May 09,2000

Summary of the Trade and Development Act of 2000 Conference Report

THE AFRICA GROWTH AND OPPORTUNITY ACT; THE CARIBBEAN BASIN TRADE PARTNERSHIP ACT; AND OTHER TRADE MEASURES

WASHINGTON - The Trade and Development Act of 2000 contains the conference agreement on the African Growth and Opportunity Act, the Caribbean Basin Trade Partnership Act, and miscellaneous other trade measures that were passed as part of the Senate's consideration of the legislation in November, 1999. On May 4, the House passed the conference agreement by a vote of 309-110. Passage of the conference agreement by the Senate would send the first significant trade legislation to pass both Houses of Congress since 1988, other than the implementation of trade agreements under special procedures, to the President for his signature.

The following discussion provides an overview of the conference agreement by title.

Title I -- Extension of Certain Trade Benefits to Sub-Saharan Africa

Title I incorporates the conferee's agreement on the benefits available under the African Growth and Opportunity Act. To obtain the benefits of Title I, a potential beneficiary must be listed among the 48 African countries identified in the bill and meet certain eligibility requirements.

The eligibility requirements include, as a first step, satisfaction of the basic eligibility criteria of the U.S. Generalized System of Preferences ("GSP"), which applies to all developing countries and includes basic commitments to foster open trade, avoid certain acts that discourage investment, and take appropriate steps to afford internationally recognized worker rights. The conference agreement would add one additional item to the GSP eligibility requirements -- the Harkin-Helms Amendment -- that would also require that beneficiary countries to fulfill their international commitments to eliminate the worst forms of child labor, such as slavery, indentured servitude and child prostitution. The Harkin-Helms Amendment would apply to all GSP beneficiary countries, not to Africa alone.

In addition to the GSP criteria, Title I would require the President to determine that the beneficiary countries were meeting certain eligibility criteria that were specific to Africa. Those include promotion of market economies, democratic societies, and open trading system, economic policies to reduce poverty, and a system to combat corruption and bribery. The President would be obliged to monitor the beneficiary countries' progress on these criteria on an annual basis, as he does with all developing countries participating in other U.S. programs, like GSP, the Caribbean Basin Economic Recovery Act ("CBERA"), or the Andean Trade Preferences Act.

Title I would authorize U.S. participation in a United States-Sub-Saharan Africa Trade and Economic Cooperation Forum to foster the goals set out in the conference agreement. The conference agreement calls for annual meetings of the Forum, in cooperation with non-governmental organizations and in consultation with Congress. As part of the expected ongoing consultation with Congress, the conference agreement requires periodic reports from the President regarding the achievement of the conference agreement's objectives.

Title I would extend the following trade benefits to eligible Sub-Saharan Africa beneficiary countries. The conference agreement would eliminate existing quotas applied under the Uruguay Round Agreement on Textiles and Clothing (which applied only to Kenya and South Africa and generally went unfilled). Title I would extend duty-free and quota-free treatment to all apparel products made in a beneficiary country using American fabric, yarn and thread. Title I would then add similar benefits for apparel made from fabric made in the Sub-Saharan African region over the life of the bill (8 years) up to a set percentage of overall apparel imports into the United States. That figure would start at 1.5 percent of U.S. apparel imports in the first year of the program, then rise to 3.5 percent of U.S. apparel imports by the final year.

For the least developed countries, Title I would extend the same duty-free and quota-free treatment to their apparel exports to the United States, subject to the same conditions, but authorize their use, for a period of 4 years, of fabric formed in third countries. The added benefits are intended to give the least developed countries (defined here as those with annual per capita gross domestic product of $1500 or less) in order to allow them a head start in developing the infrastructure necessary to produce for world markets.

Title I would create certain exceptions to the rules of origin set out above in the case of fabrics not made in the United States and a general de minis exception that would permit the use of limited amounts of fabric originating in third countries (up to 7 percent by value) of apparel items to which the rules would otherwise apply. Title I would also create exceptions to those rules of origin that would permit the use of third country-origin items in the manufacture of certain undergarments and with respect to findings and trimmings.

Title I would also extend duty-free treatment to other articles previously excluded from the Generalized System of Preferences, including petroleum, watches, certain electronic and steel articles, footwear, handbags, flat goods, and glass products, among others.

To protect against customs fraud designed to gain access to the program illegally (commonly referred to as "transshipment"), the conference agreement contains unprecedented protections. They include requirements that the beneficiary countries develop their own effective infrastructure, with U.S. technical assistance, to combat transshipment and cooperate fully with the U.S. Customs Service in its investigation of alleged customs fraud. In addition, with respect to any individual exporter found fraudulently to have claimed the trade benefits extended under the conference agreement, Title I would expel the exporter from eligibility for the program's benefits for a period of 5 years. Title I would also authorize the appropriation of funds necessary to improve the U.S. Customs Service's investigation of transshipment generally, in order to contribute to the success of the program's benefits.

In addition, Title I would provide a mechanism by which domestic producers of apparel articles competing with those imported under Title I from Sub-Saharan Africa (or manufacturers of the U.S. fabric inputs into such apparel articles) would petition for relief from surges in imports in particular categories that threaten serious injury to the domestic industry producing the apparel article in question. Under those provisions, the tariffs could be reimposed in limited instances in which a domestic producer could establish a meritorious case.

Title I of the conference agreement would add certain other provisions the conferees believed necessary to the success of the program established under the African Growth and Opportunity Act. Those include -- (1) encouraging the negotiation of trade-liberalizing agreements with interested Sub-Saharan Africa trading partners, (2) the permanent establishment of an Assistant United States Trade Representative for African Affairs, (3) a sense of the Congress resolution regarding the need for comprehensive debt relief for the world's poorest countries (most of which are in Sub-Saharan Africa), (4) targeting of U.S. technical assistance to foster the goals of the conference agreement with respect to Sub-Saharan Africa, (5) encouraging the development of a special equity fund for fostering investment in Africa at the U.S. Overseas Private Investment Corporation, (6) directing the expansion of U.S. Commerce Department initiatives designed to foster the development of African markets for U.S. exports, (7) the donation of air traffic control equipment no longer in use in the United States to eligible Sub-Saharan Africa countries, (8) a sense of the Congress relating to efforts to combat desertification, and (9) authorization of a study regarding potential improvements in Sub-Saharan agricultural practices.

In addition, Title I contains two provisions that represent a step, but only a first step, toward the development of a comprehensive U.S. strategy to assist Sub-Saharan African countries combat the scourge of AIDS. The two provisions express the sense of Congress that the combat of AIDS in affected Sub-Saharan Africa countries should form a central element of U.S. foreign policy in the region and that every effort should be made to encourage U.S. businesses to provide assistance to Sub-Saharan Africa countries to prevent and reduce the incidence of AIDS, including the establishment of an HIV/AIDS Response Fund to provide for coordination of public and private sector efforts.

Title II -- Trade Benefits for the Caribbean Basin

Title II incorporates the conference agreement on the Caribbean Basin Trade Partnership Act, which is an expansion of the benefits of what is commonly referred to as the Caribbean Basin Initiative or "CBI." The structure of Title II is much like that of Title I -- Title II establishes basic findings concerning the need to restore the margin of preference CBI countries enjoyed prior to the implementation of the North American Free Trade Agreement ("NAFTA"), as well as to improve economic opportunities, foster the CBI beneficiary countries participation in both existing and proposed trade arrangements in the region, and to foster economic development in light of the devastation wrought in the region by multiple natural disasters in recent years.

As was true of Title I, Title II is subject to the Harkin-Helms Amendment which would add to the list of existing eligibility criteria for participation in the CBI program a requirement that the beneficiary countries have fulfilled their obligation to implement their international commitments with respect to the worst forms of child labor. As noted above, those include slavery, indentured servitude and child prostitution.

The original Caribbean Basin Economic Recovery Act excluded certain products as did the GSP. Title II of the conference agreement would now extend duty-free treatment to such articles subject to the special rules affecting textiles and apparel described below. With respect to textiles and apparel, Title II would provide duty-free and quota-free access to the U.S. market for apparel made with U.S. fabric, yarn and thread. Title II would also authorize duty-free and quota free access to certain apparel items made from fabric knit in the CBI region subject to an initial annual limit of 250 million square meter equivalents for knit apparel items other than outerwear t-shirts and an initial annual limit of 4.2 million dozen outerwear t-shirts. Both limits would be subject of a growth rate of 16 percent compounded annually through the first three years following the first year of the program.

Title I would apply certain exceptions and exemptions akin to those set out above with respect to Title I. Those include exceptions regarding the use of a de minimis amount of fabric originating in a third country, with the exception of certain fabrics made from elastomeric yarns, as well as exemptions for the use of fabric and other components in the manufacture of certain undergarments and for use as findings and trimmings on apparel.

Title II contains provisions designed to combat illegal transshipment equivalent to those contained in Title I with respect to Sub-Saharan Africa. Title II also contains a safeguard mechanism that could lead to the reimposition of tariffs on items that cause serious damage to the domestic producers of competing products in the United States.

As did Title I, Title II incorporates certain other provisions that the conferees determined would be helpful in fostering stronger trading links with the CBI region. Those include (1) providing duty-free treatment to certain beverages made with Caribbean rum and (2) encouraging annual meetings between the United States Trade Representative and trade ministers from beneficiary countries in the CBI region with a view toward initiating trade liberalizing negotiations with interested beneficiary countries.

Title III -- Normal Trade Relations for Albania and Kyrgyzstan

The Senate-passed legislation that led to the Trade and Development Act of 200) contained provisions extending normal trade relations status to Albania and Kyrgyzstan. Both have acceded to the World Trade Organization, as a result of which the United States is obliged, under the terms of its own participation in the WTO, to extend normal trade relations status under U.S. law. That involves excluding them from the ambit of the Jackson-Vanik amendment which applies to former member states of the Soviet Union.

The conferees took special note that the freedom of emigration provisions of the Jackson-Vanik amendment were met in the case of Kyrgyzstan, the first of the former Soviet republics to graduate from coverage of the amendment. The conferees underscored that they will apply a similar scrutiny to all other successor states to the Soviet Union in consideration of their exemption from the ambit of the Jackson-Vanik amendment.

Title IV -- Other Trade Provisions

Title Iv of the Trade and Development Act of 2000 contains a number of miscellaneous trade provisions. They include the following items --

• directions to the General Accounting Office ("GAO") to prepare a report on the effectiveness of current trade adjustment assistance ("TAA") programs and other federal and state job training programs;

• provision of TAA benefits workers that were previously certified for such benefits in connection with the retirement of certain nuclear power facilities in Oregon;

• reliquidation at zero rate of duty of certain nuclear fuel rod assemblies;

• requirements that certain trade-related reports provided for under section 607 of the Foreign Operations, Export Financing, and Related Appropriations Act, 1999, the International Financial Institutions Act, and section 629 of the Treasury and General Government Appropriations Act, 1999, be forwarded to the Senate Finance and House Ways and Means Committees;

• implementation of rules of origin applicable to imports of certain flat goods made from silk, cotton, man-made and vegetable fibers in order to implement an agreement reached with the European Union resolving a prior dispute regarding such rules of origin;

• establishment of a permanent chief agriculture negotiator in the Office of the United States Trade Representative;

• requirements that the USTR regularly rotate products identified on any list of goods subject to retaliatory sanctions resulting from a trade dispute;

• requirement that the Secretary of Labor, in consultation with the Secretary of Agriculture, report efficacy of current TAA programs as they apply to American farmers and provide recommendations on means by which such programs might be improved in order to effect their original intent that farmers be covered;

• directions to the U.S. Customs Service to provide for weekly entry of merchandise produced in foreign trade zones to effect the intent of Congress as previously expressed in the Customs Modernization Act, which passed as part of the NAFTA implementing legislation in 1993; and

• clarification that section 307 of the Tariff Act of 1930, which authorizes the Customs Service to deny entry to imports manufactured with forced or indentured labor, includes forced or indentured child labor within its existing scope.

The final provision of Title IV contains the conference agreement regarding the Harkin-Helms Amendment discussed above with respect to the benefits extended under Titles I and II of the conference agreement, as well as under the existing GSP program.

Title V -- Imports of Certain Wool Articles

Title V would, consistent with the policy statement on tariff inversions contained in the Senate bill, reduce the impact of certain tariff inversions affecting the manufacture of certain apparel from worsted wool fabric. Title V would reduce tariffs on imports of worsted wool fabric, certain worsted wool yarn, and fiber beginning January 1, 2000 for a period of three years. In addition, Title V would also allow for the refund of duties currently paid on such items based on amounts imported of those items by individual producers of the identified apparel items, the fabric, and the yarn during calendar year 1999. Title V would direct the creation of a fund for research and market development regarding production of improved wool fiber in the United States.

Title VI -- Revenue Provisions

Title VI of the conference agreement would include two revenue provisions. The first would authorize the President to waive the application of section 901(j) of the Internal Revenue Code which denies foreign tax credit treatment to taxes paid to the local government on income earned in certain countries previously identified as supporters of international terrorism. The President's waiver authority is subject to two conditions -- (1) the President must determine that such waiver is in the national interest of the United States and that it will expand trade opportunities for U.S. companies in such countries and (2) the President must report to the Congress not less than 30 days before granting the waiver, setting out his reasons for granting the waiver.

The second revenue provision would accelerate the rum excise tax coverover payments to Puerto Rico and the Virgin Islands currently provided under section 7652 of the Internal Revenue Code, subject to certain clarifications as to the conditions that apply to such payments.