dollar 
against other major currencies. The price competitiveness of Hong Kong 
exports is therefore affected the value of the U.S. Dollar in relation 
to third country currencies.
3. Structural Policies
    The government does not have pricing policies, except in a few 
sectors such as telecommunications which remain partially regulated. 
Even in those areas, the government continues to pursue sector-by-
sector liberalization. Hong Kong's personal and corporate tax rates 
remain low and it does not impose import or export taxes. Since 1996, 
Hong Kong has deregulated most interest rates, removing the rate cap 
for deposits of seven days or more. In July 1999, the Hong Kong 
Monetary Authority announced that remaining interest rate caps would be 
removed in two stages: the interest rate restrictions on time deposits 
with a maturity of less than 7 days in July 2000 and interest rate cap 
on savings and current accounts in July 2001. Consumption taxes on 
tobacco, alcoholic beverages, and some fuels probably restrict demand 
for some U.S. exports. Hong Kong generally adheres to international 
product standards.
    Hong Kong's lack of antitrust laws has allowed monopolies or 
cartels--some of which are government-regulated--to dominate certain 
sectors of the economy. These monopolies/cartels can use their market 
position to block effective competition indiscriminately but do not 
discriminate against U.S. goods or services in particular.
4. Debt Management Policies
    The Hong Kong Government has minuscule public debt. Repeated budget 
surpluses have meant the government has not had to borrow. To promote 
the development of Hong Kong's debt market, the government launched an 
exchange fund bills program with the issuance of 91-day bills in 1990. 
Since then, maturities have gradually been extended. Five-year notes 
were issued in October 1993, followed by 7-year notes in late 1995 and 
10-year notes in 1996. In March 1997, the Hong Kong Mortgage 
Corporation was set up to promote the development of the secondary 
mortgage market. The Corporation is 100 percent owned by the government 
through the Exchange Fund. The Corporation purchases residential 
mortgage loans for its retained portfolio in the first phase, followed 
by packaging mortgages into mortgage-backed securities for sale in the 
second phase.
    Hong Kong does not receive bilateral or multilateral assistance.
5. Significant Barriers to U.S. Exports
    Hong Kong is a member of the World Trade Organization, but does not 
belong to the WTO's plurilateral agreement on civil aircraft. As noted 
above, Hong Kong is a duty-free port with no quotas or dumping laws, 
and few barriers to the import of U.S. goods.
    Hong Kong requires import licenses for textiles, rice, meats, 
plants, and livestock. The stated rationale for most license 
requirements is to ensure that health standards are met. The 
requirements do not have a major impact on U.S. exports.
    There are several barriers to entry in the services sector:

    <bullet> In 1998, the Hong Kong Government announced it would open 
the international voice telecommunications sector to full competition. 
The Government decided in May 1999 not to issue any additional licenses 
for the local fixed network market, now contested by four companies, 
until the end of 2002. Hong Kong is currently adjudicating license 
applications for local fixed wireless and external fixed network 
services (undersea cable and satellite-based). Hong Kong has eliminated 
a regulation that required foreign broadcasters to use the Hong Kong 
Telecom satellite uplink and has also promised comprehensive 
liberalization of the broadcasting regime.
    <bullet> Our bilateral civil aviation agreement does not permit 
code sharing or allow U.S. carriers new fifth freedom passenger rights 
to carry passengers beyond Hong Kong. These factors limit expansion of 
U.S. passenger carriers in the Hong Kong market.
    <bullet> Foreign law firms are barred from hiring local lawyers to 
advise clients on Hong Kong law, even though Hong Kong firms can hire 
foreign lawyers to advise clients on foreign law. Foreign law firms can 
become ``local law firms'' and hire Hong Kong attorneys, but they must 
do so on a 1:1 ratio with foreign lawyers.
    <bullet> Foreign banks established after 1978 are permitted to 
maintain only three branches (automated teller machines meet the 
definition of a branch). The Hong Kong Monetary Authority has promised 
to consider further relaxation of this limit in the first quarter of 
2001. Foreign banks, however, can acquire local banks that have 
unlimited branching rights.
6. Export Subsidies Policies
    The Hong Kong Government neither protects nor directly subsidizes 
manufacturers who export. It does not offer exporters preferential 
financing, special tax or duty exemptions on imported inputs, resource 
discounts, or discounted exchange rates.
    The Trade Development Council, a quasi-governmental statutory 
organization, engages in export promotion activities and promotes Hong 
Kong as a hub for trade services. The Hong Kong Export Credit and 
Insurance Corporation sells insurance protection to exporters.
7. Protection of U.S. Intellectual Property
    Hong Kong is a member of the WTO. In addition, the Berne Convention 
for the Protection of Literary and Artistic Works, the Paris Convention 
on Industrial Property, and the Universal Copyright Convention (Geneva, 
Paris) apply to Hong Kong by virtue of China's membership. Hong Kong 
passed a new Copyright Law in June 1997. Enforcement of copyright and 
trademarks has improved measurably in recent months, but eliminating 
optical disc piracy will require sustained effort.
    Copyrights: Sale of pirated discs at retail shopping arcades is 
less widespread than it used to be but remains a problem. The United 
States has urged the government at senior levels to crack down on this 
retail trade, and on the distributors and wholesalers behind them. Hong 
Kong has responded by doubling Customs' enforcement manpower and 
conducting more aggressive raids at the retail level. Recent raids have 
closed down some of the most notorious retail arcades and dispersed 
this illicit trade. Hong Kong Customs intelligence operations and raids 
on underground production facilities have forced pirate retailers to 
rely more on smuggled products. Nevertheless, pirated goods remain 
available throughout the territory. The judiciary has begun to increase 
sentences and fines for copyright piracy and recently handed down Hong 
Kong's first conviction for unauthorized dealer hard-disk loading. 
Computer end-user piracy remains a significant problem for the business 
software industry. In 1999 the government introduced legislation to 
reclassify piracy under Hong Kong's Organized and Serious Crimes 
Ordinance, which would facilitate interrogations and allow the seizure 
of assets. As of November, approval by the Legislative Council is still 
pending.
    Trademarks: Sale of counterfeit items, particularly handbags and 
apparel, is widespread in Hong Kong's outdoor markets. Customs 
officials have conducted numerous raids, but these actions have had 
little impact on the overall availability of counterfeit goods.
    New Technologies: U.S. industry reports that Hong Kong-based web 
sites are being used to sell and transmit pirate software and music. 
The Government asserts that Hong Kong's 1997 Copyright Ordinance 
established civil liability for internet service providers to who host 
such pirate web sites, but concedes that this theory has yet to be 
tested in court.
    The International Intellectual Property Alliance estimated total 
losses due to piracy against American copyright holders at $243.5 
million in 1998--slightly less than half of which was entertainment 
software. The Business Software Alliance reported in early 1999 that 
software piracy in Hong Kong had dropped from 67 to 59 percent.
8. Workers Rights
    a. The Right of Association:  Local law provides for right of 
association and the right of workers to establish and join 
organizations of their own choosing. Trade unions must be registered 
under the Trade Unions Ordinance. The basic precondition for 
registration is a minimum of seven persons who serve in the same 
occupation. The government does not discourage or impede the formation 
of unions.
    Workers who allege antiunion discrimination have the right to have 
their cases heard by the Labor Relations Tribunal. Violation of 
antiunion discrimination provisions is a criminal offense. Although 
there is no legislative prohibition of strikes, in practice, most 
workers must sign employment contracts that state that walking off the 
job is a breach of contract and can lead to summary dismissal.
    b. The Right to Organize and Bargain Collectively: In June 1997, 
the Legislative Council passed three laws that greatly expanded the 
collective bargaining powers of Hong Kong workers, protected them from 
summary dismissal for union activity, and permitted union activity on 
company premises and time. However, the Provisional Legislature 
repealed these ordinances, removing workers' new statutory protection 
against summary dismissal for union activity. New legislation passed in 
October 1997 permits the cross-industry affiliation of labor union 
federations and confederations, and allows free association with 
overseas trade unions (although notification of the Labor Department 
within one month of affiliation is required), but removes the legal 
stipulation of trade unions' right to engage employers in collective 
bargaining and bans the use of union funds for political purposes. 
Collective bargaining is not widely practiced.
    c. Prohibition of Forced or Compulsory Labor: Compulsory labor is 
prohibited under the Bill of Rights Ordinance. While this legislation 
does not specifically prohibit forced or bonded labor by children, 
there are no reports of such practices in Hong Kong.
    d. Minimum Age for Employment of Children: The ``Employment of 
Children'' Regulations prohibit employment of children under age 15 in 
any industrial establishment. Children ages 13 and 14 may be employed 
in certain non-industrial establishments, subject to conditions aimed 
at ensuring a minimum of 9 years of education and protecting their 
safety, health, and welfare. In 1998, there were ten convictions for 
violations of the Employment of Children Regulations.
    e. Acceptable Conditions of Work: Aside from a small number of 
trades and industries in which a uniform wage structure exists, wage 
levels are customarily fixed by individual agreement between employer 
and employee and are determined by supply and demand. Some employers 
provide workers with various kinds of allowances, free medical 
treatment and free subsidized transport. There is no statutory minimum 
wage except for foreign domestic workers (US$ 500 per month). To comply 
with the Sex Discrimination Ordinance, provisions in the Women and 
Young Persons (Industry) Regulations that had prohibited women from 
joining dangerous industrial trades and limited their working hours 
were dropped. Work hours for people aged 15 to 17 in the manufacturing 
sector remain limited to 8 per day and 48 per week between 6 a.m. and 
11 p.m. Overtime is prohibited for all persons under the age of 18 in 
industrial establishments. Employment in dangerous trades is prohibited 
for youths, except 16 and 17 year old males.
    The Labor Inspectorate conducts workplace inspections to enforce 
compliance with these and health and safety regulations. Worker safety 
and health has improved, but serious problems remain, particularly in 
the construction industry. In 1998, a total of 63,526 occupational 
accidents (43,034 of which are classified as industrial accidents) were 
reported, of which 68 were fatal. Employers are required under the 
Employee's Compensation Ordinance to report any injuries sustained by 
their employees in work-related accidents.
    f. Rights in Sectors with U.S. Investment: U.S. direct investment 
in manufacturing is concentrated in the electronics and electrical 
products industries. Aside from hazards common to such operations, 
working conditions do not differ materially from those in other sectors 
of the economy. Relative labor market tightness and high job turnover 
have spurred continuing improvements in working conditions as employers 
compete for available workers.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  600
Total Manufacturing............  ..............  3,122
  Food & Kindred Products......  4               ...............................................................
  Chemicals & Allied Products..  348             ...............................................................
  Primary & Fabricated Metals..  282             ...............................................................
  Industrial Machinery and       167             ...............................................................
   Equipment.
  Electric & Electronic          1,230           ...............................................................
   Equipment.
  Transportation Equipment.....  29              ...............................................................
  Other Manufacturing..........  1,062           ...............................................................
Wholesale Trade................  ..............  5,054
Banking........................  ..............  1,637
Finance/Insurance/Real Estate..  ..............  5,007
Services.......................  ..............  1,009
Other Industries...............  ..............  4,373
TOTAL ALL INDUSTRIES...........  ..............  20,802

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               INDONESIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment: \1\
  Nominal GDP.............................       216        94        67
  Real GDP Growth (pct)...................       7.6     -13.2   -4.04.0
  GDP by Sector:
    Agriculture...........................      34.5      18.4      15.0
    Manufacturing.........................      54.9      23.4      16.7
    Services..............................      67.5      35.7      26.4
    Government............................      11.5       4.1      3.16
  Per Capita GDP (US$)....................     1,116       465   \2\ 550
  Labor Force (millions)..................      87.0      92.6      96.6
  Unemployment Rate (pct).................       4.6        10        10

Money and Prices (annual percentage
 growth):
  Money Supply (M2) (pct).................      23.2      62.3  \3\ 10.2
  Consumer Price Inflation (pct)..........       8.0      75.0  \4\ 0.02
  Exchange Rate (Rupiah/US$ annual             2,909    10,014      7948
   average)...............................

Balance of Payments and Trade: \1\
  Total Exports FOB.......................      56.2      50.4      21.7
    Exports to U.S........................       9.2       9.3       5.3
  Total Imports CIF.......................      41.7      27.3      11.5
    Imports from U.S......................       4.5       2.3       1.1
  Trade Balance...........................      14.5      23.1      10.2
    Balance with U.S......................       4.7       7.0       4.2
  External Public Debt....................      56.4      71.4      70.7
  Debt Service Payments/GDP (pct).........       3.8       7.6   \5\ 6.7
  Current Account Balance/GDP(pct) \6\....      -0.9       3.9       2.7
  Fiscal Deficit/GDP (pct) \6\............       1.1       2.2       5.0
  Gold and Foreign Exchange Reserves (end       17.4      23.5      26.7
   of period).............................
  Aid from U.S. (millions of US$).........        71       135   \6\ 139
  Aid from All Other Sources..............       5.2       5.2   \7\ 7.8
------------------------------------------------------------------------
\1\ 1999 GDP and export/import figures are for January-June. (Average Rp/
  US$ exchange rates were 8,775 for 1Q CY-1999 and 7,921 for 2Q CY-
  1999.)
\2\ 1999 per capita GDP figure is rough estimate. Increase in 1999 over
  1998 due to strengthening of Rp/$ exchange rate.
\3\ 1999 figure is for January-August.
\4\ 1999 figure is for January-September.
\5\ 1999 figure as of March 31 (includes debts of state-owned
  enterprises).
\6\ Fiscal year.
\7\ 1999 figure is amount pledged.

Sources: Government of Indonesia, U.S. Department of Commerce (for trade
  with U.S.), IMF (exchange rates), U.S. Agency for International
  Development (for bilateral assistance).

1. General Policy Framework
    Much of the cautious optimism toward Indonesia in the second half 
of 1999 stems from the political successes Indonesia achieved since 
former President Soeharto resigned in May 1998. In that time, Indonesia 
has lifted press restrictions, held a peaceful, free and fair multi-
party general election in June 1999 and installed a democratically 
elected president in October 1999. The new President, K.H. Aburrahman 
Wahid, although a dark horse candidate, is broadly acceptable to all 
political groupings. The subsequent selection as Vice President of 
Megawati Soekarnoputri, leader of the party which came in first in the 
June polls, heralded the selection of a multi-party ``national unity'' 
cabinet.
    Indonesia still faces daunting economic problems. Foreign capital 
fled in the early months of the financial crisis and is returning only 
slowly. The business sector is struggling to service existing foreign 
debts at the weaker exchange rate. The banking sector remains moribund; 
banks are making few new loans and debtors are servicing even fewer old 
ones. In mid-1999, the Indonesian Bank Restructuring Agency (IBRA), 
whose credibility with both the domestic and international business 
community is crucial to Indonesia's economic recovery, was caught up in 
a campaign finance and corruption scandal involving Bank Bali. The 
scandal involved the diversion of funds from a $120 million interbank 
loan repayment to Bank Bali from a now-closed government bank whose 
assets and liabilities had been transferred to IBRA.
    The IMF and its stabilization program have been the overriding 
economic fact of life in Indonesia since November 1997. The IMF 
suspended payments to Indonesia in September 1999 until the Bank Bali 
affair was resolved. The election of a new president and the belated 
release of an independent audit of the Bank Bali affair in November led 
the IMF to begin negotiations on a new three-year program. The target 
is to sign a new letter of intent by mid-January.
    Despite the continued financial turmoil, there remain deep 
underlying strengths in the Indonesian economy. Indonesia is the 
world's fourth largest country and the anchor of Southeast Asia 
politically and economically. Although shaken and still cautious, the 
emerging middle class is slowly resuming consumer spending and 
represents a huge and growing potential market. The country has a 
strategic location, a large labor force earning relatively low wages 
and abundant natural resources. Once largely dependent on petroleum, 
natural gas, and commodities such as coffee, tea, rubber, timber, and 
palm oil and shrimp, Indonesia again found those sectors to be a solid 
economic foundation when the crisis hit. Regions such as Sumatra and 
Sulawesi that have strong, agricultural commodity-based economies 
survived the crisis with only minor disruptions. In 1998, Indonesian 
agricultural exports rose some 17 percent in U.S. dollar terms, as 
farmers rushed to take advantage of the windfall brought about by the 
weak rupiah, and fell only slightly in the first half of 1999. 
Industrial exports in 1998 fell just over 1 percent. Indonesian exports 
to the U.S. have remained steady throughout the crisis at around $9.3 
billion a year. Total imports fell by 35 percent in 1998 over 1997. 
Imports from the U.S. fell by almost half from 1997 to 1998 and by 
another 15 percent in the first half of 1999.
    The Indonesian Government has historically maintained a 
``balanced'' budget: expenditures were covered by the sum of domestic 
revenues and foreign aid and borrowing, without resort to domestic 
borrowing. Often the government ended the year with a slight surplus. 
This remains the government's long term goal. The new government says 
it expects the gap between domestic revenues and expenditures to remain 
for several years although some of the budgetary pressure has been 
relieved by the rise in oil prices in the latter half of 1999. The 
budgetary gap in the 1999/2000 fiscal year, which will need to be 
covered by foreign assistance, is expected to be in the range of 4 to 5 
percent.
    In parallel with its fiscal policy, the Indonesian Government 
earned a reputation for prudent monetary policy in recent years that 
helped keep consumer price inflation in the single digits. However, the 
massive depreciation of the rupiah that began in mid-1997 and huge 
liquidity injections into the banking system contributed to significant 
inflation. Indonesian monetary authorities dampened inflationary 
pressure and reduced pressure on the exchange rate by controlling the 
growth of the money supply.
    The government has made steady progress in trade and investment 
deregulation. Periodic ``deregulation packages'' of liberalization 
measures lowered investment barriers and instituted a program of 
comprehensive tariff reduction by staged cuts. The goal is to reduce 
all tariffs in the 1 to 20 percent range to 5 percent or less by 2000, 
and to reduce all tariffs in the 20 percent and higher range to 10 
percent or less by 2003. Although the deregulation packages made 
comparatively less progress in reducing non-tariff barriers, the 
government's collaboration with the International Monetary Fund (IMF) 
since November 1997 prompted much bolder measures, ending most import 
monopolies and gradually opening Indonesia's closed distribution 
system. The program also includes a commitment to eliminate all non-
tariff barriers over the program period.
2. Exchange Rate Policies
    In August 1997, the government eliminated the rupiah intervention 
band in favor of a floating exchange rate policy.
3. Structural Policies
    In October 1997, deteriorating conditions led Indonesia to request 
support from the International Monetary Fund (IMF). The government 
signed its first Letter of Intent with the IMF on October 31, 1997. The 
letter called for a three-year economic stabilization and recovery 
program, supported by loans from the IMF ($10 billion), the World Bank, 
the Asian Development Bank, and bilateral donors. Apart from financial 
support, the international community also offered detailed technical 
assistance to the government. Foreign governments and private 
organizations also contributed food and other humanitarian assistance.
    Indonesia's agreement with the IMF has been revised repeatedly in 
response to deteriorating macroeconomic conditions and political 
changes. The result is a complex, multi-faceted program to address 
macroeconomic imbalances, financial weaknesses, real sector 
inefficiencies, and the loss of private sector confidence. In November 
1999, the IMF resumed negotiations with the government with the aim of 
drafting a new letter of intent to take account of changing 
circumstances and the new government's priorities.
4. Debt Management Policies
    Indonesia's foreign debt totaled about $145 billion as of September 
1999, with about $72 billion owed by the public sector and $73 billion 
by the private sector. In 1998, Indonesia signed a Memorandum of 
Understanding with its official creditors to reschedule public sector 
debt principal contracted before July 1, 1997 and falling due between 
August 1998 and the end of March 2000.
    In 1999, the government introduced a monitoring system to collect 
information on all foreign exchange transactions, including foreign 
borrowing. Borrowing in connection with state-owned enterprises has 
been regulated since 1991. The government continued to assert that it 
would not impose capital controls.
5. Significant Barriers to U.S. Exports
    Indonesia had previously maintained a complex and non-transparent 
import licensing system that was a significant impediment to trade. 
Since the advent of the economic crisis in 1997, the government has 
removed numerous licensing requirements and committed in its IMF 
agreement to phase out all quantitative import restrictions (other than 
those justified for health, safety, and environmental reasons) and 
other non-tariff barriers that protect domestic production.
    Services Barriers: Despite some loosening of restrictions, services 
trade entry barriers remain in many sectors. Commercial presence is 
required to offer insurance in Indonesia and foreign firms must form 
joint ventures with local companies. As of July 1998, foreign 
participation in telecommunications services is no longer limited. PT 
Telkom is the state-owned monopoly provider of fixed line services. 
Telkom has exclusive rights to provide nationwide fixed line 
telecommunications until 2011 and to provide domestic long distance 
services until 2006. The government has allowed five foreign 
telecommunications companies to partner with local firms and operate 
joint ventures to build, maintain, and operate local fixed-line 
networks in cooperation with PT Telkom.
    Foreign accounting firms must operate through technical assistance 
arrangements with local firms, but Indonesian citizenship is no longer 
a requirement for licensing as an accountant. Foreign agents and 
auditors may act only as consultants and may not sign audit reports. 
Foreign law firms are not allowed to establish practices in Indonesia. 
Attorneys are admitted to the bar only if they have graduated from an 
Indonesian legal faculty or an institution recognized as the 
equivalent. Foreign companies incorporated in Indonesia may issue 
stocks and bonds through the capital market.
    Investment Barriers: The government is committed to reducing 
burdensome bureaucratic procedures and substantive requirements for 
foreign investors. In 1994, the government dropped initial foreign 
equity requirements and sharply reduced divestiture requirements. 
Indonesian law provides for both 100 percent direct foreign investment 
projects and joint ventures with a minimum Indonesian equity of five 
percent. In mid-1998, the government opened several previously 
restricted sectors to foreign investment, reducing the number of 
sectors restricted for foreign direct investment to 25, 16 of which are 
completely closed to investment while the remaining nine allow minority 
foreign equity participation. The restricted sectors include taxi and 
bus transportation, local shipping, cinema operation, private 
broadcasting and newspapers, medical services, and some trade services. 
The government also removed foreign ownership limitations on banks and 
on firms publicly traded on Indonesian stock markets. The government 
hinted throughout much of 1999 that it would reduce the negative list 
even further but, as of November 1999, it had not yet done so.
    The Capital Investment Coordinating Board (BKPM) must approve most 
foreign investment proposals. Investments in the oil and gas, mining, 
forestry, and financial services sectors are covered by specific laws 
and regulations and handled by the relevant technical ministries.
    Government Procurement Practices: In 1994, the government enacted a 
procurement law to regulate government procurement practices and 
strengthen the procurement oversight process. Most large government 
contracts are financed by bilateral or multilateral donors who specify 
procurement procedures. For large projects funded by the government, 
international competitive bidding practices are to be followed. The 
government seeks concessional financing which includes a 3.5 percent 
interest rate, a 25-year repayment period and seven-year grace period. 
Some projects do proceed on less concessional terms. Foreign firms 
bidding on certain government-sponsored construction or procurement 
projects may be asked to purchase and export the equivalent in selected 
Indonesian products. Government departments and institutes and state 
and regional government corporations are expected to utilize domestic 
goods and services to the maximum extent feasible, but this is not 
mandatory for foreign aid-financed goods and services procurement. 
State-owned enterprises that have offered shares to the public through 
the stock exchange are exempted from government procurement 
regulations.
6. Export Subsidies Policies
    Indonesia joined the GATT Subsidies Code and eliminated export 
loan-interest subsidies as of April 1, 1990. As part of its drive to 
increase non-oil and gas exports, the government permits restitution of 
VAT paid by a producing exporter on purchases of materials for use in 
manufacturing export products. Exemption from or drawbacks of import 
duties are available for goods incorporated into exports. Free trade 
zones and industrial estates are combined in several bonded areas. In 
the past two years, the government has gradually increased the share of 
production that firms located in bonded zones are able to sell 
domestically, up to 100 percent in 1998.
7. Protection of U.S. Intellectual Property
    Indonesia is a member of the World Intellectual Property 
Organization (WIPO) and in 1997 became full party to the Paris 
Convention for the Protection of Intellectual Property, the Berne 
Convention for the Protection of Literary and Artistic Works, the 
Patent Cooperation Treaty, and the Trademark Law Treaty. Indonesia was 
the first country in the world to ratify the WIPO Copyright Treaty, but 
has not ratified the companion WIPO Performances and Phonograms Treaty. 
In April 1999, the U.S. Trade Representative renewed Indonesia's place 
on the ``Special 301'' Priority Watch List, where it has been since 
1996.
    Indonesia has serious and continuing deficiencies in its 
intellectual property regime: rampant piracy (software, books, and 
video), trademark piracy and an inconsistent enforcement and 
ineffective legal system. New patent, trademark, and copyright laws 
were enacted in May 1997. In order to bring Indonesia's laws into 
compliance with the TRIPS Agreement by the mandated deadline of January 
1, 2000, Indonesia has drafted (but not enacted as of November 1999) 
new laws on protection of trade secrets, industrial design and 
integrated circuits. It has also proposed amendments to its laws on 
trademark and copyright. Those laws are designed to address the 
remaining inadequacies of Indonesia's IPR legal regime, but inadequate 
enforcement and a non-transparent judicial system unfamiliar with 
intellectual property law still pose daunting problems for U.S. 
companies. The government often responds to U.S. companies with 
specific complaints about pirated goods and trademark abuse, but the 
court system can be frustrating and unpredictable, and effective 
punishment of pirates of intellectual property has been rare.
    Indonesia's 1997 Patent Law addressed several areas of concern to 
U.S. companies, including compulsory licensing provisions, a relatively 
short term of protection, and a provision that allowed importation of 
50 pharmaceutical products by non-patent holders.
8. Worker Rights
    a. The Right of Association: Private sector workers, including 
those in export processing zones, are by law free to form worker 
organizations without prior authorization. In May 1998 and in September 
1999 the government issued new regulations on registration of workers' 
organizations. The effect of the new regulation was to eliminate 
numerical and other requirements that were previously a barrier to 
union registration. The government ratified International Labor 
Organization (ILO) Convention 87 on Freedom of Association in June 
1998. Since the regulation went into effect, at least 20 new or 
previously unrecognized unions have formed and notified the Department 
of Manpower of their intention to register workplace and branch units. 
The government may dissolve a union if it believes the union is acting 
against the national ideology, Pancasila, although it has never 
actually done so, and there are no laws or regulations specifying 
procedures for union dissolution.
    The government is considering other legislative and regulatory 
changes in regard to trade unions, industrial dispute resolution, and 
labor affairs generally. To allow time for new laws and regulations, 
the parliament amended a 1997 Basic Law on Manpower Affairs by 
postponing its implementation until the year 2000.
    Civil servants are no longer required to belong to KORPRI, a 
nonunion association whose central development council is chaired by 
the Minister of Home Affairs. State enterprise employees, defined to 
include those working in enterprises in which the state has a 5-percent 
holding or greater, usually were KORPRI members in the past, but a 
small number of state enterprises have units of the Federation of All-
Indonesian Trade Unions (SPSI). New unions are now seeking to organize 
employees in some state-owned enterprises. Teachers must belong to the 
teachers' association (PGRI). All organized workers except civil 
servants have the legal right to strike. While state enterprise 
employees and teachers rarely exercise this right, private sector 
strikes are frequent.
    b. The Right to Organize and Bargain Collectively: Registered 
unions can legally engage in collective bargaining and can collect dues 
from members through a checkoff system. In companies without unions, 
the government discourages workers from utilizing outside assistance, 
preferring that workers seek its assistance. By regulation, 
negotiations must be concluded within 30 days or be submitted to the 
Department of Manpower for mediation and conciliation or arbitration. 
Agreements are for two years and can be extended for one year. 
According to NGOs involved in labor issues, the provisions of these 
agreements rarely go beyond the legal minimum standards established by 
the government, and the agreements are often merely presented to worker 
representatives for signing rather than being negotiated.
    Although government regulations prohibit employers from 
discriminating or harassing employees because of union membership, 
there are credible reports from union officials of employer retribution 
against union organizers, including firing, which is not effectively 
prevented or remedied in practice. Administrative tribunals adjudicate 
charges of antiunion discrimination. However, because many union 
members believe the tribunals generally side with employers, many 
workers reject or avoid the procedure and present their grievances 
directly to the national human rights commission, parliament and other 
agencies. Administrative decisions in favor of dismissed workers tend 
to be monetary awards; workers are rarely reinstated. The provisions of 
the law make it difficult to fire workers, but the law is often ignored 
in practice.
    The armed forces, which include the police, continue to involve 
themselves in labor issues, despite the Minister of Manpower's 
revocation in 1994 of a 1986 regulation allowing the military to 
intervene in strikes and other labor actions. A 1990 decree that gives 
the Agency for Coordination of National Stability (BAKORSTANAS) 
authority to intervene in strikes in the interest of political and 
social stability remains in effect.
    c. Prohibition of Forced or Compulsory Labor: The law forbids 
forced labor, and the government generally enforces it. However, 
according to credible sources, there are several thousand children 
working on fishing platforms off the East Coast of North Sumatra in 
conditions of bonded labor. Most are recruited from farming 
communities, and once they arrive at the work site, are not permitted 
to leave for at least three months and until a replacement worker can 
be found. Children receive average monthly wages that are well below 
the minimum wage. They live in isolation on the sea, working 12 to 20 
hours per day in often dangerous conditions, sleeping in the workspace 
with no access to sanitary facilities. There are reports of physical, 
verbal and sexual abuse of the children. In 1999 the government 
ratified ILO Conventions 105 (Forced Labor) and began removing children 
from the fishing platforms.
    d. Minimum Age for Employment of Children: Child labor exists in 
both industrial and rural areas, and in both the formal and informal 
sectors. According to a 1995 report of the Indonesian Central Bureau of 
Statistics, four percent of Indonesian children between the ages of 10 
and 14 work full-time, and another four percent work in addition to 
going to school. Many observers believe that number to be significantly 
understated, because documents verifying age are easily falsified, and 
because children under 10 were not included. Indonesia was one of the 
first countries to be selected for participation in the ILO's 
International Program on the Elimination of Child Labor (IPEC). 
Although the ILO has sponsored training of labor inspectors on child 
labor matters under the IPEC program, enforcement remains lax. In April 
1999 the government ratified ILO Convention, which establishes a 
minimum working age of 15.
    e. Acceptable Conditions of Work: Indonesia does not have a 
national minimum wage. Rather, area wage councils working under the 
supervision of the national wage council establish minimum wages for 
regions and basic needs figures for each province--a monetary amount 
considered sufficient to enable a single worker to meet the basic needs 
of nutrition, clothing, and shelter. In Jakarta, the minimum wage is 
about $33 (Rp. 231,000) per month (at an exchange rate of Rp 7000 to 
the dollar). That is 70 percent of the government-determined basic 
needs figure. There are no reliable statistics on the number of 
employers paying at least the minimum wage. Independent observers' 
estimates range between 30 and 60 percent.
    Labor law and ministerial regulations provide workers with a 
variety of other benefits, such as social security, and workers in more 
modern facilities often receive health benefits, free meals, and 
transportation. The law establishes 7-hour workdays and 40-hour 
workweeks, with one 30-minute rest period for each 4 hours of work. The 
law also requires one day of rest weekly. The daily overtime rate is 1-
1/2 times the normal hourly rate for the first hour, and twice the 
hourly rate for additional overtime. Observance of laws regulating 
benefits and labor standards varies from sector to sector and by 
region. Employer violations of legal requirements are fairly common and 
often result in strikes and employee protests. The Ministry of Manpower 
continues publicly to urge employers to comply with the law. However, 
in general, government enforcement and supervision of labor standards 
is weak.
    Both law and regulations provide for minimum standards of 
industrial health and safety. In the largely western-operated oil 
sector, safety and health programs function reasonably well. However, 
in the country's 100,000 larger registered companies in the non-oil 
sector, the quality of occupational health and safety programs varies 
greatly. The enforcement of health and safety standards is severely 
hampered by the limited number of qualified Department of Manpower 
inspectors as well as by the low level of employee appreciation for 
sound health and safety practices. Allegations of corruption on the 
part of inspectors are common. Workers are obligated to report 
hazardous working conditions. Employers are forbidden by law from 
retaliating against those who do, but the law is not effectively 
enforced.
    f. Rights in Sectors with U.S. Investment: Working conditions in 
firms with U.S. ownership are widely recognized as better than the norm 
for Indonesia. Application of legislation and practice governing worker 
rights is largely dependent upon whether a particular business or 
investment is characterized as private or public. U.S. investment in 
Indonesia is concentrated in the petroleum and related industries, 
primary and fabricated metals (mining), and pharmaceutical sectors.
    Foreign participation in the petroleum sector is largely in the 
form of production sharing contracts between the foreign companies and 
the state oil and gas company, Pertamina, which retains control over 
all activities. All employees of foreign companies under this 
arrangement are considered state employees and thus all legislation and 
practice regarding state employees generally applies to them. Employees 
of foreign companies operating in the petroleum sector are organized in 
KORPRI. Employees of these state enterprises enjoy most of the 
protection of Indonesia labor laws but, with some exceptions, they do 
not have the right to strike, join labor organizations, or negotiate 
collective agreements. Some companies operating under other contractual 
arrangements, such as contracts of work and, in the case of the mining 
sector, coal contracts of work, do have unions and collective 
bargaining agreements.
    Regulations pertaining to child labor and child welfare are 
applicable to employers in all sectors. Employment of children and 
concerns regarding child welfare are not considered major problem areas 
in the petroleum and fabricated metals sectors. Legislation regarding 
minimum wages, hours of work, overtime, fringe benefits, health and 
safety applies to all sectors. The best industrial and safety record in 
Indonesia is found in the oil and gas sector.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,610
Total Manufacturing............  ..............  197
  Food & Kindred Products......  16              ...............................................................
  Chemicals & Allied Products..  131             ...............................................................
  Primary & Fabricated Metals..  8               ...............................................................
  Industrial Machinery and       -17             ...............................................................
   Equipment.
  Electric & Electronic          35              ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  186
Finance/Insurance/Real Estate..  ..............  171
Services.......................  ..............  53
Other Industries...............  ..............  (\1\)
TOTAL ALL INDUSTRIES...........  ..............  6,932
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 JAPAN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................   4,192.7   3,783.0  \1\ 4205
                                                                      .0
  Real GDP Growth (pct)...................       1.4      -2.8   \1\ 0.5
  GDP by Sector:
    Agriculture...........................       N/A       N/A       N/A
    Manufacturing.........................       N/A       N/A       N/A
    Services..............................       N/A       N/A       N/A
    Government............................       N/A       N/A       N/A
  Per Capita Income (US$).................    33,249    29,929  \2\ 33,0
                                                                      00
  Labor Force (millions)..................      67.9      68.0  \3\ 67.8
  Unemployment Rate (pct).................       3.4       4.1   \4\ 4.7

Money and Prices (annual percentage
 growth):
  Money Supply (M2+CD)....................       3.1       4.0   \4\ 3.8
  Consumer Price Inflation................       1.8       0.6  \3\ -0.1
  Exchange Rate (Yen/US$).................     121.0     130.9  \5\ 117.
                                                                      03

Balance of Payments and Trade:
  Total Exports FOB.......................     409.2     374.4  \6\ 394.
                                                                       1
    Exports to U.S. FOB...................     121.3     122.0  \6\ 107.
                                                                       7
  Total Imports CIF.......................     307.8     251.7  \6\ 266.
                                                                       7
    Imports from U.S. CIF.................      65.7      57.9  \6\ 47.1
  Trade Balance...........................     101.5     122.7  \6\ 127.
                                                                       4
    Trade Balance with U.S................      55.6      64.1  \6\ 60.6
  Current Account Surplus/GDP (pct).......       2.3       3.2       N/A
  External Public Debt....................         0         0         0
  Debt Service Payments/GDP (pct).........         0         0         0
  Fiscal Deficit/GDP (pct)................      -3.4      -6.0       N/A
  Gold and Foreign Exchange Reserves......     220.8     215.9  \7\ 272.
                                                                       8
  Aid from U.S............................         0         0         0
  Aid from All Other Sources..............         0         0         0
------------------------------------------------------------------------
\1\ January-June, seasonally adjusted, annualized; growth relative to
  Jan-June 1998.
\2\ Embassy estimate.
\3\ January-September, non-seasonally adjusted average.
\4\ January-September, seasonally-adjusted average.
\5\ January to September average.
\6\ January-September, non-seasonally adjusted, annualized.
\7\ As of end-September 1999.

Sources: Ministry of Finance; exports FOB, imports CIF customs basis;
  Economic Planning Agency; Bank of Japan, OECD Economic Outlook.

1. General Policy Framework
    Japan's economy, the world's second largest at roughly 4.2 trillion 
dollars, is experiencing a significant recession. Most observers are 
predicting only meager growth this year, following a nearly 3 percent 
contraction in 1998.
    Overall economic growth in Japan in the 1990s has been lackluster, 
despite occasional strong growth. (Until 1992-3, Japan had never 
experienced two consecutive years of less than 3 percent real growth in 
the postwar period.) A surge in asset prices to unsustainable levels 
and high rates of capital investment in the late 1980s gave way by 1991 
to sharply slower growth, the need for corporate restructuring and 
balance sheet adjustment by businesses. A substantially weakened Asian 
demand for Japanese exports and domestic banking system concerns, also 
continue to weigh heavily on the economy.
    In recent years, the Japanese Government has used public spending 
to offset weak or negative private demand growth. Several fiscal 
stimulus packages beginning in August 1992 have boosted public 
investment spending substantially, while temporary tax cuts have 
supported public demand.
    Japan posted a global trade surplus of $123 billion in 1998, with a 
$51.5 billion bilateral surplus with the United States. Both of these 
numbers are expected to rise significantly in 1999. Through the first 
nine months of 1999, import volume was also higher compared with the 
same period in 1998.
    In order to ease credit conditions to support the economy, the Bank 
of Japan lowered the official discount rate nine times between mid-1991 
and September 1995, from 6.0 percent per year to 0.5 percent where it 
has remained. The Bank of Japan also instituted some temporary programs 
to make credit more available to corporations. Recently the overnight 
call rate has been left at zero.
2. Exchange Rate Policy
    The yen has been volatile against the dollar in 1998-99. The 
average exchange rate through the first nine months of 1999 was 117 yen 
per dollar, versus 130 yen per dollar in 1998. A new Foreign Exchange 
Law in April 1998 significantly decontrolled most remaining barriers to 
cross-border capital transactions.
3. Structural Policies
    Pricing Policy: Japan has a market economy, with prices generally 
set in accordance with supply and demand. However, with very high gross 
retail margins (needed to cover high fixed and personnel costs) and a 
complex distribution system, Japan's retail prices exhibit a greater 
downward stickiness than in other large market economies. Moreover, 
some sectors such as construction are susceptible to cartel-like 
pricing arrangements, and in many key sectors heavily regulated by the 
government (i.e., transport and warehousing), it can still exert some 
limited temporary authority over pricing.
    Tax Policy: Total tax revenues as a share of GDP in Japan are 
comparable to the United States and the UK, and on the low end of OECD 
countries. Japan had a relatively high corporate tax rate, but recent 
legislation has reduced the (combined central and local government) 
effective corporate tax rate from 47 percent to 40.9 percent, bringing 
it in line with other OECD countries. The maximum marginal rate for 
personal income taxes was also reduced from 65 percent to 50 percent. 
There is a general consumption tax (actually a broad value-added tax) 
of 5 percent, although small retail outlets are exempted.
    Regulatory and Deregulation Policy: Japan's economy is highly 
regulated. Although the government and business community recognize 
that deregulation is needed to spur growth, opposition to change 
remains strong among vested-interest groups, and the economy remains 
burdened by numerous national and local government regulations, which 
have the effect of impeding market access by foreign firms. Official 
regulations also reinforce traditional Japanese business practices that 
restrict competition, help block new entrants (domestic or foreign) and 
raise costs. Examples of regulations that act as impediments include: 
exceedingly high telecommunications interconnection rates, prolonged 
approval processes for medical devices and pharmaceuticals, and severe 
restrictions on foreign lawyers.
    In June 1997, the President and the Japanese Prime Minister agreed 
on an Enhanced Initiative on Deregulation and Competition Policy under 
the U.S.-Japan Framework Agreement. During its third year, the 
Initiative is focusing on achieving concrete deregulation in key 
sectoral and structural areas in Japan, such as telecommunications, 
housing, energy, financial services, medical devices and 
pharmaceuticals, distribution, competition policy, and transparency in 
government rule-making.
4. Debt Management Policies
    Japan is the world's largest net creditor. The Bank of Japan's 
foreign exchange reserves exceed $250 billion. It is an active 
participant together with the United States in international 
discussions of developing-country indebtedness issues in a variety of 
fora.
5. Significant Barriers to U.S. Exports
    Japan is the United States' third largest export market, after 
Canada and Mexico. The United States is the largest market for Japanese 
exports. However, in many sectors U.S. exporters continue to enjoy 
incomplete access to the Japanese market. While Japan has reduced its 
formal tariff rates on most imports to relatively low levels, it has 
maintained non-tariff barriers, such as non-transparency, 
discriminatory standards, and exclusionary business practices, and 
tolerates a business environment that protects established companies 
and restricts the free flow of competitive foreign goods into the 
Japanese market.
    Transportation: In January 1998, the U.S. and Japan concluded a new 
agreement to significantly liberalize the trans-Pacific civil aviation 
market. This eliminated restrictions and resolved a dispute over the 
rights of longtime carriers to fly through Japan to other international 
destinations. It opened doors for carriers that recently entered the 
U.S.-Japan market, nearly tripling their access to Japan. The agreement 
also allowed code sharing (strategic alliances) between carriers for 
the first time, thereby greatly increasing their operational 
flexibility. While U.S. carriers have been generally happy with the 
results of the 1998 agreement, there is growing concern over the 
adequacy of facilities and a scarcity of slots at Japanese airports.
    American ocean going ships serving Japanese ports have long 
encountered a restrictive, inefficient and discriminatory system of 
port transportation services. After the Federal Maritime Commission 
(FMC) ruled in early 1997 that Japan maintained unfair shipping 
practices and proposed fines against Japanese ocean freight operators, 
the Japanese Government pledged to grant foreign carriers port 
transport licenses, and, at the same time, to reform the prior 
consultation system which allocates work on the waterfront and requires 
carriers to obtain approval for any change in their operations. The FMC 
imposed fines in September 1997 after Japan failed to carry out the 
reforms. Shortly afterwards, however, the government committed itself 
to actions that would have provided a solid foundation for reform of 
Japanese port practices. However, a final report on deregulation issued 
by the Japanese government in mid-1999 was discouraging for its lack of 
aggressive proposals for deregulating ports.
    Agricultural and Wood Products: Some progress has been achieved 
through continued U.S. pressure on Japan to liberalize its markets for 
imported agricultural and wood products. However, tariffs on most 
processed food products remain relatively high, and other barriers to a 
liberalized market remain. For example, Japan continues to restrict, 
for phytosanitary reasons, the entry of numerous fruits and vegetables, 
such as pears and potatoes. In accordance with its WTO obligations, 
Japan opened its rice market to imports under a Tariff Rate Quota. 
However, the U.S. continues to press Japan to introduce this rice to 
consumers, rather than earmarking it for stockpiles or food aid to 
third countries. Tariffs for wood products are being reduced under 
Japan's Uruguay Round commitments, but they continue to pose barriers 
to market access. Moreover, a number of unresolved market access issues 
are being discussed in the U.S.-Japan deregulation dialogue, such as 
recognition of foreign testing organizations, approval of Japan 
Industrial Standards (JIS) grademark equivalency for U.S. manufacturers 
of nails, and food waste disposals.
    Telecommunications and Broadcasting: Japan is a signatory of the 
WTO Basic Telecommunications Agreement of 1997, which promotes market 
access, investment and pro-competitive regulation in the 
telecommunications industry. In recent years, Japan has adopted a 
series of significant measures to foster a more pro-competitive regime 
in the telecommunications sector. However, access to telecommunications 
and broadcasting market in Japan remains constrained by both regulatory 
and anti-competitive practices. New entrants face much higher costs and 
longer waiting periods for connecting to the local dominant carrier's 
network than in other advanced countries, deterring competition. In 
addition, new carriers' difficulty in gaining access to facilities and 
land to build their networks, government restrictions on combining 
owned and leased facilities in creating a network, and the lack of 
access to discrete portions of the local dominant carriers' network at 
reasonable costs have slowed and raised the costs of new carriers' 
entrance. Finally, discriminatory and anti-competitive discount pricing 
plans by the dominant carriers have put new entrants at a serious 
disadvantage in developing Internet services. The U.S. Government has 
been applying pressure on Japanese regulators to take steps to address 
these issues under the U.S.-Japan Enhanced Initiative.
    Foreign telecommunications equipment suppliers continue to have 
difficulty selling to the Japanese public sector, having an extremely 
low share of this market. In addition, problems remain in selling to 
NTT (Nippon Telegraph and Telephone) companies, which collectively are 
the largest purchaser of telecommunications equipment in Japan. Foreign 
investment restrictions remain on NTT and on Direct-To-Home (DTH) 
satellite broadcasting companies.
    Standards, Testing, Labeling and Certification: Standards, testing, 
labeling and certification problems hamper market access in Japan. In 
some cases, advances in technology, products or processing make 
Japanese standards outdated and restrictive. Domestic industry often 
supports standards that are unique and restrict competition, although 
in some areas external pressure has brought about the simplification or 
harmonization of standards to comply with international practices. 
Fresh agricultural products continue to be subject to extensive 
restrictions, including phytosanitary restraints, required overseas 
production-site inspections, fumigation requirements for non-quarantine 
pests, and tariff rate or minimum access restrictions.
    Japan requires repeated testing of established quarantine 
treatments each time a new variety of an already approved agricultural 
commodity is approved for importation into Japan. For example, Japan 
has approved red and golden delicious apples for importation, but 
required that the quarantine treatment be retested for other almost 
identical varieties. The U.S. challenged this redundant testing 
requirement in the WTO, arguing that it has no scientific basis and 
serves as a significant trade barrier. Completion of the testing for 
each variety takes at least two years and is costly to the U.S. 
Government and U.S. producers. In October 1998, a WTO dispute 
settlement panel found that Japan's varietal testing requirement for 
agricultural products violated its WTO obligations. Japan has agreed to 
implement the terms of the WTO decision by the end of 1999.
    Foreign Direct Investment (FDI): FDI in Japan has remained 
extremely small in scale relative to the size of the economy. In Japan 
fiscal year 1998, Japan's annual inward FDI totaled 10.5 billion (up 
from $6 billion the previous year) but still only 0.27 percent of its 
GDP. (Comparatively, preliminary estimates for the United States FDI in 
1998 was $188 billion). Although in Japan, inward foreign investment is 
on the rise, Japan continues to host the smallest amount of FDI as a 
proportion of total output of any major OECD nation. The low level of 
FDI reflects the high cost-structure of doing business (for example, 
registration, licenses, land prices and rents), the legacy of former 
investment restrictions, and a continuing environment of structural 
impediments to greater foreign investment. The challenges facing 
foreign investors seeking to establish or enhance a presence in Japan 
include: laws and regulations that directly or indirectly restrict the 
establishment of business facilities, close ties between government and 
industry, informal exclusive buyer-supplier networks and alliances, 
high taxation, and a difficult regulatory environment for foreign or 
domestic acquisitions of existing Japanese firms.
    Recently, the Japanese Government has implemented potentially 
useful measures for increasing FDI, including easing restrictions on 
foreign capital entry. Additional steps include the implementation by 
Japanese enterprises of consolidated accounting by March 31, 2000. This 
step will greatly enhance financial transparency and facilitate mergers 
and acquisition and other investments. The government in October 1999 
introduced legislation modeled on the U.S. Chapter 11 bankruptcy 
procedures. The legislation should facilitate corporate restructuring 
and buy-outs by foreign and domestic investors.
    In October 1998, the U.S. Government proposed to the Japanese 
Government 18 new reforms in the areas of mergers and acquisitions, 
land, and labor policy to improve Japan's environment for foreign 
direct investment. In May 1999, both governments submitted a Joint 
report to the President and Prime Minister on the status of Japan's 
investment climate and measures under consideration. The bilateral 
Investment Working Group held talks in Tokyo in October 1999 that 
covered a range of investment issues. The group intends to continue 
consultations and the exchange of information as stipulated in the 
Joint report.
    Government Procurement Practices: Japan is a party to the 1996 WTO 
Government Procurement Agreement. While government procurement in Japan 
at the national, regional and local levels generally conform to the 
letter of the WTO agreement, there are reports that at some procuring 
entities, established domestic competitors continue to enjoy 
preferential access to tender information. In some sectors, unfair low 
pricing remains a problem, preventing companies from winning contracts 
based on open and transparent bidding procedures. Moreover, some 
entities continue to draw up tender specifications in a way that favors 
a preferred vendor, using design-based specifications rather than more 
neutral performance-based specifications.
    Customs Procedures: The Japanese Customs Authority has made 
progress in automating its clearing procedures, and efforts are 
underway to integrate the procedures of other government agencies over 
the next several years. However, U.S. exporters still face relatively 
slow and burdensome processing.
6. Export Subsidies Policies
    Japan's official development assistance for Asian countries in 1998 
rose 71 percent from the previous year as the government focused on 
helping its neighbors recover from the region-wide economic crisis. 
Japan remained the world's top aid donor in 1998 for the eighth 
consecutive year, disbursing a total of $10.77 billion, up 14.2 percent 
from 1997. Although Japan had been moving towards untying its aid, 
during the past 2 years this trend has reversed. Both its Environmental 
Aid loans and its Special Yen loans are tied to the purchase of 
Japanese products. Not only does this limit U.S. firm's ability to 
participate in these projects; it also denies recipient countries the 
opportunity to use this aid as efficiently as possible. This trend 
towards retying has been actively opposed by the U.S. Government. In 
addition, the USG continues to address U.S. industry concerns that 
feasibility studies funded by Japanese grant aid, and tied to the use 
of Japanese firms, results in technical specification that unduly favor 
Japanese firms.
7. Protection of U.S. Intellectual Property Rights
    Japan is a party to the Berne and Universal Copyright Conventions, 
the Paris Convention on Industrial Property, the Patent Cooperation 
Treaty, and the WTO Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPs). Japan is on the ``Special 301'' Watch List 
because of continuing U.S. concerns about the operation of Japan's 
patent system and the protection of trade secrets and computer 
software.
    While Japan's IPR regime affords national treatment to U.S. 
entities, the U.S. has long been concerned by the long processing time 
for patent examination. Although Japan has reduced patent pendency from 
36 to 28 months, this is still longer than in other industrialized 
countries. Lengthy patent pendency, coupled with a practice of opening 
all patent applications to public inspection 18 months after filing, 
exposes applications to lengthy public scrutiny with the potential of 
limiting legal protection.
    Many Japanese companies use the patent filing system as a tool of 
corporate strategy, making many applications to cover slight variations 
in technology. However, a February 1998 decision by Japan's Supreme 
Court to permit an infringement finding under the ``the doctrine of 
equivalence'' may reduce this practice and is a positive step toward 
broadening Japanese courts' generally narrow interpretation of patent 
rights. The rights of U.S. subscribers in Japan can be circumscribed by 
filings of applications for similar inventions or processes. Some small 
revisions to Japan's patent and trademark law aimed at improving 
protection right holders will take effect early in 2000.
    Japan's protection of trade secrets is inadequate. Because Japan's 
Constitution prohibits closed trials, the owner of a trade secret 
seeking redress for misappropriation of the secret is put in the 
difficult position of not being able to protect a trade secret without 
disclosing it publicly. While a recent amendment to Japan's Civil 
Procedures Act excludes Japanese court records containing trade secrets 
from public access, this legislation does not adequately address the 
problem. Court proceedings of trade secrets remain open to the public 
and neither the parties nor their attorneys have confidentiality 
obligations.
    Japan's Trademark Law was revised in 1997 to speed the granting of 
trademark rights, strengthen protection to well-known trademarks, 
address problems related to unused trademarks, simplify registration 
procedures, and increase infringement penalties. The effect of the 
revisions, however, is not yet clear. Historically, trademark 
registration in Japan has been slow, requiring approximately 36 months. 
Since trademarks must be registered in Japan to ensure enforcement, 
delays make it difficult for foreign parties to enforce their marks. In 
addition, concerns have been raised by U.S. firms regarding Japan's re-
exportation of suspected counterfeit merchandise to be re-exported 
which is inconsistent with article 59 of the Trade-Related Aspects of 
Intellectual Property Rights (TRIPs) agreement.
    End-user software piracy remains a major concern of U.S. and some 
Japanese software developers. An amendment to Japan's Civil Procedures 
Law to award punitive damages rather than actual damages would help 
increase the deterrent against software piracy.
8. Worker Rights
    a. The Right of Association: Japan's Constitution and domestic 
labor law provide for the right of workers to freely associate in 
unions. Approximately 23 percent of Japan's labor force is unionized. 
The Japanese Trade Union Confederation (RENGO), which represents 7.8 
million workers, is the largest labor organization. Both public and 
private sector workers may join a union, although members of the armed 
forces, police and firefighters may neither form unions nor strike. The 
right to strike, although implicit in the constitution, is seldom 
exercised. The law prohibits retribution against strikers and is 
effectively enforced.
    b. The Right to Organize and Bargain Collectively: The constitution 
provides unions with the right to organize, bargain and act 
collectively. These rights are freely exercised, and collective 
bargaining is practiced widely, particularly during the annual ``Spring 
Wage Offensive'' of nationwide negotiations.
    c. Prohibition of Forced or Compulsory Labor: Article 18 of the 
Japanese Constitution states that ``No person shall be held in bondage 
of any kind. Involuntary servitude, except as punishment for crime, is 
prohibited.'' This provision applies both to adults and children, and 
there are no known cases of forced or bonded labor.
    d. Minimum Age for Employment of Children: By law, children under 
the age of 15 may not be employed and those under age 18 may not work 
in dangerous or harmful jobs. Child labor is virtually non-existent in 
Japan, as societal values and the rigorous enforcement of the Labor 
Standards Law protect children from exploitation in the workplace.
    e. Acceptable Conditions of Work: Minimum wages are set on both a 
sectoral and regional (prefectural) level. Minimum wages ranged from 
$50 per day in Tokyo to $42 in Okinawa. The Labor Standards Law 
provides for a 40-hour work week in most industries and mandates 
premium pay for hours worked beyond 40 hours in a week or eight hours 
in a day. However, labor unions criticize the Japanese Government for 
failing to enforce working hour regulations in smaller firms. The 
government effectively administers laws and regulations affecting 
workplace safety and health.
    f. Worker Rights in Sectors with U.S. Investment: Labor 
regulations, working conditions and worker rights in sectors where U.S. 
capital is invested do not vary from those in other sectors of the 
economy.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  4,496
Total Manufacturing............  ..............  14,224
  Food & Kindred Products......  528             ...............................................................
  Chemicals & Allied Products..  2,608           ...............................................................
  Primary & Fabricated Metals..  365             ...............................................................
  Industrial Machinery and       3,588           ...............................................................
   Equipment.
  Electric & Electronic          2,043           ...............................................................
   Equipment.
  Transportation Equipment.....  1,724           ...............................................................
  Other Manufacturing..........  3,368           ...............................................................
Wholesale Trade................  ..............  4,948
Banking........................  ..............  539
Finance/Insurance/Real Estate..  ..............  12,318
Services.......................  ..............  1,415
Other Industries...............  ..............  212
TOTAL ALL INDUSTRIES...........  ..............  38,153

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                           REPUBLIC OF KOREA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (nominal/factor cost)............    476,600    321,300    408,800
  Real GDP Growth (pct) \2\............        5.0       -5.8        7.0
  GDP by Sector:
    Agriculture/Fisheries..............     25,505     15,768     18,750
    Manufacturing......................    137,702     98,521    138,300
    Electricity/Gas/Water..............     10,098      7,519      9,380
    Construction.......................     55,510     32,560     35,800
    Financial Services.................     91,146     62,886     81,500
    Government/Health/Education........     36,436     25,864     22,000
    Other..............................    120,203     78,182    103,070
  Government Expenditure (pct/GDP).....       22.1       23.4       22.5
  Per Capita GDP (US$).................     10,307      6,823      8,735
  Labor Force (000's)..................     21,500     21,800     22,000
  Unemployment Rate (pct)..............        2.5        7.4        4.5

Money and Prices (annual percentage
 rate):
  Money Supply (M2)....................       19.2       24.0       25.0
  Corporate Bonds \3\..................       13.4       15.1        8.5
  Personal Savings Rate................       22.8       25.1       25.5
  Retail Inflation.....................        4.5        7.5        2.0
  Wholesale Inflation..................        3.9       12.2        1.0
  Consumer Price Index (1995 base).....      109.6      117.8      120.2
  Average Exchange Rate (Won/US$)......      951.1      1,399      1,200

Balance of Payments and Trade:
  Total Exports FOB \4\................    136,164    132,313    137,000
    Exports to U.S. \4\................     21,625     22,805     24,000
  Total Imports CIF \4\................   -144,616    -93,282   -115,000
    Imports from U.S. \4\..............    -30,122    -20,403    -25,000
  External Debt \5\....................    159,200    148,700    138,000
  Debt Service Payments................    -18,000    -29,800    -24,000
  Gold and FOREX Reserves..............     20,406     52,041     65,000
------------------------------------------------------------------------
\1\ 1999 figures are estimates based on available monthly data as of
  October.
\2\ Growth based on won, the local currency.
\3\ Figures are average annual interest rates.
\4\ Merchandise trade, measured on customs clearance basis; Korean
  government data.
\5\ Gross debt; includes non-guaranteed private debt.

1. General Policy Framework
    South Korea demonstrated its resilience and its capacity for change 
by bouncing back strongly in 1999 from the 1997-98 economic crisis, the 
worst in the country's history. After experiencing a 5.8 percent 
contraction in 1998, 7 to 8 percent GDP growth is forecast in 1999. Per 
capita GNP in dollar terms will be $8,735 in 1999, up from 1998's 
$6,823 but still lower than $10,307 in 1997.
    The crisis called into question the viability of a growth model 
that relied heavily on a protected domestic market and the deep 
involvement of the government in determining the allocation of capital. 
The crisis also set the scene for the presidential election victory in 
December 1997 of opposition figure and economic reform advocate Kim Dae 
Jung.
    By mid-1998, largely due to the $58 billion IMF program that Korea 
entered into in December 1997 and President Kim's commitment to 
vigorous financial and corporate sector reform, stability was restored 
to the Korean economy. However, problems remain with respect to 
implementation of reform and restructuring measures in these two 
sectors. Although the Korean government has made progress in inducing 
the conglomerates (``chaebols'') to reduce their unsustainable debt/
equity ratios, to improve corporate governance and enhance 
transparency, and to restructure their operations, the chaebol have 
only partially implemented Republic of Korea (ROK) government-mandated 
changes in these areas. In general, Korean business preference for 
market share instead of profitability and an unrealistically low Korean 
bankruptcy rate encouraged over-capacity and corporate inefficiency, 
but discouraged investment in small-to-medium enterprises (SME's). The 
SME sector remains underdeveloped in Korea.
    In 1999 the chronic de facto bankruptcy of Daewoo, the second-
largest Korean conglomerate, and continued weakness in the financial 
sector, especially the over-leveraged investment trust companies 
(ITC's), showed the weakness of the past patterns of misallocation of 
investment resources, excessive debt, and lack of effective oversight. 
The Daewoo crisis became front-page news around the world in July 1999, 
as that massive firm with far-flung global interests and investments 
came near default on more than $50 billion in debt. That month, 
creditors rolled over 12 trillion won in debt that was coming due over 
the following 10 days. Meanwhile, the $200-billion-plus ITC industry 
faced a loss of investor confidence due to its exposure to Daewoo and 
the lack of adequate prudential supervision. The Korean government's 
handling of the twin Daewoo and ITC crises will be a litmus test of its 
resolve to see through meaningful and sustainable corporate reform and 
restructuring, as well as the key to reducing systemic risk in the 
economy.
    Korea produces and exports advanced electronic components, 
automobiles, steel, and a wide variety of mid-level, medium-quality 
consumer electronics and other goods. As labor activism in the 1980's 
drove up wages faster than productivity growth, Korea lost its low-wage 
labor advantage to China and Southeast Asian countries. At the same 
time, Korea faced tough competition from Japan in cutting-edge, high-
tech products.
    Aided by recovery in other Asian markets and a strong current 
account surplus, Korea's usable foreign currency reserves in 1999 grew 
to over $60 billion, while the Korean won stabilized at about 1,200/
dollar as of November 1999. (The won stood at 900/dollar in 1996 but by 
late 1997 had dropped as low as 1,960/dollar). Korea became a member of 
the OECD in December 1996. Inflation dropped to about two percent in 
1999.
    Facility investment is expected to grow 34 percent in 1999, after 
suffering a 38 percent fall in 1998. In 1999, the unemployment rate is 
expected to drop to around 4.5 percent with less than one million 
unemployed people, a fall from seven percent in 1998 when there were 
over 1.4 million jobless. Real income grew eight percent during the 
first seven months of 1999 after a nine percent fall in 1998. Private 
consumption grew 8.2 percent in 1999. (Expenditures on domestic 
consumption accounted for 62 percent of total GDP.)
    The United States is Korea's leading trade partner in 1999, taking 
20 percent of Korea's exports and providing 21.7 percent of Korea's 
imports for the first nine months of 1999. Korea is the eighth largest 
overall trade partner of the United States (the sixth biggest market 
for U.S. exports and the eighth biggest for U.S. imports) up from ninth 
in 1998. U.S. Commerce Department statistics show that, through 
September 1999, U.S. exports to Korea increased 52.2 percent to $16.9 
billion, and U.S. imports from Korea rose 25.8 percent to $22.2 
billion. In 1998 U.S. exports to Korea fell 34 percent while U.S. 
imports from Korea rose 3.4 percent.
    The public sector's role in the economy is relatively small, with 
taxes and expenditures amounting to 24 percent of GDP in 1999. The 
government plans to increase nominal budget spending five percent in 
2000 (the lowest budget growth since 1992) for economic stimulus, to 
improve and expand transportation infrastructure, and to improve the 
social safety net for the unemployed. The 2000 fiscal deficit is 
expected to be about 3.5 percent of GDP, somewhat less than four 
percent in 1999. About 12 percent of 2000 spending will be financed by 
government bond sales. In 1998 the government increased the money 
supply about 20 percent to fight potential deflation due to the 
recession and falling asset values. In consultation with the IMF, the 
government allowed the overnight call rate, which is the main policy 
interest rate of the Bank of Korea, to fall from a peak of 35 percent 
in December 1997 to single digits in 1999. In September 1999, however, 
corporate bond rates rose sharply above 10 percent when Daewoo's 
financial default destabilized the bond market and investors rushed to 
withdraw money from financially weak investment trust companies. 
However, the ROK reversed the rise in long-term rates in October with 
its bond market stabilization fund. The primary monetary target of the 
Bank of Korea is M3, which, in accordance with Korea's IMF program, is 
expected to increase by about 11 percent in 1999.
2. Exchange Rate Policy
    Since the introduction of the IMF program in December 1997, foreign 
exchange and capital controls have been relaxed or abolished. In 
conjunction with IMF program requirements that the exchange rate be 
allowed to float (with intervention limited to smoothing operations 
only.) In December 1997 the exchange rate peg was widened from +/- 2.25 
percent to +/- 10 percent, and then abandoned completely.
3. Structural Policies
    The Korean economic model has been notable for the high degree of 
concentration of capital and industrial output in a small number of 
conglomerates known as ``chaebol.'' While this model produced a long 
record of high economic growth, the 1997 financial crisis exposed its 
weaknesses, which include excessively risky debt levels, industrial 
over-capacity, and economically unsustainable investment. President Kim 
Dae Jung has pushed for major economic reform and restructuring to 
overcome these shortcomings. The government passed laws requiring 
greater corporate transparency, strengthened prudential requirements 
for banks and other financial institutions, fostered the development of 
small and medium-sized industries, and encouraged increased foreign 
investment in Korea. The chaebol have also been pressed to restructure 
and rationalize their operations, including by reducing their debt/
equity levels to 200 percent and through somewhat controversial ``big 
deals'' (i.e. asset/affiliate swaps.) The effective and radical 
restructuring of Korea's second-largest chaebol Daewoo should help 
accelerate the pace of corporate reform. These reforms are moving 
Korea's economy towards a more market-based system, but some important 
changes, especially in the financial and corporate sectors, will take 
time.
4. Debt Management Policies
    Korea's total foreign debt (largely private sector) totaled $144 
billion at the end of July 1999, declining from $158 billion at the end 
of 1997. Through repayment and rescheduling, Korea's short-term debt as 
a percentage of total debt has been reduced from 64 percent at the end 
of 1998 to only 24 percent at the end of July 1999. In addition, the 
ROK developed an external debt reporting system to enhance debt 
management and monitoring. Through September 1999, Korea registered a 
current account surplus of $19.2 billion, substantially smaller than 
the $32 billion surplus recorded during the comparable period a year 
before. The estimated surplus for 1999 is $20 billion, compared to 
about $40 billion in 1998.
5. Significant Barriers to U.S. Exports
    During the last decade Korea has gradually liberalized its markets 
for both goods and services and improved its investment climate for 
U.S. and other foreign firms. Through bilateral and multilateral 
efforts, many protective tariffs were lowered or phased out. Non-
transparent policies and regulations, which directly or indirectly 
inhibited market access for imports, have been revised and reduced. The 
ROK has distanced itself from explicit policies that encouraged anti-
import sentiment among Korean consumers, and is slowly addressing 
residual anti-import biases among both Korean consumers and 
bureaucrats. Rather than tolerating some foreign investment as 
necessary, the ROK has introduced a new foreign investment regime and 
is actively working to attract foreign investment. Korea and the United 
States initiated negotiations in June 1998 to conclude a bilateral 
investment treaty. Total commitments of foreign direct investment in 
1999 is expected to exceed $15 billion, more than double the level in 
1997. Nevertheless, these improvements have not benefited all exporters 
to Korea and barriers to exports from the United States and other 
countries continue to plague key sectors, especially agriculture, 
pharmaceuticals and automobiles.
    In general, Korea's tariffs are modest; Korea's average tariff rate 
is 7.9 percent. However, Korea still maintains a system of high tariffs 
(30 to 100 percent), quotas and tariff rate quotas (TRQ), mostly for 
sensitive agricultural and fishery products of interest to U.S. 
suppliers, which effectively restrict imports. In addition, Korea's 
administration of quotas/TRQs for some products, such as rice and 
oranges, limits legitimate market access. Korea also uses adjustment 
tariffs to respond to import surges; however, the number of these 
tariffs is slowly being reduced. The majority of the remaining 29 
adjustment tariffs apply to agricultural products. The government 
eliminated its import diversification program, which barred certain 
imports from Japan, in June 1999, and has committed to phase out its 
eight GATT balance of payments restrictions by year-end 2000.
    Nontariff barriers, which often result from non-transparent 
regulatory practices, continue to inhibit imports to Korea across a 
range of sectors. A lack of regulatory transparency and consistency can 
affect licensing, inspections, type approval, marking/labeling 
requirements and other standards. To add transparency and due process 
to its regulatory system, Korea enacted the Administrative Procedures 
Act in 1996, but public notice of new regulations, as well as comment 
and transition periods are not always adequate. The regulatory system 
has not offered adequate recourse to those adversely affected by 
creation of new regulations. Since President Kim initiated a 
comprehensive regulatory review in 1998, more than 5,000 regulations/
guidelines have been eliminated or targeted for elimination; review of 
the more than 6,000 remaining regulations is ongoing.
    Products regulated for health and safety reasons (such as 
pharmaceuticals, medical devices, and cosmetics) typically require 
additional testing or certification from the relevant ministries before 
they can be sold in Korea, resulting in considerable delays and 
increasing costs. The foreign pharmaceutical industry faces 
discriminatory barriers associated with clinical registration and 
reimbursement pricing issues, although a new reimbursement pricing 
system is expected to be implemented in late 1999. Registration 
requirements for such products as chemicals, processed food, medical 
devices and cosmetics hamper entry into the market as well. Korea has 
initiated efforts to streamline its complex and burdensome import 
clearance procedures, targeting some 54 laws for revision. It has 
committed to bring its Food Code, Food Additive Code and labeling 
requirements into conformity with international standards. Import 
clearance, however, still takes longer than in other Asian countries.
    Despite potential conflict of interest problems, the government has 
delegated authority to some Korean trade associations to carry out 
functions normally administered by the government. Such delegation of 
responsibility may include processing import approval documentation 
prior to customs clearance (allowing local trade associations to obtain 
business confidential information on incoming shipments), advertisement 
pre-approvals (providing early warning on the introduction of new 
products and on competitors' marketing efforts), and a decision-making 
seat on various committees (usually not available to foreign firms). 
The Korea Fair Trade Commission increased its efforts in 1999 to reduce 
the quasi-legal, trade restrictive powers of a number of associations.
    The United States and Korea signed a Memorandum of Understanding 
(MOU) in October 1998, in which Korea agreed to take measures to 
further open its automobile market and improve market access for U.S. 
automobiles. Per the MOU, Korea has lowered some taxes which had a 
discriminatory impact on imported cars, bound its auto tariffs at 8 
percent, improved consumer financing of autos by expanding the auto 
mortgage system and shortening the repossession process, and 
streamlined standards and certification. The ROK has also taken steps 
to reduce anti-import attitudes, which have an especially strong impact 
on foreign automobiles, including by agreeing to co-sponsor an ``Import 
Motor Show'' in May 2000. Despite these efforts, imports of U.S. and 
other foreign cars will barely exceed 2000 units in 1999.
    The government requires theaters to show local movies for a minimum 
of 146 days each year, with some flexibility so that this total can be 
reduced to 106 days. U.S. industry states that these constraints on 
foreign movies and programs are more restrictive than in most other 
countries. The Korean government, however, considers this a cultural 
rather than a trade issue.
    Korea acceded to the WTO Government Procurement Agreement (GPA) on 
January 1, 1997 and is co-sponsoring the Transparency in Government 
Procurement initiative in the WTO. U.S. firms, however, continue to 
raise some concerns about Korean procurement practices, including 
discrimination against U.S. firms participating in procurements for 
Korea's new international airport conducted by the Korea Airport 
Construction Authority. The U.S. government is currently pursuing WTO 
dispute settlement resolution on this issue with Korea.
    Korea will expand its Uruguay Round minimum import quota for beef 
to 225,000 metric tons by the year 2000 and expand the proportion of 
the quota imported through the ``simultaneous buy/sell system.'' Korea 
has committed to remove all remaining nontariff barriers to beef 
imports, including state trading, by January 2001. However, due to a 
sharp drop in consumption, Korea has been unable to meet its WTO 
minimum import commitment in recent years. In February 1999, the United 
States initiated WTO dispute settlement consultations with Korea to 
eliminate import barriers and distribution restrictions on foreign 
beef.
    In response to the 1997 financial crisis, the government has 
implemented broad-based reforms of its financial system. These reforms 
include substantial liberalization of capital markets, including the 
abolition of restrictions on foreign ownership of domestic shares and 
bonds, and restrictions on the use of deferred payments to finance 
imports. Foreign banks can now establish subsidiaries in Korea and 
foreign financial firms can participate in mergers and acquisitions of 
domestic Korean financial institutions. Korea, however, requires 
foreign branches to be separately capitalized, and other regulations 
such as prudential lending limits are based on local branch capital as 
opposed to its total capital, while a domestic bank's capital base is 
assessed as the entire bank's capital. Foreign banks are also 
disadvantaged in access to local currency funding. The government has 
also loosened controls over access to currency, such as swap lines used 
by banks as a source of local currency, but the government retains 
controls and has not committed to maintaining these new lines once the 
crisis is over. The new Foreign Exchange Transaction Law that was 
implemented in April 1999 significantly liberalized formerly heavily 
regulated capital transactions.
    Korea's new Foreign Investment Promotion Act, which became 
effective in 1998, streamlined foreign investment application 
procedures and eased barriers to foreign direct investment across a 
range of sectors. Korea now has a much more favorable investment 
climate for foreign firms, and in the longer run this should foster 
broader market access and more imports. Investment restrictions now 
remain on only 21 industrial sectors, of which seven are entirely 
closed. Mergers, including hostile mergers, are allowed, and most 
restrictions on foreign ownership of local shares have been lifted. 
Foreigners are now allowed to purchase real estate and property. Tax 
incentives, especially for the high technology sector, have been 
increased. Restrictions on access to offshore funding (including 
offshore borrowing, intra-company transfers and inter-company loans), 
however, continue to be burdensome. Foreign equity participation 
limits, licensing requirements and other regulatory restrictions can 
limit foreign direct investment in sectors nominally open to 
foreigners. Foreign firms also face additional investment restrictions 
in many professional services sectors.
6. Export Subsidies Policies
    In the past, Korea aggressively promoted exports through a variety 
of policy tools, including export subsidies, directed credit and 
targeted industrial policy. However, in the WTO, Korea has committed to 
phasing out those programs not permitted under the WTO Agreement on 
Subsidies and Countervailing Measures. Under the IMF stabilization 
package, Korea eliminated four WTO prohibited subsidies. The real 
benefit of the few remaining subsidized lines of export credit is 
insignificant in a macroeconomic sense. The relative size of direct 
grants is small and declining with regard to both the government budget 
and growing private investment. The use of tax exemptions, the main 
vehicle for export promotion, appears to be declining as well. The 
government does expend large amounts of money in research and 
development in key industrial sectors targeted for development, such as 
telecommunications.
7. Protection of U.S. Intellectual Property
    Korea is a participant in the WTO's Agreement on Trade Related 
Aspects of Intellectual Property (TRIPs). It is also a signatory to the 
World Intellectual Property Organization (WIPO), the Universal 
Copyright Convention, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms, the Geneva Phonograms 
Convention, the Paris Convention for the Protection of Industrial 
Property, and the Patent Cooperation Treaty. Korea joined the Berne 
Convention in August 1996.
    Korean laws protecting IPR are generally adequate in legal terms, 
but problems remain with respect to enforcement. Korea's ``Special 
301'' status was downgraded from ``Priority Watch List'' to ``Watch 
List'' in April 1997. Korea maintained its ``Watch List'' status in the 
U.S. government's 1999 review. Areas of continuing IPR concern include: 
counterfeit consumer products, software piracy, and pharmaceutical 
patent protection enforcement.
    Korean patent law is fairly comprehensive, offering protection to 
most products and technologies. A new patent court came into effect 
March 1, 1998. However, approved patents of foreign patent holders are 
still vulnerable to infringement. Korean law provides for compulsory 
licensing of patents when the invention is deemed necessary for the 
national defense, for the public interest, or for the protection of a 
dependent patent.
    The government's protection of trademarks has improved since 1991. 
A revised Trademark Law became effective March 1, 1998. The Design Act 
was also revised on March 1, 1998, enhancing protection of industrial 
designs. The granting of a trademark under Korean law is based on a 
``first-to-file'' basis. While preemptive and predatory filings are on 
the decline, ``sleeper'' preemptive registrations still surface on 
occasion. A new provision now allows the Korean Industrial Property 
Office (KIPO) to reject suspected predatory applications based on a 
``bad faith'' clause. There has been less success in stemming the 
export of Korean counterfeit products globally.
    Korea's Copyright Law protects author's rights, but local 
prosecutors take no action unless the copyright holder files a formal 
complaint. In 1999, Korea amended its Computer Program Protection Act 
and is preparing revised copyright legislation so as to better meet its 
TRIPs obligations, especially with respect to copyright and trademark 
protection for transactions conducted on the internet. Korea, however, 
is not in full compliance with provisions of the TRIPs Agreement which 
stipulate that preexisting works and sound recordings must enjoy a full 
term of protection (i.e., life of the author plus 50 years for works; 
50 years for sound recordings). Korea now only provides protection back 
to 1957. The Korean government in 1999 has devoted increased resources 
and staff to IPR enforcement activities and President Kim himself has 
directed cabinet agencies to step-up government efforts to protect 
intellectual property. However, IPR violations, especially of computer 
software, including in the government sector remain a problem.
8. Worker Rights
    a. The Right of Association: With the exception of public sector 
employees and teachers, Korean workers enjoy the right of free 
association. White-collar workers in the government sector cannot join 
unions, but blue-collar employees in the postal service, railways, and 
telecommunications sectors, and the national medical center have formed 
labor organizations. Starting this year, government employees were 
allowed to form workplace consultative councils. In July, legislation 
went into effect allowing teachers to form unions. Unions may be formed 
with as few as two members and without a vote of the full prospective 
membership.
    Until recently the Trade Union Law specified that only one union 
was permitted at a workplace, but labor law changes in 1997 authorize 
the formation of competing labor organizations beginning in the year 
2002. Workers in government agencies and defense industries do not have 
the right to strike. Unions in enterprises determined to be of 
``essential public interest,'' including utilities, public health, and 
telecommunications, may be ordered to submit to government-ordered 
arbitration in lieu of striking. In fact, work stoppages occur even in 
these sensitive sectors. The Labor Dispute Adjustment Act requires 
unions to notify the Labor Ministry of their intention to strike, and 
normally mandates a 10-day ``cooling-off period'' before a work 
stoppage may legally begin.
    b. The Right to Organize and Bargain Collectively: The Korean 
constitution and the Trade Union Law provide for the right of workers 
to bargain collectively and undertake collective action, but does not 
grant government employees, school teachers or workers in defense 
industries the right to strike. Collective bargaining is practiced 
extensively in virtually all sectors of the Korean economy. The central 
and local labor commissions form a semi-autonomous agency that 
adjudicates disputes in accordance with the Labor Dispute Adjustment 
Law. This law empowers workers to file complaints of unfair labor 
practices against employers who interfere with union organizing or 
practice discrimination against unionists. In 1998 the government 
established the Tripartite Commission, with representatives from labor, 
management, and the government to deal with labor issues related to the 
economic downturn. The work of the Commission both made it legal for 
companies to lay off workers due to economic hardship and authorized 
temporary manpower agencies. Labor-management antagonism, however, 
remains an issue, and some major employers remain strongly antiunion.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
provides that no person shall be punished, placed under preventive 
restrictions, or subjected to involuntary labor, except as provided by 
law and through lawful procedures. Forced or compulsory labor is not 
condoned by the government and rarely occurs.
    d. Minimum Age for Employment of Children: The government prohibits 
forced and bonded child labor and enforces this prohibition 
effectively. The Labor Standards Law prohibits the employment of 
persons under the age of 15 without a special employment certificate 
from the Labor Ministry. Because education is compulsory through middle 
school (about age 14), few special employment certificates are issued 
for full-time employment. Some children are allowed to do part-time 
jobs such as selling newspapers. In order to obtain employment, 
children under 18 must have written approval from their parents or 
guardians. Employers may require minors to work only a limited number 
of overtime hours and are prohibited from employing them at night 
without special permission from the Labor Ministry.
    e. Acceptable Conditions of Work: The government implemented a 
minimum wage in 1988 that is adjusted annually. The minimum wage in 
1998 was set at $1.28/hour (won 1,525/hour). Companies with fewer than 
10 employees are exempt from this law. The maximum regular workweek is 
44 hours, with provision for overtime to be compensated at a higher 
wage, but such rules are sometimes ignored, especially by small-
companies. The law also provides for a maximum 56-hour workweek and a 
24-hour rest period each week. Labor laws were revised in 1997 to 
establish a flexible hours system that allows employers to ask laborers 
to work up to 48 hours during certain weeks without paying overtime so 
long as average weekly hours do not exceed 44. The government's health 
and safety standards are not always effectively enforced, but the 
accident rate continues to decline. The number of work-related deaths 
remains high by international standards.
    f. Rights in Sectors with U.S. Investment: U.S. investment in Korea 
is concentrated in petroleum, chemicals and related products, 
transportation equipment, processed food, manufacturing and services. 
Workers in these industrial sectors enjoy the same legal rights of 
association and collective bargaining as workers in other industries.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  (\1\)
Total Manufacturing............  ..............  2,940
  Food & Kindred Products......  380             ...............................................................
  Chemicals & Allied Products..  530             ...............................................................
  Primary & Fabricated Metals..  22              ...............................................................
  Industrial Machinery and       288             ...............................................................
   Equipment.
  Electric & Electronic          558             ...............................................................
   Equipment.
  Transportation Equipment.....  128             ...............................................................
  Other Manufacturing..........  1,034           ...............................................................
Wholesale Trade................  ..............  (\1\)
Banking........................  ..............  2,251
Finance/Insurance/Real Estate..  ..............  38
Services.......................  ..............  446
Other Industries...............  ..............  -38
TOTAL ALL INDUSTRIES...........  ..............  7,365
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                MALAYSIA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................   101,236    72,569  \2\ 78,9
                                                                      28
  Real GDP Growth (pct)...................       7.5      -7.5   \3\ 4.3
  GDP by Sector (1978 prices):
    Agriculture...........................     6,106     4,377     4,723
    Manufacturing.........................    20,981    12,984    14,587
    Mining And Petroleum..................     5,144     3,755     3,827
    Construction..........................     3,389     1,871     1,860
    Services..............................    31,729    22,466    23,697
    Government Services...................     4,641     3,506     3,616
  Per Capita GDP (US$)....................     4,564     3,272     3,475
  Labor Force (000's).....................     9,038     8,880     9,010

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)(pct)...........      22.7       1.5  \4\ 12.4
  Consumer Inflation (pct)................       2.7       5.3       3.0
  Exchange Rate (RM/US$ annual average)...      2.81      3.92      3.80

Balance of Payments and Trade:
  Total Exports FOB.......................    77,478    71,925    79,189
    Exports to U.S........................    18,017    19,001  \5\ 9,81
                                                                       6
  Total Imports FOB.......................    73,822    54,321    59,682
    Imports from U.S......................    10,828     8,952  \5\ 4,27
                                                                       0
  Trade Balance...........................     3,656    17,604    19,507
    Balance with U.S......................     7,189    10,049     5,546
  External Public Debt....................    23,280    17,387    19,078
  Fiscal Surplus/GDP (pct)................       2.3      -1.9      -4.9
  Current Account Surplus/GDP (pct).......      -5.6      12.9  \6\ 14.0
  Debt Service Payments/GDP (pct).........       5.0       6.9       N/A
  Gold and Foreign Exchange Reserves......    21,700    26,196  \7\ 30,2
                                                                      00
  Aid from U.S............................       0.6       0.9       1.0
  Aid from All Other Countries............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Malaysian Government estimates.
\2\ Converted at annual average exchange rates.
\3\ Calculated in ringgit to avoid exchange rate changes.
\4\ July data for 1999.
\5\ U.S. Commerce Department data, January-June for 1999.
\6\ Deficit for 1997.
\7\ End-October data for 1999.

1. General Policy Framework
    After nearly a decade of strong economic growth averaging 8.7 
percent annually, Malaysia was hard hit by the regional financial and 
economic crisis of 1997-98. After contracting 7.5 percent in 1998, the 
economy returned to positive growth in the second quarter of 1999. 
Analysts predict 5-6 percent growth in 1999 and continued strong growth 
in 2000. Growing consumer and investor confidence is reflected in 
increased auto sales, consumer credit mortgage approvals, and a three-
fold increase in the Kuala Lumpur Stock Exchange Composite Index from 
its record low of 262.7 in September 1998 to trading levels in the 720-
750 range in November 1999. Malaysia's economic recovery has been 
export led, based in part on growing electronics exports to the United 
States, Malaysia's principal trade and investment partner, and the 
region and also the result of increased government spending.
    Foreign direct and portfolio investment has not returned to pre-
crisis levels. Investor concerns are focused on excessive commercial 
property investment, high levels of domestic corporate debt, the lack 
of transparent policies regarding support for troubled firms, and 
continued trade and investment restrictions. To deal with a growing 
number of non-performing loans (NPLs) during the financial crisis, in 
1998 the government established an asset management corporation, 
Danaharta, and a special purpose vehicle, Danamodal, to inject funds 
into banks in need of recapitalization. The government also created the 
Corporate Debt Restructuring Committee (CDRC) to provide a framework 
for creditors and debtors voluntarily to resolve liquidity problems of 
viable businesses and serve as an alternative to bankruptcy. Danaharta 
has removed about one-third of the NPLs from the banking system. CDRC 
has completed the first stages of the debt workout process for a 
substantial number of firms and reportedly hopes to complete its 
activities by the end of 2000.
    The government plays a strong pro-active role in the economy as 
investor, economic planner, approver of investment projects, approver 
of public and private procurement decisions, author and implementor of 
policies and programs to bolster the economic status of the Malay and 
indigenous communities (commonly referred to as bumiputras), and 
decisionmaker over privatization contracts. The government holds equity 
stakes (generally minority shares) in a wide range of domestic 
companies, usually large players in key sectors, and can exert 
considerable influence over their operations. The economic downturn, 
however, slowed the push to privatization and increased emphasis on 
government support for sensitive industries, such as automobiles and 
steel. The government has said it will consider granting assistance to 
troubled corporations on the basis of three criteria: national 
interest, strategic interest, and equity considerations under bumiputra 
policies.
    Tariffs are the main instrument used to regulate the importation of 
goods in Malaysia. However, 17 percent of Malaysia's tariff lines 
(principally in the construction equipment, forestry, logging, 
agricultural mineral, and motor vehicle sectors) are also subject to 
non-automatic import licensing designed to protect import-sensitive or 
strategic industries. Although the average applied MFN tariff rate of 
Malaysia has declined to approximately 8.1 percent, duties for tariff 
lines where there is significant local production are often higher. For 
example, 15.8 percent of product tariff lines in Malaysia's tariff 
schedule have rates over 24 percent, 25.9 percent of tariff lines have 
rates over 15 percent, and many lines have rates well over 100 percent.
    The level of tariff protection is generally lower on raw materials 
and increases for those goods with value-added content or which undergo 
further processing. The government urges Malaysians to purchase 
domestic products, instead of imports, whenever possible. In addition 
to import duties, a sales tax of 10 percent is levied on most imported 
goods. Like import duties, however, this sales tax is not applied to 
raw material and machinery used in export production. Malaysia has been 
an active participant in multilateral and regional trade fora such as 
the World Trade Organization (WTO) and APEC (which it chaired in 1998).
    Fiscal Policy: The government is pursuing an expansive fiscal 
policy in order to stimulate economic growth. The government expects to 
run a budget deficit in 2000 of approximately 4.4 percent of GNP, 
slightly less than the 1999 deficit. The Malaysian government finances 
domestically the bulk of the deficit.
    Monetary Policy: The central bank has been progressively loosening 
monetary policy to lead the economy out of recession. Statutory reserve 
requirements have been reduced steadily from 13.5 percent as of year-
end 1997 to 4 percent in September 1998. The central bank also lowered 
the liquid asset requirements for commercial banks, reduced an 
administrative margin used to calculate the base lending rate, and cut 
its 3 month intervention rate from 8 percent to 5.5 percent. A 
significant drop in interest rates has accompanied the loosening of 
monetary policy. The base lending rate dropped from 8.04 percent in 
early November 1998 to 6.8 percent in November 1999.
2. Exchange Rate Policy
    In September and October 1999, the Malaysian government relaxed 
capital control measures on foreign portfolio investment instituted on 
September 1, 1998, as part of a broad effort to stabilize the currency 
while stimulating the economy. On September 2, 1998, the government 
fixed the exchange rate of the Ringgit to the U.S. Dollar at RM 3.8/
US$1 and instituted selective capital controls, including a 
controversial tax on repatriated principal and profits. At present 
foreign portfolio investment is subject to a flat 10 percent exit tax 
on repatriated profits.
3. Structural Policies
    Pricing Policies: Most prices are market-determined but controls 
are maintained on some key goods, such as vegetable oil, fuel, public 
utilities, cement, motor vehicles, rice, flour, sugar, tobacco, and 
chicken. (Note: no restrictions are placed on wheat imports.)
    Tax Policies: Tax policy is geared toward raising government 
revenue and discouraging consumption of ``luxury'' items. Income taxes, 
both corporate and individual, comprise 40 percent of government 
revenue with indirect taxes, export and import duties, excise taxes, 
sales taxes, service taxes and other taxes accounting for another 31 
percent. The remainder comes largely from dividends generated by state-
owned enterprises and petroleum taxes.
    The Year 2000 budget features personal tax reductions, generous 
benefits for civil servants and tax incentives to encourage financial 
institution mergers. The Government will also lower or abolish duties 
on 179 categories of food products (fresh, dried, and processed). 
Beginning in 2000, the tax assessment system will base tax collection 
on current year income rather than previous year income. High-
technology and information-technology companies which establish in the 
Multimedia Super Corridor (a government-established zone designed to 
concentrate and stimulate development of high-technology multimedia 
industries) are granted attractive tax incentives.
    Standards: Malaysia has extensive standards and labeling 
requirements, but these appear to be largely implemented in an 
objective, nondiscriminatory fashion. Food product labels must provide 
ingredients, expiry dates and, if imported, the name of the importer. 
Electrical equipment must be approved by the Ministry of International 
Trade and Industry, telecommunications equipment must be ``type 
approved'' by the Communications and Multimedia Commission. 
Telecommunications and aviation equipment must be approved by the 
Department of Civil Aviation. Pharmaceuticals must be registered with 
the Ministry of Health. In addition, the Standards and Industrial 
Research Institute of Malaysia provides quality and other standards 
approvals.
4. Debt Management Policies
    Malaysia's medium and long-term foreign debt (both public and 
private sector) amounted to $34.7 billion at the end of 1998, about 44 
percent of GDP. Malaysia's debt service ratio declined from a peak of 
18.9 percent of gross export earnings in 1986 to 6.9 percent in 1998.
5. Aid
    U.S. government assistance to Malaysia in FY-1999 falls into three 
broad categories: the Trade Development Agency (TDA), the International 
Military Education Training (IMET) program ($700,000), and the U.S.-
Asia Environment Program (US-AEP.) Although statistics are not 
available for assistance provided from other governments, since 1998 
the Japanese government has extended financial assistance to help 
Malaysia recover from the economic crisis: Japanese Government Office 
of Developmental Assistance (ODA) Yen Loan Projects approximately $1.05 
billion, Japanese EX-IM Bank approximately $700 million, EX-IM Bank 
guaranteed Commercial bank loans approximately $700 million, Japanese 
government guaranteed commercial bank loans approximately $560 million, 
and a short-term financing facility up to $2.5 billion.
6. Significant Barriers to U.S. Exports
    Import Restrictions on Motor Vehicles: Malaysia maintains several 
measures to protect the local automobile industry, including high 
tariffs and an import quota and licensing system on imported motor 
vehicles and motor vehicle parts. Malaysia also maintains local content 
requirements of 45 to 60 percent for passenger and commercial vehicles, 
and 60 percent for motorcycles. The government maintains that local 
content restrictions will be phased out by the year 2000 in accordance 
with its WTO commitments (see investment barriers.) However, Malaysia 
has requested an extension of its commitments under the ASEAN Free 
Trade Area (AFTA) to reduce tariffs in the auto sector by the year 
2000. These restrictions have hampered the ability of U.S. firms to 
penetrate the Malaysian market. Customs tariffs and excise duties (up 
to 50 percent) for motorcycles are also significant barriers for U.S. 
companies. Malaysia is also considering new emissions standards for 
motorcycles, which could restrict market opportunities for imports.

        Products                                            Tariff (pct)
Automobiles (CB)........................................         140-300
Automobiles (CKD).......................................              80
Vans (CBU)..............................................          42-140
Van (CKD)...............................................              40
4WD/Multipurpose (CBU)..................................          60-200
4WD/Multipurpose (CKD)..................................              40
Motorcycle (CBU)........................................          80-120
Motorcycle (CKD)........................................              30

    Restrictions on Construction Equipment: In October 1996, Malaysia 
raised duties on construction equipment from 5 to 20 percent. In 
addition, the initial capital allowance for imported heavy equipment 
will be reduced from 20 to 10 percent in the first year, and the annual 
allowance will be reduced from between 12 percent and 20 percent to 10 
percent. In October 1997, the government imposed a restrictive 
licensing regime on imports of heavy construction equipment and raised 
import duties for the second year in a row, as detailed below. In April 
1999, another licensing requirement was established for certain iron 
and steel products.

        Products                                            Tariff (pct)
Heavy Machinery & Equipment.............................               5
Multi-Purpose Vehicles..................................              50
Special Purpose Vehicles................................              50
Construction Materials..................................           10-30

    Duties on High Value Food Products: Duties for processed and high 
value products, such as canned fruit, snack foods, and many other 
processed foods, range between 20 and 30 percent. The applied tariff on 
soy protein concentrate is 20 percent.
    Duties on Alcoholic Beverages and Tobacco Products: High tariffs 
(increased 10/23) on tobacco products ($10.5-48/kg) and alcoholic 
beverages (e.g., vermouth in retail-sized containers is subject to a 
specific tariff of $31.5/dal) hamper U.S. exports.
    Plastic Resins: U.S. exports of some plastic resins are hampered by 
20 percent tariffs.
    Tariff-Rate Quota for Chicken Parts: Although the government 
applies a zero import duty on chicken parts, imports are regulated 
through licensing and sanitary controls, and import levels remain well 
below the minimum access commitments established during the Uruguay 
Round.
    Float Glass Tariff Differentials: Malaysia levies high duties (65 
sen/kilogram or 50-100 percent ad valorem equivalent) on rectangular-
shaped float glass. Nearly all float glass that moves in world trade is 
rectangular. To qualify for the lower ad valorem MFN tariff rate of 30 
percent levied on non-rectangular float glass, exporters often must 
resort to time-consuming, wasteful procedures such as cutting off one 
or more corners or cutting one edge in a slanted fashion. This is an 
inefficient and expensive process that requires distributors to recut 
each piece of glass into a rectangular shape once it has cleared 
customs.
    Rice Import Policy: The sole authorized importer of rice is a 
government corporation with the responsibility of ensuring purchase of 
the domestic crop and wide power to regulate imports.
    Film and Paper Product Tariff: Malaysia applies a 25 percent tariff 
on imported instant print film that is estimated to cause an annual 
trade loss of $10 to $25 million for U.S. industry. In August 1994, the 
government raised tariffs on several categories of imported kraft 
linerboard (used in making corrugated cardboard boxes) to between 20 
and 30 percent depending on the category. These tariff increases are to 
be phased out after five years and are subject to review every two 
years. Malaysia did not change the tariff levels after the 1996 review.
    Direct Selling Companies: In May 1999, the Malaysian Government 
announced new requirements for the licensing and operation of direct 
selling companies. These requirements include a) no more than 30 
percent of the locally incorporated company can be foreign owned, b) 
local content of products should be no less than 80 percent, c) no new 
products would be approved for sale that did not meet local content 
requirements, and d) all price increases would be approved by the 
Ministry of Domestic Trade and Consumer Affairs. These guidelines also 
spell out the conditions under which companies may receive one, two and 
three year licenses. The Ministry indicated that the local content 
targets are not mandatory, except for adherence to Malaysia's national 
equity policy.
    Government Procurement: Malaysian Government policy calls for 
procurement to be used to support national objectives such as 
encouraging greater participation of ethnic Malays (bumiputras) in the 
economy, transfer of technology to local industries, reducing the 
outflow of foreign exchange, creating opportunities for local companies 
in the services sector, and enhancing Malaysia's export capabilities. 
As a result, foreign companies do not have the same opportunity as some 
local companies to compete for contracts and in most cases foreign 
companies are required to take on a local partner before their bid will 
be considered. Some U.S. companies have voiced concerns about the 
transparency of decisions and decision-making processes. Malaysia is 
not a party to the plurilateral WTO Government Procurement Agreement.
    Investment Barriers: Malaysia encourages direct foreign investment 
particularly in export-oriented manufacturing and high-tech industries, 
but retains considerable discretionary authority over individual 
investments. Especially in the case of investments aimed at the 
domestic market, it has used this authority to restrict foreign equity 
(normally to 30 percent) and to require foreign firms to enter into 
joint ventures with local partners. To alleviate the effects of the 
economic downturn, Malaysia announced relaxation (until December 31, 
2000) of foreign-ownership and export requirements in the manufacturing 
sector for companies producing goods that do not compete with local 
producers. Most foreign firms face restrictions in the number of 
expatriate workers they are allowed to employ.
    Trade-Related Investment Measures: Malaysia has notified the WTO of 
certain measures that are inconsistent with its obligations under the 
WTO agreement on Trade-Related Investment Measures (TRIMS). The 
measures deal with local requirements in the automotive sector. New 
projects or companies granted ``pioneer status'' are eligible to 
receive a 70 percent income tax exemption. Proper notification allows 
developing-county WTO members to maintain such measures for a five-year 
transitional period after entry into force of the WTO. Malaysia 
therefore must eliminate these measures before January 1, 2000. The 
United States is working in the WTO committee on TRIMS to ensure that 
WTO members meet these obligations.
    Services Barriers: Under the WTO basic telecommunications 
agreement, Malaysia made commitments on most basic telecommunications 
services and partially adopted the reference paper on regulatory 
commitments. Malaysia guaranteed market access and national treatment 
for these services only through acquisition of up to 30 percent of the 
shares of existing licensed public telecommunications operators, and 
limits market access commitments to facilities-based providers. At 
least two U.S. firms have investments in basic and enhanced services 
sectors.
    Professional Services: Foreign professional services providers are 
generally not allowed to practice in Malaysia. Foreign law firms may 
not operate in Malaysia except as minority partners with local law 
firms, and their stake in any partnership is limited to 30 percent. 
Foreign lawyers may not practice Malaysian law or operate as foreign 
legal consultants. They cannot affiliate with local firms or use their 
international firm's name.
    Under Malaysia's registration system for architects and engineers, 
foreign architects and engineers may seek only temporary registration. 
Foreign architectural firms are eligible only for special projects as 
agreed between Malaysia and an interested foreign government. Unlike 
engineers, Malaysian architectural firms may not have foreign 
architectural firms as registered partners. Foreign architecture firms 
may only operate as affiliates of Malaysian companies. Foreign 
engineering companies must establish joint ventures with Malaysian 
firms and receive ``temporary licensing,'' which is granted only on a 
project-by-project basis and is subject to an economic needs test and 
other criteria imposed by the licensing board. Foreign accounting firms 
can provide accounting or taxation services in Malaysia only through a 
locally registered partnership with Malaysian accountants or firms, and 
aggregate foreign interests are not to exceed 30 percent. A licensed 
auditor in Malaysia must authenticate auditing and taxation services. 
Residency is required for registration.
    Banking: No new licenses are being granted to either local or 
foreign banks; foreign banks must operate as locally controlled 
subsidiaries. Foreign-controlled companies are required to obtain 60 
percent of their local credit from Malaysian banks. Insurance branches 
of foreign insurance companies were required to be locally incorporated 
by June 30, 1998; however, the government has granted extensions to 
that requirement. Foreign shareholding exceeding 49 percent is not 
permitted unless the Malaysian Government approves higher shareholding 
levels. As part of Malaysia's WTO financial services offer, the 
government committed itself to allow existing foreign shareholders of 
locally incorporated insurance companies to increase their shareholding 
to 51 percent once the WTO Financial Services Agreement goes into 
effect in 1999. New entry by foreign insurance companies is limited to 
equity participation in locally incorporated insurance companies and 
aggregate foreign shareholding in such companies shall not exceed 30 
percent.
    Securities: Foreigners may hold up to 49 percent of the equity in a 
stockbroking firm. Currently there are 11 stockbroking firms that have 
foreign ownership and 20 representative offices of foreign brokerage 
firms. Fund management companies may be 100 percent foreign-owned if 
they provide services only to foreign investors, but they are limited 
to 70 percent foreign-ownership if they provide services to both 
foreign and local investors.
    Advertising: Foreign film footage is restricted to 20 percent per 
commercial, and only Malaysian actors may be used. The government has 
an informal and vague guideline that commercials cannot ``promote a 
foreign lifestyle.'' Advertising of alcohol products is severely 
restricted.
    Television and Radio Broadcasting: The government maintains 
broadcast quotas on both radio and television programming. Sixty 
percent of television programming is required to originate from local 
production companies owned by ethnic Malays. This share is scheduled to 
increase to 80 percent by the year 2000. Sixty percent of radio 
programming must be of local origin. The Ministry of Information 
announced in January 1998 that it would study the use of the 
Broadcasting Act of 1988 as the means of imposing further conditions on 
TV stations to provide additional airtime to local programming.
    Other Barriers: U.S. companies have indicated that they would 
welcome improvements in the transparency of government decision-making 
and procedures, and limits on anti-competitive practices. A 
considerable proportion of government projects and procurement are 
awarded without transparent competitive bidding. The government has 
declared that it is committed to fighting corruption and maintains an 
Anti-Corruption Agency (a part of the office of the Prime Minister) to 
promote that objective. The agency has the independent power to conduct 
investigations and is able to prosecute cases with the approval of the 
Attorney General.
7. Export Subsidies Policies
    Malaysia offers several export allowances. Under the export credit-
refinancing scheme operated by the central bank, commercial banks and 
other lenders provide financing to exporters at a preferential interest 
rate for both post-shipment and pre-shipment credit. Malaysia also 
provides tax incentives to exporters, including double deduction of 
expenses for overseas advertising and travel, supply of free samples 
abroad, promotion of exports, maintaining sales offices overseas, and 
research on export markets. To spur exports, 70 percent of the 
increased export earnings by international trading companies has been 
exempted from taxes.
8. Protection of U.S. Intellectual Property
    Malaysia is a member of the World Intellectual Property 
Organization (WIPO), the Berne Convention, and the Paris Convention. 
Malaysia provides copyright protection to all works published in Berne 
Convention member countries regardless of when the works were first 
published in Malaysia. Malaysia is also a member of the WTO and 
scheduled to meet its obligations under Trade Related Intellectual 
Property Agreement (TRIPS) on January 1, 2000.
    As the number of manufacturing licenses for CDs has increased, so 
have piracy rates for music and video discs. Malaysia's production 
capacity for CDs far exceeds local demand plus legitimate exports, and 
pirate products believed to have originated in Malaysia have been 
identified throughout the Asia-Pacific region, North America, South 
America, and Europe. The Malaysian Government is aware of the problem 
and has expressed its determination to move against illegal operations. 
In the April 1999 ``Special 301'' report, USTR decided to delay a 
decision on including Malaysia on the Watch List until an out-of-cycle 
review could be conducted to assess Malaysia's progress toward 
substantially reducing pirated optical media production and export.
    In March 1998, the government opened an intellectual property 
training center to develop and offer programs for government officials, 
agencies, attorneys, and the judiciary. In April 1999, the government 
created an interagency task force to develop and implement a regulatory 
regime for optical media production. Since April, the government has 
drafted comprehensive optical media legislation, which was scheduled to 
be submitted to Parliament during its fall session. The November 11 
dissolution of Parliament by the Prime Minister in anticipation of 
elections on November 29 has delayed consideration of the optical disc 
legislation and most TRIPS-related amendments to existing legislation 
until the first parliament session of the new government, most likely 
in Spring 2000.
    Suppressing CD-based digital piracy is consistent with the 
government's objective to establish the Multimedia Super Corridor as 
the preeminent locus of high-technology manufacturing and innovation in 
Asia. Police and legal authorities are generally responsive to requests 
from U.S. firms for investigation and prosecution of copyright 
infringement cases. However, despite over 6,000 raids and inspections 
since April 1999, no one has been criminally prosecuted for piracy. 
Notwithstanding these efforts of the government, illegal production of 
optical disks remains a significant problem in Malaysia, and its 
effects have been observed throughout the region.
    Trademark infringement and patent protection have not been serious 
problem areas in Malaysia for U.S. companies in recent years.
9. Worker Rights
    a. The Right of Association: By law most workers have the right to 
engage in trade union activity, and approximately 10 percent of the 
work force are members of trade unions. Exceptions include certain 
categories of workers labeled ``confidential'' and ``managerial and 
executives,'' as well as police and defense officials. The government 
discourages Malaysia's many foreign workers from joining unions and, in 
practical terms, foreigners are not able to engage in trade union 
activity. Government policy places a de facto ban on the formation of 
national unions in the electronics sector, but allows enterprise-level 
unions,
    b. The Right to Organize and Bargain Collectively: Workers have the 
legal right to organize and bargain collectively, and collective 
bargaining is widespread in those sectors where labor is organized. 
However, severe restrictions on the right to strike weaken collective 
bargaining rights. The law requires that the parties to a labor dispute 
submit to a system of compulsory adjudication. Thus, though 
theoretically legal, strikes are extremely rare.
    c. Prohibition of Forced or Compulsory Labor: The constitution 
prohibits forced or compulsory labor, and the government enforces this 
prohibition. There is no evidence that forced or compulsory labor 
occurs in Malaysia except for rare cases that, when discovered, are 
prosecuted vigorously by the government.
    d. Minimum Age for the Employment of Children: Malaysian law 
prohibits the employment of children younger than the age of 14. The 
law permits some exceptions, such as light work in a family enterprise, 
work in public entertainment, work performed for the government in a 
school or training institutions, or work as an approved apprentice. In 
no case may children work more than six hours per day, more than six 
days per week, or at night. Child labor occurs, but there is no 
reliable recent estimate of the number of child workers. Most child 
laborers work in the urban informal sector and the agricultural sector.
    e. Acceptable Conditions of Work: There is not minimum wage, but 
prevailing wages generally provide a decent living. Malaysian law 
stipulates working hours, mandatory rest periods, overtime rates, 
holidays, and other labor standards. The government enforces these 
standards. Working conditions on plantations are worse than in other 
areas of the economy. An occupational safety law provides some 
protections.
    f. Rights in Sectors with U.S. Investment: U.S. companies invest 
widely in many sectors of the Malaysian economy. Worker rights in 
sectors in which there is U.S. investment generally do not differ from 
those in other sectors. U.S. companies invest heavily in the 
electronics sector, in which workers' right to organize is limited to 
enterprise-level unions.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,027
Total Manufacturing............  ..............  4,199
  Food & Kindred Products......  3               ...............................................................
  Chemicals & Allied Products..  306             ...............................................................
  Primary & Fabricated Metals..  5               ...............................................................
  Industrial Machinery and       743             ...............................................................
   Equipment.
  Electric & Electronic          2,669           ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  473             ...............................................................
Wholesale Trade................  ..............  166
Banking........................  ..............  393
Finance/Insurance/Real Estate..  ..............  352
Services.......................  ..............  84
Other Industries...............  ..............  -27
TOTAL ALL INDUSTRIES...........  ..............  6,193
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                              PHILIPPINES


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP..........................       82.2       65.1       74.6
  Real GDP Growth (pct) \2\............        5.2       -0.5        3.0
  Nominal GDP by Sector:
    Agriculture........................       15.4       11.0       13.1
    Manufacturing......................       18.3       14.3       16.0
    Services...........................       40.4       33.7       39.0
    Government \3\.....................       10.0        8.4        9.5
  Per Capita GDP (US$).................      1,145        886        990
  Labor Force (000's)..................     30,355     31,056     31,800
  Unemployment Rate (pct)..............        8.7       10.0        9.5

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2) \4\.........       20.5        8.0       12.0
  Consumer Price Inflation (pct).......        5.9        9.7        7.2
  Exchange Rate (Peso/US$ annual             29.47      40.89      39.50
   average) Interbank Rate.............

Balance of Payments and Trade:
  Total Exports FOB \6\................       25.2       29.5       33.8
    Exports to U.S. \7\................       10.4       11.9       12.0
  Total Imports FOB \6\................       36.4       29.5       31.3
    Imports from U.S. \7\..............        7.4        6.7        7.2
  Trade Balance \6\....................      -11.1      -0.03        2.5
    Balance with U.S. \7\..............        3.0        5.2        4.8
  Current Acct. Surplus or Deficit/GDP        -5.3        2.0        6.0
   (pct)...............................
  External Public Sector Debt..........       27.0       30.3       32.0
  Foreign Debt Service Payments/GDP            6.8        7.8        8.8
   (pct)...............................
  Nat'l Gov. Fiscal Surplus or Deficit/        0.1       -1.9       -3.0
   GDP (pct)...........................
  Gold and Foreign Exchange Reserves...        8.8       10.8       15.5
  Aid from U.S. (US$ millions) \8\.....       46.0       49.0   \9\ 35.0
  Aid from Other Bilateral Sources (US$    1,588.0    1,465.0  \9\ 1,179
   millions) \8\.......................                               .0
------------------------------------------------------------------------
\1\ 1999 figures are full-year estimates based on data available as of
  October.
\2\ Percentage changes based on local currency.
\3\ Government construction and services gross value added.
\4\ Growth rate of year-end M2 levels.
\5\ 1994 base year starting 1997; 1988 base year for prior years.
\6\ Merchandise trade.
\7\ Source: U.S. Department of Commerce; exports FAS, imports customs
  basis; 1999 figures are estimates based on data available through
  August 1999.
\8\ Inflows per Philippine government balance of payments data,
  excluding inflows from the U.S. Veterans Administration (USVA).
\9\ Actual January-July 1999 figures.

Sources: National Economic and Development Authority, Bangko Sentral ng
  Pilipinas, Department of Finance.

1. General Policy Framework
    The Philippines has a population of 75 million, growing at 2.3 
percent yearly. Agriculture absorbs 40 percent of employment but 
contributes only 20 percent of GDP. Electronics, garments, and auto 
parts are the leading merchandise exports, but rely heavily on imported 
inputs. Overseas workers remittances, estimated at $5-6 billion yearly, 
are a major source of foreign exchange. The domestic savings rate is 
relatively low, compared to the rest of Asia, estimated at 20 percent 
of GNP in 1998.
    Public finances has been a long-standing problem. After four 
consecutive fiscal surpluses (1994-97), the government is again running 
a large budget deficit, in part as a response to the Asian financial 
crisis. But revenues perennially suffer from weak tax administration 
and collection, and efforts to contain expenditures are hampered by the 
large share (over 70%) of ``non-discretionary'' expenditures such as 
payroll costs, interest payments and mandated transfers to local 
government units. Fiscal difficulties complicate government efforts to 
manage domestic interest rates, leading the government to rely more 
heavily on foreign borrowings.
    The Aquino and Ramos administrations made significant progress in 
setting the stage for a higher and more sustainable growth path through 
economic liberalization and deregulation. President Joseph Estrada is 
trying to continue and expand the program pursued by his predecessors, 
but nationalist and vested interests pose obstacles to further reform.
2. Exchange Rate Policy
    Current account transactions are fully convertible. There are no 
barriers to full and immediate capital repatriation and profit 
remittances, foreign debt servicing, and the payment of royalties, 
lease payments and similar fees. Foreign exchange rates generally 
evolve freely in the interbank market, although the Bangko Sentral ng 
Pilipinas (BSP--Central Bank) imposes limits on banks' foreign exchange 
positions. The depreciation of the peso during the Asian financial 
crisis (from Peso 26/dollar in June 1997 to Peso 40/dollar at present) 
has hurt the competitiveness of some U.S. exports.
3. Structural Policies
    Prices are generally determined by market forces, although basic 
public services (such as transport, water and electricity) are 
regulated by the government. Government regulation of prices of 
``socially sensitive'' petroleum products (i.e., liquefied petroleum 
gas, regular gasoline, and kerosene) ended in July 1998 with the full 
deregulation of the oil industry, but the government's National Food 
Authority remains a major factor in the market for rice and other 
agricultural products.
    While progress in investment liberalization has been substantial, 
important barriers to foreign entry remain. Two ``negative lists'' 
outline where investment is restricted. Divestment requirements exist 
for firms seeking certain investment incentives. A number of other laws 
specify, or have the effect of imposing, local sourcing requirements.
    Almost all products, including imports, are subject to a 10 percent 
value added tax. Certain products--whether domestically manufactured or 
imported--are subject to excise tax. The Philippines' Tariff Reform 
Program is gradually lowering applied duty rates on nearly all items, 
toward a goal of tariff rates of zero to five percent by 2004 for all 
items except sensitive agricultural products.
4. Debt Management Policies
    Foreign debt (estimated at $48.1 billion as of June 1999) has been 
growing, but debt servicing is not a significant problem. The ratio of 
debt service payments to exports of goods and services was 13.2 percent 
during period Jan-July 1999, compared to 40 percent in the early 1980s. 
Medium and long-term loans comprise over 85 percent of external 
liabilities. Concessional credits from multilateral and official 
bilateral lenders account for about half of the country's external 
debt.
    The Philippines had four debt rescheduling rounds with official 
bilateral (Paris Club) creditors and did not exercise a fifth Paris 
Club debt rescheduling agreement. While the Philippines ``graduated'' 
from over three decades of International Monetary Fund (IMF) 
supervision in March 1998, a two-year IMF standby arrangement was 
agreed at the same time. The Government has indicated it may extend the 
arrangement. The Philippines has also succeeded in retiring or 
exchanging some of its earlier debt for instruments carrying longer 
maturities and more favorable terms, the latest being a $1 billion 
Brady bond exchange program concluded in October 1999.
    The Central Bank requires prior approval of private sector debt 
guaranteed by the public sector or covered by forex guarantees issued 
by local banks; loans extended by foreign currency deposit units funded 
or collateralized by offshore loans and deposits; loans with maturities 
of over one year obtained by private banks and financial institutions 
for relending; and public sector foreign loans.
5. Significant Barriers to U.S. Exports
    Tariffs: Imported items that are not locally produced generally 
face low tariffs, while imports that compete with locally-produced 
goods face high tariffs, generally up to 30 percent. Imports of 
finished automotive vehicles (completely built-up units) face a 40 
percent tariff (scheduled to fall to 30 percent in 2000). The non-trade 
weighted average nominal tariff rate was 9.98 percent in 1999 and is 
scheduled to decline to 8.09 percent in the year 2000. Customs accounts 
for over 20 percent of government revenues. In January 1999, President 
Estrada signed E.O. 63 raising applied MFN tariff rates on a range of 
products including yarns, threads, fabric, apparel, and kraft liner 
paper. Rates on these items are scheduled to return to 1997 levels in 
2000. Significant trade barriers hamper market access in agriculture. 
The Philippines maintains high tariff rates on sensitive agricultural 
products, including grains, livestock and meat products, sugar, certain 
vegetables, and coffee. Examples include feed grains, particularly corn 
(at an in-quota rate of 35 percent, and a 65 percent out-of-quota 
rate), sorghum (15 percent) and potatoes (in-quota rate of 45 percent, 
60 percent out-of-quota). A number of particularly sensitive 
agricultural commodities are subject to tariff-rate quotas (TRQs), 
including live animals, fresh and chilled beef, pork, poultry meat, 
goat meat, potatoes, coffee, corn, and sugar. Rice is subject to a 
quantitative restriction.
    Import Licenses: The National Food Authority (NFA), a government 
entity, is the sole importer of rice and continues to be involved in 
imports of corn. Fisheries Administrative Order (FAO) 195, series of 
1999, issued by the Department of Agriculture, requires a license to 
import fresh, chilled, and frozen fish when intended for sale in local 
retail markets. Certain other items are subject to other import 
regulations, including firearms and ammunition, used clothing, sodium 
cyanide, chlorofluorocarbon (CFC) and other ozone-depleting substances, 
penicillin and derivatives, coal and derivatives, color reproduction 
machines, chemicals for the manufacture of explosives, pesticides, used 
motor vehicles, and used tires. In addition, as noted above, certain 
agricultural commodities are subject to minimum access volume tariff-
rate quotas.
    Excise Taxes: U.S. producers of automobiles and distilled spirits 
have raised concerns about certain discriminatory aspects of the 
Philippines' excise tax system. Excise taxes on distilled spirits 
impose a lower tax on products made from materials that are 
indigenously available (e.g., coconut, palm, sugar cane). The excise 
tax treatment of automotive vehicles is based on engine displacement, 
rather than vehicle value.
    Services Barriers: Banking--May 1994 banking legislation permitted 
10 new foreign banks to open branches in the Philippines. Foreign 
equity is limited to 60 percent ownership of either a new local 
subsidiary or an existing domestic bank. Regulations require that 
majority Filipino-owned domestic banks control at least 70 percent of 
total banking system assets.
    Securities--Membership in the Philippine stock exchange is open to 
foreign-controlled stock brokerage firms that are incorporated under 
Philippine laws. Foreign ownership in securities underwriting companies 
is limited to 60 percent. Companies not established under Philippine 
law are not allowed to underwrite securities for the Philippine market, 
but may underwrite Philippine issues for foreign markets.
    Insurance--Although foreign entry has been liberalized, 
capitalization requirements vary according to the extent of foreign 
equity. Only the Philippines' Government Service Insurance System can 
provide coverage for government-funded projects and BOT-funded 
projects. Regulations require all insurance/professional reinsurance 
companies operating in the country to cede to the industry-owned 
National Reinsurance Corporation of the Philippines at least 10 percent 
of outward reinsurance placements.
    Professional Services--The Philippine Constitution reserves the 
practice of licensed professions to Philippine citizens. This includes, 
inter alia, law, engineering, medicine, accountancy, architecture, and 
customs brokerage.
    Telecommunications--The Philippine Constitution limits foreign 
ownership in public utilities to 40 percent. Telecommunication firms 
are considered public utilities.
    Shipping--Foreign-flagged vessels are prohibited from the carriage 
of domestic trade.
    Express Delivery Services--Foreign air express couriers and 
airfreight forwarding firms must either contract with a wholly 
Philippine-owned business to provide delivery services, or establish a 
domestic company, at least 60 percent of which should be Philippine-
owned.
    Standards, Testing, Labeling, and Certification: Imports of 
products covered by mandatory Philippine national standards must be 
cleared by the Bureau of Product Standards (BPS). Labeling requirements 
apply to a variety of products, including pharmaceuticals, food, 
textiles and certain industrial goods. The Generics Act of 1988, 
mandates that the generic name of a particular pharmaceutical product 
appear above its brand name on all packaging.
    Investment Barriers: The Foreign Investment Act of 1991 contains 
two ``negative lists'' that outline areas where foreign investment is 
restricted. ``List A'' restricts foreign investment in certain sectors 
because of constitutional or legal constraints. No foreign investment 
is permitted in mass media (including cable television), retail trade, 
processing of corn and rice, small-scale mining and private security 
agencies. Varying foreign ownership limitations cover, among others, 
advertising (30 percent), recruitment (25 percent), financing (60 
percent), securities underwriting (60 percent), public utilities (40 
percent), education (40 percent), and the exploration and development 
of natural resources (40 percent). Land ownership is reserved to 
Philippine citizens and corporations that are at least 60 percent owned 
by Philippine citizens. ``List B'' limits foreign ownership (generally 
to 40 percent) for reasons of public health, and safety and morals. 
This list also restricts foreign ownership to no more than 40 percent 
in non-export firms capitalized at less than $200,000.
    Export Performance Requirements: Investment incentive regulations 
impose a higher export performance requirement for foreign-owned 
enterprises (70 percent of production should be exported) than for 
Philippine-controlled companies (50 percent). With the exception of 
foreign-controlled firms that export 100 percent of their production, 
foreign firms that seek incentives from the Board of Investments (BOI) 
must commit to divest to 40 percent ownership within 30 years or such 
longer period as the BOI may allow. The Philippines has requested an 
extension of the January 1, 2000, deadline to eliminate WTO-
inconsistent local-content and foreign exchange requirements under its 
motor vehicle development program.
    Local Sourcing Requirements: Outside of the investment incentives 
regime, investors in certain industries are subject to specific laws 
which require local sourcing. Executive Order (E.O.) 776 requires that 
pharmaceutical firms purchase semi-synthetic antibiotics from a 
specific local company, unless they can demonstrate that the landed 
cost of imported semi-synthetic antibiotics is at least 20 percent less 
than that produced by the local firm. E.O. 259 bans imports of soap and 
detergents containing less than 60 percent coconut-based surface active 
agents of Philippine origin, implicitly requiring local sourcing by 
soap and detergent manufacturers. Letter of Instruction (LOI) 1387, 
issued in 1984, requires mining firms to offer their copper 
concentrates to Philippine Associated Smelting and Refining Corp. 
(PASAR)--a government-controlled firm until its recent privatization.
    Government Procurement Practices: Contracts for government 
procurement are awarded by competitive bidding. Preferential treatment 
of local suppliers is practiced in government purchases of 
pharmaceuticals, rice, corn, and iron/steel materials for use in 
government projects, and in locally-funded government consulting 
requirements. The Philippines is not a signatory of the WTO Government 
Procurement Agreement.
    Customs Procedures: The government has contracted a private firm, 
Societe Generale de Surveillance, to perform certain customs functions. 
Officials have not stated whether the contract will be renewed beyond 
December 31, 1999. Most imports valued at over $500 are permitted entry 
only when accompanied by a `Clean Report of Findings'' issued by SGS. 
Refrigerated products are exempt. Certain goods require preshipment 
inspection in the country of export. The preshipment inspection 
requirement extends to exports to certain operations in free-trade 
zones. Customs valuation for determining dutiable value of imports is 
based on ``export value,'' which has resulted in unwarranted uplifts in 
the assessed dutiable value of many U.S. exports. The government says 
it will implement the ``transaction value'' method of customs valuation 
by January 1, 2000, in line with WTO obligations.
6. Export Subsidies Policies
    Firms engaged in activities under the government's ``Investment 
Priorities Plan'' may register with the Board of Investments (BOI) for 
fiscal incentives, including three to six year income tax holidays and 
a tax deduction equivalent to 50 percent of the wages of direct-hire 
workers for the first five years from registration. BOI-registered 
firms that locate in less-developed areas may be eligible to claim a 
tax deduction of up to 100 percent of outlays for infrastructure works 
and 100 percent of incremental labor expenses also for the first five 
years from registration. Export-oriented firms located in government-
designated export zones and industrial estates registered with the 
Philippine Economic Zone Authority enjoy basically the same incentives 
as BOI-registered firms. Firms which earn at least 50 percent of their 
revenues from exports may register for certain tax credits under the 
``Export Development Act'' (EDA), including a tax credit for imported 
inputs and raw materials not readily available locally (through 
December 31, 1999).
7. Protection of U.S. Intellectual Property
    The Philippines is a party to the Berne and Paris Conventions, the 
WTO Agreement on Trade Related Aspects of Intellectual Property 
(TRIPs), and is a member of the World Intellectual Property 
Organization. The Philippines remains on the ``Special 301'' Watch 
List.
    While substantial progress has been made in recent years, 
significant problems remain in ensuring consistent, effective 
protection of intellectual property rights (IPR). A new IP law (R.A. 
8293), which took effect January 1, 1998, improves the legal framework 
for IPR protection. It provides enhanced copyright and trademark 
protection; creates a new Intellectual Property Office with original 
jurisdiction to resolve IPR infringement complaints; increases 
penalties for infringement and counterfeiting; and relaxes provisions 
requiring the registration of licensing agreements. Deficiencies in 
R.A. 8293 remain a concern. These include the lack of authority for 
courts to order the seizure of pirated material as a provisional 
measure without notice to the infringer; ambiguous provisions on the 
rights of copyright owners over broadcast, rebroadcast, cable 
retransmission, or satellite retransmission of their works; and 
burdensome requirements concerning licensing contracts. Legislation is 
pending to provide IPR protection for plant varieties and layout-
designs of integrated circuits, in line with WTO obligations.
    Enforcement: Enforcement agencies generally will not proactively 
target infringement unless the copyright owner brings it to their 
attention and works with them on surveillance and enforcement actions. 
Joint efforts between the private sector and the National Bureau of 
Investigation and Philippine Customs have resulted in a series of 
successful enforcement actions. While certain courts have been 
designated to hear IPR cases, little has been done to streamline 
judicial proceedings in this area, as these courts have not received 
additional resources and continue to handle a heavy non-IPR workload. 
In addition, IPR cases are not considered ``major crimes,'' and take a 
lower precedence in court proceedings. Because of the prospect that 
court action will be lengthy, many cases are settled out of court.
    Patents: R.A. 8293 mandates a first-to-file system, increases the 
term of patents from 17 to 20 years from date of filing, provides for 
the patentability of micro-organisms and non-biological and 
microbiological processes, and gives patent holders the right of 
exclusive importation of their inventions.
    Trademarks, Service Marks and Trade Names: R.A. 8293 no longer 
requires prior use of trademarks in the Philippines as a requirement 
for filing a trademark application. Also eliminated was the requirement 
that well-known marks be in actual use in Philippine commerce or 
registered with the government. Trademark infringement remains a 
serious problem in the Philippines.
    Copyrights: R.A. 8293 expands IPR protection by clarifying 
protection of computer software as a literary work (although it 
includes a fair-use provision on decompilation of software), 
establishing exclusive rental rights, and providing terms of protection 
for sound recordings, audiovisual works, and newspapers and periodicals 
that are compatible with the WTO TRIPS Agreement. Software, music and 
film piracy remain widespread. The Business Software Alliance estimates 
the 78 percent of business software in use in 1998 was unlicensed; the 
piracy rate for entertainment software is 90 percent. The Motion 
Picture Association of America estimates that two-thirds of motion 
pictures on video or optical discs in 1998 were illegal copies. The 
illegal retransmission of satellite programming by cable operators is a 
growing problem.
    The U.S. intellectual property industry estimates 1998 potential 
trade losses due to piracy of software at $57 million; of motion 
pictures, $18 million; of sound recordings, $4 million; of books, $39 
million.
8. Worker Rights
    a. The Right of Association: All workers (including public 
employees) have a right to form and join trade unions, a right which is 
exercised without government interference. Trade unions are independent 
of the government and generally free of political party control. Unions 
have the right to form or join federations or other labor groupings. 
Subject to certain procedural restrictions, strikes in the private 
sector are legal. Unions are required to provide strike notice, respect 
mandatory cooling-off periods, and obtain majority member approval 
before calling a strike.
    b. The Right to Organize and Bargain Collectively: The Philippine 
Constitution guarantees the right to organize and bargain collectively. 
The Labor Code protects and promotes this right for employees in the 
private sector and in government-owned or controlled corporations. A 
similar but more limited right is afforded to employees in most areas 
of government service. Dismissal of a union official or worker trying 
to organize a union is considered an unfair labor practice. Labor law 
and practice are uniform throughout the country, although there have 
been complaints about some local attempts to maintain ``union free/
strike free'' policies in several of the export processing zones. In 
the garment industry, the widespread use of short-term, contract 
workers is an obstacle to workers forming unions or obtaining medical 
and retirement benefits.
    c. Prohibition of Forced or Compulsory Labor: The Philippine 
Constitution prohibits forced labor and the government effectively 
enforces this prohibition.
    d. Minimum Age for Employment of Children: Philippine law prohibits 
the employment of children below age 15, with some exceptions involving 
situations under the direct and sole responsibility of parents or 
guardians, or in the cinema, theater, radio and television in cases 
where a child's employment is essential. The Labor Code allows 
employment for those between the ages of 15 and 18 for such hours and 
periods of the day as are determined by the Secretary of Labor, but 
forbids employment of persons under 18 years in hazardous work. 
Government and international organization estimates indicate that some 
three million children under age 18 are employed in the informal sector 
of the urban economy, certain fishing practices, port work or as unpaid 
family workers in rural areas.
    e. Acceptable Conditions of Work: A comprehensive set of 
occupational safety and health standards exists in law. Statistics on 
actual work-related accidents and illnesses are incomplete, as 
incidents (especially in regard to agriculture) are underreported.
    f. Rights in Sectors with U.S. Investment: U.S. investors in the 
Philippines generally apply U.S. standards of worker safety and health, 
in order to meet the requirements of their home-based insurance 
carriers. Some U.S. firms have resisted efforts by their employees to 
form unions, with local government support.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  283
Total Manufacturing............  ..............  1,634
  Food & Kindred Products......  440             ...............................................................
  Chemicals & Allied Products..  477             ...............................................................
  Primary & Fabricated Metals..  33              ...............................................................
  Industrial Machinery and       16              ...............................................................
   Equipment.
  Electric & Electronic          483             ...............................................................
   Equipment.
  Transportation Equipment.....  0               ...............................................................
  Other Manufacturing..........  184             ...............................................................
Wholesale Trade................  ..............  172
Banking........................  ..............  288
Finance/Insurance/Real Estate..  ..............  627
Services.......................  ..............  187
Other Industries...............  ..............  2
TOTAL ALL INDUSTRIES...........  ..............  3,192

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                               SINGAPORE


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                         1997        1998      \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\...................    96,250.7    84,627.5    88,246.4
  Real GDP Growth (pct) \2\.........         8.9         0.3         5.0
  GDP by Sector: \2\
    Agriculture \3\.................       181.1       137.9       176.5
    Manufacturing...................    21,968.2    19,499.3    20,296.7
    Services........................    65,531.6    56,931.3    60,007.5
    Government expenditure..........     9,050.7     8,431.0     8,824.6
  Per Capita GDP (US$)..............    25,758.2    21,892.5    22,056.7
  Labor Force (000's)...............     1,876.0     1,931.8     1,989.8
  Unemployment Rate (pct)...........         1.8         3.2         3.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..........        10.3        30.2        36.8
  Consumer Price Inflation (pct)....         2.0       --0.3         0.5
  Exchange Rate (SGD/US$ annual             1.48        1.67        1.69
   average).........................

Balance of Payments and Trade:
  Total Exports FOB.................   125,414.2   110,037.7   109,279.2
    Exports to U.S. CIF \4\.........    20,368.1    18,654.3    18,206.6
  Total Imports CIF.................   132,841.2   101,714.4   106,038.7
    Imports from U.S. FAS \4\.......    17,727.4    15,673.5    15,955.6
  Trade Balance.....................    -7,427.0     8,323.4     3,240.4
    Trade Balance with U.S. \4\.....     2,640.7     2,980.8     2,251.0
  External Public Debt..............           0           0           0
  Fiscal Surplus/GDP (pct)..........         4.2        -0.3        -3.5
  Current Account Surplus/GDP (pct).        15.7        20.9        24.3
  Debt Service Payments/GDP (pct)...           0           0           0
  Gold and Foreign Exchange Reserves    71,391.7    75,028.2    78,704.5
  Aid from U.S......................           0           0           0
  Aid from Other Sources............           0           0           0

------------------------------------------------------------------------
Note: All percentage changes are calculated based on the local currency.

\1\ 1999 figures are projections based on most recent data available.
\2\ Singapore introduced a methodology to include offshore stockbroking,
  investment advisory and insurance services in the output of the
  financial services industry, resulting in changes to the GDP and
  growth figures computed in previous years. GDP data has also been re-
  grouped into eleven industries from the eight previously.
\3\ Includes the agriculture, fishing and quarrying industries.
\4\ Trade data was taken from the U.S. Department of Commerce instead of
  Singaporean government sources.

1. General Policy Framework
    A city-state with a population of 3.9 million (of which 700,000 or 
18 percent are foreigners, mainly migrant workers and professionals) 
astride one of the world's major shipping lanes, Singapore has long 
pursued economic policies that promote open trade and investment. These 
policies have allowed Singapore to overcome its land, labor and 
resource constraints, and develop into one of the world's most 
successful open trading and investment regimes with an average annual 
GDP growth rate of 7 percent in the last decade. Although Singapore's 
growth rate decelerated to 0.3 percent in 1998 due to the Asian 
economic crisis, it still had the world's fifth highest per capita GNP 
in purchasing power parity terms, according to the World Bank in its 
1999 World Development Report. Singapore also actively promotes trade 
liberalization in the region through APEC and ASEAN; the APEC 
Secretariat is located in Singapore. It is a founding member of the 
World Trade Organization (WTO), and hosted the first WTO Ministerial in 
December of 1996.
    Internally, Singapore has a free-market, pro-growth and competitive 
business environment characterized by a transparent and corruption-free 
regulatory framework. At the same time, it has a sizable public sector 
in the form of government-linked companies (GLCs) that account for some 
60 percent of GDP. The GLCs generally operate as commercial entities, 
and frequently include private local and foreign equity. Many GLCs are 
also publicly listed companies. Manufacturing is the single largest 
sector in the economy, accounting for 22 percent of total GDP. Foreign 
multinational electronics and chemicals companies dominate this sector, 
producing primarily for export to the region and the developed markets, 
notably the U.S. and Europe. Foreign companies accounted for 67 percent 
of the USD 4.7 billion of new manufacturing investment in 1998. 
Electronics output accounts for 43 percent of total industrial output 
and chemicals (including oil refining) for 22 percent. Besides engaging 
in high value-added manufacturing activities, multinational companies 
also take advantage of Singapore's modern and pro-business 
infrastructure and productive workforce to establish headquarters and 
manage their regional operations from the city-state.
    Wholesale and retail trade is the second largest sector in the 
economy, accounting for 14 percent of GDP, reflecting Singapore's key 
role as the gateway for goods and people into and out of the region. 
Trade is 2.5 times GDP, with transshipments accounting for 42 percent 
of total merchandise exports. Visitor arrivals to Singapore in 1998, 
which suffered a 13.3 percent drop due to the recent crisis, still 
amounted to 6.2 million, almost twice its indigenous population. 
Financial services, which accounts for 13 percent of GDP, is the third 
largest economic sector. According to the Bank of International 
Settlements, Singapore is the world's fourth largest center for foreign 
exchange activities (after London, New York and Tokyo). Its Asian 
Dollar Market is also the world's eighth largest offshore lending 
center. The government is actively promoting its financial sector, 
particularly asset management, and bond and capital market activities 
to augment Singapore's role as an international financial center.
    The government pursues conservative fiscal policies designed to 
encourage high levels of savings and investment. The government also 
invests heavily in the country's social and physical infrastructure, 
including education and transportation, and provides subsidies for 
public housing and sometimes for the purchase of shares in GLCs when 
they are initially listed on the stock exchange. For most of the years 
since the 1970's, the government has had a budget surplus. However, due 
to counter-cyclical measures implemented amid the Asian economic 
crisis, the government's budget went into a deficit of USD 243 million 
(about 0.3 percent of GDP) in fiscal year 1998. The deficit is forecast 
to widen to about USD 3 billion in FY99 (about 3.5 percent of GDP) with 
further pump priming of the economy.
    The Central Provident Fund (CPF) is a compulsory savings program 
that requires 20 percent of an individual's salary be placed in a tax-
exempt account, with employers contributing another 10 percent. The CPF 
is the basis for the extraordinarily high gross national saving rate of 
over 60 percent of GDP. Employers' contribution amounted originally to 
20 percent of an employee's salary prior to the recent crisis, but was 
halved to 10 percent since the beginning of 1999 as part of a broad 
business cost-reduction package implemented by the government. However, 
a partial restoration of employers' contribution is expected by mid-
2000 to ease the build-up of wage pressures emanating from a faster and 
stronger-than-expected domestic and regional economic recovery. 
Individual CPF accounts may be used, in part, to finance housing 
purchases and investment in stocks and other instruments approved under 
the CPF investment scheme.
    The Monetary Authority of Singapore (MAS), the country's central 
bank, engages in limited money-market operations to influence interest 
rates and ensure adequate liquidity in the banking system. The MAS' key 
objective is to maintain price stability, which it achieves largely 
through an exchange rate policy. (Note: Inflation has averaged 2 
percent annually over the last 10 years, except for 1998 when deflation 
of 0.3 percent set in due to the economic recession). There are 
virtually no controls on capital movements, thus limiting the scope for 
an independent monetary policy to either stimulate or restrain economic 
activity. The average prime lending rate among the leading banks is 
currently at 5.8 percent, after peaking at about 7.8 percent in the 
first half of 1998 amid the Asian financial crisis.
    Singapore's sound economic policies and an open and favorable 
trading and investment climate have attracted about 1,300 U.S. 
companies to Singapore, with cumulative investments of USD 19.8 billion 
in 1998. The United States is Singapore's largest trading partner, 
accounting for 19.2 percent of Singapore's total trade in 1998. Based 
on U.S. Department of Commerce data, U.S. exports to Singapore amounted 
to USD 15.7 billion in 1998, while Singapore's exports to the United 
States totaled USD 18.4 billion.
2. Exchange Rate Policy
    Singapore has no exchange rate controls. Exchange rates are 
determined freely by daily cross rates in the international foreign 
exchange markets. At the same time, the MAS uses currency swaps and 
direct open market operations to keep the Singapore Dollar within a 
desired range relative to a basket of currencies of the country's major 
trading partners. It seeks to maintain a strong currency to check 
inflation, given Singapore's extreme exposure to international trade. 
The government also imposes certain restrictions to limit the 
internationalization of the Singapore Dollar, including a requirement 
for banks to consult the MAS before extending credit in excess of SGD 5 
million (about USD 3 million) to non-residents. It has recently opened 
up its Singapore Dollar debt market to foreign companies and financial 
institutions, however, on condition that the funds are converted to 
foreign exchange prior to use abroad.
    The Singapore Dollar appreciated nearly 55 percent against the U.S. 
Dollar from 1986 to 1996. It has since depreciated, along with but to a 
lesser extent than other regional currencies, as a result of the Asian 
economic crisis. The Singapore Dollar depreciated by as much as 20 
percent between July 1997 and August 1998 when it sank to its lowest 
rate of 1.78 to the U.S. Dollar. This has had a major impact on U.S. 
exports to Singapore, which fell by 11.6 percent 1998, and are expected 
to show flat growth in 1999. The Singapore Dollar has since rebounded 
with the region's recovery, and is forecast to post an average rate of 
about 1.7 for 1999.
3. Structural Policies
    Singapore's prudent economic policies have allowed for steady 
economic growth and the development of a reliable market, to the 
benefit of U.S. exporters. Singapore was the tenth largest export 
market for the U.S. in 1998, slipping from the eighth and ninth 
positions which it occupied in 1996 and 1997, respectively. Product 
prices are generally determined by market forces. The government 
conducts its bids by open tender and encourages price competition 
throughout the economy.
    The government has gradually reduced corporate income tax levels 
from 40 percent in 1986 to the current 26 percent. It aims to bring the 
corporate tax rate down further to 25 percent. Foreign firms are taxed 
at the same rate as local firms. There is no tax on capital gains 
except on residential properties that are sold within three years of 
purchase. This was implemented in 1996, together with measures to 
impose higher stamp duties and restrict bank credit for property 
purchases, in order to curb excessive speculative activities in the 
real estate market.
    The government implemented a three percent value-added Goods and 
Services Tax (GST) in 1994 but reduced corporate (by one percentage 
point) and personal (by three percentage points) taxes. It also began 
providing rebates of up to SGD 700 on individual income tax in 1994 to 
lighten the GST burden on the citizenry. With these changes, it is 
estimated that 65 percent of income earners end up not having to pay 
personal income taxes, thus increasing the disposable incomes available 
to the average consumer. Singapore's personal income tax rates 
presently range from 2 percent for the lowest income bracket to 28 
percent for those earning annual incomes exceeding SGD 400,000 (about 
USD 240,000).
    Many of Singapore's public policy measures are tailored to attract 
foreign investments and ensure an environment conducive to their 
efficient business operation and profitability. Investment policies are 
open and transparent. Although the government seeks to develop more 
high-tech industries, it does not impose production standards, require 
purchases from local sources, or specify a percentage of output for 
export.
    In view of the city-state's relatively high land and labor costs, 
the government has been aggressively implementing relevant manpower 
development, industrial restructuring and infrastructure enhancing 
measures to upgrade Singapore into a competitive knowledge-based 
economy. The plan is to attract multinational companies and service 
providers to establish high value-added manufacturing and service 
operations in the electronics, chemicals, life sciences, engineering, 
education, healthcare, logistics, and communications and media 
industries. It has also embarked on financial liberalization and 
reforms to develop the retail banking market and, more pertinently, 
widen Singapore's international scope to include asset management and 
bond market activities. To catalyze Singapore's advancement into a 
knowledge-based economy and an international financial center, the 
government is pursuing a policy to attract foreign professionals and 
qualified individuals to work and live here.
4. Debt Management Policies
    Singapore's external public debt was a negligible USD 3.1 million 
at the end of 1994 and this was retired completely in 1995. This was 
one of the key factors that enabled the country to weather the currency 
crisis that engulfed the region in the second half of 1997 and 1998. 
Singapore's annual budget surpluses (prior to 1998) and mandatory 
savings have also allowed the government wide latitude in devising off-
budget measures to increase funds to support infrastructure, education, 
and other programs during the current economic slowdown. Singapore does 
not receive financial assistance from foreign governments.
5. Significant Barriers to U.S. Exports
    Singapore has one of the world's most liberal and open trade 
regimes. Approximately 96 percent of imports are not dutiable. Tariffs 
are primarily levied on cigarettes and alcohol to restrict their 
consumption. Excise taxes are levied on petroleum products and motor 
vehicles primarily to restrict motor vehicle use. There are no 
intentional non-tariff barriers to foreign goods. Import licenses are 
not required; customs procedures are minimal and highly efficient; the 
standards code is reasonable; and the government actively encourages 
foreign investment. All major government procurements are by 
international tender. The government formally acceded to the WTO 
Government Procurement Agreement in September 1997.
    To achieve its goal of becoming an international financial center, 
the government has begun removing previous foreign access restrictions 
in its financial services sector as well. In October 1999, the Monetary 
Authority of Singapore (MAS) issued a ``qualifying full bank'' (QFB) 
license to four Singapore-based foreign banks which allows each of them 
to establish ten locations (branches and off-premise ATM's), to freely 
re-locate existing branches, and to share ATM's among themselves. At 
the same time, the MAS issued eight additional restricted bank licenses 
to bring the total up to 20. These measures significantly expand the 
capability of foreign banks to engage in local retail banking. Foreign 
banks currently hold 23 of the 35 full (local retail) banking licenses. 
Apart from the QFB licensed banks, other foreign full license banks are 
still not allowed additional branches or ATM machines, while local 
banks are allowed to expand freely. Meanwhile, the MAS continues to 
encourage the growth of the offshore banking industry in Singapore. It 
recently designated eight new ``qualifying offshore banks'' (QOB) which 
will have their Singapore Dollar lending limit raised to SGD 1 billion, 
while raising the limit for all other offshore banks from SGD 100 to 
SGD 300 million. QOB banks will also be allowed to accept Singapore 
Dollar funds from non-bank customers through swap transactions.
    There are still restrictions on the extent to which foreign stock 
brokerage firms can trade in the equity securities markets for 
Singapore resident clients. Current Stock Exchange of Singapore (SES) 
regulations restrict foreign equity ownership of SES member companies 
to 49 percent, with the exception of two joint ventures approved prior 
to 1990 and the special category of ``international members'' which are 
permitted to do only wholesale trading for resident clients. The MAS 
recently announced, however, that both the stock and futures exchanges 
are to be demutualized and merged by 1 December 1999, and that the 
combined exchange itself is eventually to be publicly listed. No new 
licenses for direct (general) insurers are being issued, although 
reinsurance and captive insurance licenses are freely available. 
Foreign companies hold about three-quarters of the 59 direct insurance 
licenses.
    The telecommunications sector has been steadily liberalized since 
1989, although the government still imposes limits on the number of 
telephone service providers in Singapore. Restrictions on the sale of 
telecommunication consumer goods and the provision of value-added 
network services (VANS) have been lifted, although the government 
prohibits the importation of satellite receivers. Singapore Telecom 
(SINGTEL) has been privatized and its regulatory functions assumed by 
the Telecommunications Authority of Singapore (TAS). Private investors 
now own up to 20 percent of shares in SINGTEL. In April 1996, Mobile 
One (a Singapore-foreign joint venture) became the second cellular 
phone service provider in Singapore, thus ending SINGTEL's monopoly in 
the mobile telephone services market. Three new paging service 
providers also entered the market at the same time. In April 1998, TAS 
announced that it has issued a license to a new joint venture basic 
telephone service provider (``Starhub'') to begin operation in 2000, 
and will consider additional ones for 2002. At the same time, it issued 
a third cellular phone service license to a foreign joint venture 
company.
6. Export Subsidies Policies
    Singapore does not directly subsidize exports although it does 
actively promote them. The government offers significant incentives to 
attract foreign investment, almost all of which are in export-oriented 
industries. It also offers tax incentives to exporters and reimburses 
firms for certain costs incurred in trade promotion, but it does not 
employ multiple exchange rates, preferential financing schemes, import 
cost-reduction measures or other trade-distorting policy tools.
7. Protection of U.S. Intellectual Property
    Singapore has been on the USTR's ``Special 301'' Watch List since 
1997, primarily due to concerns that its intellectual property (IP) 
rights regime was not fully consistent with the WTO's trade-related 
intellectual property (TRIPS) provisions, and that police enforcement 
against retail IP piracy has been inadequate. Other outstanding issues 
included the lack of rental rights for sound recordings and software, 
inadequate protection against the sale of bootleg copies of musical 
performances, the limited scope of copyright protection for 
cinematography works and overly broad exemptions from copyright 
protection.
    Over the past two years, however, the government has taken 
significant measures to improve IP rights protection in Singapore. It 
is a member of the World Intellectual Property Organization (WIPO), and 
has ratified the WTO's Uruguay Round Accord, including TRIPs 
provisions. It has enacted a series of laws and amendments to existing 
provisions with the aim of rendering its IP regime fully TRIPs 
consistent and improving its overall IP protection regime. These 
included numerous amendments to its Copyright Law (1998), the Medicines 
Act (1998), a new Trade Marks Bill (1998), and a new Geographical 
Indications Act and Layout Designs of Integrated Circuits Act (1999). 
More recently, the government expanded the Copyright Act to cover 
digital and internet piracy as well. In December 1998, Singapore became 
a member of the Berne Convention so that works created by Singapore 
citizens and residents now enjoy copyright protection in over 100 
member countries, and vice versa. Singapore is also a signatory to 
three other international copyright agreements--the Paris Convention, 
the Patent Co-operation Treaty, and the Budapest Treaty. Singapore is 
not a member, however, of the Universal Copyright Convention.
    In the area of enforcement, the government's new licensing 
requirements for optical disc (OD) manufacturing and import controls on 
OD manufacturing equipment came into force in October 1998. These 
measures are generally believed to have effectively eliminated the 
production of pirated optical discs in Singapore. At the same time, the 
government has increased the number and scope of police-initiated raids 
against IP pirates at the retail level. According to Singapore's Trade 
Development Board, the authorities conducted a total of 682 raids in 
1998, which resulted in the seizure of over two million IP-infringing 
articles, a significant rise over the previous year. Through the first 
nine months of 1999, authorities launched over 1,800 raids, seized more 
than 1.1 million IP-infringing articles, and arrested about 330 
suspected IP pirates. In December 1998, the government launched a long-
term campaign aimed at educating primary and secondary students as well 
as the general public on the IP issue, underscoring the message that 
buying pirated goods is wrong, undercuts profits for manufacturers, and 
will eventually lead to fewer choices for consumers.
    In October 1999, a number of U.S. publishers, in cooperation with 
European and local publishers, formed the Copyright Licensing and 
Administration Society of Singapore (CLASS). CLASS will utilize a 
provision of the Copyright Act to compel local universities and other 
educational institutions to pay royalty fees in exchange for the right 
to duplicate copyrighted printed works for use in course materials.
    Despite government efforts that have brought IP piracy rates down 
to among the lowest in Asia, IP owner associations here continue to 
press for greater IPR protection. They cite the continued availability 
of pirated film, music and software OD's for sale in a number of 
downtown shopping malls and at stalls scattered among suburban housing 
estates. The IP associations note that nearly all of the pirated OD's 
have been smuggled into Singapore from neighboring countries, and urge 
greater border enforcement. Meanwhile, they remain frustrated by the 
current ``self help'' IP enforcement system that they argue places an 
unfair burden on them and makes initiating raids and prosecuting 
pirates cumbersome and expensive. IP associations have recommended that 
the government create an independent IPR enforcement police force and 
called for the mandatory use of Source Identification (SID) codes. They 
have also pointed out inadequacies in the August 1999 amendments 
extending Copyright Protection to the internet and certain digital 
works. They note that internet service providers are not held liable 
for allowing sites to sell pirated goods, and that the present law 
allows up to 10 percent of the bytes of a digital work to be legally 
copied.
    According to the International Intellectual Property Alliance 
(IIPA), total losses from local IP piracy were estimated at about USD 
140 million in 1998, up from USD 125 million in 1997. For business 
application software, IIPA estimated 1998 losses at nearly USD 50 
million with a 54 percent level of piracy, as compared to USD 46 
million in losses and a 56 percent piracy rate in 1997. For computer 
entertainment software, it estimated USD 65 million in losses and a 73 
percent piracy rate in 1998, up from USD 58 million and a 68 percent 
piracy level in 1997. IIPA calculated that the motion picture industry 
lost USD 8 million due to a 25 percent piracy level in 1998, up from 
USD 3 million lost to 1997's 15 percent level of piracy. The music 
industry was reported to have suffered losses of USD 16 million and a 
19 percent piracy rate in 1998. This was an improvement over losses of 
over USD 17 million and a 30 percent piracy level in 1997. The American 
Association of Publishers estimated that publishers lost USD 2 million 
to piracy of printed works in 1998, compared to USD 1 million lost in 
1997.
8. Worker Rights
    a. The Right of Association: Article 14 of Singapore's Constitution 
gives all citizens the right to form associations, including trade 
unions. Parliament may, however, based on security, public order, or 
morality grounds impose restrictions. The right of association is 
delimited by the Societies Act, and labor and education laws and 
regulations. In practice, communist labor unions are not permitted. 
Singapore's labor force numbered 1.9 million in 1998, of which 272,769 
or 14 percent of the labor force were organized into 80 trade unions.
    b. The Right to Organize and Bargain Collectively: Over ninety 
percent of union members in 71 of the 80 trade unions are affiliated 
with an umbrella organization, the National Trades Union Congress 
(NTUC), which has a symbiotic relationship with the government. The 
NTUC's leadership is made up mainly of Members of Parliament belonging 
to the ruling People's Action Party (PAP). The Secretary-General of the 
NTUC is also an elected Minister without Portfolio in the Prime 
Minister's office.
    The Trades Union Act authorizes the formation of unions with broad 
rights. Collective bargaining is a normal part of labor-management 
relations in Singapore, particularly in the manufacturing sector. 
Collective bargaining agreements are renewed every two to three years, 
although wage increases are negotiated annually.
    c. Prohibition of Forced or Compulsory Labor: Singapore law 
prohibits forced or compulsory labor. Under sections of Singapore's 
Destitute Persons Act, however, any indigent person may be required to 
reside in a welfare home and engage in suitable work.
    d. Minimum Age for Employment of Children: The government enforces 
the Employment Act, which prohibits the employment of children under 12 
years and restricts children under 16 from certain categories of work.
    e. Acceptable Conditions of Work: The Singapore labor market, which 
has a low average annual unemployment rate of about 2 percent, offers 
relatively high wage rates and working conditions consistent with 
international standards. (Note: The average unemployment rate increased 
slightly to 3.2 percent during the economic downturn in 1998.) However, 
Singapore has no minimum wage or unemployment benefits. The government 
enforces comprehensive occupational safety and health laws. Enforcement 
procedures, coupled with the promotion of educational and training 
programs, have reduced the frequency of industrial accidents (measured 
by the number of industrial accidents per million hours worked) to 2.5 
in 1998, from 4.2 a decade ago. The average severity of occupational 
accidents (defined as the number of industrial workdays lost per 
million hours worked) has, however, remained at 416, little changed 
from the rate of 418 recorded in 1989.
    f. Rights in Sectors with U.S. Investment: U.S. firms have 
substantial investments in several industries, notably petroleum, 
chemicals and related products, electronic and electronics equipment, 
transportation equipment, and other manufacturing areas. Labor 
conditions in these sectors are the same as in other sectors of the 
economy. Many employers resort to hiring foreign workers to ease 
shortages in unskilled and highly-skilled jobs. Since 1997, the 
government has been committed to a policy of attracting foreign skilled 
individuals and professionals to work in Singapore to supplement its 
own limited talent pool and catalyze the city-state's advancement into 
a knowledge-based economy and an international financial center. There 
are presently about 530,000 foreigners working in Singapore (27 percent 
of the workforce), of which about 80,000 are in the skilled category 
while the rest are the lower-skilled workers employed mostly as 
construction workers or domestic helpers.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  2,920
Total Manufacturing............  ..............  8,438
  Food & Kindred Products......  13              ...............................................................
  Chemicals & Allied Products..  255             ...............................................................
  Primary & Fabricated Metals..  153             ...............................................................
  Industrial Machinery and       2,747           ...............................................................
   Equipmentd.
  Electric & Electronic          4,763           ...............................................................
   Equipment.
  Transportation Equipment.....  106             ...............................................................
  Other Manufacturing..........  401             ...............................................................
Wholesale Trade................  ..............  3,245
Banking........................  ..............  727
Finance/Insurance/Real Estate..  ..............  3,769
Services.......................  ..............  681
Other Industries...............  ..............  3
TOTAL ALL INDUSTRIES...........  ..............  19,783

----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                 TAIWAN


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998    \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (at current prices).................     283.3     260.6     282.9
  Real GDP Growth (percent)...............       6.8       4.7       5.3
  GDP by Sector:
    Agriculture...........................       7.7       7.1       7.6
    Manufacturing.........................      78.4      70.6      74.9
    Services..............................     155.8     146.0     166.0
    Government............................      29.5      26.8      29.8
  Per Capita GDP (US$)....................    13,130    11,967    12,866
  Labor Force (000's).....................     9,432     9,546     9,690
  Unemployment Rate (percent).............       2.7       2.7       2.9

Money and Prices (annual percentage
 growth):
  Money Supply (M2).......................       8.0       8.6       9.5
  Consumer Price Inflation................       0.9       1.7       0.9
  Exchange Rate (NT$/US$) \2\
    Official..............................     28.95     33.44     32.24

Balance of Payments and Trade: \3\
  Total Exports FOB \4\...................     122.1     110.6     119.5
    Exports to U.S. CV \5\................      32.6      33.1      34.9
  Total Imports CIF \4\...................     114.4     104.7     112.1
    Imports from U.S. FAS \5\.............      20.4      18.2      18.8
  Trade Balance \4\.......................       7.7       5.9       7.4
    Trade Balance with U.S. \5\...........      12.2      14.9      16.1
  External Public Debt....................       0.1       .05      0.02
  Fiscal Deficit/GDP (pct)................       3.9       3.3       5.3
  Current Account Surplus/GDP (pct).......       2.5       1.3       2.1
  Debt Service Payments/GDP (pct).........       0.8       1.1       0.7
  Gold and Foreign Exchange Reserves......      88.2      95.1     110.0
  Aid from U.S. \6\.......................         0         0         0
  Aid from Other Countries................         0         0         0
------------------------------------------------------------------------
\1\ 1999 figures are estimated based on data from the Directorate
  General of Budget, Accounting and Statistics, or extrapolated from
  data available as of September 1999.
\2\ Average of figures at the end of each month.
\3\ Merchandise trade.
\4\ Taiwan Ministry of Finance (MOF) figures for merchandise trade.
\5\ Sources: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis; 1999 figures are estimates based on data
  available through August. Taiwan MOF figures for merchandise exports
  (FOB) to and imports (CIF) from the U.S. were (US$ billions): (1996)
  26.9/20.0, (1997) 29.5/23.2, (1998) 30.0/19.3.
\6\ Aid disbursements stopped in 1965.

1. General Policy Framework
    Taiwan's economy is bouncing back after being hit last year with an 
earthquake, a cross strait scare, and a near financial crisis. Despite 
these setbacks, the island's growth in 1999 ended up a strong 5.4 
percent, well ahead of 1998's 4.8 percent. Taiwan's industrial growth 
is now concentrated in capital and technology intensive industries such 
as petrochemicals, computers, semiconductors, and electronic 
components, as well as consumer goods industries. Services account for 
56 percent of GDP in 1998. Merchandise exports accounted for 42 percent 
of GDP in 1998.
    Taiwan's resilience stems from the strength of its external 
finances, the nimbleness of its many small-scale entrepreneurs, and the 
dynamism of its information technology industry. Taiwan is poised to 
expand its role as catalyst for cross-strait economic integration and 
as a global supplier of hardware for the information age.
    The Asian financial crisis did lead to falling official savings and 
growing public expenditure have caused domestic public debt to increase 
steadily. The Taiwan authorities now rely largely on domestic bonds and 
bank loans to finance major expenditures. Taiwan has adopted austerity 
measures to control the government budget deficit in recent years. As a 
result, outstanding public debt declined from 21 percent of GNP in 1997 
to 17 percent in 1999. However, debt is on the rise again as the 
government spends heavily on earthquake reconstruction efforts. The 
central level fiscal deficit through the fiscal year ending in June had 
fallen to 1.4 percent of GDP. However, the deficit is expected to be 
sharply higher by year-end 1999 and into 2000, again due to earthquake-
related emergency spending. Defense spending still accounts for the 
largest share of public expenditures (about one quarter), but is 
falling in relative terms. The greatest pressure on the budget now 
comes from growing demands for improved infrastructure and social 
welfare spending, including a national health insurance plan initiated 
in early 1995.
    Taiwan wishes to accede to the World Trade Organization (WTO) in 
the near future. As part of the accession process, Taiwan and the 
United States signed a landmark bilateral WTO agreement in February 
1998. The agreement includes both immediate market access and phased-in 
commitments, and will provide substantially increased access for U.S. 
goods, services, and agricultural exports to Taiwan. Taiwan is also an 
active member of the Asia Pacific Economic Cooperation (APEC) forum.
2. Exchange Rate Policies
    Taiwan has a floating exchange rate system in which banks set rates 
independently. The Taiwan authorities, however, control the largest 
banks authorized to deal in foreign exchange. The Central Bank of China 
(CBC) intervenes in the foreign exchange market when it feels that 
speculation or ``drastic fluctuations'' in the exchange rate may impair 
normal market adjustments. The CBC uses direct foreign exchange trading 
by its surrogate banks and public policy statements as its main tools 
to influence exchange rates. The CBC still limits the use of derivative 
products denominated in New Taiwan Dollars (NTD).
    Trade-related funds flow freely into and out of Taiwan. Most 
restrictions on capital account flows have been removed since late 
1995. Laws restricting repatriation of principal and earnings from 
direct investment have been lifted. Despite significant easing of 
previous restrictions on foreign portfolio investment, some limits 
remain in place.
3. Structural Policies
    Fifteen state-owned enterprises have been either totally or 
partially privatized in the past three years, including nine in 1999. 
State-owned enterprises account for 9.5 percent of GDP, a proportion 
that shrinks annually. Taiwan's Fair Trade Commission (FTC) acts to 
thwart noncompetitive pricing by state-run monopolies. FTC exemptions 
granted five years ago to several state-run monopolies were not renewed 
in 1997, making such firms subject to anti-monopoly laws.
    Taiwan has been lowering tariffs significantly in recent years as 
part of its effort to accede to the WTO. In 1998, Taiwan began 
implementing tariff cuts on 1,130 items, many of specific interest to 
U.S. industry. Also in 1998, authorities enacted tariff cuts on 245 
high-tech products under the Information Technology Agreement. Tariff 
reductions on 15 agricultural products, negotiated during the U.S.-
Taiwan bilateral WTO accession negotiations, took effect temporarily in 
July 1998, and were extended in July, 1999. In February 1999, Taiwan 
waived tariffs on 15 aircraft components as part of plans to accede to 
the WTO Agreement on Trade in Civil Aircraft. An additional 777 items 
are slated for tariff cuts pending legislative approval. Taiwan's 
current average nominal tariff rate is 8.2 percent; the trade-weighted 
rate is 3.1 percent, both down slightly from 1998.
    High tariffs and pricing structures on some goods--in particular on 
some agricultural products--nevertheless hamper U.S. exports. However, 
under the bilateral WTO agreement reached in February 1998, Taiwan 
began to provide quotas for the importation of previously banned pork, 
poultry, and variety meat products, and agreed to phase in tariff cuts 
on numerous food products upon accession. The Taiwan Tobacco and Wine 
Monopoly Bureau (TTWMB) has a monopoly on domestic production of 
cigarettes and alcoholic beverages. As part of its bilateral WTO 
commitments to the United States, however, Taiwan has pledged to 
convert an existing monopoly tax on these products to a simpler tax and 
tariff-based system, and also to open these markets following the 
passage and implementation of new legislation now pending in the 
Legislative Yuan.
4. Debt Management Policies
    Unofficial estimates put Taiwan's outstanding long and short-term 
external debt at $22 billion as of early, 1999, equivalent to seven 
percent of GDP. Official figures show Taiwan's long term outstanding 
external public debt totaled $33 million as of June 1999, compared to 
gold and foreign exchange reserves of about $110 billion. Taiwan's debt 
service payments in 1998 totaled $2.1 billion, only 1.5 percent of 
exports of goods and services.
    Foreign loans committed by Taiwan authorities exceed $3.6 billion. 
Taiwan offered low-interest loans to the Philippines, Eastern Europe, 
Vietnam, South Africa, and Latin America, mostly to build industrial 
zones and to foster development of small and medium enterprises. Some 
of the loans were provided to several Southeast Asian nations to 
address financial crises. Taiwan also contributes to the Asian 
Development Bank (ADB), one of the two multilateral development banks 
in which it has membership. Taiwan is also a member of the Central 
American Bank for Economic Integration (CABEI). The ADB, CABEI, the 
European Bank for Reconstruction and Development (EBRD) and a number of 
other international organizations have all floated bonds in Taiwan.
5. Significant Barriers to U.S. Exports
    Accession to the WTO by Taiwan will open markets for many U.S. 
goods and services. Of some 10,200 official import product categories, 
nearly 86 percent are completely exempt from any controls. 991 
categories are still ``regulated'' and require approval from relevant 
authorities based on the qualifications of the importer, the origin of 
the good, or other factors. Another 279 require import permits from the 
Board of Foreign Trade or pro forma notarization by banks. Imports of 
270 categories are ``restricted,'' including ammunition and some 
agricultural products. These items can only be imported under special 
circumstances, and are thus effectively banned.
    Financial: Taiwan continues to steadily liberalize its financial 
sector. Taiwan enacted a Futures Exchange Law in March 1997; a futures 
market was established in July 1998. The Securities and Exchange Law 
was amended in May 1997 to remove restrictions on employment of 
foreigners by securities firms, effective upon Taiwan's accession to 
the WTO. In early 1999, the limit on foreign ownership in listed 
companies was raised from 30 percent to 50 percent. For qualified 
foreign institutional investors, restrictions on capital flows have 
been removed, although they are still subject to limits on portfolio 
investment. Foreign individual investors are subject to some limits on 
their portfolio investment and restrictions on their capital flows.
    Banking: In June 1997, the annual limit on a company's non-trade 
outward (or inward) remittances was raised from $20 million to $50 
million. Inward/outward remittances unrelated to trade by individuals 
are subject to an annual limit of $5 million. There are no limits on 
trade-related remittances. NTD-related derivative contracts may not 
exceed one-third of a bank's foreign exchange position. To stabilize 
the foreign exchange market in the wake of regional financial turmoil, 
the CBC closed the non-deliverable forward (NDF) market to domestic 
corporations in May 1998; the NDF market remains open to foreign 
companies.
    Legal: Foreign lawyers may not operate legal practices in Taiwan 
but may set up consulting firms or work with local law firms. Qualified 
foreign attorneys may, as consultants to Taiwan law firms, provide 
legal advice to their employers only. Legislation was passed in May 
1998 to permit the eventual establishment of foreign legal 
partnerships. However, last minute changes to the law failed to achieve 
this purpose. However, Taiwan authorities subsequently agreed to delay 
implementation of the law and to make other commitments which will 
permit foreign attorneys to establish partnerships either upon 
accession to the WTO, or upon implementation of the new law, whichever 
comes first.
    Insurance: In May 1997, the financial authorities announced that, 
in principle, insurance companies would be allowed to set some premium 
rates and policy clauses without prior approval from regulators. 
Insurance companies are still required to report such rates and 
clauses. In July 1995, Taiwan removed a prohibition against mutual 
insurance companies. As of late 1999, however, authorities had not 
issued implementing regulations.
    Transportation: The United States and Taiwan have had an Open Skies 
Agreement in effect since February of 1997. An amendment to the Highway 
Law allowing branches of U.S. ocean and air freight carriers to truck 
containers and cargo in Taiwan went into effect on November 1, 1997.
    Telecommunications: Taiwan will open its fixed line market to 
competition in early 2000, when it is expected to issue 2-4 new fixed 
line licenses to private consortia. However, the published criteria for 
the license tender--including $1.2 billion in up-front paid-in capital, 
a minimum one million line final build-out, and a 150,000 line build-
out prior to service roll-out--are considered onerous entry barriers by 
some foreign companies. Under the bilateral WTO agreement signed in 
February 1998 Chunghwa Telecom, a state-owned corporation, began to 
lower excessively high interconnection fees previously imposed on 
private mobile service providers. This phased process is ongoing, but 
Chunghwa continues to engage in pricing practices which appear designed 
to unfairly subsidize its mobile operations with its fixed line 
services, in which it continues to enjoy monopoly status. Taiwan 
regulators have only recently begun to address such unfair trading 
practices. In October, Taiwan's legislature passed a revised Telecom 
Law. It will raise the current 20 percent limit on foreign ownership of 
a telecom firm to 60 percent through a combination of direct and 
indirect ownership. The timing of the law's implementation, however, 
remains uncertain.
    Pharmaceuticals and Medical Devices: Taiwan's single payer 
socialized health care system discriminates against imported drugs by 
setting prices for leading brand-name products at artificially low 
levels, while providing artificially high reimbursement prices for 
locally-made generics. The process by which Taiwan registers and prices 
new drugs is also time-consuming and cumbersome. Taiwan authorities are 
gradually phasing out a burdensome requirement for clinical trials as 
part of the registration process for new drugs. High value-added 
imported medical devices are likewise put at a competitive disadvantage 
by Taiwan's reimbursement system, which fails to account for 
significant quality differences between different brands of medical 
devices.
    Movies and Cable TV: Taiwan eased import restrictions on foreign 
film prints from 38 to 58 per title in late 1997. The number of 
theaters in any municipality allowed to show the same foreign film 
simultaneously also increased from 11 to 18. Effective August 1997, 
multi-screen theaters are allowed to show a film on up to three screens 
simultaneously, up from the previous limit of one. Taiwan has pledged 
to abolish these restrictions upon accession to the WTO. In the cable 
TV market, concerns remain that the island's two dominant Multi-System 
Operators (MSOs) occasionally collude to inhibit fair competition. 
Control by the two MSOs of upstream program distribution, for example, 
has made it difficult for U.S. providers of popular channels to 
negotiate reasonable fees for their programs.
    Standards, Testing, Labeling, and Certification: Taiwan has agreed 
to bring its laws and practices into conformity with the WTO Agreement 
on Technical Barriers to Trade as part of its WTO accession. However, 
Taiwan is not yet in conformity with WTO norms. U.S. agricultural 
exports are often negatively affected because prior notification of 
changes to standards, labeling requirements, etc, are not provided with 
adequate lead-time, or because changes to standards and other import 
requirements are not provided in a WTO language. In addition, concerns 
exist that U.S. fresh produce and meat imports do not, in all cases, 
receive national treatment. Industrial products such as air 
conditioning and refrigeration equipment, electric hand tools, and 
synthetic rubber gloves must undergo redundant and unnecessary testing 
requirements, which include destructive testing of samples. Imported 
autos face stringent noise emissions and fuel efficiency testing 
requirements. In March 1999 the U.S. and Taiwan signed a mutual 
recognition agreement (MRA) designed to eliminate duplicate testing of 
information technology equipment. According to the terms of the MRA, 
certain Taiwan exports to the U.S. previously tested for 
electromagnetic conformity in labs recognized by Taiwan authorities 
will no longer require duplicate inspections in an U.S. lab. Reciprocal 
treatment will likewise be accorded similar U.S. products imported into 
Taiwan. Relevant U.S. agencies and their Taiwan counterparts are 
jointly implementing operating procedures according to the principles 
of the MRA, including nominating certified labs for mutual 
accreditation.
    Investment Barriers: Taiwan continues to relax investment 
restrictions in a host of areas, but foreign investment remains 
prohibited in key industries such as agriculture, basic wire line 
telecommunications, broadcasting, and liquor and cigarette production. 
Wire line telecommunications will be gradually liberalized beginning in 
1999, and will be completely liberalized by July 2001 under Taiwan's 
WTO commitments. Liquor and cigarette production will be fully 
liberalized by 2004.
    Limits on foreign equity participation in a number of industries 
have been progressively relaxed in recent years. For example, 
permissible participation in shipping companies was raised from 50 to 
100 percent. A 33 percent limit on holdings in air cargo forwarders and 
air cargo ground handling was raised to 50 percent in 1998, but remains 
unchanged for airlines. However, an amendment to the Civil Aviation Law 
that would raise the holding limit to 50 percent is now pending 
legislative approval. In August 1997, Taiwan raised the cap on foreign 
investment in independent power projects from 30 percent to 49 percent. 
Local content requirements in the automobile and motorcycle industries 
will be lifted as part of Taiwan's WTO accession.
    Procurement Practices: Taiwan has committed to adhere to the WTO 
Agreement on Government Procurement as part of its WTO accession. To 
prepare for this commitment, a new Government Procurement Law (GPL) 
become effective in mid-1999, marking an important first step towards 
open, fair competition in Taiwan's multi-billion dollar market for 
public procurement projects. However, some initial procurements after 
the implementation of the GPL still have one-sided terms and conditions 
which may strongly discourage foreign bidders, including inefficient 
allocations of risks to the supplier.
6. Export Subsidies Policies
    Taiwan provides an array of direct and indirect subsidy programs to 
farmers, ranging from financial assistance to guaranteed purchase 
prices higher than world prices. It also provides incentives to 
industrial firms in export processing zones and to firms in designated 
``emerging industries.'' Some of these programs may have the effect of 
subsidizing exports. Taiwan is currently in the process of notifying 
the WTO of these programs, and as part of its WTO accession, it may be 
required to amend or abolish any subsidy programs deemed inconsistent 
with WTO principles.
7. Protection of U.S. Intellectual Property
    Taiwan is not a party to any major multilateral IPR conventions. In 
line with WTO accession efforts, Taiwan has passed laws to protect 
integrated circuit layouts, personal data, and trade secrets. Taiwan 
currently protects copyrights dating from 1965. Revised Copyright, 
Patent, and Trademark Laws were passed in 1997. However, only the 
Trademark Law and certain provisions of the Copyright Law have been 
implemented. The new Copyright Law, which will be fully implemented 
only upon WTO accession, will extend retroactive copyright protection 
to 50 years. Taiwan implemented these changes to bring its IPR legal 
structure into conformity with the WTO TRIPs agreement.
    In its April 1999 decision to keep Taiwan on the ``Special 301'' 
Watch List, the United States cited continuing concerns about Taiwan's 
IPR enforcement generally, and specifically urged Taiwan authorities to 
tighten controls on optical media production. In 1998, U.S. Customs 
seized $8.6 million of counterfeit goods from Taiwan, making Taiwan the 
second largest source of counterfeit goods (after the PRC). Taiwan has 
taken steps to address these concerns. In January of 1999, Taiwan 
established an Intellectual Property Office to improve coordination of 
IPR protection efforts. In February, Taiwan's Executive Yuan issued a 
new directive requiring only the use of legal software by Taiwan 
authorities. Beginning on July 1, 1999, all optical media products 
produced in Taiwan, including CD's, VCD's, CD-ROM's and DVD's, were 
required to bear source identification (SID) codes. At the same time, 
Bureau of Standards, Metrology and Inspection inspectors were 
authorized to perform random factory visits to ensure compliance. Also 
on July 1, the Taiwan Semiconductor Industry Association began 
implementation of a voluntary computer chip-marking program.
8. Worker Rights
    a. The Right of Association: Although the right to organize was 
reaffirmed by Taiwan's Judicial Yuan in 1995 as a constitutional right, 
the Labor Union Law (LUL) forbids civil servants, teachers, and defense 
industry workers from organizing trade unions and forbids workers from 
forming competing trade unions and confederations. However, as 
democratization has continued, workers have established independent 
labor unions, either legally or illegally. These independent unions 
increasingly are challenging the leadership of the Chinese Federation 
of Labor, which is closely tied to the ruling Kuomingtang party, and is 
the only island-wide labor union permitted. In February of 1999, a 
national teacher's association was established. In July, workers unions 
of 18 state-owned enterprises formed an alliance to protect their 
rights during privatization. As of June of 1999, 2.9 million workers, 
or 30.5 percent of Taiwan's labor force, belonged to 3,766 labor 
unions.
    b. The Right to Organize and Bargain Collectively: Except for civil 
servants, teachers, and defense industry workers, the LUL, the Law 
Governing the Handling of Labor Disputes, and the Collective Agreement 
Law offer workers the right to organize and bargain collectively. 
However, the law contains restrictions to curb workers' exercise of 
these rights. The LUL, for example, stipulates that workers shall not 
strike to demand an increase in wages exceeding standard wages. 
Collective bargaining agreements exist only in large-scale enterprises. 
As of June 1999, there were 298 such collective agreements.
    c. Prohibition of Forced or Compulsory Labor: The Labor Standards 
Law prohibits forced or compulsory labor. The maximum jail sentence for 
violation of the law is five years. Except for cases involving 
prostitution, there have only been allegations of possible forced or 
compulsory labor relating to PRC crewmembers on Taiwan fishing boats.
    d. Minimum Age for Employment of Children: The Labor Standards Law 
stipulates age 15, after completion of the 9-year compulsory education 
required by law, as the minimum age for employment. County and city 
labor bureaus enforce minimum age laws. Child labor is rare in Taiwan.
    e. Acceptable Conditions of Work: The Labor Standards Law (LSL) 
mandates basic labor standards. Pursuant to a 1996 amendment, the LSL 
was extended to cover all salaried employees (except teachers, civil 
servants, doctors, lawyers and some other specialized professions) as 
of the end of 1998. The law now covers over 5.5 million of Taiwan's 6.7 
million salaried workers. The Council of Labor Affairs (CLA) has kept 
the basic wage at the same level (NT$15,840 per month or about $500) 
since 1997. However, the average monthly wage in Taiwan's manufacturing 
sector was NT$40,130 (or about $1,300) during the first six months of 
1999. The LSL limits the workweek to 48 hours (8 hours per day, 6 days 
per week) and requires 1 day off every 7 days. In December of 1996, the 
LSL was amended to allow employers to adjust working hours, with 
approval by workers. The amendment allows private firms to have five-
day workweeks twice every month, similar to the system implemented for 
civil servants in early 1998. Currently, about one third of private 
enterprises have adopted an alternating 5-day workweek system. In 
addition to wages, employers typically provide workers with additional 
payments and benefits, including a portion of national health insurance 
and labor insurance premiums, the distribution of labor welfare funds, 
meals, and transportation allowances.
    f. Rights in Sectors with U.S. Investments: U.S. firms and joint 
ventures generally abide by Taiwan's labor law regulations. In terms of 
wages and other benefits, worker rights do not vary significantly by 
industrial sector.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  49
Total Manufacturing............  ..............  3,258
  Food & Kindred Products......  99              ...............................................................
  Chemicals & Allied Products..  1,372           ...............................................................
  Primary & Fabricated Metals..  45              ...............................................................
  Industrial Machinery and       280             ...............................................................
   Equipment.
  Electric & Electronic          1,191           ...............................................................
   Equipment.
  Transportation Equipment.....  (\1\)           ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  368
Banking........................  ..............  614
Finance/Insurance/Real Estate..  ..............  337
Services.......................  ..............  163
Other Industries...............  ..............  148
TOTAL ALL INDUSTRIES...........  ..............  4,937
----------------------------------------------------------------------------------------------------------------
\1\ Data suppressed to avoid disclosure of individual company data.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                THAILAND


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production, and Employment: \2\
  Nominal GDP..........................    150,593    112,758    121,979
  Real GDP Growth (pct) \3\............       -1.8      -10.0        3.5
  GDP by Sector
    Agriculture........................     14,814     13,239  \2\ 11,49
                                                                       6
    Manufacturing......................     44,638     34,660  \2\ 39,12
                                                                       3
    Services...........................     22,990     18,197  \2\ 21,17
                                                                       7
    Government \4\.....................     15,021     12,200  \2\ 14,19
                                                                       3
  Per Capita GDP (US$).................      2,421      1,765      1,965
  Labor Force (000's)..................     32,840     32,800     33,490
  Unemployment Rate....................        1.9        4.0        4.2

Money and Prices (annual percentage
 growth):
  Money Supply Growth..................       16.4        9.5        6.4
  Consumer Price Inflation.............        5.6        8.1        0.5
  Exchange Rate
    Official...........................      31.37      41.37  \5\ 37.71

Balance of Payments and Trade:
  Total Exports FOB \6\................     56,721     52,873     54,988
    Exports to U.S. \6\................     11,341     12,167  \7\ 12,06
                                                                       5
  Total Imports CIF \6\................     61,348     40,641     45,761
    Imports from U.S. \6\..............      8,714      5,963  \7\ 6,352
  Trade Balance \6\....................     -4,626     12,232      9,227
    Balance with U.S. \6\..............      2,627      6,204  \7\ 5,713
  External Public Debt.................     24,323     31,494     35,500
  Fiscal Balance/GDP (pct).............       -2.7       -5.5   \8\ -7.2
  Current Account/GDP (pct)............       -2.0       12.8        9.0
  Debt Service Payments/GDP (pct)......        0.8        1.2        N/A
  Gold and Foreign Exchange Reserves...     26,968     26,536     34,000
  Aid from U.S. \9\....................        3.6        5.5        N/A
  Aid from All Other Sources...........      109.2      105.8        N/A
------------------------------------------------------------------------
\1\ Royal Thai Government projections unless otherwise indicated.
\2\ Estimate based on six-month data.
\3\ Percentage changes calculated in local currency.
\4\ Government expenditure on GDP; for illustrative purposes.
\5\ Estimate based on ten-month data.
\6\ Merchandise trade, balance of payments concept.
\7\ Estimate based on eight-month data.
\8\ Includes imputed interest of financial sector restructuring.
\9\ Fiscal year total (October-September).

Sources: Royal Thai Government and U.S. Department of Commerce.

1. General Policy Framework
    The government of current Thai Prime Minister Chuan Leekpai has 
been working to stabilize and reinvigorate the Thai economy since it 
took office in November 1997. The East Asian economic crisis began in 
Thailand when a failed effort to defend the baht (the Thai currency) 
depleted Thailand's foreign exchange reserves and forced the Bank of 
Thailand to float the currency in July 1997. Over the next six months 
the baht lost half of its value, and the crisis spread from the 
financial sector to the real sector. The Thai economy, one of the 
world's fastest growing up through 1995, tumbled, and real GDP suffered 
contractions of 1.8 percent and 10 percent in 1997 and 1998 
respectively. The financial contagion spread from Thailand to other 
countries in the region, particularly Korea and Indonesia, impairing 
Thailand's ability to export its way out of the crisis.
    The failed defense of the baht led the government to seek 
assistance from the IMF, which in August 1997 put together a package 
worth $17.2 billion to provide balance of payments support and begin 
restructuring the Thai economy and financial sector. Under the guidance 
of Finance Minister Tarrin NimmanhaeMinda, the government has focused 
considerable effort on restructuring the financial sector. Insolvent 
institutions, including two-thirds of the country's finance companies, 
were closed or placed in receivership, and new provisioning 
requirements were instituted. The crisis and subsequent restructuring 
have opened the way for increased foreign participation in the 
financial sector. Foreign banks now own controlling interests in four 
Thai commercial banks, and two more banks are scheduled to be sold by 
the end of 1999. Thailand has also passed legislation to reform and 
streamline the bankruptcy and foreclosure system (including 
establishing a new bankruptcy court), and auctioned off assets of the 
closed finance companies to the private sector. Reform legislation 
still in draft includes a new financial institutions law, a new central 
bank law, amendments to the Currency Act, and bills to set up a deposit 
insurance scheme and a credit bureau. Throughout, Thailand has favored 
a market-oriented private sector-led approach to restructuring the 
financial sector.
    While the government's efforts stabilized the economy and laid the 
macro-economic foundation for a return to growth by late 1998, the real 
economy did not respond, and the focus turned to stimulating 
consumption. With the support of the IMF, the government ran fiscal 
deficits (after years of balanced or surplus budgets) of 3 percent of 
GDP in FY 1998 and 6 percent of GDP in FY 1999. An additional stimulus 
program of 2.8 percent of GDP announced in March 1999 provided funds to 
create jobs for 485,000, expand government purchases of goods and 
services by $1 billion, and decrease the tax burden on middle class 
income earners and the costs of energy for industrial users. In August 
1999 the government announced a further stimulus package of 2.2 percent 
of GDP to promote private investment. A new Alien Business Law and new 
investment promotion incentives should also increase Thailand's 
attractiveness to foreign investors. The economy has responded to these 
stimulus programs with consumption, exports and imports, and production 
all recording moderate increases for the first nine months of the year 
in comparison to 1998 totals. Private investment remains below 1998 
activity, but the declines here are slowing. The government is 
financing the deficit through domestic bond sales and foreign debt and 
grant assistance.
    Current Thai monetary policy aims at maintaining adequate system 
liquidity and keeping interest rates low in an effort to promote debt 
restructuring and new lending. The government uses a standard array of 
monetary policy tools but focuses on open market operations, 
particularly the repurchase market. Foreign exchange flows have a 
moderate effect on exchange rate stability. Current government policy 
does not target a specific level for the baht. However, the government 
will act to smooth volatility in the exchange rate.
2. Exchange Rate Policy
    From 1984 to 1997 the baht was pegged to a basket of currencies of 
Thailand's major trading partners, with the dollar representing the 
largest share. The exchange rate averaged 25 baht to the dollar during 
that period. Following the depletion of Thailand's foreign exchange 
reserves in an unsuccessful attempt to defend the peg, the currency was 
allowed to float in July 1997. It began to depreciate immediately and 
fell to below 50 per dollar in January 1998. As reform measures and IMF 
support took hold, the baht stabilized and has traded in the 36 to 41 
baht per dollar range since March 1998.
    The Thai government began liberalizing the exchange control regime 
in 1990 and accepted IMF Article VIII obligations. Commercial banks 
received permission to process larger foreign exchange transactions, 
and ceilings on money transfers were increased. Since 1991 Thai banks 
have offered foreign currency accounts for residents, although they are 
limited to $500,000 for individuals and $5 million for corporations 
(without conditions).
    After the baht was floated on July 2, 1997 the government tightened 
conditions on foreign exchange, requiring customers to show evidence of 
foreign currency obligations (within three months from date of deposit) 
to open foreign currency accounts. Thailand also required exporters to 
repatriate and deposit foreign exchange earnings more expeditiously. 
More recently, the government has restricted the supply of baht to non-
resident parties (unless there is an underlying transaction requiring 
the currency) to cut down on offshore speculation.
3. Structural Policies
    The Thai taxation system has undergone significant revision since 
1992 when a value added tax (VAT) system was introduced to replace a 
multi-tiered business tax system. The VAT rate was raised from 7 to 10 
percent in 1997 but lowered temporarily back to 7 percent in March 1999 
to stimulate private consumption. Exemptions in place for low revenue 
businesses were expanded in March 1999. Exporters are ``zero rated'' 
under the VAT system but must file returns and apply for rebates. 
Parliament is considering tax credits in lieu of the rebate. The 
corporate tax rate is currently 30 percent of net profits for all 
firms.
    Thailand and the United States signed a tax treaty in November 
1996, and the treaty entered into force in early 1998. The treaty 
eliminates double taxation and gives U.S. firms tax treatment 
equivalent to that enjoyed by Thailand's other tax treaty partners.
    Heightened awareness in Thailand about ``genetically modified 
organisms'' (GMO) issues and concern about increasing barriers to GMO 
products in Thailand's European markets have led to a reexamination of 
Thai government policy towards imports, production, sales, and exports 
of GMO crops, commodities, and processed foods. Current policy allows 
imports into Thailand of GMO seeds and plants only for research 
purposes, but there are no restrictions on imports of GMO commodities 
or products and no compulsory labeling requirements. The result is a 
relatively small impact on U.S. exports of GMO products. Although the 
debate continues, particularly on labeling, we do not expect major 
changes in this policy over the next year.
4. Debt Management Policies
    Thailand's financial crisis resulted in part from significant 
increases in private sector external debt, but these levels have 
declined markedly since the onset of the crisis, falling from $75 
billion at the end of June 1997 to $47 billion at the end of June 1999. 
Thailand entered the crisis with low levels of public debt, but public 
sector external debt has risen significantly as the government 
stabilized and sought to stimulate the economy. At the end of 1997, 
total public sector external debt (including that of the Bank of 
Thailand) stood at $24 billion. By the end of June 1999, the figure had 
risen to $34 billion. Public sector debt is predominantly long-term and 
divided among direct borrowings and loans to state-owned enterprises 
guaranteed by the government, with the latter predominating.
    Mounting public sector debt is a concern in Thailand, and the 
government is attempting to diversify its sources of funding by 
developing a domestic bond market. By the end of June 1999, total 
public sector debt, including the non-guaranteed debt of state-owned 
enterprises, had climbed to 41 percent of Thailand's GDP. The public 
debt service ratio (payments as a percent of the exports of goods and 
services) stood at the end of June 1999 at 3.5 percent, down slightly 
from the first quarter, but up a full percentage point from the 
comparable 1996 figure. By way of contrast, the debt service ratio for 
private sector debt at the end of June stood at 15.5 percent.
    Thailand has consistently met the targets and performance criteria 
elaborated in the $17.2 billion program agreed with the IMF in 1997. 
The program will run through May 2000, although Thailand recently 
announced that it does not intend to take disbursement of the final 
$2.7 billion of the package.
5. Significant Barriers to U.S. Exports
    Moving to meet its WTO and ASEAN tariff reduction commitments, 
Thailand instituted reductions in January 1995, and tariffs were 
reduced on another 4,000 items at the beginning of 1997. However, the 
decision to accelerate ASEAN's Free Trade Area (AFTA) preferred tariff 
schedules, taken in Manila in October 1998, has not yet translated into 
significant liberalization within APEC. Also, the need for revenue in 
the aftermath of the financial crisis led to the imposition of higher 
duties, surcharges, and excise taxes on ``sin'' items and a range of 
luxury imports, including U.S. wine and beer exports.
    At the beginning of 1997, the total number of tariff rate 
categories was reduced from 39 to six, with the following spread: zero 
percent on such goods as medical equipment and fertilizer, one percent 
on raw materials, electronics components, and vehicles for 
international transport, five percent on primary and capital goods, 10 
percent on intermediate goods, 20 percent for finished products, and 30 
percent on goods needing ``special protection.'' This last category 
includes agricultural products, autos and auto parts, alcoholic 
beverages, and a few other ``sensitive'' items. Import tariff quotas 
are applied to 23 categories of agricultural products. Further 
reductions on a range of capital goods and raw materials were announced 
in August of 1999 as an investment incentive measure and a spur to 
domestic industries. Tariff exemptions for some items deemed critical 
to Thai industrial recovery were also announced.
    Thailand is in the process of changing its import licensing 
procedures to comply with its WTO obligations. Import licenses are 
still required for 26 categories of items, down from 42 categories in 
1995-1996. Licenses are required for many raw materials, petroleum, 
industrial, textile, and agricultural items. Import licenses can be 
used to protect unproductive local industries and to encourage greater 
domestic production. Some items that do not require licenses must 
nevertheless comply with applicable regulations of concerned agencies, 
are subject to extra fees, or must have certificates of origin.
    The Thai Food and Drug Administration issues licenses for food and 
pharmaceutical imports. This process can be a barrier due to the cost, 
the length of the process, and occasional demands for proprietary 
information. Licenses cost about $600 and must be renewed every three 
years. Pharmaceutical import licenses cost about $480 and must be 
renewed every year. There are also fees for laboratory analysis. Costs 
of between $40 to $120 per item are usual for sample food products 
imported in bulk. Sealed, packaged foods can cost about $200 per item. 
Pharmaceuticals must be registered for a fee of about $80, and 
inspected and analyzed for another fee of about $80 per item. The 
process can take more than three months to complete.
    The government is gradually easing import duties in line with WTO 
commitments, which may improve market access for some American 
products. Rice will continue to be protected, but within WTO schedules. 
Corn and fresh potatoes are subject to a Tariff Rate Quota (TRQ) that 
limits import levels. The restricted entry period for U.S. corn under 
the TRQ, generally February to June, usually ensures that it is not 
competitive in the Thai market.
    Even though rates are slated to decline between 35 and 50 percent 
under WTO rules, duties on many high-value fresh and processed foods 
remain high. For most U.S. high-value fresh and value-added processed 
foods, entry into Thailand is still expensive. There are no longer 
specific duties on most imported agricultural and food products, except 
wine and spirits, which continue to have very high rates.
    Arbitrary customs valuation procedures sometimes constitute a 
serious barrier to U.S. goods. The Customs Department has used the 
highest previously declared invoice value as a benchmark for assessing 
subsequent shipments from the same country. That allows Customs to 
disregard the invoice value of a shipment in favor of the benchmark 
amount. This practice has had a particularly damaging effect upon trade 
in agricultural products, which often have seasonally fluctuating 
values. However, the government is instituting a program of customs 
reform that, if adopted successfully, will remedy some of the problems 
at the ports of entry. These reforms include adoption of the World 
Customs Organization harmonized code and the use of an Electronic Data 
Interchange (EDI) system. The pilot program for EDI became operational 
early in 1998, but thus far affects only export procedures and only in 
the airport, not in the seaports. There have been some significant 
improvements in advance of the full installation of EDI. Expedited 
procedures for express carriers were instituted during 1998, and 
customs procedures in the port areas are reported by private industry 
to be faster and smoother during 1998-1999.
    Customs duties are sometimes arbitrary in other ways. For example, 
import duties on unfinished materials are higher than those on finished 
goods in some categories, such as automobiles. This is a burden to 
American firms that manufacture or assemble in Thailand.
    Restrictions on the activities of foreign banks have eased since 
1994, as have limits on foreign ownership of Thai banks. However, 
foreign banks' deposits in Thailand still comprise only 4.1 percent of 
total bank deposits, and foreign banks are still disadvantaged in a 
number of ways. Foreign banks are limited to three branches (of which 
two must be outside of Bangkok and adjacent provinces) and there are 
limits on expatriate management personnel, although foreign bankers 
here say that requests for additional personnel are customarily 
approved.
    To facilitate recapitalization of the financial sector, the 
government has raised limits on foreign ownership of domestic banks. In 
June 1997 the Minister of Finance was empowered to raise the old 25 
percent ceiling on foreign ownership of domestic banks, and the Bank of 
Thailand announced in November 1997 that foreign ownership would be 
allowed to exceed 49 percent for a period of 10 years. (Foreign 
investors will not be forced to divest shares after 10 years, but will 
not be able to purchase additional shares.) The government has also 
issued additional foreign bank and Bangkok International Banking 
Facility licenses and authorized foreign bank participation in domestic 
ATM networks. During the third quarter of 1999 foreign banks purchased 
75 percent shares of two domestic banks intervened by the Thai 
Government. The Government hopes to sell similar stakes in two more 
intervened banks by the end of 1999.
    Foreign ownership of finance companies and securities companies had 
been limited to 25 percent, but these limits were also raised in the 
aftermath of the financial crisis. As of May 1998, foreigners may hold 
majority stakes in Thai securities houses, although there are minimum 
investment requirements.
    The provision of telecommunications services is a government 
monopoly in Thailand. Private participation is currently limited to 
concessions in both wireless and fixed line sectors. In November 1997, 
the government approved a telecommunications master plan that that 
provides an outline of a liberalization program. The government plans 
to corporatize its two telecom operators, the Telephone Organization of 
Thailand and the Communications Authority of Thailand, in preparation 
for seeking strategic partners in the next few years. Full market 
liberalization will not take place until 2006, as mandated by the WTO.
6. Export Subsidies Policies
    Thailand ratified the Uruguay Round agreements in December 1994. 
Thailand maintains several programs that benefit exports of 
manufactured products or processed agricultural products and which may 
constitute export subsidies. These include subsidized credit on some 
government-to-government sales of Thai rice (agreed on a case-by-case 
basis), preferential financing for exporters in the form of packing 
credits, tax certificates for rebates of packing credits, and rebates 
of taxes and import duties for products intended for re-export. The 
Thai EX-IM bank currently offers an 11 (plus 1.5) percent rate on 
export credits, about one point below the prime rate offered by the 
large commercial banks.
7. Protection of U.S. Intellectual Property
    Improved protection for U.S. copyright, patent, and trademark 
holders has been an important bilateral trade issue for several years. 
After passage of a revised Copyright Law in 1994 the U.S. moved 
Thailand from Priority Watch List to Watch List status. During 1998 the 
Thai Parliament passed amendments to the Patent Act, abolishing the 
Pharmaceutical Review Board. Trademark application procedures were 
streamlined by administrative means.
    A specialized intellectual property department in the Ministry of 
Commerce has cooperated with U.S. industry associations to coordinate 
both legal reforms and enforcement efforts, including raids. In 1997, 
the parliament established a separate intellectual property court that 
has resulted in a more efficient judicial procedures and higher fines. 
The court began operation in December 1997. In mid-1998, the government 
produced a letter of intent containing the bilaterally agreed text of 
an IPR action plan for the remainder of the year. The plan was 
ambitious, and covered most aspects of IPR. Many components of the plan 
were implemented during 1998 as the Thai Government showed itself 
prepared to install more efficient administrative structures and 
procedures for dealing with piracy. Enforcement has always been the 
biggest problem. During the first months of 1999 enforcement efforts in 
Thailand improved dramatically with several successful raids on pirate 
optical media supply and distribution systems. The momentum has been 
kept up through the second half of the year. Rights-holders report that 
police cooperation is better and the frequency of raids is up across 
the board. As requested by the USG and rights holders, these have 
included some raids against producers.
    Piracy remains a serious problem, however, and it is growing rather 
than shrinking as pirates from elsewhere in the region have come to set 
up shop in Thailand. The U.S. pharmaceutical, film, and software 
industries estimate lost sales at over $200 million annually. Few 
persons have served time in jail for copyright infringement. 
Irregularities in police and public prosecutor procedures have resulted 
in the substitution of insignificant defendants for major ones and the 
disappearance of vital evidence from police inventories. Although fewer 
raids are compromised by leaks from police sources than during 1997-98, 
this is still a problem. Some trademark pirates running ``plush'' item 
factories in outlying provinces have thwarted raids with threats of 
violence against officials and investigators.
8. Worker Rights
    a. The Right of Association: The Labor Relations Act of 1975 gives 
workers in the private sector most internationally recognized labor 
rights, including the freedom to associate. They may form and join 
unions and make policy without hindrance from the government and 
without reprisal or discrimination for union activity. Unions in 
Thailand may have relationships with unions in other countries, and 
with international labor organizations. In 1991, following a military 
coup, the Thai Government revoked a number of these rights for state 
enterprise workers. The Thai Parliament approved a new State Enterprise 
Labor Relations (SELRA) bill on October 8, 1998. That bill was 
subsequently rejected by the Constitutional Court on a technicality. In 
August 1999, after the bill was re-introduced, the House and Senate 
could not agree on several key union rights provisions. The House then 
invoked constitutional provisions that will allow it to pass SELRA 
unilaterally after a six-month waiting period. The Ministry of Labor 
expects the bill to pass by February 2000.
    b. The right to Organize and Bargain Collectively: Thai workers 
have the right to bargain collectively over wages, working conditions, 
and benefits. About 900 private sector unions are registered in 
Thailand. Civil servants cannot form unions. State enterprise 
employees, essential workers (transportation, education, and health 
care personnel), and civil servants may not strike. However, they may 
be members of employee associations. Collective bargaining is unusual 
in Thailand, and industry-wide collective bargaining is all but 
unknown. However, representatives of public sector associations and 
private sector unions do sit on various government committees dealing 
with labor matters, and are influential in setting national labor 
policies, such as the minimum wage.
    c. Prohibition of Forced or Compulsory Labor: The Thai Constitution 
prohibits forced or compulsory labor except in cases of national 
emergency, war, or martial law. However, Thailand remains the target of 
ILO actions under Convention 29 (forced labor) because child 
prostitution persists despite recent government moves to step up 
enforcement of laws prohibiting it, and to cooperate with ILO programs.
    d. Minimum Age for Employment of Children: The new 1998 Labor 
Protection Act went into effect on August 20, 1998. The act raises the 
minimum age for employment in Thailand from thirteen to fifteen. 
Persons between the ages of 15 to 18 are restricted to light work in 
non-hazardous jobs, and must have the permission of the Department of 
Labor in order to work. Nighttime and holiday employment of non-adults 
is prohibited. The new national education bill passed in August 1999 
gives the children the right to free primary education through grade 
12. However, compulsory education is only enforced through grade nine.
    e. Acceptable Conditions of Work: Working conditions vary widely in 
Thailand. Large factories generally meet international health and 
safety standards, though there have been serious lapses involving loss 
of life. The government has increased the number of inspectors and 
raised fines for violators, but enforcement is still not rigorous. The 
usual workday in industry is eight hours. Wages in profitable export 
industries often exceed the legal minimum. However, in the large 
informal industrial sector wage, health, and safety standards are low 
and regulations are often ignored. Most industries have a legally 
mandated 48-hour maximum workweek. The major exceptions are commercial 
establishments, where the maximum is 54 hours. Transportation workers 
are restricted to 48 hours per week.
    f. Rights in Sectors with U.S. Investment: Labor rights are 
generally respected in industrial sectors with heavy investment from 
U.S. companies. Most U.S. firms in Thailand work with internal workers' 
representatives or unions, and relations are constructive. U.S. 
companies strictly adhere to Thai labor laws and did not experience 
serious labor disruptions in the last year.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  1,579
Total Manufacturing............  ..............  1,633
  Food & Kindred Products......  109             ...............................................................
  Chemicals & Allied Products..  334             ...............................................................
  Primary & Fabricated Metals..  70              ...............................................................
  Industrial Machinery and       648             ...............................................................
   Equipment.
  Electric & Electronic          243             ...............................................................
   Equipment.
  Transportation Equipment.....  24              ...............................................................
  Other Manufacturing..........  205             ...............................................................
Wholesale Trade................  ..............  1,508
Banking........................  ..............  486
Finance/Insurance/Real Estate..  ..............  351
Services.......................  ..............  42
Other Industries...............  ..............  122
TOTAL ALL INDUSTRIES...........  ..............  5,721
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.

                                 EUROPE

                              ----------                              


                           THE EUROPEAN UNION


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................    8095.6    8393.9    8182.5
  Real GDP Growth (pct)...................       2.7       2.9       2.1
  GDP by Sector:
    Agriculture...........................       N/A       N/A       N/A
    Manufacturing.........................       N/A       N/A       N/A
    Services..............................       N/A       N/A       N/A
    Government............................       N/A       N/A       N/A
  Per Capita GDP (Thousands of US$).......      21.6      22.3      21.8
  Labor Force (Millions)..................     166.9     167.7       N/A
  Unemployment Rate (pct).................      10.7      10.0       9.6

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2/M3).............       5.0       N/A       N/A
  Consumer Price Inflation................       2.1       1.5       1.3
  Exchange Rate (USD/ECU annual average)..      1.13      1.12      1.05

Balance of Payments and Trade:
  Total Exports FOB.......................     820.2     816.1       N/A
    Exports to U.S........................     160.8     179.1       N/A
  Total Imports CIF.......................     765.2     793.5       N/A
    Imports from U.S......................     156.9     168.7       N/A
  Trade Balance...........................      55.0      22.6       N/A
    Balance with U.S......................       3.9      10.4       N/A
  External Public Debt (pct of GDP).......      71.7      69.7      68.6
  Fiscal Deficit/GDP (pct)................       2.3       1.5       1.5
  Current Balance/GDP (pct)...............       1.5       1.2       0.9
  Debt Service Payments/GDP (pct).........       N/A       N/A       N/A
  Gross Official Reserves.................     518.5       N/A       N/A
  Aid from U.S............................       N/A       N/A       N/A
  Aid from Other Sources..................       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ Estimates.

1. General Policy Framework
    The European Union (EU), the largest U.S. trade and investment 
partner, is a supranational organization comprised of fifteen European 
countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, 
Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, 
and the United Kingdom. It is unique in that its member states have 
ceded to it increasing authority over their domestic and external 
policies, especially with the 1987 Single European Act and the 1993 
``Maastricht'' and 1999 ``Amsterdam'' amendments to the 1958 Treaty of 
Rome. Individual member state policies, however, may still present 
problems for U.S. trade, in addition to EU-wide actions.
    The EU's authority is clearest in trade-related matters. As a long-
standing customs union, the EU represents the collective external trade 
interests of its member states in the World Trade Organization (WTO). 
Internally, the free movement of goods, services, capital and people 
within the EU is guaranteed by the Single Market program, an effort to 
harmonize member state laws in order to eliminate non-tariff barriers 
to these flows. Externally, with respect to services investment, 
intellectual property rights and food safety issues among others, 
competency for policy and negotiations is balanced between member 
states, the European Commission and the European Parliament. However, 
the European Commission enforces treaty provisions against anti-
competitive practices throughout the EU. The EU is also gaining greater 
competence over investment from third countries.
    The Maastricht Treaty provides for the creation of an Economic and 
Monetary Union (EMU) among the EU member states which went into effect 
on January 1, 1999 with the launch of a single currency, the euro. The 
11 participating countries (Denmark, Greece, Sweden and the United 
Kingdom are not included) now have a single monetary policy conducted 
by the European System of Central Banks (ESCB), including the 
Frankfurt-based European Central Bank (ECB). Member states were 
generally successful in achieving the ``convergence criteria'' for EMU: 
maximum deficits of three percent of GDP, maximum gross national debt 
of 60 percent of GDP, inflation and interest rate levels no more than 
one and a half percentage points above the average of the three lowest 
rates among the member states, and two years of relative exchange rate 
stability. Since the euro's launch they have adhered to their Stability 
and Growth Pact's limit on excessive budget deficits (3 percent of GDP) 
by seeking to achieve balanced budgets by 2002.
    The Union's budget, consisting mainly of member state contributions 
because the EU has no independent taxing authority, is limited to 1.27 
percent of the combined GDP of the 15 member states. Expenditures of 
roughly $100 billion are divided generally among agricultural support 
(40 percent), ``structural'' policies to promote growth in poorer 
regions (40 percent), other internal policies (five percent), external 
assistance (five percent) and administrative and miscellaneous (five 
percent).
2. Exchange Rate Policy
    The third and final stage of EMU began on January 1, 1999 when 11 
member states irrevocably fixed their exchange rates to the euro. 
Financial transactions are now available in euros through commercial 
banking institutions. Euro notes and coins will be introduced on 
January 1, 2002, fully replacing national currencies by July 1, 2002. 
During the transition period, there will be dual circulation between 
the euro and the respective national currencies.
    The ESCB is responsible for setting monetary policy in the euro 
area, while national central banks will continue to conduct money 
market operations and foreign exchange intervention under its 
direction. Per requirement of the treaty, the ECB policy is focused on 
maintaining price stability. The euro follows a floating exchange rate 
regime against other currencies, with the exception of the currencies 
of Denmark and Greece which participate in the new Exchange Rate 
Mechanism (ERM-2) limiting their fluctuation against the euro to +/- 
2.25 percent and +/- 15 percent respectively. EMU has provisions to 
create additional exchange rate arrangements, if the member states 
desire to do so. However, there are no current plans to seek such 
arrangements.
3. Structural Policies
    Single Market: The legislative program removing barriers to the 
free movement of goods, services, capital and people is largely 
complete, although there are delays in member state implementation of 
Community rules and national differences in the interpretation of those 
rules. The net effect of the Single Market program has been freer 
movement, fewer member state regulations for products and service 
providers to meet, and real consolidation of markets. Nonetheless, some 
aspects of the program have created problems for U.S. exporters (as 
discussed below). Furthermore, disparate enforcement, inconsistent 
application and insufficient monitoring of Single Market measures 
within the EU place U.S. exporters at a disadvantage. EU efforts to 
remedy these problems are notable in some areas, but resources remain 
severely limited.
    Tax Policy: Tax policy remains the prerogative of the member 
states, which must approve by unanimity any EU legislation in this 
domain. EU legislation to date has been aimed at eliminating tax-
induced distortions of competition within the Union. Legislation 
focuses on harmonizing value-added and excise taxes, eliminating double 
taxation of corporate profits, interest, and dividends and facilitating 
cross-border mergers and asset transfers. The EU countries have stated 
their commitment to move further toward coordination of their tax 
policies, in addition to agreeing to a Code of Conduct to curb 
``harmful'' business taxation.
4. Debt Management Policies
    The EU raises funds in international capital markets, but does so 
largely for cash management purposes and thus does not have any 
significant international debt. The European Investment Bank, 
reportedly the world's largest multilateral development bank, also 
raises funds in international markets. The bank has an extremely 
favorable balance sheet and retains the highest credit rating. Finally, 
the EU has used its borrowing power to on-lend to key developing 
countries, especially in Central Europe and the newly independent 
states of the former Soviet Union. It has consistently taken a hard 
line on efforts to reschedule their debt.
5. Significant Barriers to U.S. Exports
            Import Policies
    Import, Sale and Distribution of Bananas: The U.S. has been engaged 
for many years in efforts to resolve a long-standing dispute with the 
EU over its banana import regime. The WTO found that the EU's current 
regime remains WTO-inconsistent. The U.S. currently has WTO-approved 
retaliation in place worth 191.4 million dollars per year. The U.S. has 
tabled a number of constructive ideas on revised regimes that would be 
WTO-consistent. The European Commission is currently developing 
proposals for member state consideration. U.S. retaliation will remain 
in place until the EU implements a WTO-consistent banana import regime.
    Restrictions Affecting U.S. Wine Exports to the EU: Current EU 
regulations require imported wines to be produced only by specifically 
authorized oenological practices. Since the mid-1980's, U.S. wines have 
entered the EU market under a series of ``derogations'' granting EU 
regulatory exemptions. Access to the EU wine market is further impeded 
by a complicated wine-import certificate documentation process. The 
United States is negotiating an agreement with the EU to ensure the EU 
market remains open to U.S. wine. The U.S. does not believe EU 
legislation on ``traditional expressions'' (terms such as vintage or 
tawny) is WTO TRIPs consistent and therefore does not believe this area 
is appropriate for bilateral negotiation.
            Services Barriers
    EU Broadcast Directive: The EU's 1989 Broadcast Directive (revised 
in 1997) provides that a majority of entertainment broadcast 
transmission time be reserved for European-origin programs ``where 
practicable'' and ``by appropriate means.'' Certain measures of the 
directive appear to violate WTO rules. The U.S. has reserved its right 
to take further action under dispute settlement procedures and will 
continue to monitor closely the implementation of these measures.
    Computer Reservation Services: U.S. Computer Reservation Services 
(CRS) companies have had difficulties in the EU market because some 
member state markets tend to be dominated by the CRS owned by that 
member state's flag air carrier. Most disputes have been resolved to 
the satisfaction of U.S. CRS vendors via U.S. government intervention 
or recourse to national administrative and court systems. In 1996 the 
U.S. Department of Justice forwarded a Positive Comity referral to the 
European Commission (DG Competition) requesting an investigation into 
anticompetitive activities in Europe that may have disadvantaged a U.S. 
CRS firm. The Commission's investigation resulted in a European CRS 
firm being charged with activities that infringed competition rules. As 
of November 1999 a final Commission ruling has not been made.
    Airport Ground-Handling: In October 1996, the EU issued a directive 
to liberalize the market to provide ground-handling services at EU 
airports above a certain size by January 1, 1998. U.S. airline 
companies and ground-handling service providers welcome this 
development. Yet they are concerned with an exemption that allows EU 
airports to continue having a monopoly service provider until January 
1, 2002, and to limit the number of firms which can provide certain 
services on the airport tarmac (ramp, fuel, baggage and mail/freight 
handling). These potential barriers are partially offset by more 
liberal bilateral air service agreements, which the United States 
concluded with individual member states.
    Postal Services: U.S. express package services are concerned with 
market access restriction and unequal competition caused by state-owned 
postal monopolies. Proposals to liberalize postal services and to 
constrain the advantages enjoyed by the monopolies have not made 
sufficient progress to redress these problems.
            Standards, Testing, Labeling and Certification
    Despite the Single Market program, the free movement of goods 
within the EU is still impeded by widely disparate member state 
standards, testing and certification procedures for some products. The 
``new approach,'' which streamlines technical harmonization and the 
development of standards for certain product groups using essential 
health and safety requirements, reflects the trend towards 
harmonization of laws, regulations, standards, testing, and quality and 
certification procedures in the EU. U.S. firms cannot directly 
participate in the European standardization process, but European 
standards bodies can be sympathetic to U.S. concerns when approached.
    The Transatlantic Business Dialogue's (TABD) adopted goal of 
``approved once, accepted everywhere in the transatlantic marketplace'' 
demonstrates the importance of standardization in U.S.-EU trade 
relations. The anticipation that EU standardization legislation will 
eventually cover 50 percent of U.S. exports to Europe demonstrates its 
significance. Although some progress has been made, U.S. exporters are 
still concerned with legislative delays, inconsistent member state 
interpretation and application of legislation, the ill-defined scope of 
directives and unclear marking and excessive labeling requirements. 
These problems can complicate and impede U.S. exports to the EU.
    Mutual Recognition Agreements: In addition to implementing a 
harmonized approach to testing and certification, the EU is also 
providing for the mutual recognition of member state designated 
national laboratories to test and certify ``regulated'' products. For 
the testing and certification of non-regulated products, the EU 
encourages mutual recognition agreements between private sector 
parties. U.S. exporters face problems when only ``notified bodies'' in 
Europe are empowered to grant final product approvals of regulated 
products. There are some U.S. laboratories, under subcontract to 
notified bodies, that can test regulated products. Yet these 
laboratories must still send test reports to their European affiliates 
for final product approval. Since this process can cause delays and 
additional costs for U.S. exporters, sufficient access for U.S. 
exporters cannot be provided in this fashion.
    On May 18, 1998, the United States and the EU signed a package of 
Mutual Recognition Agreements (MRAs), allowing for conformity 
assessments to be performed in the United States to EU standards and 
vice versa. Both governments are committed to advancing joint efforts 
to promote mutual recognition, equivalency and harmonization of 
standards. The MRA entered into force on December 1, 1998 and is now 
being implemented. Under the Transatlantic Economic Partnership (TEP) 
established at the May 1998 U.S.-EU Summit, the U.S. set in motion a 
process to undertake negotiation of additional MRAs covering other 
sectors.
    Biotechnology Product Approvals and Labeling: A majority of EU 
member states have called for a ``moratorium'' on approvals for 
products of biotechnology for the foreseeable future. Calls for 
segregation, traceability and labeling have not been well defined. The 
result has been an uncertain and ambiguous regulatory environment that 
neither instills consumer confidence nor provides clear criteria with 
which industry could comply. No biotechnology products have been 
approved since 1998. The Commission is currently conducting an internal 
review of the EU approach to biotechnology and food safety and expects 
to circulate a recommendation paper in early 2000.
    Hormone-Treated Beef: The WTO has ruled consistently against the 
EU's ban on hormone-treated beef, most recently in early 1998. The EU 
did not come into compliance by May 13, 1998, as required, citing a 
need to perform additional risk assessments (which the WTO did not say 
were needed). Therefore, the U.S. has imposed WTO-approved retaliation 
worth 116.8 million dollars per year, pending EU compliance. A large 
body of scientific evidence indicates these products are safe as used. 
The EU does not expect its studies to be complete before mid-2000 at 
the earliest. The U.S. remains open to exploring meaningful 
compensation pending EU compliance.
    Veterinary Equivalency: The U.S./EU Veterinary Equivalency 
Agreement (VEA) was signed on July 20, 1999 and implemented on August 
1. The agreement provides a regulatory framework for recognition of 
equivalent sanitary measures of both parties of virtually all animals 
and animal products. However, recent statements by Commission officials 
have indicated that the EU is not prepared to recognize U.S. systems as 
equivalent in the near term. A joint management committee meeting of 
the VEA is planned for March 2000, when we hope to have ironed out many 
of the implementation issues.
    Aflatoxin Limits: In July 1998, the EU adopted a regulation 
harmonizing maximum levels of aflatoxin in peanuts, tree nuts and dried 
fruits, cereals and milk, effective January 1, 1999. At the same time, 
a directive specifying sampling methods to be used after December 31, 
2000 was adopted. The United States considers the maximum limits 
unjustifiably low in relation to consumer exposure and risk. The 
sampling procedure will increase handling costs with no appreciable 
reduction of aflatoxin contamination in consumer protection.
    Specified Risk Materials Ban: In response to growing concern over 
the transmission of ``mad cow disease'' or Bovine Spongiform 
Encephalopathy (BSE), the EU, in July 1997, passed a Specified Risk 
Material (SRM) regulation restricting the use and processing of certain 
animal products and by-products. Since tallow, tallow derivatives and 
gelatin are widely used in food manufacturing, pharmaceutical, cosmetic 
and industrial products, this regulation threatened to significantly 
restrict U.S. access to EU markets despite the fact that the United 
States is considered to have a negligible BSE-risk. Implementation of 
the ban continues to be delayed; a new proposal addressing the overall, 
long term problem of TSEs (transmissible spongiform encephalopathies) 
is expected to be presented in November 1999.
    Hushkits or New Engine Modified and Recertificated Aircraft: In 
1997, pressure on EU airport authorities to reduce noise levels 
resulted in a Commission effort to develop an EU-wide noise standard. 
When it became clear that it would be politically impossible to agree 
on such a standard, the Commission and the EU member states developed 
an alternative proposal. That proposal effectively passes the costs on 
to U.S. and other non-EU air carriers and to U.S. manufacturers of 
noise reduction technology (hushkits) and new engines for older U.S. 
aircraft. The Commission has provided no scientific analysis 
demonstrating that the regulation would reduce noise. The regulation 
was approved by the European Parliament in 1999 but, following U.S. 
protests, its implementation has been delayed until May 2000. The 
prospect of implementation has harmed the market for hushkitted and re-
engined aircraft and negatively affected fleet values of some U.S. air 
carriers.
    New Aircraft Certification: The United States continues to be 
concerned by the possibility that European aircraft certification 
standards are being applied so as to impede delivery of qualified 
aircraft into Europe. Processes and procedures currently employed by 
the European Joint Aviation Authorities (JAA) appear cumbersome and 
arbitrary, and in any event cannot be uniformly enforced. For example, 
France continues to insist on an exception to the JAA's decision on 
certification of Boeing's new model 737 aircraft that limits the seat 
density of aircraft sold to carriers in France. The JAA decision itself 
took an inordinately long time, during which additional conditions were 
imposed progressively on the U.S. firm. The United States desires a 
transparent, equitable process for aircraft certification that is 
applied consistently on both sides of the Atlantic according to the 
relevant bilateral airworthiness agreements.
    Metric Labeling: In order to harmonize measurement systems 
throughout the EU, the EU adopted a directive in 1980, which mandates 
metric-only labeling on most goods entering the EU from January 1, 
2000. Both EU and U.S. exporters have complained about the costs of 
complying with conflicting EU metric-only and U.S. mandatory dual 
labeling requirements. In response to strong industry and USG 
opposition, the EU approved a 10-year deferral of its metric-only 
directive in December 1999.
    Voluntary Ecolabeling Scheme: In 1992, the EU adopted an EU-wide 
ecolabeling scheme. This is a voluntary scheme that allows 
manufacturers to obtain an ecolabel for a product when its production 
and life cycle meets the established criteria for the product category. 
Despite ongoing dialogues between the EU, U.S. government and U.S. 
interest groups, commitments to enhance transparency and scientific 
analysis from previous technical bilateral talks have not been upheld. 
To address this problem, a formal EU-U.S. technical working group was 
proposed in October 1998. The United States, due to concern that the EU 
ecolabeling scheme may become a de facto trade barrier, will continue 
to monitor closely the development of the ecolabeling scheme.
    Packaging Labeling Requirements: In 1996, the Commission proposed a 
directive establishing marking requirements, indicating recyclability 
and/or reusability, for packaging. Due to the differences that exist 
between EU marking requirements and those used by the United States and 
the International Standards Organization (ISO), the United States is 
concerned with the additional costs and complications both U.S. and EU 
firms will face, in the absence of concomitant environmental benefits. 
The United States is also concerned with Article 4 of the proposed 
directive, which would prohibit the application of other marks to 
indicate recyclable or reusable packaging. This may require some 
companies to create new molds solely for use in the European market. 
Discussions underway in the ISO may resolve potential problems, 
especially since the Commission has indicated a willingness to review 
the proposed directive in light of an eventual ISO agreement.
    Waste Management: European Commission environment officials are 
working on draft proposals for directives on batteries and on waste 
from electrical and electronic equipment. The United States supports 
the objectives of the drafts to reduce waste and the environmental 
impact of discarded products. However, the proposals' approach to 
banning certain materials (such as lead, mercury and cadmium) appears 
to lack adequate scientific and economic justification and may serve as 
unnecessary barriers to trade. Imposing sole responsibility on the 
manufacturer for the collection and recycling of used products also is 
unnecessarily burdensome. The draft directives are likely to be voted 
on by the Commission in early 2000. If adopted, the proposals would 
then move to the Council and European Parliament. U.S. and Commission 
waste experts have begun an informal dialogue to discuss these and 
other waste issues. The United States government will continue to 
monitor closely these proposals.
    Acceleration of the Phase-Out of HCFCs: The European Commission 
adopted a proposal in July 1998 to amend EU Regulation 3093/94 on 
substances that deplete the ozone layer. The United States government 
actively opposed early drafts, which included phase-outs of some 
hydrochlorofluorocarbons (HCFCs) by 2000 or 2001, and would have 
disadvantaged U.S. producers while not necessarily benefiting the 
environment. The final Commission draft included a January 1, 2003 
phase-out date for HCFCs used in refrigerator foam--in line with U.S. 
law--thereby protecting the export to the EU of U.S. refrigeration 
equipment. The Council agreed to the 2003 date in adopting its Common 
Position in late December 1998, but the Parliament sought to accelerate 
the date to 2002. In December 1999, Parliament rejected this amendment, 
so the 20003 phase-out date for HCFCs used by the air conditioning 
industry, while similarly manufactured heat pump systems received a 
2004 deadline. The U.S. government will continue to monitor this issue.
            Investment Barriers
    The European Union and its fifteen member states provide one of the 
most open climates for U.S. direct investment in the world, with well-
established traditions concerning the rule of law and private property 
rights, transparent regulatory systems, freedom of capital movements 
and the like. Traditionally, member state governments have been 
responsible for policies governing non-EU investment. However, in the 
1993 Maastricht Treaty, partial competence was shifted to the EU. 
Member state policies existing on December 31, 1993 remain effective, 
but can be superseded by EU law. In general, the EU supports the idea 
of national treatment for foreign investors, arguing that any company 
established under the laws of one member state must, as a ``Community 
company,'' receive national treatment in all member states regardless 
of ultimate ownership. However, some restrictions on U.S. investment do 
exist under EU law.
    Ownership Restrictions: The benefits of EU law in the aviation and 
maritime areas are reserved to firms majority-owned by EU nationals.
    Reciprocity Provisions: The ``reciprocal'' national treatment 
clause found in EU banking, insurance and investment services 
directives allows the EU to deny a third-country financial services 
firm the right to establish a new business in the EU if it determines 
that the investor's home country denies national treatment to EU firms. 
This notion of reciprocity may have been taken further in the 
Hydrocarbons Directive which requires ``mirror-image'' reciprocal 
treatment where an investor is denied a license if its home country 
does not permit EU investors to engage in activities under 
circumstances ``comparable'' to those in the EU. It should be noted 
that, thus far, these reciprocity provisions have not affected U.S. 
firms. In fact, the EU reiterated to the WTO in April 1998 that neither 
the Commission nor the EU member states would invoke the reciprocity 
clause in the EU banking directive with other WTO members in the light 
of the specific most-favored-nation commitments made during the WTO 
financial services negotiations.
    Access to Government Grant Programs: The EU does not preclude U.S. 
firms established in Europe from access to EU-funded research and 
development grant programs, although in practice, association with a 
``European'' firm is helpful in winning grant awards.
    Anti-Corruption: In an attempt to coordinate disparate member state 
legislation on anti-corruption, the Commission, in 1997, adopted a 
discussion document suggesting guidelines for the development of a 
coherent EU-level anti-corruption policy. However, there has been 
little follow-up to the recommendations, and EU member state 
legislation on corruption is presently far from homogeneous. A number 
of EU member states have yet to ratify the OECD convention on anti-
bribery.
            Government Procurement
    Discrimination in the Utilities Sector: The Utilities Directive, 
which took effect in January 1993, is an effort to open government 
procurement within the EU. It covers purchases in the water, 
transportation, energy and telecommunications sectors. The directive 
benefits U.S. firms by requiring open and objective bidding procedures, 
but still discriminates against non-EU bids unless provided for in an 
international or bilateral agreement. This discriminatory provision was 
waived for the heavy electrical sector in a 1993 Memorandum of 
Understanding (MOU) signed between the EU and the United States. A year 
later, in a new agreement, the idea of non-discriminatory treatment was 
extended to over $100 billion of goods procurement on each side. Much 
of the 1994 agreement is implemented through the 1996 WTO Government 
Procurement Agreement.
    Telecommunications Market Access: Consistent with the WTO Agreement 
on Basic Telecommunications Services and EU legislation requiring 
liberalization, there is a general trend toward increased competition 
and openness in the European telecommunications services market. Access 
of U.S. firms, however, varies considerably from member state to member 
state due to uneven implementation of commitments. While not specific 
to U.S. firms, high interconnection tariffs in many member states 
present a serious barrier. The ability of telecommunications regulatory 
bodies to exercise authority quickly and effectively varies among 
member states. This has, in some instances, hampered competition. The 
European Commission has proposed streamlining the European regulatory 
structure and increasing dialogue among regulators and the Commission 
to enhance, inter alia, regulatory efficiency.
    Procurement policies and practices are becoming more competitive, 
but discrimination against non-EU bids for public procurement in the 
telecommunications sector remains. In the long run, as privatization in 
the sector increases, this barrier will lessen in importance, but 
access still may be impeded by standards, standard-setting procedures, 
testing, certification and interconnection policies. In this regard, 
the U.S. has serious concerns about market access for third generation 
(3G) wireless telecommunications. Member states appear to be 
formulating licensing rules and procedures that favor a single European 
standard. The U.S. has urged the European Commission and member states 
to modify their rules, as needed, to ensure market access for providers 
of products based on all internationally accepted 3G standards.
            Other Barriers
    Data Privacy: The EU Data Protection Directive entered into force 
in October 1998. It sought to harmonize the treatment of personal data 
within the EU to increase protection and facilitate the flow of 
information within Europe. The Directive only allows the transfer of 
data to third countries if they are deemed to provide ``adequate 
protection.'' The U.S. is discussing a Safe Harbor Initiative with the 
EU, which would create an interface for our different approaches to 
data privacy and ensure that data flows are not interrupted.
6. Export Subsidies Policies
    Agricultural Product Subsidies: The EU grants direct export 
subsidies (restitutions) on a wide range of agricultural products. 
Payments are nominally based on the difference between the EU internal 
price and the world price, usually calculated as the lowest offered 
price by competing exporters. In addition, the complexities of EU law, 
along with the availability of preferential loans and structural funds, 
may further support EU agricultural exports. Under the Uruguay Round 
agreement, the EU is required to reduce direct export subsidies by 21 
percent in volume and 36 percent in value over six years. Whether or 
not the EU is abiding by its commitments remains an issue of 
contention.
    Canned Fruit: The U.S. cling peach industry has complained that the 
EU provides excessive support to their canned fruit industry and that 
the EU has failed to observe the 1985 U.S.-EU Canned Fruit Agreement. 
This allows EU fruit processors to unfairly undercut the domestic and 
export prices for EU trading partners. The U.S. Government has 
consulted with the EU on this issue several times. Currently, EU data 
on subsidy levels to its canned fruit processors is being reviewed, but 
effects of EU subsidies on global prices appear significant.
    Shipbuilding Subsidies: Responding to pressure from the 
shipbuilding industry, the United States, in 1994, successfully 
brokered an OECD agreement to eliminate subsidies that were distorting 
the world ship market. Following the non-ratification of the agreement 
by the U.S. Senate, the EU adopted its own shipbuilding directive in 
May 1998. This directive contains the EU's own timeline for phasing out 
subsidies, primarily aimed at leveling the playing field within the EU.
    Government Support for Airbus: Since the inception of the European 
Airbus consortium in 1967, its partner governments (France, Germany, 
Spain and the United Kingdom) have provided massive support to their 
national company partners in the consortium to aid the development, 
production and marketing of large civil aircraft. Since that date, the 
Airbus partner governments either have committed, or are in an advanced 
stage of consideration of providing, additional funds for derivative 
models of current Airbus aircraft. The United States is concerned that 
the launch of new Airbus programs and the restructuring of the Airbus 
consortium may be used to justify additional government subsidies. The 
United States also continues to be concerned that the European Union 
and its member states may attempt to influence commercial aircraft 
competitions in favor of Airbus aircraft in a manner inconsistent with 
its obligations. The United States will continue to monitor EU 
involvement in future competitions and its compliance with aircraft 
trade agreements.
7. Protection of U.S. Intellectual Property
    The EU and its member states support strong protection for 
intellectual property rights (IPR). EU member states are participants 
of all the relevant WIPO conventions. Along with the EU, they regularly 
join with the United States to encourage other countries to adopt and 
enforce high IPR standards, including those in the TRIPs Agreement. 
However, the United States has challenged several member states on 
their failure to fully implement the TRIPs Agreement.
    Designs: The EU agreed to compromise language on industrial designs 
and models legislation. In general, the directive harmonizes national 
rules on design protection, but does not provide for registration and 
protection of spare components of complex products (such as visible car 
spare parts). A regulation currently under review would designate the 
Office for Harmonization in the Internal Market (OHIM, also known as 
the Community Trademark Office) in Alicante, Spain as the EU registrar 
for designs.
    Patents: Patent filing and maintenance fees in the EU and its 
member states are expensive relative to other countries. Fees 
associated with the filing, issuance and maintenance of a patent over 
its life far exceed those in the U.S. In an effort to introduce more 
reasonable costs, the European Patent Office (EPO) reduced fees for 
filing by 20 percent in 1997.
    European Community Patent: Draft legislation to establish a 
European Community Patent to harmonize patent issuance in EU member 
states, and supplement patents issued by the EPO (with a wider 
membership than the EU) is slated for late 1999. However, a stumbling 
block to this effort is disagreement among member states on which 
official EU languages will be used in patent applications.
    Trademarks: Registration of trademarks with the European Community 
trademark office (official name: Office for Harmonization in the 
Internal Market--OHIM) began in 1996. OHIM, located in Alicante, Spain 
issues a single Community trademark with is valid in all 15 EU member 
states.
    Madrid Protocol: The World Intellectual Property Organization's 
(WIPO) Madrid Protocol provides for an international trademark 
registration system permitting trademark owners to register in member 
countries by filing a standardized application. The U.S. has not 
acceded because it objects to voting provisions in the protocol that 
would allow the EU a vote upon accession in addition to the votes of 
its member states. The U.S. has proposed a voting arrangement to the EU 
that would establish voting procedures to address U.S. concerns. The EU 
has not yet responded to the U.S. proposal.
    Trademark Exhaustion: The trademark exhaustion principle limits a 
trademark owner's ability to resort to remedies against importers/
distributors of trademarked goods outside channels authorized by the 
trademark owner. The current EU regime supports the principle of 
``Community exhaustion,'' which allows resale of trademarked goods 
within the fifteen member states once the trademark owner licenses 
their sale in any EU country.
    In 1998 a European Court of Justice ruling upheld the legality of 
Community trademark exhaustion within the EU. The European Commission 
has defended the principle by maintaining that Community exhaustion 
heightens competition within the internal market. However, member state 
opinion remains divided and at the insistence of the U.K. and Sweden, 
the Commission began a study into the economic impact of Community 
exhaustion in the member states. European discount chains prefer, and 
have actively lobbied for, a system of ``international exhaustion,'' 
which limits the trademark owner's right to control distribution of 
goods once he/she licenses them for sale anywhere in the world.
    Copyrights: U.S. corporate opinion is divided on proposed 
legislation to harmonize copyright law in EU member states and comply 
with WIPO treaties. The EU proposed directive is the subject of active 
lobbying by U.S. business interests. The U.S. has encouraged the EU to 
take all stakeholders into account and develop legislation compatible 
with the U.S. Digital Millennium Copyright Act.
8. Worker Rights
    Labor legislation still remains largely the domain of individual 
member states. Recent decisions taken at the Luxembourg, Cardiff, and 
Cologne EU Summit Meetings of the EU have, however, significantly 
increased cooperation on employment issues. Specifically, the 
Luxembourg Process created a system of goals on employment and annual 
reviews of each country's progress toward meeting them. The Cardiff 
Process sought to liberalize further the movements of goods, services, 
and capital as a means of increasing employment in EU countries. And 
the Cologne Process, in the European Employment Strategy signed at the 
Summit, brought the EU's coordination in employment and macroeconomic 
policies closer together.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  24,953
Total Manufacturing............  ..............  146,007
  Food & Kindred Products......  14,155          ...............................................................
  Chemicals & Allied Products..  49,798          ...............................................................
  Primary & Fabricated Metals..  9,308           ...............................................................
  Industrial Machinery and       19,100          ...............................................................
   Equipment.
  Electric & Electronic          11,841          ...............................................................
   Equipment.
  Transportation Equipment.....  14,555          ...............................................................
  Other Manufacturing..........  27,250          ...............................................................
Wholesale Trade................  ..............  32,324
Banking........................  ..............  20,190
Finance/Insurance/Real Estate..  ..............  154,733
Services.......................  ..............  31,699
Other Industries...............  ..............  23,751
TOTAL ALL INDUSTRIES...........  ..............  433,658
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                AUSTRIA


                         Key Economic Indicators
          [Millions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                        1997        1998       \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP \2\..................   206,739.5   210,897.7  \3\ 210,334
                                                                      .4
  Real GDP Growth (pct)............         2.5         3.3          2.2
  GDP by Sector:
    Agriculture....................     4,662.5     4,584.3          N/A
    Manufacturing..................    44,568.1    45,648.9          N/A
    Services.......................   116,647.5   118,315.2          N/A
    Government.....................    13,188.3    13,247.7          N/A
  Per Capita GDP (US$).............      25,607      26,046   \3\ 25,964
  Labor Force (1,000's)............       3,657       3,684        3,702
  Unemployment Rate (pct) \4\......         4.4         4.7          4.4

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2).........         1.0        16.5          N/A
  Consumer Price Inflation.........         1.3         0.9          0.6
  Exchange Rate (AS/US$ annual            12.20       12.38        12.86
   average) \5\....................

Balance of Payments and Trade:
  Total Exports FOB................    58,607.9    62,579.8     63,140.0
    Exports to U.S.................     2,148.4     2,533.5      2,430.0
  Total imports CIF................    64,774.7    68,023.3     69,230.0
    Imports from U.S...............     3,467.9     3,283.0      3,110.0
  Trade Balance....................    -6,166.8    -5,443.5     -6,090.0
    Balance with U.S...............    -1,319.5      -749.5        680.0
  External Public Debt.............    24,991.8    31,777.1     31,950.0
  Fiscal Deficit/GDP (pct).........         1.8         2.2          2.0
  Current Account Deficit/GDP (pct)         2.5         2.2          2.2
  Debt Service Payments/GDP (pct)           2.2         2.4          1.5
   \6\.............................
  Gold and Foreign Exchange
 Reserves
    (Year-End).....................    21,600.0    24,115.1          N/A
  Aid from U.S.....................           0           0            0
  Aid from All Other Sources.......           0           0            0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on latest available data and
  economic forecasts in October 1999.
\2\ GDP at market prices, converted at average annual exchange rate.
\3\ The apparent decline in 1999 figures is a result of exchange rate
  fluctuations between the Austrian Shilling (AS) and the US dollar. In
  local AS currency, figures show an increase in 1999.
\4\ Unemployment rate according to EU method.
\5\ There is only an official rate, no parallel rates.
\6\ Debt service payments on external public debt.

Sources: Austrian Institute for Economic Research (WIFO), Austrian
  Central Statistical Office, Austrian Federal Finance Ministry, and
  Austrian National Bank.

1. General Policy Framework
    Based on per capita GDP, Austria (tied with Belgium) is the third 
richest EU country. Austria has a skilled labor force and a record of 
excellent industrial relations. Its economy is dominated by services, 
accounting for two thirds of employment followed by the manufacturing 
sectors. Small and medium-sized companies are predominant. By 1997, the 
government completed a 10-year privatization program. Most of the 
formerly state-owned industries are now in private hands. Further 
privatizations are underway, including in the banking, 
telecommunications and energy sectors.
    Exports of Austrian goods and services account for almost 44 
percent of GDP. Austria's major export market is the EU, accounting for 
64 percent of Austrian exports (36 percent to Germany, 8 percent to 
Italy). However, given Austria's traditional expertise in Central and 
Eastern European (CEE) markets, exports to that region have soared 
since 1989, accounting for 17 percent of Austrian exports by 1998. 
Numerous multinationals have established their regional headquarters in 
Austria as a ``launching pad'' to the CEE markets. In 1998, Hungary was 
equal to Switzerland as Austria's third largest export market.
    The government sets economic policy in consultation with the so-
called ``Social Partnership,'' consisting of the representative bodies 
of business, farmers, and labor. Designed to minimize social unrest, 
this consensual approach has come under criticism for slowing the pace 
of economic reforms, particularly in inflexible labor and product 
markets. With an increasing number of decisions being made on the EU 
level, the influence of the social partner institutions seems to have 
declined in past years.
    In order to meet the Maastricht criteria for Economic and Monetary 
Union (EMU), in 1996-97, the government introduced an austerity 
program, under which it reduced its federal budget deficit from 5.1 
percent (1995) to 2.5 percent of GDP (1998) and the total public 
deficit, which is decisive for the EMU, to 2.2 percent of GDP (1998). 
The tax increases included in the austerity program brought the share 
of total taxes in GDP to an all-time high of 44.9 percent (1997), since 
then it has declined slightly. The 1999 federal budget was designed to 
secure the consolidation begun in 1996. The total public sector deficit 
is forecast to fall to 2.0 percent in 1999. Social expenditures 
currently amount for almost 29 percent of GDP.
    Another focus of economic policy is employment creation. Austria 
has been one of the foremost supporters of the EU-wide national 
employment plans. Its plan places strong emphasis on training and 
education, removal of bureaucratic hurdles, more labor flexibility and 
a more favorable climate for business start-ups. While some of these 
plans have been implemented, the government failed to address the 
planned reduction of wage and non-wage costs as part of the 2000-2001 
tax reform due to a deadlock of the governing parties and the diverging 
interests of social partners, i.e., business and labor representatives.
2. Exchange Rate Policies
    As one of the eleven EU member states participating in EMU, Austria 
on January 1, 1999 surrendered its sovereign power to formulate 
monetary policy to the European Central Bank (ECB). The government 
successfully met all EMU convergence criteria due to austerity measures 
implemented in 1996-97, and is pursuing a policy of further reducing 
the fiscal deficit and the public debt. The ECB's focus on maintaining 
price stability in formulating exchange rate and monetary policies is 
viewed by the Austrian National Bank (ANB) as a continuation of the 
``hard schilling'' policy the ANB pursued since 1981. By pegging the 
Austrian schilling (AS) to the German mark (DM), the government has 
successfully kept inflation under control and promoted stable economic 
growth. On December 31, 1998, the exchange rate for the Euro was 
irrevocably fixed at Austrian schillings 13.7603.
    In 1998, the Austrian schilling lost little ground against the 
dollar. However, in 1999, the dollar continued to rise steadily against 
the schilling parallel to its rise against the common Euro currency.
3. Structural Policies
    Austria's accession to the EU forced the government to accelerate 
structural reforms and to liberalize its economy. Most nontariff 
barriers to merchandise trade have been removed and cross-border 
capital movements have been fully liberalized.
    While the government continues to be a major player in the economy, 
the scope of government involvement--a traditional feature of the 
Austrian economy--has been significantly reduced in recent years. The 
amount of total government spending (federal, provincial and local 
governments as well as social security institutions, but not including 
government holdings) as percentage of GDP declined to 54.2 percent in 
1998 from 57.4 percent in 1995 (Note: the figure for the government 
contribution to GDP, as shown in the table, reflects only narrow public 
administration functions and does not include social and other 
expenditures). The government no longer has majority ownership in 
formerly state-controlled companies such as OMV (oil and gas), VOEST 
(steel, plant engineering) or ELIN (electrical machinery and 
equipment). Subsidy programs have also been scaled back to conform to 
EU regulations.
    After the passage of a more liberal business code in 1997, plans 
for making Austria more attractive for investors were implemented. 
While procedures for investors to obtain necessary permits and other 
approvals have been streamlined and the time for approvals cut 
considerably, plans for implementing ``one-stop-shopping'' for all 
necessary permits have not yet been realized. Delays have been caused 
by jurisdictional disputes among three federal ministries as well as 
differences in opinion between the federal government and business 
interest representatives. Approval for larger projects could still be 
bothersome and lengthy. Other measures implemented to improve the 
business climate and stimulate entrepreneurial activity include the 
reorganization of the Austrian stock market (the Vienna Stock Exchange 
was fully privatized and linked to the German Stock Exchange in 
Frankfurt), a new takeover act, the standardization of international 
accounting standards (IAS) or generally accepted accounting principles 
(US-GAAP), increased work time flexibility, and initial measures that 
have slightly increased wage and labor cost flexibility.
    As a result of EU liberalization directives, the government has 
also moved ahead with liberalization legislation in the telecom and 
energy sectors. The opening of the market for conventional telephones 
on January 1, 1998, represented the final phase of Austria's telecom 
liberalization. The Austrian telecom services sector now exhibits a 
high degree of liberalization, though high interconnection fees still 
serve as an impediment to market access. For decades, telecom was a 
monopoly in Austria, with the state-owned Post and Telecom Austria 
Company (PTA) being the only national supplier of networks and telecom 
services. The government also moved ahead with the liberalization of 
the highly centralized and virtually closed electricity market. A 
relevant Austrian law was adopted in 1998, providing for a progressive 
opening of the market by the year 2003. Preparations are also under way 
to liberalize the natural gas market.
    The outgoing government (general elections took place on October 3, 
1999) decided on the implementation of the tax reform it had promised 
for 2000. The tax reform for 2000 ended up in marginal tax rate 
adjustments and some ``redistribution.'' The reform will, thus, 
stimulate economic growth in Austria in 2000, but it failed to meet the 
declared goal of a clear reduction of wage and non-wage costs. 
Moreover, the reform is likely to result in a higher overall government 
budget deficit in 2000, which may go up to as high as 2.5 percent of 
GDP, reversing the downward trend since 1995, over which time the 
overall government budget deficit declined steadily from 5.1 percent in 
1995 to an estimated 2.0 percent in 1999.
4. Debt Management Policies
    Austria's external debt management has had no significant impact on 
U.S. trade. At the end of 1998, the Austrian federal government's 
external debt amounted to $31.8 billion (25 percent of the government's 
overall debt) and consisted of 95 percent bonds and 5 percent credits 
and loans. Debt service on the federal government's external debt 
amounted to $5.0 billion in 1998, or 2.4 percent of GDP and 5.4 percent 
of total exports of goods and services. The total public sector 
external debt in 1998 was not significantly higher than the federal 
government's external debt. Total gross public debt was 63.1 percent of 
GDP at the end of 1998, just beyond the 60 percent ceiling set under 
the Maastricht convergence criteria. Republic of Austria bonds are 
rated AAA by recognized international credit rating agencies.
5. Barriers to U.S. Exports
    The U.S. is Austria's largest non-European trading partner with 4.8 
percent of Austria's total 1998 imports coming from the U.S. The U.S. 
was Austria's fourth largest supplier worldwide after Germany, Italy, 
and France. The Austrian government thus has a clear interest in 
maintaining close and smooth trade ties. However, there are a number of 
obstacles hindering further increases of U.S. exports to Austria:
    Pharmaceuticals: Access of U.S. pharmaceutical products to the 
Austrian market has been restricted by the Austrian social insurance 
holding organization (Hauptverband der Sozialversicherungstrager). The 
non-transparent procedures by which the Hauptverband approves drugs for 
reimbursement under Austrian health insurance regulations allegedly 
perpetuates a closed market favoring established, domestic suppliers. 
Pharmaceuticals not approved by the Hauptverband have higher out-of-
pocket costs for Austrian patients and therefore suffer a competitive 
disadvantage vis-a-vis approved products.
    Government Procurement: Austria is a party to the WTO Government 
Procurement Agreement; Austria's Federal Procurement Law was amended in 
January 1997 to bring its procurement legislation in line with EU-
guidelines, particularly on services. However, U.S. firms have 
experienced a strong pro-EU bias in awarding government tenders. In 
defense contracts, offset agreements are common practice. This pro-
European bias also appears to play a role in privatization decisions, 
although in some cases the bias is even more narrowly defined with 
politicians calling for ``Austrian solutions.''
    Beef Hormones: The EU ban on beef imports from cattle treated with 
hormones severely restricts U.S. exports of beef to Austria. Despite a 
WTO decision that the ban is inconsistent with the rules of 
international trade, the EU has not lifted the ban. While decisions on 
this policy must be made by all members of the EU, Austrian politicians 
have ruled out a lifting of the ban in the foreseeable future.
    Poultry: The EU has not approved any U.S. poultry plants, ruling 
out the possibility of importing U.S. poultry, or products containing 
poultry.
    GMOs: As the EU has not approved all genetically modified plants 
available in the U.S., imports of these plants or products containing 
these plants are not permitted. Austria has gone even further than its 
EU partners: Novartis corn and Monsanto BT corn, approved by the 
European Commission, are not permitted in Austria. The ban of these 
corn types is contrary to EU regulations.
    Other Financial Services: Providers of financial services, such as 
accountants, tax consultants, and property consultants, must submit 
specific proof of their qualifications, such as university education or 
number of years of practice. Other service activities also require a 
business license, for which one of the preconditions is legal 
residence. Under the WTO General Agreement on Trade in Services, 
Austrian officials insist that Austria's commitments on trade in 
professional services extend only to intra-corporate transfers. U.S. 
service companies often form joint ventures with Austrian firms to 
circumvent these restrictions.
    Foreign Direct Investment: A 1997 U.S. Investor Confidence Survey 
compiled by the American Chamber of Commerce cites high labor, 
telecommunications and energy costs, the complex Austrian legal 
situation, and difficulties in obtaining work permits for key personnel 
as major obstacles. A 1998 follow-up survey noted improvements in the 
regulatory process and faster permit processing. The reform of the 
Residence Law and the Foreign Workers Employment Law enacted in mid-
1997 exempts skilled U.S. labor (e.g. managers and their dependents) 
from an increasingly restrictive quota system for residence permits. 
Electricity and telecommunications costs, also noted in the survey as 
an impediment to business in Austria, have been significantly reduced 
through EU-wide liberalization.
6. Export Subsidies Policies
    The government provides export promotion loans and guarantees 
within the framework of the OECD export credit arrangement and the WTO 
Agreement on Subsidies and Countervailing Measures. The Austrian 
Kontrollbank (AKB), Austria's export financing agency, offers export 
financing programs for small and medium-sized companies with annual 
export sales of up to $8.2 million. Following Austria's accession to 
the EU, the AKB stopped providing economic risk guarantees for short 
term financing of exports to OECD countries. A 1995 amendment to 
Austria's Export Guarantees Act enables the AKB to guarantee untied 
credits. In 1996, the AKB made its export guarantee system more 
transparent by publishing conditions and eligible country lists.
7. Protection of U.S. Intellectual Property
    Austria is a party to the World Intellectual Property Organization 
and several international intellectual property conventions, including 
the European Patent Convention, the Patent Cooperation Treaty, the 
Madrid Trademark Agreement, the Budapest Treaty on the International 
Recognition of the Deposit of Microorganisms for the Purpose of Patent 
Procedure, the Universal Copyright Convention, the Brussels Convention 
Relating to the Distribution of Program-carrying Signals transmitted by 
Satellite, and the Geneva Treaty on the International Registration of 
Audiovisual Works. In compliance with the World Trade Organization 
Treaty on Intellectual Property (WTO TRIPS) agreement obligations, 
Austria extended patent terms; patents on inventions are now valid up 
to 20 years after application.
    Austrian copyright law grants the author the exclusive right to 
publish, distribute, copy, adapt, translate, and broadcast his work. 
Infringement proceedings, however, can be time consuming and 
complicated. Austria's copyright law is in conformity with the EU 
directives on intellectual property rights.
    However, under Austrian copyright law ``tourist establishments'' 
(hotels, inns, bed and breakfast establishments, etc.) may show 
cinematographic works or other audiovisual works, including videos, to 
their guests. While the license fee to the copyright owners is 
mandatory, Austrian law does not require prior authorization by the 
copyright holder. The U.S. holds this provision to be inconsistent with 
Austria's obligations under the Berne Convention and TRIPS. Following 
bilateral U.S.-Austrian talks in 1997, the Austrian Arbitration 
Commission determined the rates to be paid for such public showings. 
Austria considers this step sufficient compensation for the interests 
of the copyright holders and in compliance with both the Berne 
Convention and the Agreement on Trade-Related Aspects of Intellectual 
Property Rights (TRIPS). The U.S. has expressed reservations to this 
position.
    Austrian copyright law also requires that a license fee be paid on 
imports of home video cassettes and broadcasting transmissions. Of 
these fees, 51 percent are paid into a fund dedicated to social and 
cultural projects. In the U.S.'s view, the copyright owners should 
receive the revenues generated from these fees and any deductions for 
cultural purposes should be held to a minimum.
    Austria is not mentioned in the 1999 ``Special 301'' Watch List or 
Priority Watch List and is not identified as a Priority Foreign 
Country.
8. Worker Rights
    a. The Right of Association: Workers in Austria have the 
constitutional right to associate freely and the de facto right to 
strike. Guarantees in the Austrian Constitution governing freedom of 
association cover the rights of workers to join unions and engage in 
union activities. Labor participates in the ``social partnership,'' in 
which the leaders of Austria's labor, business, and agricultural 
institutions jointly develop draft legislation on social and economic 
issues, thereby influencing the country's overall economic policy.
    b. The Right to Organize and Bargain Collectively: Austrian unions 
enjoy the right to organize and bargain collectively. Some 50 percent 
of Austria's 3.2 million-strong labor force is unionized. The Austrian 
Trade Union Federation (OGB) is exclusively responsible for collective 
bargaining. All workers except civil servants are required to be 
members of the Austrian Chamber of Labor. Leaders of the OGB and the 
Chamber of Labor are democratically elected. Workers are legally 
entitled to elect one-third of the board of major companies.
    c. Prohibition of Forced or Compulsory Labor: Forced or compulsory 
labor is prohibited by law.
    d. Minimum Age for Employment of Children: The minimum legal 
working age is 15. The law is enforced by the Ministry for Social 
Affairs.
    e. Acceptable Conditions of Work: There is no legally mandated 
minimum wage in Austria. Instead, minimum wage scales are set in annual 
collective bargaining agreements between employers and employee 
organizations. Workers whose incomes fall below the poverty line are 
eligible for social welfare benefits. Over half of the workforce works 
a maximum of either 38 or 38.5 hours per week, a result of collective 
bargaining agreements. The Labor Inspectorate ensures the effective 
protection of workers by requiring companies to meet Austria's 
extensive occupational health and safety standards.
    f. Rights in Sectors With U.S. Investment: Labor laws tend to be 
consistently enforced in all sectors, including the automotive sector, 
in which the majority of U.S. capital is invested.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  152
Total Manufacturing............  ..............  1,062
  Food & Kindred Products......  30              ...............................................................
  Chemicals & Allied Products..  45              ...............................................................
  Primary & Fabricated Metals..  2               ...............................................................
  Industrial Machinery and       114             ...............................................................
   Equipment.
  Electric & Electronic          (\1\)           ...............................................................
   Equipment.
  Transportation Equipment.....  295             ...............................................................
  Other Manufacturing..........  (\1\)           ...............................................................
Wholesale Trade................  ..............  515
Banking........................  ..............  (\1\)
Finance/Insurance/Real Estate..  ..............  (\1\)
Services.......................  ..............  200
Other Industries...............  ..............  -38
TOTAL ALL INDUSTRIES...........  ..............  3,838
----------------------------------------------------------------------------------------------------------------
\1\ Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis.


                                 ______
                                 

                                BELGIUM


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                            1997       1998     \1\ 1999
------------------------------------------------------------------------
Income, Production and Employment:
  GDP (at current prices) 2/............     246.4      252.3      249.1
  Real GDP Growth (pct) 3/..............       3.2        2.9        2.2
  GDP by Sector (pct):
    Agriculture.........................       1.2        N/A        N/A
    Construction........................       6.2        N/A        N/A
    Energy..............................       4.4        N/A        N/A
    Industry............................      17.8        N/A        N/A
    Services............................      52.6        N/A        N/A
    Nontradable Services................      17.7        N/A        N/A
  Real Per Capita GDP (US$) \4\.........    24,204     24,732     24,373
  Labor Force (000's)...................     4,320      4,330      4,341
  Unemployment Rate (pct)...............       9.3        8.6        8.0

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)..............       6.5        5.5        N/A
  Consumer Price Inflation..............       1.6        1.0        1.0
  Exchange Rate (BF/US$)................     35.78      36.31      37.95

Balance of Payments and Trade:
  Total Exports FOB \5\.................     175.3      184.0      187.3
    Exports to U.S. \6\.................       7.7        7.1        7.0
  Total Imports CIF \5\.................     162.5      170.2      172.8
    Imports from U.S. \6\...............      10.8       11.2       12.3
  Trade Balance \5\.....................      12.8       13.8       14.5
    Balance with U.S. \6\...............      -3.1       -4.1       -5.3
  Current Account/GDP (pct).............       5.1        5.3        5.7
  External Public Debt..................      25.1       28.3        N/A
  Debt Service Payments/GDP.............       N/A        N/A        N/A
  Fiscal Deficit/GDP (pct)..............      -1.8       -1.0       -1.1
  Gold and Foreign Exchange Reserves....     19.12      17.66        N/A
  Aid from U.S..........................         0          0          0
  Aid for All Other Sources.............         0          0          0
------------------------------------------------------------------------
\1\ 1999 figures are all estimates based on monthly data available in
  November 1999.
\2\ GDP at factor cost.
\3\ Percentage changes calculated in local currency
\4\ At 1985 prices.
\5\ Merchandise trade. Government of Belgium data.
\6\ Source: U.S. Department of Commerce and U.S. Census Bureau; exports
  FAS, imports customs basis.

1. General Policy Framework
            Major Trends and Outlook
    Belgium possesses a highly developed market economy, the tenth 
largest among the OECD industrialized democracies. The service sector 
generates more than 70 percent of GDP, industry 25 percent and 
agriculture two percent. Belgium ranked as the eleventh-largest trading 
country in the world in 1998, with exports and imports each equivalent 
to about 70 percent of GDP. Eighty percent of Belgium's trade is with 
other European Union (EU) members. Seven percent is with the United 
States. Belgium imports many basic or intermediate goods, adds value, 
and then exports final products. The country derives trade advantages 
from its central geographic location, and a highly skilled, 
multilingual and industrious workforce. Over the past 30 years, Belgium 
has enjoyed the second-highest average annual growth in productivity 
among OECD countries (after Japan).
    Throughout the late 1970s and the 1980s, Belgium ran chronic budget 
deficits, leading to a rapid accumulation of public sector debt. By 
1994, debt was equal to 137 percent of GDP; since then, however, the 
country has made substantial progress in reducing the debt and 
balancing its budget. Belgium has largely financed its budget deficits 
from domestic savings. Foreign debt represents less than 10 percent of 
the total and Belgium is a net creditor on its external account.
    Belgium's macroeconomic policy since 1992 has aimed at reducing the 
deficit below 3.0 percent of GDP and reversing the growth of the debt/
GDP ratio in order to meet the criteria for participation in Economic 
and Monetary Union (EMU) set out in the EU's Maastricht Treaty. On May 
1, 1998, Belgium became a first-tier member of the European Monetary 
Union. The government's 2000 budget, presented in October 1999, 
projects a 1.1 percent deficit and continues the debt reduction 
policies with the aim of achieving a debt/GDP ratio of 112 percent by 
the end of the year.
    Economic growth in 1998 was 2.9 percent. A comparable rate was 
expected in 1999 until an incident involving dioxin-contaminated animal 
feed seriously disrupted production and exports of a wide range of 
agricultural and food products. Since then, real economic growth is 
projected at around 2.2 percent of GDP. At 1 percent, inflation seems 
to be under firm control, and no inflationary pressures are apparent, 
since weak commodity prices keep imported inflation low. Belgium's 
current account surplus of 5.3 percent of GDP is one of the highest 
among OECD countries.
    Belgium's unemployment situation improved slowly last year. 
Standardized EU data put Belgium's unemployment rate at 8.5 percent in 
June 1999, 1 percent below the EU's average. However, strong regional 
differences in unemployment rates persist, with rates in Wallonia and 
Brussels being two to three times higher than in Flanders. A further 
reduction in unemployment will probably be difficult to achieve since 
many businesses have sought to neutralize high labor costs through 
capital-intensive investments and hence increased productivity. 
Although wage growth has been very modest since 1994, wage levels 
remain among the highest in Europe.
    In 1993, Belgium completed its process of regionalization and 
became a federal state consisting of three regions: Brussels, Flanders 
and Wallonia. Each region was given substantial economic powers, 
including trade promotion, investment, industrial development, research 
and environmental regulation.
            Principal Growth Sectors
    Sectoral growth in the Belgian economy reflects macroeconomic 
trends. Industry sectors that are oriented towards foreign markets, in 
particular those in the semi-finished goods sector such as iron and 
steel, non-ferrous metals and chemicals are very sensitive to foreign 
business cycle developments. Business investment is expected to 
increase by 7 percent in 1999. The capital goods sector in particular 
is benefiting from strong investment demand in Belgium. Stronger demand 
for consumer products has helped the textiles, wood and food sectors. 
Apart from developments specific to the business cycle, there are also 
divergent developments impacting other sectors. For example, the paper 
and cardboard sector continue to be hit by the ongoing trend towards 
the use of less packaging.
            Government Role in the Economy
    On May 1, 1998, Belgium became a first-tier member of the European 
Monetary Union. Belgium will gradually shift from the use of the BF to 
the use of the euro as its currency by January 1, 2002. On January 1, 
1999, the definitive exchange rate between the euro and the BF was 
established at BF 40.33.
    Since 1993, the Belgian government has privatized BF 280 billion 
worth of public sector entities; in 1998, the federal government raised 
approximately BF 45 billion in 1998 against BF 35 billion in 1997. 
Further privatization of the last two enterprises with a strong public 
sector stake, Sabena and Belgacom, will probably occur under the new 
coalition government.
            Balance of Payments Situation
    Belgium's current account surplus widened in 1998: at 5.3 percent 
of GDP, it was well above the EU average of 1.5 percent of GDP, and the 
sixth largest in the OECD area. The increase in the surplus largely 
reflected a stronger trade balance: exports picked up in response to 
more buoyant economic conditions in EU countries, and to a significant 
improvement in cost-price competitiveness. The impact of the East Asian 
crisis was limited, given that Belgium's exports to these countries--
including Japan--represent only 5 percent of total exports. In 1998, 
largely as a result of a decline in energy prices, the terms of trade 
improved somewhat. As a consequence, the growing impact of the crisis 
in emerging market economies on the volume of Belgium's exports did not 
greatly affect the trade surplus.
            Infrastructure Situation
    Belgium has an excellent transportation network of ports, railroads 
and highways, including Europe's second-largest port, Antwerp. Major 
U.S. cargo carriers have created at Brussels-Zaventem airport one of 
the first European hub-and-spoke operations.
    The Belgian government set up a task force to sensitize the public 
and private sectors to vulnerabilities of computers and electronic 
systems to year 2000 disruptions.
2. Exchange Rate Policy
    On May 1, 1998, Belgium became a first-tier member of the European 
Monetary Union. Belgium will gradually shift from the use of the BF to 
the use of the euro as its currency by January 1, 2002. On January 1, 
1999, the definitive exchange rate between the euro and the BF was 
established at BF 40.33.
3. Structural Policies
    Belgium is a very open economy, as witnessed by its high levels of 
exports and imports relative to GDP. Belgium generally discourages 
protectionism. The federal and some regional governments actively 
encourage foreign investment on a national treatment basis.
    Tax policies: Belgium's tax structure was substantially revised in 
1989. The top percent in marginal rate on wage and salary income is 55 
percent. Corporations (including foreign-owned corporations) pay a 
standard income tax rate of 39 percent. Small companies pay a rate 
ranging from 29 to 37 percent. Branches and foreign offices pay income 
tax at a rate of 43 percent, or at a lower rate in accordance with the 
provisions contained in a double taxation treaty. Under the present 
bilateral treaty between Belgium and the United States, that rate is 39 
percent.
    Despite the reforms of the past years, the Belgian tax system is 
still characterized by relatively high rates and a fairly narrow base 
resulting from numerous exemptions. While indirect taxes as a share of 
total government revenues are lower than the EU average, personal 
income taxation and social security contributions are particularly 
heavy. Total taxes as a percent of GDP are the third highest among OECD 
countries. Moreover, pharmaceutical manufacturers are saddled with a 
unique turnover tax of 6 percent. Taxes on income from capital are by 
comparison quite low; since October 1995, the tax rate on interest 
income is 15 percent, and the tax rate on dividends is 25 percent for 
residents. There is no tax on capital gains.
    Belgium has instituted special corporate tax regimes for 
coordination centers, distribution centers and business service centers 
(including call centers) in recent years in order to attract foreign 
investment. These tax regimes provide for a ``cost-plus'' definition of 
income for intragroup activities and have proven very attractive to 
U.S. firms, but are now being targeted by the European Commission as 
constituting unfair competition with other EU member states.
    Regulatory policies: The only areas where price controls are 
effectively in place are energy, household leases and pharmaceuticals. 
Only in pharmaceuticals does this regime have a serious impact on U.S. 
business in Belgium. American pharmaceutical companies present in 
Belgium have repeatedly expressed their serious concerns about delays 
in product approvals and pricing, as well as social security 
reimbursement.
4. Debt Management Policies
    Belgium is a member of the G-10 group of leading financial nations, 
and participates actively in the IMF, the World Bank, the EBRD and the 
Paris Club. Belgium is also a significant donor of development 
assistance. It closely follows development and debt issues, 
particularly in Central Africa and some other African nations.
    Belgium is a net external creditor, thanks to the household 
sector's foreign assets, which exceed the external debts of the public 
and corporate sectors. Only about 10 percent of the Belgian 
government's overall debt is owed to foreign creditors. Moody's top Aa1 
rating for the country's bond issues in foreign currency reflects 
Belgium's integrated position in the EU, its significant improvements 
in fiscal and external balances over the past few years, its economic 
union with the financial powerhouse Luxembourg, and the reduction of 
its foreign currency debt. The Belgian government has no problems 
obtaining new loans on the local credit market.
5. Significant Barriers to U.S. Exports
    From the inception of the EU's single market, Belgium has 
implemented most, but not all, trade and investment rules necessary to 
harmonize with the rules of the other EU member countries. Thus, the 
potential for U.S. exporters to take advantage of the vastly expanded 
EU market through investments or sales in Belgium has grown 
significantly. However, some barriers to services and commodity trade 
still exist:
    Telecommunications: Although Belgium fully liberalized its 
telecommunications services in accordance with the EU directive on 
January 1, 1998, some barriers to entry still persist. New entrants to 
the Belgian market complain that current legislation is not 
transparent, that the interconnect charges they pay to Belgacom (the 
former monopolist--51 percent government-owned) remain high and that 
BIPT, the Belgian telecoms regulator, is not truly independent. Further 
privatization of Belgacom, expected in 2000, may enhance the 
increasingly competitive environment and lend more independence to the 
regulator.
    Ecotaxes: The Belgian government has adopted a series of ecotaxes 
in order to redirect consumer buying patterns towards materials seen as 
environmentally less damaging. These taxes may raise costs for some 
U.S. exporters, since U.S. companies selling into the Belgian market 
must adapt worldwide products to various EU member states' 
environmental standards.
    Retail service sector: Some U.S. retailers, including Toys 'R' Us 
and McDonalds, have experienced considerable difficulties in obtaining 
permits for outlets in Belgium. Current zoning legislation is designed 
to protect small shopkeepers, and its application is not transparent. 
Belgian retailers suffer from the same restrictions, but their existing 
sites give them strong market share and power in local markets.
    Pharmaceutical pricing: As indicated in para 3, pharmaceutical 
products are under strict price controls in Belgium. Furthermore, since 
1993, procedures to approve new life-saving medicines for reimbursement 
by the national health care system have slowed down steadily, to an 
average of 410 days, according to the local manufacturers group of 
pharmaceutical companies. The EU's legal maximum for issuance of such 
approvals remains 180 days. A 6 percent turnover tax is charged on all 
sales of pharmaceutical products. There is a price freeze on 
reimbursable products and a required price reduction on drugs on the 
market for 15 years.
    Public procurement: In January 1996, the Belgian government 
implemented a new law on government procurement to bring Belgian 
legislation into conformity with EU directives. The revision has 
incorporated some of the onerous provisions of EU legislation, while 
improving certain aspects of government procurement at the various 
governmental levels in Belgium. Belgian public procurement still 
manifests instances of poor public notification and procedural 
enforcement, requirements for offsets in military procurement and 
nontransparency in all stages of the procurement process.
    Broadcasting and motion pictures: Belgium voted against the EU 
broadcasting directive (which requires a high percentage of European 
programs ``where practical'') because its provisions were not, in the 
country's view, strong enough to protect the fledgling film industry in 
Flanders. The Flemish (Dutch-speaking) region and the Francophone 
community of Belgium have local content broadcasting requirements for 
private television stations operating in those areas. The EU has taken 
the Walloon and Flemish communities to the European Court of Justice 
concerning these requirements. TNT has experienced considerable 
problems in arranging distribution of its signal on Belgian cable, 
while NBC and Viacom, which have a majority interest in the British-
based TV 4 channel, face similar problems with broadcasting authorities 
in Flanders.
6. Export Subsidies Policies
    There are no direct export subsidies offered by the Belgian 
government to industrial and commercial entities in the country, but 
the government (both at the federal and the regional level) does 
conduct an active program of trade promotion, including subsidies for 
participation in foreign trade fairs and the compilation of market 
research reports. All of these programs are offered to both domestic 
and foreign-owned exporters. Also, the United States has raised with 
the Belgian government and the EU Commission concerns over subsidies 
via an exchange rate program to Belgian firms producing components for 
Airbus.
7. Protection of U.S. Intellectual Property
    Belgium is party to the major intellectual property agreements, 
including the Paris, Berne and Universal Copyright Conventions, and the 
Patent Cooperation Treaty. Nevertheless, according to industry sources, 
an estimated 20 percent of Belgium's video cassette and compact disc 
markets are composed of pirated products, causing a $200 million loss 
to the producers. For software, the share of pirated copies has dropped 
from 48 to 39 percent in one year, still representing a loss of $570 
million to the industry.
    Copyright: On June 30, 1994, the Belgian Senate gave its final 
approval to the revised Belgian copyright law. National treatment 
standards were introduced in the blank tape levy provisions of the new 
law. Problems regarding first fixation and non-assignability were also 
solved. The final law states that authors will receive national 
treatment, and allows for sufficient maneuverability in neighboring 
rights. However, if Belgian right holders benefit from less generous 
protection in a foreign country, the principle of reciprocity applies 
to the citizens of that country. This is the case for the U.S., which 
does not grant protection of neighboring rights to Belgian artists and 
performers, nor to Belgian producers of records and movies. As a 
consequence, U.S. citizens in Belgium are subject to the same 
restrictions.
    Patents: A Belgian patent can be obtained for a maximum period of 
twenty years and is issued only after the performance of a novelty 
examination.
    Trademarks: The Benelux Convention on Trademarks established a 
joint process for the registration of trademarks for Belgium, 
Luxembourg and the Netherlands. Product trademarks are available from 
the Benelux Trademark Office in The Hague. This trademark protection is 
valid for ten years, renewable for successive ten-year periods. The 
Benelux Office of Designs and Models will grant registration of 
industrial designs for 50 years of protection. International deposit of 
industrial designs under the auspices of the World Intellectual 
Property Organization (WIPO) is also available.
8. Worker Rights
    a. The Right of Association: Under the Belgian constitution, 
workers have the right to associate freely. This includes freedom to 
organize and join unions of their own choosing. The government does not 
hamper such activities and Belgian workers in fact fully and freely 
exercise their right of association. About 63 percent of Belgian 
workers are members of labor unions. This number includes employed, 
unemployed and workers on early pension. Unions are independent of the 
government, but have important links with major political parties. 
Unions have the right to strike and strikes by civil servants and 
workers in ``essential'' services are tolerated. Teachers, nurses, 
railway workers, air controllers, ground handling and Sabena personnel 
have conducted strikes in recent years without government intimidation. 
Despite government protests over wildcat strikes by air traffic 
controllers, no strikers were prosecuted. Also, Belgian unions are free 
to form or join federations or confederations and are free to affiliate 
with international labor bodies.
    b. The Right to organize and Bargain Collectively: The right to 
organize and bargain collectively is recognized, protected and 
exercised freely. Every other year, the Belgian business federation and 
unions negotiate a nationwide collective bargaining agreement covering 
2.4 million private-sector workers, which establishes the framework for 
negotiations at plants and branches. Public sector workers also 
negotiate collective bargaining agreements. Collective bargaining 
agreements apply equally to union and non-union members, and over 90 
percent of Belgian workers are covered by collective bargaining 
agreements. Under legislation in force, wage increases are limited to a 
nominal 5.9 percent for the 1999-2000 period. The law prohibits 
discrimination against organizers and members of unions, and protects 
against termination of contracts of members of workers' councils, 
members of health and safety committees, and shop stewards. Effective 
mechanisms such as the labor courts exist for adjudicating disputes 
between labor and management. There are no export processing zones.
    c. Prohibition of Forced and Compulsory Labor: Forced or compulsory 
labor is illegal and does not occur. Domestic workers and all other 
workers have the same rights as non-domestic workers. The government 
enforces laws against those who seek to employ undocumented foreign 
workers.
    d. Minimum Age for Employment of Children: The minimum age for 
employment of children is 15, but schooling is compulsory until the age 
of 18. Youth between the ages of 15 and 18 may participate in part-time 
work/part-time study programs and may work full-time during school 
vacations. The labor courts effectively monitor compliance with 
national laws and standards. There are no industries where any 
significant child labor exists.
    e. Acceptable Conditions of Work: The current monthly national 
minimum wage rate for workers over 21 is BF44,209 ($1,142); 18-year-
olds can be paid 82 percent of the minimum, 19-year-olds 88 percent and 
20-year-olds 94 percent. The Ministry of Labor effectively enforces 
laws regarding minimum wages, overtime and worker safety. By law, the 
standard workweek cannot exceed 40 hours and must include at least one 
24-hour rest period. Comprehensive provisions for worker safety are 
mandated by law. Collective bargaining agreements can supplement these 
laws.
    f. Rights in Sectors with U.S. Investment: U.S. capital is invested 
in many sectors in Belgium. Worker rights in these sectors do not 
differ from those in other areas.

 Extent of U.S. Investment in Selected Industries--U.S. Direct Investment Position Abroad on an Historical Cost
                                                   Basis--1998
                                           [Millions of U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
            Category                                                     Amount
----------------------------------------------------------------------------------------------------------------
Petroleum......................  ..............  156
Total Manufacturing............  ..............  8,969
  Food & Kindred Products......  1,012           ...............................................................
  Chemicals & Allied Products..  5,390           ...............................................................
  Metals, Primary & Fabricated.  189             ...............................................................
  Machinery, except Electrical.  472             ...............................................................
  Electric & Electronic          361             ...............................................................
   Equipment.
  Transportation Equipment.....  538             ...............................................................
  Other Manufacturing..........  1,007           ...............................................................
Wholesale Trade................  ..............  2,716
Banking........................  ..............  321
Finance/Insurance/Real Estate..  ..............  5,262
Services.......................  ..............  1,684
Other Industries...............  ..............  -188
TOTAL ALL INDUSTRIES...........  ..............  18,920
----------------------------------------------------------------------------------------------------------------
Source: U.S. Department of Commerce, Bureau of Economic Analysis


                                 ______
                                 

                                BULGARIA


                         Key Economic Indicators
          [Billions of U.S. Dollars unless otherwise indicated]
------------------------------------------------------------------------
                                              1997      1998     \1\1999
------------------------------------------------------------------------
Income, Production and Employment:
  Nominal GDP.............................      10.2      12.3      12.2
  Real GDP Growth (pct)...................      -6.9       3.5       1.5
  GDP by Sector:
    Agriculture...........................       2.4       2.3       N/A
    Manufacturing.........................       2.6       3.1       N/A
    Services..............................       4.1       5.5       N/A
  Per Capita GDP (US$)....................     1,224     1,484     1,494
  Labor Force (000's).....................     3,735     3,573     3,570
  Unemployment Rate (pct) \2\.............      14.0      12.2      14.7

Money and Prices (annual percentage
 growth):
  Money Supply Growth (M2)................     362.1      10.1       N/A
  Consumer Price Inflation................     578.6       1.0       3.6
  Exchange Rate (Leva/US$ annual average)
 \3\
    Official..............................     1,682     1,760       1.8
    Parallel..............................     1,750       N/A       N/A

Balance of Payments and Trade:
  Total Exports FOB.......................      4.94      4.29      3.72
    Exports to U.S. (US$ millions) \4\....       172       219       N/A
  Total Imports CIF.......................      4.93       5.0      4.74
    Imports from U.S. (US$ millions) \4\..       104       115       N/A
  Trade Balance \5\.......................      0.01     -0.71     -1.02
    Balance with U.S. (US$ millions) \4\..        68       104       N/A
  Current Account Balance/GDP (pct).......       4.3      -3.1      -5.6
  External Public Debt....................       9.8      10.2      10.3
  Debt Service Payments/GDP (pct).........       8.8       9.7       6.6
  Fiscal Deficit/GDP (pct)................       3.0     (\1\)       1.6
  Foreign Exchange Reserves and Gold......       2.6       2.9       3.3
  Aid from U.S. (US$ millions) \6\........      34.1      45.0      70.4
  Aid from All Other Sources..............       N/A       N/A       N/A
------------------------------------------------------------------------
\1\ 1999 figures are GOB estimates based on 6 to 9 months of data. GDP
  as measured in U.S. dollars declined between 1998 and 1999 due to
  changes in the exchange rate. Sectoral GDP data is unavailable, but
  gross value added by sector is provided for 1997 and 1998.
\2\ Annual average.
\3\ In July 1999, the currency was redenominated replacing 1000 old leva
  with one new lev.
\4\ For January to August 1999, exports (free along ship basis) to the
  U.S. were $129 million; imports (customs basis) from the U.S. amounted
  to $72 million. Source: U.S. Department of Commerce.
\5\ 1997 trade flows are recorded at the time of border crossing while
  1998 and 1999 trade flows are recorded at the date of customs
  clearance.
\6\ Both USAID and DOD provided assistance. For FY99, total DOD
  assistance totaled $13.35 million ($9.2 million in FY98).

1. General Policy Framework
    Since April 1997, Bulgaria has been led by a reform-minded 
government, the Union of Democratic Forces (UDF). The UDF has enjoyed a 
solid majority in Parliament, which has facilitated implementation of a 
far-reaching program of economic reform. Following a severe economic 
crisis in 1996 and early 1997, the Bulgarian government and the 
International Monetary Fund (IMF) devised a stabilization program 
centered on a currency board arrangement.
    The program quickly succeeded in stabilizing the economy. The 
triple digit inflation of 1996 and early 1997 gave way to a consumer 
price increase of only 1 percent for all of 1998. Official reserves 
rebounded from $400 million in January 1997 to $2.6 billion at the end 
of 1998. Moody's Investors Service upgraded Bulgaria's credit rating to 
B2. However, unemployment has stayed high, despite a growing private 
sector. The government ran a budget surplus of 1 percent in 1998, but 
the budget is projected to shift into deficit in 1999.
    Following declines in GDP in both 1996 and 1997, the economy as a 
whole grew by 3.5 percent in 1998. However, GDP growth began to slow 
down in the second half of 1998, influenced by weak external markets 
for traditional industrial exports and lags in restructuring state-
owned industry. With two-way trade in goods and services accounting for 
over 90 percent of GDP, Bulgaria is very sensitive to changes in the 
world economy and global prices. Over half of Bulgaria's trade is 
directed toward Western and Central Europe. The Kosovo crisis has cost 
Bulgaria about $90 million in direct economic losses, principally 
through disruptions to transport on the Danube River and overland 
through Yugoslavia.
    Bulgaria's currency board arrangement (CBA) provides that the 
Bulgarian National Bank (BNB) must hold sufficient foreign currency 
reserves to cover all domestic currency (leva) in circulation, 
including the leva reserves of the banking system. BNB can only 
refinance commercial banks in the event of systemic risk to the banking 
system.
    Bulgaria's association agreement with the European Union (EU) took 
effect January 1, 1994, and Bulgaria hopes to begin EU accession 
negotiations in 2000. A bilateral investment treaty with the United 
States took effect in July 1994.
2. Exchange Rate Policy
    Bulgaria redenominated the currency on July 5, 1999, replacing 1000 
old leva (BGL) with one new lev (BGN). Until January 1, 1999, the CBA 
fixed the exchange rate at 1000 old leva to one German mark. Since 
then, the lev has been pegged to the euro at the rate of 1,955.83 old 
leva (now 1.95583 new leva) per euro. The Bulgarian National Bank (BNB) 
sets an indicative daily U.S. dollar rate (based on the dollar/euro 
exchange rate) for statistical and customs purposes, but commercial 
banks and others licensed to trade on the interbank market are free to 
set their own rates.
    Only some of the commercial banks are licensed to conduct currency 
operations abroad. Companies may freely buy foreign exchange for 
imports from the interbank market. Companies are required to 
repatriate, but no longer to surrender, earned foreign exchange to the 
central bank. Bulgarian citizens and foreign persons may also open 
foreign currency accounts with commercial banks. Foreign investors may 
repatriate 100 percent of profits and other earnings; however, profits 
and dividends derived from privatization transactions in which Brady 
bonds were used for half the purchase price may not be repatriated for 
four years. Capital gains transfers appear to be protected under the 
revised Foreign Investment Law; free and prompt transfers of capital 
gains are guaranteed in the Bilateral Investment Treaty. A permit is 
required for hard currency payments to foreign persons for direct and 
indirect investments and free transfers unconnected with import of 
goods or services.
    Bulgaria will liberalize its foreign currency laws effective 
January 1, 2000. After that date, Bulgarian and foreign citizens may 
take up to BGN 5,000 ($2,700) or an equivalent amount of foreign 
currency out of the country without declaration. Regulations allow 
foreign currency up to BGN 20,000 ($11,110) to be exported upon written 
declaration. Transfers exceeding BGN 20,000 must have the prior 
approval of the BNB.
3. Structural Policies
    The government has implemented legal reforms designed to strengthen 
the country's business climate. Bulgaria has adopted legislation on 
foreign investment and secured lending, and is also making significant 
strides in regulation of the banking sector and the securities market. 
However, many businesspersons contend that unnecessary licensing, 
administrative inefficiency and corruption continue to hinder private 
business development.
    In 1998, Bulgaria reached agreement with the IMF on a three-year 
program of far-reaching structural reforms, particularly the 
privatization of state-owned enterprises (SOEs). In June 1999, the 
government satisfied its commitment to privatize or commence 
liquidation of a group of 41 of the largest loss-making SOEs, including 
the national airline. It also sold the Neftochim refinery to a Russian 
oil company and is due to sell a majority stake in the 
telecommunications monopoly, the Bulgarian Telecommunications Company, 
to a Greek/Dutch consortium. As of September 1999, the GOB had sold 
approximately 70 percent of state assets destined for privatization.
    Bulgaria taxes value added, profits and income, and maintains 
excise and customs duties. In 1999, the GOB reduced the Value Added Tax 
by 2 percentage points to 20 percent and the profits tax for large 
businesses by 3 percentage points to 27 percent. The draft 2000 budget, 
approved by the Council of Ministers, envisions a further 2 percentage 
point reduction in the profits tax for large businesses and voluntary 
VAT registration for businesses with turnover from BGN 50,000 (USD 
28,000) to BGN 75,000 (USD 42,000).
4. Debt Management Policies
    Bulgaria's democratically-elected governments inherited an external 
debt burden of over $10 billion from the Communist era. In 1994, 
Bulgaria concluded agreements rescheduling official (``Paris Club'') 
debt for 1993 and 1994, and $8.1 billion of its commercial (``London 
Club'') debt. As of July 1999, gross external debt amounted to $9.6 
billion, but the Bulgarian government projects that debt will increase 
to $10.3 billion by the end of 1999 (84 percent of GDP). Debt service 
in 1999 will total approximately 7 percent of GDP and 22 percent of 
exports, but will rise after 2000.
    Under the three-year Extended Fund Facility (EFF) concluded in 
1998, the IMF is providing credits of about $864 million. As of 
November 1999, about $360 million was released in five equal tranches 
of $72 million. Another 7 tranches will be made available quarterly 
through May 2001, subject to IMF reviews of Bulgarian adherence to the 
program. The government has sought additional external financing from 
the World Bank, the European Union, and other donors. The World Bank 
disbursed a Financial and Enterprise Sector Adjustment Loan (FESAL) of 
$100 million in 1998 and disbursed a second FESAL of similar value in 
December with Bulgaria. In September 1999, the World Bank approved an 
Agricultural Structural Adjustment Loan worth $75 million for Bulgaria.
5. Significant Barriers to U.S. Exports
    Bulgaria acceded to the World Trade Organization in December 1996. 
Bulgaria also acceded to the WTO Plurilateral Agreement on Civil 
Aircraft and committed to sign the Agreement on Government Procurement. 
Bulgaria ``graduated'' from Jackson-Vanik requirements and was accorded 
unconditional MFN treatment by the United States in October 1996.
    Bulgaria's association agreement with the European Union phases out 
industrial tariffs between Bulgaria and the EU while U.S. exporters 
still face duties. This has created a competitive disadvantage for some 
U.S. exporters, such as soda ash exporters. The association agreement 
improved reciprocal market access to certain farm products. In July 
1998, Bulgaria joined the Central European Free Trade Area (CEFTA). 
Over the following three years, tariffs on 80 percent of industrial 
goods traded between CEFTA countries will be eliminated. A free trade 
agreement with Turkey took effect in January 1999. A free trade 
agreement with Macedonia will enter into force in January 2000.
    In January 1999, average Bulgarian import tariffs were reduced 
significantly and a five percent import surcharge was eliminated ahead 
of schedule. However, tariffs in areas of concern to U.S. exporters--
including poultry legs and other agricultural goods and distilled 
spirits--are still relatively high. Overall, tariffs on industrial 
products range from about five to 40 percent and from about five to 70 
percent for agricultural goods. In December 1998, Parliament revoked 
exemption from value-added tax (VAT) and customs duties for capital 
contributions in kind valued at over $100,000. In the past, some 
investors have reported that high import tariffs on products needed for 
the operation of their establishments in Bulgaria served as a 
significant barrier to investment.
    The U.S. Embassy has no complaints on record that the import 
license regime has negatively affected U.S. exports. Licenses are 
required for a specific, limited list of goods including radioactive 
elements, rare and precious metals and stones, certain pharmaceutical 
products and pesticides. Armaments and military-production technology 
and components also require import licenses and can only be imported by 
companies licensed by the government to trade in such goods. Trade in 
dual-use items is also controlled.
    Customs regulations and policies are sometimes reported to be 
cumbersome, arbitrary and inconsistent. Problems cited by U.S. 
companies include excessive documentation requirements, slow processing 
of shipments and corrupt