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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. The United States remains one of the world's largest producers, exporters and importers of 
agricultural products.  The average tariff on ag ricultural products was 10% in 2002, but certain 
products receive considerable higher tariff protection.  After three years of record assistance, there 
was a substantial decline in 2002 as prices increased and virtually no ad hoc emergency payments 
were disbursed.  This decline has been, however, reversed in 2003, and government payments are 
expected to return to almost the level of 2001.  Re lative to the previous legislation, the Farm Security 
and Rural Investment Act of 2002 makes government payments to farmers more dependent on prices.  
Domestic support to agriculture may affect global markets because of its size and of the importance of the United States as a producer and trader of agricultural products. 
2. The U.S. steel, and textiles and clothing sectors are declining in economic terms but have 
remained of key trade policy importance, reflecti ng worldwide developments in these industries.  
Despite considerable restructuring, the U.S. steel industry has continued to fa ce difficulties, and there 
has been an increase in petitions for anti-dumping and countervailing duty investigations.  Safeguard 
measures were imposed on several steel products in 2002.  In the textiles and clothing sector, the 
United States is committed to abolis hing quantitative import restrictions  by end 2004, as foreseen in 
the WTO Agreement on Textiles and Clothing.  Pref erential arrangements that provide for duty-free 
and quota-free imports from Caribbean and African  countries were enhanced in 2002, and were 
extended to Andean countries.  Under these prefer ential arrangements, imports remain subject to U.S.- 
content requirements to ensure that U.S. input producers also benefit from the arrangement, possibly 
at the expense of lower-cost third-country suppliers. 
3. Most services activities have been undergoing a process of gradual modernization, including 
the removal of domestic restrictions to intern ational trade.  These steps have gone beyond 
commitments undertaken by the United States in the WTO and should improve efficiency in the 
domestic economy.  Nevertheless, barriers to foreign competition remain in some services sectors.  In 
the context of the Doha Development Agenda, the Un ited States presented a draft offer on services 
that largely reflects changes since the end of the Uruguay Round in U.S. laws and regulations.
1 
4. Although the U.S. international maritime transport market is generally open to foreign 
competition, international cargoes carried by U.S. -flag vessels benefit from government financial 
assistance.  Domestic cargo restrictions under th e Jones Act remain in place, but legislation to 
facilitate the granting of waivers to the Act was passed in 2002.  The U.S. air transport industry continues to be protected by provisions that requi re U.S. airlines to be substantially owned and 
effectively controlled by U.S. citizens, and that re serve domestic air transport services to these U.S. 
carriers.  The U.S. intern ational air transport strategy relies ma inly on open skies agreements to 
liberalize trade.  Developments since the previous Review of the United States include the passage of 
the Air Transportation Safety and System Stabili zation Act which, among other things, resulted in 
sizeable government financial support to U.S. carriers following 11 September 2001. 
5. The U.S. telecommunications market is amon g the world's most competitive and open to 
foreign participation.  The authorities have conti nued to promote competition among operators despite 
a difficult economic environment.  In audiovisual serv ices, restrictions are in place for the granting of 
radio and television broadcast licences to forei gners.  Ownership restrictions are also in place 
affecting both foreign and domestic producers in the media industry. 
                                                     
 
1 WTO document TN/S/O/USA, 9 April 2003. United States WT/TPR/S/126 
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6. Following the Gramm-Leach-Bliley Act of 1999, the regulatory framework for financial 
services has continued to be modernized through new regulations.  The United States grants, in 
general terms, open market access and national treat ment to foreign banks.  In insurance, firms are 
primarily regulated at the State level, but steps towards uniformization have been adopted during the 
period under review.  This period has also been ch aracterized by instability in the securities market, 
and measures have been taken against a number of  financial service providers.  Responding to the 
need to strengthen the regulatory framew ork, new legislation was passed in 2002. 
7. The U.S. regulatory framework for professional se rvices has also been subject to a number of 
reforms, notably affecting accounting and legal servic es.  Foreign market access in some States is 
affected by local presence, domicile, nationality, or legal form of entry requirements.  The lack of a uniform regulatory regime at the national level also complicates market access. 
(2) A
GRICULTURE  
(i) Introduction 
8. The United States is among the world's largest producers and exporters of agricultural 
products.  The value of agricultural production was US$217 billion in 2002;  crops and livestock 
products  contributed respectively 45% and 43% and the remainder consisted of forestry and 
services.2  In 2002, total agricultural exports were US$53 billion, and imports were US$42 billion.3  
The main exports consisted of soybeans (US$5.5 b illion), followed by red meats, corn, and vegetable 
products, each exceeding US$4 billion in exports th at year.  Main imports were fruit products and 
vegetable products (both US$5.6 billion), followed by red meats.  Prices remained low in 2000-01, for many agricultural commodities, particularly  grains, before recovering strongly in 2002. 
9. For certain products, U.S. policies may have an impact on world markets, even if they are not 
directly targeted towards trade, because U.S. production accounts for a sizeable share of world output, 
and because it exports a large share of its agricultural output.  For example, in 2000 the share of 
exports in the value of  production was 42% for rice, 48% for wheat, 39% for cotton, and 37% for 
soybeans.
4  These ratios also highlight the importance of  access to foreign markets for U.S. producers.  
On the other hand, the United States accounts for 14% of world imports of agricultural products.5  
Access to U.S. markets is therefore important to its trading partners. 
10. After three years of record government assistance, there was a substantial decline in support 
to U.S. agricultural producers in 2002, mainly be cause U.S. farm prices increased following drought 
in the United States and other major producing nations.  As a result, loan deficiency payments (see below) decreased sizeably.  The other main reason for the decrease in support was the absence of 
emergency payments that year.  Total direct payments were estimated at US$11 billion in 2002, down 
from the annual US$20-22 billi on range recorded in the three years between 1999 and 2001.
6  This 
reduction in support was both in nominal terms and as  a share of net farm income (Chart IV.1).  The 
reduction affected mostly producers of crops and milk, the main beneficiaries of these direct payments.  However in 2003, total direct payments increased to an estimated US$19.6 billion, reflecting increases in direct, counter-cyclical, and emergency payments. 
                                                     
 
2 Economic Research Service (2003a). 
3 U. S. Department of Agriculture (2003).  These trade values differ from the data presented in 
Chapter I (Tables AI.1 and 2) mainly because of differences in data classification. 
4 WTO document G/AG/R/31, 27 August 2002, Attachment No. 1. 
5 OECD (2002a). 
6 For data, see Economic Research Service online information.  Available at:  http://www.ers.usda.gov. WT/TPR/S/126 Trade Policy Review 
Page 102 
 
 
11. The OECD's Producer Support Estimate (PSE) fo r the United States has recorded a strong 
decline from its peak of US$56 billion in 1999 (Table IV.1).  The strongest declines came from 
market price support for sugar and milk, and particularly from output-based payments for grains.  The 
Total Support Estimate (TSE), which provides an  indicator of overall government support to 
agriculture, including transfers to producers (PSE), budgetary transfers to consumers, and to general services provided to agriculture (for example, ma rketing, promotion, and infrastructure), was some 
US$90 billion in 2002, down from US$99 billion in 1999.  In terms of the share of producer support 
in the value of gross receipts, the most heavily s upported commodities were sugar, rice, milk, and, to 
a lesser extent, wheat (Table IV.1). 
 
12. The Farm Security and Rural Investment Act (F SRIA or Farm Act) was signed by the U.S. 
President in May 2002.
7  The six-year Farm Act (2002-07) increases reliance on price-dependent 
support, thus departing from the objectives of gradually reducing production-distorting support in 
favour of income supplements established in the Fe deral Agriculture Improvement and Reform Act of 
1996 (FAIR Act).8  The Farm Act does not contain a built-in overall expenditure cap, although there 
are limits to expenditure through various mechanisms.  For example, the maximum payment that an individual producer can receive under th e Farm Act is US$360,000 per year.
9  Moreover, the 
                                                      
7 The text of the Act is available online at:  http://www.usda.gov/farmbill/index.html. 
8 See WTO document WT/WGTDF/W/14, 18 October 2002, Box 5. 
9 A producer is defined in the FSRIA as "an owner, operator, landlord, tenant or sharecropper that 
shares in the risk of producing a crop and is entitled to share in the crop available for marketing from the farm, or would have shared had the crop been produced".  For a discussion of payment limitations for U.S. agriculture, 
see U. S. Department of Agriculture (2002). 0510152025
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 a01122334455Chart IV.1
Direct government payments, 1990-03 
US$ billion
Source:  USDA, Economic Research Service [Online].  Available at:  http://www.ers.usda.gov/briefing/farmincome/Data/Emer gency assistance%
As a share of net farm income
(right-hand scale)
a          Forecast.
Note:   Data are on calendar year basis.Direct government paymentsUnited States WT/TPR/S/126 
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authorities noted that the Farm Act's "circuit breaker " clause provides that domestic support must not 
exceed WTO limits.  These issues are discussed below. 
Table IV.1  
Producer support estimates, 1995-0210 
 1995 1996 1997 1998 1999 2000 2001 2002 
All products (US$bn) 22.9 29.9 30.5 48.3 55.9 49.7 51.7 39.6 
% receipt value 11 14 14 22 25 22 23 18 
Milk (US$bn) 7.2 10.2 9.7 15.2 13.9 9.7 14.1 9.9 
% of receipt value 35 44 45 60 56 44 53 46 
Maize (US$bn) 1.5 3.3 3.8 7.2 8.9 9.3 6.6 4.6 
% of receipt value 6 12 14 28 34 34 26 17 
Wheat (US$bn) 1.7 2.7 2.9 4.2 5.7 5.4 4.0 2.6 
% of  receipt value 15 22 25 38 50 48 42 30 
Rice (US$bn) 0.6 0.2 0.2 0.3 0.7 0.9 1.0 0.9 
% of receipt value 31 11 10 15 37 45 53 52 
Oilseeds (US$bn) 0.8 0.8 0.8 2.4 3.9 4.8 4.5 2.1 
% of receipt value 5 5 5 15 24 28 26 13 
Sugar (US$bn) 0.9 0.8 0.8 1.2 1.6 1.2 1.3 1.2 
% of receipt value 41 39 39 51 151 53 58 55 
Source : OECD (2003), Agricultural Policies in OECD C ountries, Monitoring and Evaluation . 
(ii) Border protection:  tariff quotas and safeguards 
13. The average MFN applied tariff for agriculture in 2002 was 9.8%.  Most of the highest U.S. 
tariffs are applied to agricultural products subject to tariff quotas (TQ).11  As can be seen from 
Table IV.2, some out-of-quota tariffs are arguabl y prohibitive and may act as de facto quantitative 
restrictions on imports, notably when TQs are f illed (e.g. certain dairy products, and peanuts).  
However, the authorities indicated that over-quota trade amounted to US$225 million in 2001 and 
occurred under 72% of tariff quotas;  hence for these products the TQ system did not act as quantitative restrictions. The existence of tariff quotas may partly explain the low share of imports of 
dairy products (less than 3%) in domestic consumption.
12 
14. Close to 91% of the out-of-quota tariffs are non- ad valorem (generally, specific rates), 
compared with close to 27.3% of the in-quota rates.   As a result, the incidence of the tariff and the 
degree of import protection ch anges with prices.  Based on ad valorem  equivalents of non- ad valorem  
rates, which are calculated annually by the authoritie s, the simple average in- quota MFN tariff rate for 
2000 was 9% while the corresponding out-of-quota average was 53%.  In 2002, the corresponding 
averages were 9.3% and 48.6%.  The decline was probably due to the increase in prices in 2002, 
which would have resulted in lower ad valorem  equivalents for given specific or compound tariff 
rates (on non- ad valorem  tariffs, see Chapter III(2)). 
                                                      
10 A given year covers different periods of expenditure and production.  For example, the year 2002 
corresponds to fiscal year 2002 (October 2001-September 2002) in terms of outlays to producers, and to crop 
year 2002-03 in terms of farm receipts. 
11 Tariff quotas are referred to in U.S. regulations as tariff rate quotas (TRQs). 
12 Jerardo (2002). WT/TPR/S/126 Trade Policy Review 
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Table IV.2  
Products covered by tariff quotas, 2002  
Average tariff ratea 
2002  (%) Products  
In-quota Out-of-
quota Bound 
import 
quota Fill rateb 
2000 
(%) Fill rateb 
2002 
(%) Partners with reserved access  
(% of WTO quota)c 
Beef:  fresh, chilled or frozen (mt) 4.5 26.4 696,621 83 83 Canada and Mexico (no limit) AUS 
(57.6) NZ (32.5), Japan (0.03), 
Others (9.9) 
Cream ('000 litres)  2.7 26.8 6,695 51 65 NZ (87.3) 
Evaporated/condensed milk  (mt) 4.1 26.6 6,857 86 87 EU (21.8), Canada (17.0) Australia 
(1.5) 
Nonfat dried milk (mt)  2.2 52.6 5,261 60 98 Global, no country allocation 
Dried whole milk (mt)  4.1 53.8 3,321 60 96 Global, no country allocation 
Dried cream (kg.)  16.5 43.1 99,500 10 7 Global, no country allocation 
Dried whey/buttermilk (mt)  7.2 6.8 296 27 22 Global, no country allocation 
Butter (mt)  3.7 59.5 6,977 100 98 Global, no country allocation 
Butter oil/substitutes (mt)  8.0 98.0 6,080 100 100 Global, no country allocation 
Dairy mixtures (mt)  12.9 37.0 4,105 86 100 Australia (27.7), EU (4.2) 
Blue cheese (mt)  14.4 39.0 2,911 99 97 EU (96.1), Chile (2.3), Czech Rep. 
(1.5), Argentina (0.07) 
Cheddar cheese  (mt)  12.0 30.5 13,256 95 98 NZ (56.8), Australia (25.4), EU (8.5), 
Canada (6.4) Others (2.8) 
American type cheese (mt)  14.3 58.4 3,523 89 99 NZ (57.0) Australia (28.5), EU (9.6), 
Others (4.8) 
Edam and Gouda cheese (mt)  12.1 50.3 6,816 98 98 EU (81.2), Costa Rica (10.2), 
Argentina (2.9), Uruguay (2.8), 
Others (3.0) 
Italian type cheese (mt)  13.9 48.1 13,481 93 99 Argentina (51.2), EU (33.5), Uruguay 
(7.1), Romania (3.5), Hungary (2.8), 
Poland (1.8), Others (0.1) 
Swiss/Emmenthal cheese (mt)  6.4 42.4 34,475 90 83 EU (62.6), Norway (20.3), 
Switzerland (10.6), Australia (1.5), 
Czech Rep.(1.0), Hungary (1.0) 
Others (3.0) 
Gruyere process cheese (mt)  9.3 46.7 7,855 75 86 EU (74.1), Switzerland (16.0) Others 
(1.0) 
Other cheese NSPF (mt) 10.0 35.7 48,628 90 99 EU (56.7), NZ (25.2), Switzerland 
(3.6), Australia (3.3), Poland (2.7), 
Canada (2.5) Israel (1.5), Others (4.3)
Lowfat cheese (mt) 10.0 32.9 5,475 48 65 EU (74.2), NZ (17.5), Australia (4.4), 
Poland (3.1), Israel (0.9) 
Peanuts (mt)  8.5 139.8 52,906 91 100 Argentina (84.0), Others (16.0) 
Chocolate crumb (mt) 4.5 15.1 26,168 81 79 EU (32.1), Australia (8.3) 
Low-fat chocolate crumb (mt) 5.9 43.2 2,123 0 0 Ireland (80.1), U.K. (19.9) 
Infant formula containing oligo 
saccharides (mt)  17.5 64.8 100 100 100 Global, no country allocation 
Green ripe olives (mt)  1.3 1.8 730 0 0 Global, no country allocation 
Place packed stuffed olives (mt)  1.1 2.0 2,700 36 31 Global, no country allocation 
Green olives, other (mt)  2.3 2.7 550 73 69 Global, no country allocation 
Green whole olives (mt)  2.2 4.3 4,400 28 19 Global, no country allocation 
Mandarin oranges (Satsuma) (mt)  0.0 0.4 40,000 100 100 Global, no country allocation 
Peanut butter and paste (mt)  0.0 131.8 20,000 85 78 Canada (73.1), Argentina (15.4), 
Others (9.3) 
Ice cream ('000 litres)  20.0 30.4 5,668 59 57 EU (20.0), NZ (11.4), Jamaica (0.7) 
Table IV.2 (cont'd)United States WT/TPR/S/126 
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Average tariff ratea 
2002  (%) Products  
In-quota Out-of-
quota Bound 
import 
quota Fill rateb 
2000 
(%) Fill rateb 
2002 
(%) Partners with reserved access  
(% of WTO quota)c 
Animal feed containing milk (mt)  7.5 12.3 7,400 0 1 EU (75.1), NZ (24.1), AUS (0.8) 
Raw cane sugar ('000 mt)  3.4 48.8 1,117 88 81 Mexico (2.1), Others (95.3) 
Other cane or beet sugars or syrups 
('000 mt) 9.3 49.8 22 159 151 Canada (29.4), Mexico (8.6), 
Others (62.1) 
Other mixtures over 10% sugar (mt) 9.2 19.6 64,709 99 99 Canada (91.6), Others (8.4) 
Sweetened cocoa powder (mt)  6.7 18.8 2,313 60 15 Global, no country allocation 
Mixes and doughs (mt)  10.0 25.8 5,398 100 100 Global, no country allocation 
Mixed condiments and seasonings (mt) 7.5 13.1 689 100 45 Global, no country allocation 
Tobacco (mt)  14.3 350.0 150,700 53 75 Brazil (53.3), Malawi (8.0), 
Zimbabwe (8.0), Argentina (7.1), 
EU (6.6), Guatemala (6.6), 
Others (10.5) 
Short staple cotton (mt)  0.0 13.4 20,207 2 2 Global, no country allocation 
Harsh or rough cotton (mt)  2.7 20.0 1,400 0 0 Global, no country allocation 
Medium staple cotton (mt)  1.3 6.8 11,500 2 7 Global, no country allocation 
Long staple cotton (mt)  0.8 3.0 40,100 24 13 Global, no country allocation 
Cotton waste (mt) 0.0 54.4 3,335 0 0 EU (26.3), Japan (5.7), Canada (4.0), 
India & Pakistan combined (1.2), 
China (0.3) 
Cotton processed but not spun (kg.) 5.0 29.0 2,500 52 100 Global, no country allocation 
 a Average based on a d valorem  rates or on ad valorem equivalents provided by the authorities. 
b Calculated as the ratio of actual import volumes to the bound import quota. c Data on country allocation based on Schedule XX. 
mt metric tonnes. 
Source : WTO documents G/AG/N/USA/42, 17 January 2003,  G/AG/N/USA/48, 24 June 2003;  Schedule XX - United 
States of America;  Harmonized Tariff  Schedule of the United States, availabl e online at:  http://dataweb.usitc.gov; 
and information provided  by the authorities. 
15. In general, access to tariff quotas is provided on a first-come first-served basis.  Exceptions 
include certain dairy products and sugar.  Certain da iry products require import licences in order to be 
granted the in-quota tariff rate.13  Dairy licences are issued to:  historical licensees each year for the 
same volume of imports from the same supplying countries;  eligible applicants designated by the 
government of the country of origin as a preferred im porter;  or eligible applicants through a lottery 
system.  Export certificates for "quota eligibility" fo r sugar are issued to the exporting countries, for 
distribution to exporters.  Following the commitm ent made by WTO Members in December 2000 to 
ensure that their tariff quotas regimes are admini stered in a more transparent, equitable, and non-
discriminatory manner, in October 2001, the United States provided further details concerning the 
administration of its tariff quotas.14 
16. Access to parts of the tariff quotas is for most products (e.g. beef, dairy products, and 
peanuts) reserved for selected countries through the incorporation in the U.S. Schedule of 
commitments of reserved access (Table IV.2).  For example, importers wishing to import blue cheese 
must source their supplies from four  trading partners:  the European Union, which holds over 96% of 
the in-quota access volume, Chile, the Czech Republic, or Argentina.  The latter also holds 84% of the 
tariff quota for peanuts. 
                                                      
13 Import licensing procedures, including for dairy pr oducts and sugar, are detailed in WTO document 
G/LIC/N/3/USA/3, 9 November 2000. 
14 WTO document G/AG/N/USA/2/Add.3, 5 October 2001. WT/TPR/S/126 Trade Policy Review 
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17. The tariff quotas on raw cane sugar were enlarg ed slightly in 2001, but subsequently reduced 
to the minimum WTO tariff quota commitment level.15  These reductions sought to compensate for 
increasing domestic production.16  In August 2002, Australia requested details of a new measure 
whereby the Commodity Credit Corporation (CCC, s ee section (vi) below) was offering raw cane 
sugar held in stock in exchange for ce rtificates for quota eligibility (CQEs).17  According to the 
authorities, this measure is designed to dispose of surplus stocks.  In May 2002, the CCC announced 
that bids for 115,116 short tonnes of raw equivalent sugar had been accepted in exchange for CQEs 
from six countries:  Brazil, Cote d’Ivoire, Ecuador, Jamaica, the Philippines, and Thailand. 
18. The United States has reserved the right to apply additional tariffs on over-quota imports of 
products subject to tariff quotas, ei ther if their import prices drop belo w a trigger price, or if quantities 
exceed a given threshold, in accordance with the sp ecial safeguard (SSG) provisions of Article 5(4) of 
the WTO Agreement on Agriculture.  The two SSGs may not be levied simultaneously, and do not 
apply to in-quota imports.  In March 2003, a volume-based safeguard was notified for American 
Cheese.18 
19. A volume-based safeguard may also be levied on sheep meat products (HS 9904.0260);  
however, the U.S. schedule of commitments de fines no tariff quotas for these products.19  In 1999, a 
tariff quota was imposed by the United States on  imports of lamb meat from Australia and New 
Zealand under the WTO Agreement on Safeguards.  Fo llowing the recommendations of the DSB, this 
safeguard measure was ended in November 2001.20 
20. Price-based safeguards are invoked automatica lly on a shipment-by-shipment basis.  The 
additional tariff is determined according to a formula based on the average 1986-88 import price.21  
Importers of goods in an over-quota tariff line are required to declare which pre-established price 
range is applicable to their product.  If a safeguard duty is associated with that price range, the 
additional charge is levied.  The latest annual notification by the United States to WTO was for 2001;  
it indicates price-base d actions on bovine meat, milk, butter, cheese, other dairy products, peanuts, 
and sugar.22 
(iii) Domestic support 
21. The latest U.S. notification on domestic support measures covers the period October 1999 – 
September 2000.23  WTO Members have noted that delays in WTO notifications reduce transparency 
and hinder a timely discussion of tre nds in U.S. support to agriculture.24  The latest U.S. notification 
reported a total current Aggregate Measurement of  Support (AMS, known as "Amber" support) of 
nearly US$17 billion for the period October 1999 – September 2000, up sharply from the previous 
                                                      
15 WTO documents G/AG/N/USA/34, 40 and 45. 
16 See Economic Research Service (2003c). 
17 WTO document G/AG/R/31, 27 August 2002. 
18 WTO document G/AG/N/USA/44, 10 March 2002. 
19 HTS 0204.21.00, 0204.22.40, 0204.23.40, 020 4.41.00, 0204.42.40 and 0204.43.40. 
20 See WT/DS177 and WT/DS178/- series. 
21 The United States notified, under Article 5 of the Agreement on Agriculture, all tariff lines to which 
it applies the price-based special safeguard (WTO document G/AG/N/USA/1, 10 February 1995 and 
Addendum). 
22 WTO document G/AG/N/USA/41, 16 September 2002. 
23 WTO document G/AG/N/USA/ 43, 5 February 2003. 
24 See, for example, WTO document G/AG/R/31, 27 August 2002. United States WT/TPR/S/126 
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years.25  The ceiling for such support, as committed to by the United States in the WTO, is 
US$19.1 billion (Chart.IV.2).26 
 
22. There had been no notification of the Farm Ac t to WTO Members by early 2003, although the 
Act, or specific elements thereof, have been rais ed several times as an implementation issue under 
Article 18.6 of the Agreement on Agriculture.  Section 1601(e) of the Farm Act requires that the 
Secretary of Agriculture "to the maximum extent prac ticable, make adjustments in the amount of such 
expenditures" if domestic support levels exceed Uruguay Round commitments (of US$19.1 billion as 
of the implementation year 2000/2001).  Members have asked how the United States intends to 
monitor expenditures during each reporting period so that action, if necessary, could be taken within 
the reporting period to ensure that the United St ates complies with its annual commitment level.27  To 
date, no decision has been made as to whether re gulations are needed to implement this provision. 
23. Over three quarters of U.S. domestic support in 1999 was not subject to reduction 
commitments because it consisted of either "green  box" measures (close to  US$50 billion, covering 
mainly domestic food distribution programmes, but also general services and decoupled income support), or of " de minimis  support" (US$7.4 billion).  U.S. de minimis  support has increased 
significantly (Chart.IV.2).  In total, U.S. tr ade-distorting domestic support was thus over 
US$24 billion in 1999 ( de minimis  plus Current Total AMS). 
                                                     
 
25 WTO documents G/AG/N/USA/36, 22 June 2001, and 43, 5 February 2003. 
26 WTO document G/AG/N/USA/43, 5 February 2003. 
27 WTO document G/AG/R/31, 27 August 2002. 0.05.010.015.020.025.030.035.040.045.050.055.0
1995 1996 1997 1998 1999 2000 2001 2002 2003Total AMS (commitment)
Current total AMS
"De Minimis" payments
"Green box" paymentsChart IV.2
Domestic support payments, 1995-03
US$ billion
Source: WTO documents G/AG/N/USA/10,17,27,36, and 43.Note:    Fiscal year starts three months before calendar year (ie. on 1 October of previous year).WT/TPR/S/126 Trade Policy Review 
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(a) Direct payments 
24. Production Flexibility Contract (PFC) payments  were in place until 2002.  PFC payments 
have been replaced under the Farm Act by Direct  Payments (DPs), which differ from PFC payments 
in that the per unit payment rate is fixed in U.S. dollars for the life of the Act, whereas PFCs had a 
declining per unit payment rate.  Commodity coverage has been expanded to include soybeans, other oilseeds, and peanuts, in addition to the PFC-eligib le products, of wheat, corn, barley, upland cotton, 
oats, rice, and sorghum.  For 2003, DPs were estimated at US$5.2 billion;  PFC payments amounted 
to US$5 billion in both 1999 and 2000, US$4 billion in 2001, and a total of US3.8 billion in 2002 as 
the two programmes ran c oncurrently that year.
28 
25. Like the PFCs, DPs are based on historical yields  and acreage;  therefore, direct payments are 
not affected by current production or by current market prices.  In the WTO, the United States has 
classified PFCs as "decoupled" from production and thus part of the "green box". 
(b) The loan, counter-cyclical, a nd minimum price programmes 
26. The Farm Act continues the loan programmes th at provide a fixed revenue floor per unit of 
production for producers of eligible crops, and thus  provide incentives to continue production when 
prices fall.   Besides rice, corn, sorghum, barley and oats, extra long staple (ELS) and upland cotton, 
soybeans, other oilseeds, wheat, the Farm Act extended the product coverage under the loan 
programmes to include also peanuts, wool, mohair, h oney, dry peas, lentils, and small chickpeas.  For 
most products, loan rates are higher than those in 2001 throughout the six-year period (2002-07).  
Exceptions are rice and soybeans, for which the loan rate is unchanged and reduced, respectively.  The United States notified the loan programmes in the trade-distorting "amber box".  Loan payments are not contingent on export performance.  However,  support extended under these programmes may 
affect international trade when subsidi zed output is sold on world markets. 
27. The commodity loan programme allows farmers to default on basic non-recourse commodity 
loans
29, forfeiting their crop to the Commodity Credit Co rporation when market prices are below the 
"loan rate" (the government-determined price).  Forf eitures support prices as they remove crops from 
the marketplace.  CCC-owned commodities are sold by the CCC on the market, but at a price that is 
not less than the current loan rate  in effect at the time of sale. 
28. In order to discourage delivery of collateral to CCC, and the Federal Government’s 
acquisition of stocks, producers are also offered marketing loan programmes.  These programmes 
provide income support but do not support market pric es:  farmers repay the loan at the lower of the 
original loan rate and the loan repayment rate.  The difference between the two rates is a subsidy to 
producers (the marketing loan gain). 
29. Another frequently used alternative is to collect the subsidy directly through loan deficiency 
payments (LDPs).  The LDP is the amount by which the loan rate exceeds the loan repayment rate, 
and thus is equivalent to the marketing loan gain.  Under the LDP, farmers sell the crops themselves on the market. 
30. Support to tobacco producers is essentially through price guarantees.  Tobacco market loss 
payments were US$328 million in 1999/00, and about US$470 million in 2000/01, to offset reduced 
                                                     
 
28 See also Economic Research Service (2003a). 
29 Non-recourse loans are defined as loans for which producers have the option of either repaying the 
principal and interest or forfeiting (delivering) the collateral (the commodity) to CCC in full settlement of the 
loan. United States WT/TPR/S/126 
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production quotas linked to declining demand for to bacco.  The Agricultural Assistance Act of 2003 
included provisions to provide direct payments to  all acreage allotment/ma rketing quota holders and 
tobacco growers.  The programme will provid e US$53 million to eligible applicants. 
31. The Farm Act introduced a new counter-cyclical payment to support incomes.  The new 
programme of counter-cyclical payments (CCPs) provides price-dependent benefits for covered 
commodities whenever the effective price for the comm odity is less than its target price.  Unlike the 
former emergency market loss assistance payments, CCPs are a function of prices, (fixed) historical 
acreage, and yields.  The new legislation establishes a target price for each covered crop.  When the 
higher of the loan rate or the season average price plus the direct payment rate is below the target 
price, a CCP is made, at a rate equal to that difference.  Eligible commodities are wheat, corn, 
sorghum, barley, oats, upland cotton, rice, soybeans, other oilseeds, and peanuts.  The potentially 
distortive effect of this new programme on production and trade is limited because payments are 
decoupled from current production, hence, no production is required to benefit from the payments.  
As can be seen from Table IV.3, targ et prices have been set at relative ly high levels in view of prices 
recorded during 1999-02. 
Table IV.3 
Market prices versus target prices under the FSRIA, 1999-07 
(US$ per unit) 
Monthly average price (annual average) Target prices  Commodity Unit 1999 2000 2001 2002 
(Sep-Dec) 2002-03 2004-07 
Wheat bushel  2.48  2.62  2.78 3.56 3.86 
Corn bushel  1.82  1.85  1.97 2.25 to 2.35 2.6  2.63 
Grain Sorghum bushel  1.57  1.89  1.94 2.30 to 2.40 2.54 2.57 
Barley bushel  2.13  2.11  2.22 2.73 2.21 2.24 
Oats bushel  1.12  1.10  1.59 1.81 1.40 1.44 
Upland cotton pound  .450  .498  .298 .425 .724  .724 
Rice cwt  5.93  5.61  4.25 4.10 to  4.20  10.50  10.50 
Soybeans bushel  4.63  4.54  4.38 5.50 5.8 5.8 
Other oilseeds pound    0.098  0.101 
Peanuts tonnes  508 549 468 365 495  495 
 
Source : Economic Research Service online information.  Availa ble at:  http://www.ers.usda. gov/publications/agoutlook/ 
 aotables/mar2003/aotab05.xls;  and USDA (2002), The Farm Act:  Provisions and Implications for Commodity 
 Markets ;  and information provided by the authorities.  
32. Peanut production was supported by a two-tier price support programme with marketing 
quotas providing a high support rate on peanuts fo r domestic food use and a much lower rate for 
peanuts grown for export or for crushing.  This support was changed by the Farm Act to a programme 
with marketing loans, counter-cyclical payments, direct payments, as well as quota loss compensation payments. 
33. Aside from the Step 2 programme, which is cotton-specific, cotton is eligible for the same 
type of support as other eligible commodities, i. e. direct payments, loan programmes, and counter-
cyclical payments.
30  As indicated above, about 40% of U.S. cotton production is exported.  The 
authorities have noted that the high levels of gover nment outlays in recent years have been caused by 
the collapse in world prices.  In March 2003, a WTO panel was established to examine the WTO 
                                                      
30 Information on Step 1, Step 2 and Step 3 programmes is available online at:  http://www.ers.usda. 
gov/briefing/cotton/specialprovisions.htm. WT/TPR/S/126 Trade Policy Review 
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compatibility of a number of assist ance programmes, regulations, and laws in favour of U.S. upland 
cotton producers, users or exporters.31  The dairy industry relies heav ily on price support measures, 
income support measures, import protection, and export subsidies.  Federal milk marketing orders 
establish minimum prices for milk depending on it s use by processors.  In addition, the CCC will 
continue to purchase surplus dairy products under the federal dairy price support programme.  The minimum support price for milk (containing 3.67%  butterfat) is fixed under the Farm Act at 
US$9.90 per hundredweight, to be maintained through government purchases of butter, non-fat dry 
milk, and cheese.  The fact that assistance under th is programme is  a function of production volumes 
is likely to increase production and, possibly, surplus stocks.  The North East "dairy compact" 
(accounting for about 3% of U.S. milk production ) which allowed a minimum price to be set above 
the minimum federal level, expired in September 2001. 
34. The new counter-cyclical payment applied to da iry products takes the form of a national 
dairy market loss payments (DMLP) programme.  Under the DMLP, a monthly direct payment is to 
be made to qualifying dairy farm operators when  the monthly price of milk drops below a given 
benchmark.  The payment is a function of the quantity marketed by the producer during the month;  it 
is limited to 2.4 million pounds of milk production. 
(c) Other support programmes 
35. As noted in the previous Review of the United States, a number of insurance programmes are 
in place to reduce the financial consequences of uncertainties in weather, yields, and prices.
32  Crop 
insurance programmes aim to protect farmers against revenue losses, including through price or yield 
declines.  Premiums for catastrophic production lo sses are fully paid for by the Government, which 
also partly subsidizes coverage against non-cat astrophic events such as price declines.  These 
insurance programmes have been notifie d to the WTO as "amber box", under de minimis  provisions.  
Current crop insurance provisions are contained in  the Agricultural Risk Protection Act of 2000. 
(iv) Export assistance 
(a) Export subsidies 
36. Export subsidies were scheduled by the United States under the WTO Agreement on 
Agriculture for 13 product groups comprising cereal s, oilseeds, dairy products, and vegetables, and 
were made subject to distinct reduction commitme nts over the 1995-00 period. U.S. notifications on 
export subsidies made during the period under review include one for October 2000 to 
September 2001;  and one for October 2001 to September 2002.33  The United States has committed 
to spend total outlays not exceeding US$594 million per annum on subsidizing exports of the above products. 
37. Actual export subsidies in 2000 amounted to  US$15 million, concentr ated on exports of 
cheese, other milk products, and poultry:  91% of to tal exports of skim milk powder were subsidized, 
up from 71% in 1999.  In 2001, export subsidies amounted to US$55 million,  and covered only dairy 
products.  In particular, there was an eight-fold incr ease in outlays of subsidized exports of skim milk 
                                                     
 
31 These measures are described in WTO document WT/DS/267/1, 3 October 2002. 
32 For a description of farm risk management programmes, see Economic Research Service (2003b). 
U.S. insurance programmes have been the subject of questions by the European Union (WTO document 
G/AG/R/28, 26 October 2001 p. 25-26). 
33 WTO document G/AG/N/USA/39, 25 April 2002, and WTO document G/AG/N/USA/47, 
6 June 2003. United States WT/TPR/S/126 
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powder, even though the volumes exported did not ch ange;  according to the authorities, this was due 
to the bundling of sales in one accounting year. 
38. Two long-standing agricultural export subs idy programmes, the Export Enhancement 
Programme (EEP) and the Dairy Export Incentive Prog ramme (DEIP), have not been modified in the 
period under review;  according to  the authorities, the EEP has not been used since 2001.  The Farm 
Act re-authorizes both the DEIP and the EEP until 200 7.  Both the EEP and the DEIP are subject to 
the disciplines contained in the U.S. export subsidy commitments under the WTO Agreement on 
Agriculture.  All sales under both the EEP and the DEIP are made by the private sector. 
39. Under the EEP, the USDA pays cash bonuses to exporters, allowing them to sell agricultural 
products in targeted countries at prices below the exporter's costs of acquiring them.  The EEP has not been used since 1995, except for small shipments of frozen poultry and one cargo of barley.  The 
DEIP functions in a similar way as the EEP.  Commodities eligible under the EEP are wheat, wheat 
flour, rice, frozen poultry, barley, barley malt, tabl e eggs, and vegetable oil.   Commodities eligible 
under the DEIP are milk powder;  butterfat;  an d cheddar, mozzarella, gouda, feta, cream, and 
processed American cheeses.  The authorities noted that in the most recent DEIP allocation, GSP countries have been removed, and thes e are no longer eligible destinations. 
(b) Export finance, insurance, and guarantees 
40. The largest U.S. agricultural export promot ion programme is the Export Credit Guarantee 
Program (GSM-102), which covers credit te rms between 90 days and three years.
34  The Intermediate 
Export Guarantee Programme (GSM-103) covers credit terms of more than three years up to ten years.  The GSM-102 and 103 programmes make it po ssible for foreign buyers to purchase U.S. 
agricultural commodities from private U.S. exporters, with U.S. banks providing financing to 
importers' banks.  The CCC guarantees the payments due from the foreign bank to the U.S. bank.  If 
the foreign bank fails to make any payment as agreed, the CCC pays claims found to be in good 
order.
35 
41. Products eligible for GSM-102 and GSM-103 are also eligible for the Supplier Credit 
Guarantee Programme (SCGP), under which the CCC guarantees a portion of payments due from 
importers under short-term financing (up to 180 days) extended directly by U.S. exporters to the 
importers for the purchase of U.S. agricultura l commodities and products.  Under the Facility 
Guarantee Program (FGP), CCC extends credit guarante es to U.S. banks for financing export sales of 
U.S. manufactured goods and services to improve ag riculture-related facilities in emerging markets, 
such as storage, processing, and handling facilities.   Sales of manufactured goods and services must 
be linked to projects that primarily benefit U.S. ag ricultural exports.  According to the authorities, the 
FGP is in accordance with OECD guidelines.  These export programmes have all been reauthorized 
by the Farm Act until 2007.36 
                                                      
34 Economic Research Service online information.  Available at:  http://www.ers.usda.gov/Briefing/ 
FarmPolicy/trade.htm. 
35 FAS online information.  Available at:  http://www.fas.usda.gov/info/factsheets/gsmprog.html. 
36 Information on export credit guarantee programmes is available online at:  http://www.fas.usda.gov/ 
excredits/exp-cred-guar.html. WT/TPR/S/126 Trade Policy Review 
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42. The value of officially supported export credits  declined from US$4 billion in FY 1998 to 
US$3.1 billion in FY 2000, before increasing again in FY 2002 to US$3.4 billion.  South America, 
Mexico Turkey, and South Korea were the main destinations for exports in 2002.37 
43. Government-guaranteed export fina ncing confers an export advantage, because the interest 
rates charged does not reflect the actual risk of the transaction, but rather the credit rating of the 
underlying guarantee; mainly for this reason, offici al export credit guarantees may constitute export 
subsidies.38  The authorities have indicated that rates charged on GSM-guarantee d loans are generally 
15-25 basis points over LIBOR, and are not below market conditions per se ;  but that given the 
modest credit ratings of participants, the guar antees do moderate the consequences on potential 
default on business decisions. 
(c) The Economic Support Fund and other programmes 
44. Funds to purchase U.S. food products, including on concessional terms, are also available 
through the Economic Support Fund, which is an appropriation account for funding economic 
assistance to countries based on considerations of special economic, political or security needs, and 
U.S. interests.  For example, in the Budget for FY 2003, US$655 million wa s earmarked for Egypt.  
Of this amount, US$200 million was made availa ble as Commodity Import Program assistance to 
facilitate the purchase by Egypt's General Authority for Supply Commodities of 840,000 tonnes of 
U.S. wheat.  Although the Fund is operational in other countries, Egypt is the main benefactor. 
45. The Market Access Program (MAP) uses CCC funds to help in the creation, expansion, and 
maintenance of foreign markets for U.S. agricultural products.  The MAP forms a partnership between non-profit U.S. agricultural trade associations, U. S. agricultural cooperatives, non-profit state-regional 
trade groups, small U.S. businesses, and the CCC to share the costs of overseas marketing and 
promotional activities such as consumer promotio ns, market research, trade shows, and trade 
servicing.  Under the Farm Act, funding for th e MAP will rise from US$100 million in FY 2002 
progressively up to US$200 million by FY 2006. 
(v) Food aid
39 
46. The United States is the world's largest food aid supplier, accounting for 62% (by volume) of 
food aid delivered in 2001.40  The authorities noted that in response to requests from the World Food 
Programme and receiving countries , U.S. food-aid shipments substantially increased in 1999, before 
declining in 2000 and 2001.  The value of total f ood aid in FY 2002 amounted to US$1.09 billion, 
about 1.7% of U.S. agricultural exports.41 
47. U.S. food aid consists, in most cases, of in-kind commodity donations.  In the Food Aid 
Convention, the United States agrees annually to a minimum volume of food aid.  Given that a large 
part of food aid is subject to budget restrictions, don ation volumes are inversely related to food prices.  
                                                      
37 FAS online information.  Available at:  http://www.fas.usda.gov/excredits/Monthly/2002/02_09_ 
30.pdf. 
38 See, for example, the Minutes of the previous Review of the United States, containing written 
questions and replies (WTO document WT/TPR/M/88/Add.1, 8 January 2002). 
39 Food aid notifications for the period 1999-00 were received from the United States in March 2003, 
WTO document G/AG/N/USA/46, 10 March 2003. 
40 For details, see the World Food Programme online information.  Available at:  http://www.wfp.org 
/interfais /index2.htm. 
41 For details of food-aid deliveries, see FAS online information.  Available at:  http://www.fas. 
usda.gov/food-aid.html. United States WT/TPR/S/126 
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By value, the largest shipments of U.S. food aid in FY 2002 consisted of wheat, vegetable oil, and 
skim milk powder. 
48. In 2001, some 75% of  U.S. food aid was classified by the World Food Programme as 
emergency (relief) food aid, targeted and freely distributed to victims of  natural or man-made 
disasters, or of project food aid, which is distributed to targeted beneficiary groups to support specific development and disaster-prevention activities.  It is always supplied on a grant basis.
42  Recipients 
include particularly low-income countries or countries experiencing nutrition crises.  This type of 
food aid is generally provided u nder Title II (Emergency and Priv ate Assistance) of the P.L. 480 
program, which is administered by the U.S. Agen cy for International Development;  it may also be 
provided under the Section 416(b) Program (see below). 
49. The remainder of U.S. food aid (25%) was cl assified by the World Food Programme as 
"programme" aid.  This type of food aid is given or sold under long-term concessional loans;  the 
authorities noted that proceeds from the sales go towards development plans, including trade capacity 
building.  Programmes governing this type of fo od aid include Title I of the P.L. 480 program 
(long term concessional sales), the Food for Prog ress Program, and the Section 416(b) Program, 
which aims at using commodities in surplus.  Rela tively large recipients of programme food aid in 
FY 2002 included Pakistan (US$75 million), and to a lesser extent Indonesia, the Philippines, Eritrea, 
Uzbekistan, and Peru.43 
50. U.S. food aid has been the subject of various interventions by WTO Members, which have 
noted that this aid runs the risk of disr upting commercial sales in  recipient countries.44  According to 
the authorities, all U.S. food-aid programmes ar e conducted fully in adherence with the FAO 
Principles of Surplus Disposal and Consultative Obligations. 
(vi) State-trading activities 
51. The Commodity Credit Corporation (CCC) is a USDA-operated federal corporation that was 
created to stabilize and support both farm income and prices.45  The CCC Charter Act, as amended, 
authorizes the sale of agricultural commodities to other government agencies and to foreign 
governments and the donation of food to domestic, foreign, or international relief agencies.  
Currently, CCC operates mostly as a financing entity by which the Government finances its 
agricultural programmes. 
52. The CCC carries out operations for wheat, co rn, oilseeds, cotton (upland and extra long 
staple), rice, tobacco, small chick peas, lentils an d dry peas, milk and milk products, barley, oats, 
grain sorghum, mohair, other wool, honey, peanuts, and sugar.  The CCC is authorized to enter into 
direct export sales of these products, and to promote their exports through payments, export credits, 
and other related activities.  The CCC also assists in the development of new foreign markets for 
agricultural commodities. 
                                                      
42 World Food Programme online information.  Available at:  http://www.wfp.org/interfais/2000/ 
explanatory_notes.htm. 
43 FAS online information.  Available at:  http://www.fas.usda.gov/excredits/pl480/foodaidtableii.pdf. 
44 See for example questions during the previous U.S. TPR (WTO document WT/TPR/M/88/Add.1, 
8 January 2002). 
45 WTO document G/STR/N/2/USA, 18 July 1996.  See also FAS online information.  Available at:  
http://www.fsa.usda.gov/pas/publications /facts/ccc.pdf. WT/TPR/S/126 Trade Policy Review 
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(3) MANUFACTURING  
(i) Overview 
53. Notwithstanding cyclical fluctuations, the overa ll trend in manufacturing output has kept pace 
with other sectors, increasing by some 35% in constant terms between 1991 through 2001;  
manufacturing's share of GDP was 16.2% in 2001, ro ughly the same as in 1990.  In current dollars, 
however, the contribution of the manufacturing sect or to the U.S. economy has been declining in 
recent years;  its share of GDP in 2001 was 14.1%, down from 17.9% in 1990 (Table IV.4). 
54. Some 60% of manufacturing production is du rable goods.  The main manufacturing activities 
(North American Industry Classification System (NAICS)) are electronic equipment and machinery, 
chemicals, and industrial machinery and equipment, although no manufacturing industry alone represents more than 2% of GDP.  In 2002, the sector employed 16.7 million people or 12.8% of total 
non-agricultural employment, down from 19.1 million, or 17.4% in 1990. 
55. Capacity utilization has declined considerably since 2000;  it stood at 73.8% in 2002.  
Productivity, measured as valued added per worker, increased during the period, with the share of 
manufacturing employment in total non-agricultural employment falling. 
Table IV.4 
Main indicators of the manufacturing sector, 1990-02  
 1990 1995 1999 2000 2001 2002 
Index of Manufacturing Output (1997 = 100) 
Total manufacturing 75.2 88.1 111.8 117.4 112.6 111.5 
Durable goods 64.9 82.1 119.3 129.4 122.9 121.2 
Non-durable goods 88.2 96.2 102.2 102.9 99.8 99.6 
Other  99.0 93.2 109.9 112.4 109.1 105.7 
Capacity utilization rate (% ) 81.6 82.8 81.4 81.4 75.6 73.8 
Contribution to GDP, current dollars (%) 17.9 17.4 16.0 15.5 14.1 .. 
  Durable goods 10.1 9.9 9.2 9.0 8.1 .. 
       Industrial machinery and equipment 2.0 1.8 1.6 1.8 1.5 .. 
       Electronic and other electric equipment 1.8 2.0 1.7 1.6 1.4 .. 
       Motor vehicles and equipment 0.8 1.3 1.3 1.2 1.1 .. 
  Non-durable goods 7.8 7.6 6.8 6.5 6.1 .. 
       Printing and publishing 1.3 1.1 1.1 1.1 1.1 .. 
       Chemicals and allied products 1.9 2.0 1.8 1.7 1.6 .. 
Contribution to GDP (constant chained 1996 dollars) 16.3 17.0 17.1 17.2 16.2 .. 
Employment (million) 19.1 18.3 18.6 18.5 17.7 16.7 
Percentage of total non-farm employment (%) 17.4 15.5 14.4 14.0 13.4 12.8 
Corporate profits (US$ billion) 109.2 166.1 157.5 159.8 83.4 100.5a 
 of which durable goods industries (US$ billion) 40.8 41.6 68.2 61.5 9.9 22.8 
Change in nominal earnings(%) 3.3 2.2 3.3 3.9 3.1 2.9 
.. Not available. 
a Third quarter.  
Source:  Board of Governors of the Federal Reserve System and Department of Commerce.  
56. In 2002, the simple average MFN tariff for imports of manufactures (ISIC definition) was 
5.1%;  the corresponding average for non-agricultural products (WTO definition) was 4.2%.  Apart 
from food processing, which is counted in the ISIC definition as part of the manufacturing sector and 
raises the average considerably, th e highest average tariffs by ISIC code are for textile and apparel United States WT/TPR/S/126 
 Page 115 
 
 
(9.4%), followed by non-metallic mineral products (5.0 %), and chemicals (4.1%).  Tariff escalation is 
present in some industries, such as textiles and clothing, non-metallic minerals, and basic metal 
industries.  Contingency measures apply mainly to manufactured products (over 95% of anti-dumping 
and countervailing duties in place):  besides steel, they affect mostly chemical products, textiles and 
clothing, and machinery and electrical equipment (Chapter III(2)(v)).  In general terms, steel and textiles products, although declining in economic im portance, have remained key trade policy areas. 
(ii) Steel 
57. The U.S. steel industry accounts for less than 1% of GDP and employed overall about 
170,000 workers in 2002.  The U.S. steel industry has undergone considerable restructuring since 1980, resulting in a considerable reduction of domestic steel-making capacity (approximately 
25.5 million tons, or some 18.3 % of total capacity),  an increase in imports, and productivity gains.  
Despite this, however, some U.S. steel producers, pa rticularly some of the larger steel companies, 
have continued facing difficulties.  Industry source s estimate that in March 2003 approximately 20% 
of U.S. capacity was operating under Chapter 11 bankruptcy filings.
46  During the period 1997-02, 35 
steel companies filed for bankruptcy; 18 of these ha d ceased operations or ha d closed facilities by the 
end of the period.47 
58. The United States produces slightly over 10% of the world's steel;  its share of world 
production has declined by some 2 percentage points since 1998.  Although its share of world steel 
consumption has also declined, in 2001 the United States still represented 13.5%.  The United States 
was, until 2002 (the most recent year available), the largest net importer of steel in the world:  in 
2001, U.S. imports represented some 9% of world imports, while its exports represented only 2% of 
the total.48 
59. Steel imports by the United States increase d sharply following the removal of voluntary 
restraint agreements (VRAs) in 1992 in the framew ork of the Steel Liberalization Program.  Between 
1992 and 2001, the flow of imports of semi-finishe d and finished steel increased by 77% in volume, 
while consumption rose by 26% and production by just 7%.49  Imports peaked in 199 8, with the share 
of imports in U.S. consumption of steel products reaching 28% (Table IV.5).  Most of the increase in 
imports was from Brazil, Turkey, Japan, and Russia.   In subsequent years, imports lost share in 
domestic consumption, to about 25% in 2002, coinciding with lower economic growth in the 
United States and a number of actions taken against imports (see below). 
60. After falling in 2001, imports increased again in  2002, by 8.4% in volume and 4.9% in value 
(Table IV.6).  In 2002 almost 80% of U.S. import s of steel came from only eight providers:  Canada, 
the EU, Mexico, Brazil, Korea, Russia, Japan, and Turkey.  Imports of steel products under Section 
201 (safeguard) investigations accounted for almost 70% of total imports US$8.4 billion.50 
61. In recent years, especially after the 1998 surge in imports, there has been an increase in the 
number of petitions for anti-dumping and countervailing duty investigations.  During the 1998-02 period, there have been more th an 148 AD and countervailing dut y (CVD) investigation initiations on 
                                                     
 
46 Trade Alert (2003). 
47 United Steel Workers of America (2003). 
48 In 2001, world imports of steel and steel products amounted to 257.9 million tonnes, of which 27.8 
million were U.S. imports.  U.S. exports in the same ye ar were 5.7 million tonnes.  International Iron and Steel 
Institute (2003). 
49 International Iron and Steel Institute (2003). 
50 Bureau of the Census online information.  Available at:  http://www.census.gov/foreign-trade/Press-
Release/2002pr/12/steel. WT/TPR/S/126 Trade Policy Review 
Page 116 
 
 
steel and steel-related products.51  In June 2003, 134 anti-dumping orders and 35 countervailing duty 
orders were in place on steel-related products.52  A total of six suspension agreements regarding steel 
products were in effect as of June 2003, one of which was terminated in September 2003. 
Table IV.5 
Main indicators of the U.S. steel industry, 1997-02  
 1997 1998 1999 2000 2001 2002
U.S. production of crude steel  (million metric tons)  98.4 98.7 97.4 101.8 90.1 92.2
World total production of crude steel (million metric tons)  798.9 777.2 788.4 847.4 849.6 902.0
U.S. share of world total crude steel  production  12.3 12.7 12.4 12.0 10.6 10.2
U.S. Consumption of crude steel (million metric tons)  123.6 134.6 127.5 132.9 114.3 ..
World total consumption  of  crude steel (million metric tons)  789.2 779.4 798.5 867.3 845.0 845.0
U.S. share of world total consumption of crude steel  15.7 17.3 16.0 15.3 13.5 ..
Imports for consumption of steel products (million metric tons)a 28.3 37.7 32.4 34.4 27.4 29.7
Value of imports (US$ billion) 13.5 16.3 12.9 14.7 11.5 12.1.
Share of imports on total consumption  22.9 28.0 25.4 25.9 24.0 ..
Employment, total (thousand persons)  218 216 211 208 189 169
Employment of production workers (thousand persons)  163 160 153 151 141 124
.. Not available. 
a Department of Commerce (U.S. Census Bureau), Bureau of Labor Statistics. 
 
Source:  International Iron and Steel Institute, Steel Statistical Year Book 2002 . 
Table IV.6 
U.S Imports of steel by country, volume and value, 1999-02 
('000 Tonnes and US$ million) 
Countries 1999 2000 2001 2002 
 Volume Value Volume Value Volume Value Volume Value 
Total 32,414 12,614 34,433 14,903 27,351 11,526 29,652 12,088 
Canada 4,571 2,330 4,769 2,550 4,228 2,185 5,241 2,744 
Mexico 3,192 1,054 2,954 1,138 2,713 895 3,408 1,204 
European Union 6,012 3,386 6,398 4,054 5,516 3,351 4,822 2,804 
EFTA 52 45 147 69 53 45 40 31 
Turkey 364 88 609 163 860 202 1,235 314 
Other Western Europe 50 27 98 44 19 13 8 11 
Poland 145 33 297 89 150 36 175 53 
Moldova 328 67 357 76 172 35 17 3 
Ukraine 714 130 1,408 305 461 110 337 71 
Russia 1,138 284 1,379 383 1,541 323 1,651 350 
Other former Soviet Republics 539 110 533 122 71 16 87 23 
Other Eastern Europe  654 167 695 202 454 146 724 221 
Australia 850 167 738 190 623 137 677 152 
China 698 215 1,351 454 691 282 750 259 
Indonesia 483 117 379 113 128 40 133 43 
Japan 2,778 1,456 1,933 1,229 1,863 1,153 1,480 940 
Table IV.6 (cont'd) 
                                                      
51 International Trade Administration online information.  Available at:  http://web.ita.doc.gov/ia/Sun 
Case.nsf.  Steel and steel-related products investigated or covered by an order include:  all carbon, alloy, and stainless steel mill products (flat-rolled products, lo ng products and pipe and tube) as well as certain 
manufactured products, such as fabricated steel, wire strand, wire rope, barbed wire, or pipe fittings.  They do 
not include iron ore, iron products, or ferroalloys nor dow nstream products such as ball bearings or fasteners. 
52 U.S. International Trade Commission, Antidumping and Countervailing Duty Orders by Product 
Group, [online].  Available at:  http://www.usitc.gov/7ops/ad_cvd_orders.htm. United States WT/TPR/S/126 
 Page 117 
 
 
Countries 1999 2000 2001 2002 
 Volume Value Volume Value Volume Value Volume Value 
Korea 2,670 912 2,433 980 2,020 779 1,677 637 
Chinese Taipei 876 416 1,145 601 518 308 345 249 
Other Pacific Rim 220 72 245 96 316 85 182 52 
Argentina 437 134 417 163 403 137 387 127 
Brazil 3,445 733 3,280 861 2,821 664 3,551 779 
Colombia 27 12 52 27 43 24 41 22 
Venezuela 468 132 433 132 308 127 444 131 
Other South and Central America 375 107 326 99 362 102 542 164 
India 531 146 909 318 182 94 634 349 
South Africa 535 178 585 240 473 136 389 144 
Other 262 96 565 208 364 100 668 211 
Source: Department of Commerce.  
62. In June 2001, the U.S. Governme nt announced a Multilateral Initiati ve on Steel, consisting of 
a three-pronged plan to:  (a) reduce global excess steel-making capacity through negotiations with 
trading partners; (b) eliminate subsidies and market -distorting practices globally through initiation of 
negotiations on international rules to govern steel  trade;  and (c) request the USITC to initiate a 
Section 201 (safeguard) investigation.53 
63. In December 2001, the USITC transmitted to the Pr esident its report on the investigation;  in 
March 2002 the U.S. Government announced its decision to impose temporary safeguard measures (Chapter III(2)(v)). 
64. The safeguard measures applied consisted of a tariff of 30% for flat products, tin mill 
products, hot-rolled bar and cold-finished bar;  a 15% tariff for rebar, certain tubular products, 
stainless steel bar, and stainless steel rod;  a 13%  tariff on carbon and alloy fittings and flanges;  a 
tariff of 8% for stainless steel wire;  and a tariff rate quota for slab, with the in-quota volume set at 
5.4 million short tons and an out-of-quota tariff of  30% (in-quota rates are generally between 0 and 
1%).  Some of the tariffs imposed were higher than those recommended by the USITC;  for stainless 
steel rod it was lower.  The tariff levels were adjusted in March 2003 (from 30% to 24%, from 15% to 
12%, from 13% to 10% and from 8% to 7%), while the tariff quota was extended to 5.9 million short 
tons.
54  In March 2003, the President announced the exclusion of 295 products from the measures, 
following 661 exclusion requests made by U.S. steel consumers and foreign steel producers from a 
number of countries.55  Together with the 2002 exclusions, a total of 1,022 products were excluded 
from the safeguard measures. 
65. In addition to the safeguard measures, a tempor ary licensing system was introduced for the 
duration of the measures.  The Steel Import Licensing System was put in place to provide timely 
statistical data on steel imports entering the Unite d States, and to help the Department of Commerce 
monitor significant changes or potential surges in steel imports, particularly from countries excluded 
from the safeguard remedy.56  The licensing requirement entered into force on 1 February 2003 and 
                                                      
53 Statement of the President regarding a Multilateral Initiative on Steel, 5 June 2001, [online].  
Available at:  http://whitehouse.gov/new/releases/2001/06/20010605-4.html. 
54 Information available online at:  http://www.ustr.gov/sectors/industry/steel201/2003-03-21-
exclusions-factsheet.PDF. 
55 USTR Press Release, 21 March 2003. 
56 Federal Register, 31 December 2002, Volume 67, Number 55 [Rules and Regulations] [Page 79845-
79851], Department of Commerce, International Trade Administration 19 CFR Part 360 [Docket:  020711168-
2325-02] RIN 0625-AA60 Steel Import Licensing and Surge Monitoring. WT/TPR/S/126 Trade Policy Review 
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applies to all imports of the products covered by  the 2002 safeguard measure, whether or not from 
excluded countries or subject to product-specific exclusions. 
66. Eight WTO Members lodged requests with the DSB for consultation on the U.S. safeguard 
measures applied in 2002.  This was followed by th e establishment of a panel by the DSB.  The panel 
reports concluded that the safeguard measures we re inconsistent with the Agreement on Safeguards 
and GATT 1994 (Chapter III(2)(v)).  The United States appealed to the Appellate Body certain issues 
of law covered in the panel reports.57 
67. The United States is the most active respondent on steel issues in the WTO dispute settlement 
mechanisms.  As of April 2003, the United States participated as a respondent in 14 of the 19 on-going WTO disputes on steel and steel-related pr oducts (all initiated during the 1998-02 period);  it 
participates as a complainant in one.  In six of the cases, a panel recommendation was made for the 
United States to bring measures into conformity with its obligations under WTO Agreements. 
68. According to the U.S. steel industry, the safeguard measures have succeeded in enabling the 
restructuring and consolidation of the domestic steel industry.
58  On the other hand, representatives 
from steel-utilizing industries have claimed that th e measures have caused job losses in the steel-
consuming sector, delayed the restructuring of weak domestic steel companies, and otherwise 
disadvantaged steel consumers.59 
69. Some steel-using industries have requested ex clusion of particular products from the 
measures.  These exclusions are considered annually.  In March 2003, the USTR announced the 
exclusion of 295 products from the safeguard measures because it was found that they were not available in sufficient quantities from U.S. producers.
60 
70. In April 2003, the USITC, as requested by the U.S. House of Representatives' Committee on 
Ways and Means, initiated a Section 332 (fact-finding) investigation to examine the current 
competitive conditions facing U.S. steel-consuming in dustries with respect to tariffs and tariff-rate 
quotas on imports of certain steel products.  The i nvestigation was to address the effects of the 
safeguard measures on employment, wages, profitability, sales, produc tivity, and capital investment in 
steel-consuming industries and on industries that rely on steel imports.61  In its report published in 
September 2003, the USITC estimated a small GDP net loss of US$30.4 million due to the safeguard 
measures, and an increase in direct steel purchases from domestic producers, from 65% to 73% of the 
total.62 
71. In 2002, the United States and most other majo r steel-producing countries began negotiations 
in the OECD to curtail government subsidies a nd to address the problem of uneconomic excess 
capacity, which have distorted the global steel market for decades.  Within the OECD, a Steel 
                                                      
57 WTO document WT/DS248/17, WT/DS249/11, WT/DS251/12, WT/DS252/10, WT/DS253/10, 
WT/DS254/10, WT/DS258/14, WT/DS259/13, 14 August 2003. 
58 Speech at Capitol Hill of Andrew G. Sharkey, President and CEO of the American Iron and Steel 
Institute (AISI). on 26 March 2003 [online].  Available at:  http://www.steel.org/news/pr/2003/pr030326.html. 
59 AIIS Press Release, 30 January 2003 "AIIS President David Phelps:  Section 201 Steel Tariffs Only 
Delayed Steel Industry Restructuring And Hurt Steel Consumers" [online].  Available at:  http://www.aiis.org. 
60 Exclusion of Particular Products from Actions Under Section 203 of the Trade Act of 1974 with 
Regard to certain Steel Products;  Conforming changes and Technical Corrections to the Harmonized Tariff Schedule of the United States.  Federal Register Vol. 68, No. 61, 31 March 2003 [online].  Available at:  
http://www.ustr.gov/releases / 2003/03/2003-03-21-steel.PDF. 
61 USITC News Release 03-037, Inv. No 332-452. 4 April 2003 [online].  Available at:  
http://www.usitc. gov/er/nl2003/ER0404aa1.htm. 
62 U.S. International Trade Commission (2003a) and (2003b). United States WT/TPR/S/126 
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Disciplines Study Group has been working to develo p the elements of a steel subsidies agreement, 
which it expects to conclude during the first half  of 2004.  The United States also supported 
establishing in the OECD a Capacity Working Group to work toward reducing inefficient excess 
capacity worldwide. 
72. The United States presented a proposal in May 2003 to bring to the WTO the disciplines 
being negotiated at the OECD with respect to the steel sector.  In particular, the United States stated 
that it supports charting a schedule in the Steel Disciplines Study Group to arrive at the elements of a 
steel subsidies agreement that could be considered fo r incorporation into the WTO rules framework, 
with work to be completed as early as possible in 2003.63 
(iii) Textiles and clothing 
(a) Recent evolution 
73. The United States is the world's leading importer  of textile and clothing (T&C) products and 
U.S. trade policy has a significant effect on world trade in those products.  In 2002, U.S. imports 
accounted for 10.6% of world textile imports, up fr om 9.8% in 2000 and 6.2% in 1990;  and for 
31.7% of world imports of clothing, down from 32.5% in 2000 but still considerably higher than the 
24% share in 1990.64  The U.S. share in world textiles exports increased to 7% in 2002, up from 6.4% 
in 1999, while its share in world clothing exports decreased to 3% from 4.4% in 1999.  Exports of 
clothing decreased by over 30% between 2000 and 2002, whilst exports of textiles fell by 1%. 
74. Over the period 2000-02 there was a stagnation in the growth of imports of T&C (by value) 
into the U.S. market, in line with the general we akness of overall import growth.  Imports of T&C 
were nearly US$80 billion in 2002, virtually unchanged from 2000.65  Data available through 
May 2003 show growth in imports in the latter parts of 2002 and early 2003.  The authorities noted 
this could be due to the further integration of the T&C sectors into the GATT since January 2002. 
75. Trade patterns by country (independently of the tariff treatment chosen by operators), have 
not changed substantially over the past two years, with the notable exceptions of China, Viet Nam, 
and certain African countries.  China, the main s upplier in 2002, exceeded a share of 15% of U.S. 
imports of T&C for the first time since 1994, representing about US$12 billion in import value 
(Table IV.7).  India also gained market share, exceeding 4% of U.S. imports for the first time.  After 
the United States accorded Viet Nam permanent MF N status in 2001, U.S. imports from Viet Nam 
increased to US$900 million in 2002, or 1.4% of total U.S. imports (up from US$49 million in 2001).  
Other East-Asian countries, except Cambodia, lost market share. 
76. T&C imports entering under MFN tariff treatment ("No program claimed" in the USITC 
Dataweb) accounted for 76% of the total value of imports in 2002, down from 85% in 2000 and 90% 
in 1996 (Table IV.8).  This decline reflects a sw itch by traders towards more favourable import 
regimes offered under arrangements such  as AGOA and CBTPA (see below). 
 
                                                      
63 WTO document TN/RL/W/95, 5 May 2003, Negotiating Group on Rules, Elements of a Steel 
Subsidies Agreement:  Comments from the United States. 
64 WTO International Trade Statistics , various issues. 
65 The USITC's Dataweb provides exhaustive and up-to-date information on imports by product, 
partner, and type of trade, available online at:  http://dataweb.usitc.gov. WT/TPR/S/126 Trade Policy Review 
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Table IV.7 
U.S. T&C imports from selected country groupsa 
(US$ million and per cent) 
1996 2000 2001 2002 Country Value % share Value % share Value % share Value % share 
NAFTA countries 7,088 13.7 14,101 17.8 13,289 17.0 13,083 16.4 
  Mexico 4,719 9.1 10,283 13.0 9,622 12.3 9,353 11.7 
  Canada 2,369 4.6 3,818 4.8 3,667 4.7 3,730 4.7 
CBTPA countries 6,173 11.9 9,807 12.4 9,719 12.4 9,700 12.2 
  Honduras 1,244 2.4 2,422 3.1 2,442 3.1 2,507 3.1 
  Dominican Rep. 1,807 3.5 2,478 3.1 2,336 3.0 2,241 2.8 
  El Salvador 747 1.4 1,632 2.1 1,666 2.1 1,707 2.1 
  Guatemala 822 1.6 1,512 1.9 1,647 2.1 1,690 2.1 
  Costa Rica 722 1.4 844 1.1 782 1.0 736 0.9 
  Others 831 1.6 919 1.2 845 1.1 818 1.0 
ATPA countries 539 1.0 902 1.1 814 1.0 809 1.0 
AGOA countries 357 0.7 731 0.9 943 1.2 1,093 1.4 
Other main suppliers 27,307 52.9 37,969 47.9 37,597 48.0 38,141 47.8 
  China 7,340 14.2 10,290 13.0 10,701 13.7 12,040 15.1 
  Hong Kong, China 4,170 8.1 4,800 6.1 4,488 5.7 4,078 5.1 
  India 1,968 3.8 3,111 3.9 2,977 3.8 3,307 4.1 
  Korea 2,202 4.3 3,370 4.2 3,216 4.1 3,173 4.0 
  Thailand 1,401 2.7 2,471 3.1 2,477 3.2 2,437 3.1 
  Chinese Taipei 2,728 5.3 2,899 3.7 2,611 3.3 2,404 3.0 
  Italy 2,039 3.9 2,459 3.1 2,394 3.1 2,352 2.9 
  Indonesia 1,593 3.1 2,379 3.0 2,520 3.2 2,345 2.9 
  Pakistan 1,073 2.1 1,929 2.4 1,989 2.5 2,073 2.6 
  Bangladesh 1,187 2.3 2,210 2.8 2,212 2.8 2,005 2.5 
  Philippines 1,607 3.1 2,051 2.6 2,011 2.6 1,929 2.4 
All other countries 10,197 19.7 15,799 19.9 15,988 20.4 16,953 21.2 
World 51,660 100.0 79,309 100.0 78,350 100.0 79,780 100.0 
a Data refer to imports from the countries listed, irrespective of the tariff treatment (e.g. MFN, GSP) under which imports are 
entered.  
Source:  WTO Secretariat, based on data from USITC's Dataweb, available online at:  http://dataweb.usitc.gov. 
Table IV.8 
Imports of textiles and clothing, 1996-02  
(US$ million) 
Import programme 1996 1997 1998 1999 2000 2001 2002 
No programme claimed 46,385 53,752 59,126 60,626 67,669 61,182 60,685 
NAFTA 4,148 5,408 6,353 8,376 10,462 10,500 10,832 
CBTPA n.a. n.a. n.a. n.a. 157 5,119 6,035 
AGOA (excluding GSP) n.a. n.a. n.a. n.a. n.a. 356 800 
West Bank & Gaza n.a. n.a. n.a. n.a. 23 171 375 
Israel-U.S. 414 425 533 557 611 613 579 
GSP 543 403 377 257 277 287 352 
Caribbean (CBI) 82 95 80 80 106 117 115 
Jordan-U.S. n.a. n.a. n.a. n.a. n.a. n.a. 5 
Andean Act 5 4 5 6 6 5 1 
Total 51,576 60,087 66,475 69,902 79,309 78,350 79,780 
n.a. Not applicable. 
Source:  WTO Secretariat, based on data from USITC Dataweb, available online at:  http://dataweb.usitc.gov. United States WT/TPR/S/126 
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(b) Main trade policy developments 
Tariffs 
77. Imports of T&C products to the United States are subject to relatively high MFN import 
duties, which can reach 33%, with an average of 10 .8% for clothing in 2002, and 9.3% for textiles.  
MFN tariff declines since 2000 reflect the progressive  implementation of the ten-year tariff reduction 
programme committed to by the United States in its 1995 Uruguay Round Market Access 
commitments, which will end on 1 January 2004.  Spec ific duties are often levied in conjunction with 
the ad valorem  rates, so as to provide additional protectio n in case of declines in import prices.66 
78. The recently enacted tariff preferences on clothing products in favour of designated sub-
Saharan African countries, Caribbean countries, an d Andean countries, although generally conditional 
on meeting certain requirements (see below), consti tute significant increases in market access for 
these countries.  Aside from these, the United States ' preferential tariff regime s in large part exclude 
T&C products (Table III.2).  For example, certain woven fabrics (HS number 51112090), as well as a 
wide range of clothing products (e.g. men's and wo men's synthetic shirts, trousers, suit-type jackets 
and blazers, overcoats, track suits) are not eligible for any tariff preferences, aside from the NAFTA and Israel duty-free provisions and small margins of tariff preference available to suppliers from 
Jordan. 
Import quotas 
79. The United States has maintained T&C import quotas on a product- and country-specific 
basis since 1957.  In 2000, some US$31 billion of clothing imports, or 51% of the total, as well as US$4.6 billion of imports of certain textiles (32% of  the total) were subject to quantitative restraints. 
In 2002, some US$28 billion of clothing imports, (4 8% of the total), as well as US$3.6 billion of 
imports of textile products (24% of the total), were s ubject to quantitative restraints.  The decline 
partly reflects the gradual implementation of th e WTO Agreement on Textiles and Clothing (ATC), 
which foresees the elimination of all bilateral quot as on imports from WTO Members at the latest by 
January 2005. 
80. The United States committed itself to integrat e into GATT, 16.21% of 1990 import volumes 
in January 1995, 17.03% in January 1998, and 18.11% in January 2002, leaving 48.7% to be 
integrated in January 2005.
67  As lower value items have been inte grated first, the 48.7% represents a 
much larger share of import values (nearly 84% of the value of U.S. imports in 2000 belonged to 
categories that had not been integrated under GATT rules, i.e. for which quotas were in place or could be introduced).  Integra tion of the most sensitive products ha s been deferred until the end of the ten-
year transition period provided by the ATC. 
81. The authorities indicated that in June 2003, approximately 800 quotas were applied to 45 
countries
68, compared with 1,000 quotas on 43 countries in 2000.  Quota coverage varies by product 
                                                      
66 Thus for example woven fabrics of wool mixed with man-made filaments (HS number 51112090) 
were protected by a duty of  26.3% + 4.8 cents per kg. in 2003, down from 30% plus 19.4 cents per kg. in 2000. 
67 GATT document G/TMB/W/5, 10 October 1994;  and WTO documents G/TMB/N/213/Corr.1, 
20 March 1997, G/TMB/N/213/Add.1, 23 May 1997, and G/TMB/N/360, 19 December 2000). 
68 These are Bahrain;  Bangladesh;  Belarus;  Bulgaria;  Brazil;  Myanmar;  Cambodia;  China;  
Chinese Taipei;  Colombia;  Costa Rica;  Czech Republic;  Dominican Republic;  Egypt;  El Salvador; Fiji; Guatemala;  Hong Kong, China;  Hungary;  India;  Indonesia;  Jamaica;  Korea (Republic of);  Kuwait;  Laos;  
Macedonia;  Maca;  Malaysia;  Nepal;  Oman;  Philippines;  Pakistan;  Poland;  Qatar;  Romania;  Russia;  WT/TPR/S/126 Trade Policy Review 
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and by partner.  An indication of the actual incide nce on trade of these quantitative restrictions is 
provided by the quota "fill rates":  quotas filled at over 90% in 2002 are listed in Table AIV.1. 
82. In April 2003, the USTR announced that it ha d concluded an agreement for the introduction 
of quantitative restrictions on imports from Viet Nam, which would run from May 2003 to December 2004, extendable for additional one-year periods after 2004, as long as Viet Nam is not a WTO Member and the Agreement is not terminated by one of the parties.
69  According to the 
authorities, the estimated value of the market acce ss provided by the quotas would be US$1.7 billion 
in calendar year 2003, accounting for 78% of U.S. T&C imports from Viet Nam for the year ending in 
May 2003. 
Safeguards 83. No safeguards have been invoked by the Unite d States under the ATC since December 1998 
(see section (d) below in the case of Pakistan ).  China's WTO accession Protocol contains a 
transitional product-safe guard mechanism for T&C that allows the United States and other WTO 
Members to impose quantitative limits on Chinese shipments.
70  The mechanism will expire on 
31 December 2008.  In August 2002, a petition was file d under the terms of the Protocol for special 
textile quotas to be imposed on knit fabric, gloves, dressing gowns, brassieres, and man-made fibre 
luggage from China.  In May 2003, the U.S. Government set procedures to be followed by companies 
requesting the establishment of quantitative limits under this special safeguard mechanism.71  I n  
July 2003, a formal request was filed under the terms of these procedures, for quotas to be imposed on 
knit fabric, gloves, dressing gowns, and brassieres.  The authorities indicated that as at October 2003 the request for gloves had been rejected and that  the authorities were considering the safeguard 
request for the other three items. 
(c) Preferential suppliers 
Canada and Mexico 
84. As of 1 January 2003, NAFTA partners may export all T&C products that qualify under 
NAFTA rules of origin to each other duty-free with out exception.  Quotas remain on imports from 
Mexico of certain non-qualifying products (categories 410, 433, 443, and 611);  they are to be 
removed by January 2004).
72  At that time, all non-qualifying goods made in NAFTA countries will 
be traded quota-free.73 
85. Overall imports (i.e. irrespective of NAFTA or  other tariff treatment) from Canada have 
stagnated over the 2000-02 period, and those from Me xico have declined.  Canada's share of the U.S. 
market in 2002 was unchanged from the 1996 market share of 5%.  The authorities noted, however, 
that U.S. imports of T&C from Canada increased by 5.5% in the year ending May 2003.  Mexico was 
the largest supplier of clothing pro ducts to the U.S. market before the accession of China to the WTO, 
                                                                                                                                                                     
Singapore;  Slovakia;  Sri Lanka;  Thailand;  Turkey;  Ukraine;  United Arab Emirates; Uruguay;  and 
Viet Nam.  Information available online at:  www.customs.gov. 
69 See OTEXA online information.  Available at:  http://otexa.ita.doc.gov. 
70 See paragraphs 241 and 242 of the Report of the Working Party on China's Accession, which is 
annexed to the Protocol. (WTO document WT/MIN(01)/3,  10 November 2001). 
71 See Federal Register, Vol. 68, No. 98, 21 May 2003, p. 27787. 
72 The composition of these categories is detailed in OTEXA online information.  Available at:  
http://otexa.ita.doc.gov/corr.stm. 
73 To determine the origin of a "non-qualifying" good, the United States applies the rules contained in 
section 334 of the Uruguay Round Agreements Act (19 USC 3592), the so-called "Breaux-Cardin" rules. United States WT/TPR/S/126 
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but its exports have since fallen, from US$8.7 billion in 2000 to U.S$7.7 billion in 2002.  According 
to the authorities, China was likely to be the main supplier of clothing to the United States by the end 
of 2003. 
Production sharing 86. Also exempt from otherwise applicable import quotas are countries that have signed T&C 
"production-sharing" agreements as part of the 1986 "Special Access Program".  These agreements 
are designed to support the U.S. textile sector wh ilst liberalizing access for clothing products from 
participating countries.  The agreements require th e use of U.S. cut and formed fabric for clothing 
assembled in one of these countries to qualify for sp ecial tariff treatment on the finished product upon 
re-entry into the United States.
74  Participating countries have been  granted "guaranteed access levels" 
(preferential export quotas additional to their ATC quotas) for these products.  Upon re-importation 
into the United States, these products are subject to duty only on the non-U.S. portion of the product.  
Countries currently exporting to the United States under such agreements are five Caribbean Basin 
Economic Recovery Act (CBERA) countries (Cos ta Rica, Dominican Republic, El Salvador, 
Guatemala, and Jamaica).  Imports under productio n-sharing programmes fell by over 60% between 
2000 and 2002, from approximately US$13 billion to  US$5 billion, due to the migration of trade to 
the CBTPA programme. 
AGOA/CBTPA/ATPDEA 87. The Trade Act of 2002 (TA 2002), signed into law (P.L. 107-210) in August 2002, offered 
improved market access for certain sub-Saharan African countries under the African Growth Opportunity Act (AGOA), and for Caribbean countries under the U.S.-Caribbean Basin Partnership Act (CBTPA), relative to the Tr ade and Development Act of 2000.
75  The TA 2002 also established 
the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which provides preferential trade 
benefits to T&C, as well as other products, si milar to those under the AGOA and the CBTPA.  
Eligibility is based on a number of criteria, such as the implementation of WTO provisions, including 
protection of intellectual property.76 
88. The AGOA as enacted by the Trade and Development Act of 2000 granted duty-free and 
quota-free market access for certain clothing articles assembled in an eligible sub-Saharan African 
(SSA) country from U.S. formed yarns and fabrics, or  from yarns and fabrics that cannot be supplied 
by the U.S. industry in commercial quantities in a timely manner;  for sweaters knit-to-shape in an 
eligible SSA country from cashmere and merino w ool;  and for T&C products that were determined 
by the President to be hand-loomed, handmade, or folklore articles.  AGOA has authorized 
preferential treatment for qualifying products until September 2008.  Duty and quota-free treatment 
was also provided for clothing made in an eligible SSA country with regional fabric made from U.S. 
or regional yarn, with imports of the latter subject to a cap ranging from 1.5% to 3.5% of annual U.S. 
clothing imports until 2008.  There is a special provi sion for use of the cap that allows eligible SSA 
countries with an annual GNP per capita of under US$1,500 to use third-country fabric inputs until 30 
September 2004. 
89. In October 2003, 38 countries were AGOA benefi ciaries.  After a country is designated as a 
beneficiary for AGOA, however, it must meet additiona l criteria to be designated as eligible for the 
                                                      
74 The Special Access Program is described in OTEXA online information.  Available at:  http://otexa. 
ita.doc.gov/ita370pf.stm. 
75 The text of the TDA, as amended, is available online at:  http://www.ustr.gov. 
76 See Trade and Development Act of 2000, Sec. 104:  Eligibility requirements, available online at:  
http://www.agoa.gov/agoa_legislation/agoa_legislation.html. WT/TPR/S/126 Trade Policy Review 
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T&C benefits.  These criteria incl ude the adoption of an effective visa system;  the implementation of 
domestic laws and enforcement procedures to preven t unlawful transshipment,  and to prevent the use 
of counterfeit documents and enactme nt or promulgation of legislation to permit the U.S. Bureau of 
Customs and Border Protection to investigate th oroughly allegations of transshipments through a 
country.  To date, 19 of the 48 sub-Saharan countri es had met the eligibility requirements, and thus 
actually receive T&C benefits under the AGOA:  Botswana, Came roon, Cape Verde, Ethiopia, 
Ghana, Kenya, Lesotho, Madaga scar, Malawi, Mauritius, Mozambiq ue, Namibia, Rwanda, Senegal, 
South Africa, Swaziland, Tanzania, Uganda, and Zambia. 
90. The Trade Act of 2002 amended the AGOA by doubling the cap to 7% of total U.S. imports 
by 2008.  The Act also allowed Botswana and Namibia to use third-country fabrics until September 2004, under the special provision for less er developed countries.  In addition, Botswana, 
Ghana, Kenya, Lesotho, Malawi, Namibia, Swaziland, and Zambia have been granted duty and quota-
free treatment for handmade, hand-loomed or folklo re articles.  Also, the Act extends preferential 
treatment to clothing made in beneficiary countries from components knit-to-shape in the 
United States, and to sweaters made of merino wool of 21.5 microns or finer.  Clothing imports from 
AGOA beneficiaries have increased sizeably over 2000-02 following the implementation of AGOA, increasing their share of U.S. clothing imports from 0.9% to 1.4% (Table IV.7). 
91. The CBTPA, as enacted by the TDA 2000, provides enhanced trade preferences to the 
beneficiary countries of the Caribbean Basin Initiativ e (CBI).  In particular , duty-free and quota-free 
treatment is provided for certain clothing items made  in the Caribbean Basin region from U.S. fabrics 
formed from U.S. yarns, as well as for certain knitted clothes made from fabrics formed in the 
Caribbean Basin region, provided that 100% U.S. yarns are used in forming the fabric.  This "regional 
fabric" benefit for knit apparel is subject to an overal l yearly limit, with a separate limit provided for 
T-shirts.
77  Duty-free and quota-free treatment is also  available for clothing made from yarns and 
fabrics that cannot be supplied by the U.S. indust ry in commercial quantities in a timely manner, and 
for designated hand-loomed, handmade, or folklore ar ticles.  Table IV.7 shows trends in imports of 
T&C under the CBTPA.  The CBTPA is authorized until the earlier of September 2008 or the date on 
which a free-trade agreement enters into force between the United States and a CBTPA beneficiary 
country. 
92. The TA 2002 extended preferential  treatment for the CBTPA to components knit-to-shape in 
the United States and to clothing made from both  knit and woven components.  It established the 
requirement that all dyeing, printing, and finishi ng of U.S.-formed knit and woven fabrics from which 
articles are assembled is done in the United States;  and increased the annual cap for those articles 
made from regional yarns and fabrics.  A total of  24 Caribbean countries were eligible for CBTPA 
benefits as at October 2003.78 
93. The ATPDEA extends duty- and quota-free market access for certain clothing articles 
assembled in an eligible country from U.S.-forme d fabrics or fabric components or knit-to-shape 
components from U.S. or regional yarns.  All dyei ng, printing, and finishing of U.S. formed knit and 
woven fabrics must be done in the United States.  Preferential treatment is also extended to certain 
clothing articles of Andean chief value llama, alpaca, or vicuna fabrics;  of yarns or fabrics that cannot 
be supplied by the U.S. in commercial quantities in a timely manner;  certain clothing articles 
                                                      
77 Eligibility criteria for the continuation of benefits are detailed in USTR online information.  
Available at:  http://www.ustr.gov /regions/whemisphere/camerica/factsheet.html. 
78 Antigua and Barbuda, Aruba, the Bahamas, Barbados, Belize, British Virgin Islands, Costa Rica, 
Dominica, Dominican Republic, El Sa lvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, 
Montserrat, Netherlands Antilles, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the 
Grenadines, and Trinidad and Tobago. United States WT/TPR/S/126 
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classified under subheading HS 6212.10;  and for designated hand-loomed, hand-made, or folklore 
articles.  Preferential treatment is  also provided for clothing made in an eligible country with regional 
fabric made from U.S. or regional yarns, subject to an annual cap ranging from 2% to 5% of annual 
U.S. clothing imports until 2006.  The ATPDEA authorized preferential treatment for qualifying products through December 31, 2006.  As of October 2003, Bolivia, Colombia, Ecuador, and Peru were eligible for this programme. 
Other preferences 94. Preferences apply to imports of qualifying T& C products under the Unite d States FTAs with 
Israel and Jordan (Table III.2).  Since March 1998, the United States has also granted duty-free treatment to T&C made in the West Bank and the Gaza Strip, and qualifying industrial zones in 
Jordan (see Chapter III(iii)). 
(d) Disputes 
95. During the period under review, three disputes  involving U.S. measures were active in the 
T&C area. In April 2000, Pakistan requested the es tablishment of a panel to examine a transitional 
safeguard applied by the United States under the ATC on combed cotton yarn from Pakistan.  The 
panel recommended that  the United States bring the measure at issue into conformity with its 
obligations under the ATC, preferably by prompt removal of the import restriction.
79  Following an 
appeal by the United States, the Appell ate Body confirmed the panel's findings.80  The United States 
removed the restraint in November 2001. 
96. In October 2002, the Dispute Settlement Body established a panel, at the request of India, 
regarding the rules of origin and apparel products  as set out in Section 334 of the Uruguay Round 
Agreements Act.81  The panel found in favour of the United States.82 
97. The third dispute concerned the level of restraints  established for the year 2001 for China;  the 
Textile Monitoring Body (TMB) considered that the United States had followed a methodology for 
the implementation of the growth-on-growth provis ions of the ATC that was not in line with the 
TMB's conclusions regarding the minimum requirements th at had to be met.  As a result, in July 2002 
the TMB invited the United States to implement the necessary adjustments to the methodology 
applied.  In response, the United States stated, inter alia , that its methodology was in line with its 
obligations as provided for in the Working Party report on the Accession of China to the WTO.83 
(4) MARITIME TRANSPORT  
(a) Main features 
98. Foreign-flag participation in U.S. water-borne trade has been increasing in volume terms 
since 1991, reaching 53.9% of the total in 2001, up from 45.1% (Table IV.9).  This includes domestic 
water-borne transport, reserved for U.S. flag vessels.   Considering only foreign water-borne traffic, in 
volume terms the share of trade transported in fore ign vessels increases to 97.6% in 2001, up from 
95.9% in 1991.  Receipts of intern ational water-borne trade grew at an annual average rate of around 
                                                      
79 WTO document WT/DS/192/R, 31 May 2001. 
80 WTO document WT/DS192/AB/R, 8 October 2001. 
81 WTO document WT/DS243/6, 10 October 2002. 
82 WTO document WT/DS243/R, 20 June 2003. 
83 See WTO document G/TMB/R/90, 20 September 2002, paragraph 33;  G/TMB/R/95, 
27 February 2003, paragraph 10;  and G/TMB/R/98, 22 May 2003, paragraph 27. WT/TPR/S/126 Trade Policy Review 
Page 126 
 
 
4.2% during the 1990s.  Operating revenues of international trade were US$19.7 billion in 1999, the 
last year for which date are available, comp ared with US$6.9 billion for domestic trade.84  Partly 
reflecting the high participation of foreign vessel s in U.S. international maritime transport, the 
United States traditionally records a trade deficits in  freight and port services;  this deficit reached 
US$10.2 billion in 2002.85 
Table IV.9 
Water transport main indicators, 1990-02 
Financial indicators 1990a 1996 1998 1999 2000 2001b 2002 
Operating revenues (US$ million)        
  Domestic freight 7,940 7,283 6,824 6,795 .. .. .. 
  International freight 12,181 17,281 15,679 17,699 .. .. .. 
  Passenger, total 1,391 1,843 2,029 2,088 .. .. .. 
     Domestic passenger, intercity 100 140 146 152 .. .. .. 
     International passenger 1,291 1,703 1,883 1,936 .. .. .. 
Inventory        
Number of domestic inland vessel operators 565 554 .. .. .. .. .. 
Number of employees in water 
transportation 176,600 174,100 181,300 185,500 193,900 .. .. 
Number of vessels        
  Total non-self-propelled 31,017 32,811 33,509 33,387 33,152 33,042 34,409 
  Total self-propelled 8,236 8,293 8,523 8,379 8,202 8,546 8,812 
U.S. merchant marine ships (over 1,000 
gross tons)        
  Total U. S. flag 636 495 470 463 454 443 423 
  Privately owned 408 302 281 277 270 260 240 
  Government owned  228 193 189 186 184 183 183 
U.S. waterborne commerce (million tonnes)  
  Total U.S. foreign oceanborne commerce  846.0 988.1 1,088.9 1,110.6 1,123.0 1,120.5 ..
     Total U.S.-flag tons 34.3 27.6 27.9 34.5 29.3 25.6 ..
     Total foreign – flag  811.7 960.5 1,061.0 1,076.1 1,093.7 1,094.9 1,137.2
     Total liner  104.3 124.7 120.4 142.7 148.7 149.4 161.7
         of which U.S.-flag tons 17.5 11.0 12.8 12.6 12.5 10.6 ..
     Total non-liner  385.4 389.8 404.9 377.8 374.4 341.3 373.5
        of which U.S.-flag tons 7.9 6.4 7.1 8.7 7.1 7.3 ..
     Total tanker 356.3 473.6 563.6 590.1 599.9 629.7 602.0
        of which U.S.-flag tons 8.9 10.2 8.0 13.2 9.7 7.7 ..
Total U.S. foreign waterborne  866.3 1,019.8 1,127.9 1,148.2 1,157.8 1,164.4 1,137.2
  Foreign flag % of waterborne commerce 95.9 97.1 97.2 96.8 97.4 97.6 ..
  U.S.-flag tons % of waterborne commerce 4.1 2.9 2.8 3.2 2.6 2.4 ..
Total U.S. domestic waterborne c 978.4 998.9 992.7 963.5 966.3 945.6 ..
Total U.S. waterborne commerce  1,844.7 2,018.7 2,120.6 2,111.7 2,124.1 2,110.0 ..
  Foreign flag % of waterborne commerce 45.1 49.0 51.7 52.7 53.1 53.9 ..
  U.S.-flag % of waterborne commerce  54.9 51.0 48.3 47.3 46.9 46.1 ..
.. Not available. 
a Figures for U.S. waterborne trade are for 1991. 
b Figures for Inventory are for July 2002. 
c 100 per cent U.S.-Flag. 
Source:  U.S. Maritime Administration, Waterborne U.S. Army Corps of Engin eers:  Domestic Waterborne Databank;  and 
 Department of Transportation, Bureau of Transportation Statistics, National Transportation Statistics 2002 . 
 
                                                      
84 Bureau of Transporta tion Statistics (2003). 
85 Exports totalled US$28.4 billion, while imports were US$38.6 billion.  Passenger fares are excluded 
(they are accounted for as travel).  Information available online at:  http://www.bea.doc.gov/bea/international/ 
bp_ web/simple.cfm?anon=240&table_id=3&area_id=3. United States WT/TPR/S/126 
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99. The value of water-borne imported cargo reached US$538.4 billion in 2002, while exports 
using the same means of transportation totalled US$189 .9 billion.  International water-borne trade into 
and out of the United States has been increased modes tly in the past few years:  in volume terms, it 
grew by 1.1% annually over the 1998-01 period, but decreased by 2.3% between 2001 and 2002, 
totalling 1,137.2 million tonnes. 
100. Domestic water-borne cargo (on routes cove red by the Jones Act) totalled 945.6 million 
tonnes in 2001, or 44.8% of the U.S. cargo carri ed by water transport, down from 53% a decade 
earlier.86  As of 1 January 2003, 135 privately-owned self-propelled merchant vessels of 1,000 gross 
tonnes or more, with a tonnage of 4.4 million gross tons, were employed in domestic (cabotage) U.S. 
trade. 
101. The U.S.-flag fleet, at 13.7 million deadweight tons (dwt) and with 423 vessels, was the 
twelfth largest merchant marine feet in the world as  at 1 January 2003.  On an ownership basis, the 
U.S. fleet is the fourth largest in the world:  U.S. companies own 890 vessels (at 40.2 million dwt).87  
As noted above, the vast majority of international ca rgo is carried in foreign-flag vessels:  only 2.4% 
of this cargo was carried under the U.S. flag in 2001. 
102. The Maritime Administration of the Departme nt of Transportation (MARAD) promotes the 
development and maintenance of the U.S. merchant marine.  MARAD's goals focus on assuring an 
intermodal sealift capacity to support vital national  security interests;  enhancing the competitiveness 
of the U.S. shipyard industry; improving intermodal  transportation systems performance by applying 
advanced technology and innovation;  and increasing the U.S. maritime industry's participation in foreign trade, and cargo and passenger movement in domestic trade.
88  The Federal Maritime 
Commission (FMC), an independent regulatory ag ency, regulates ocean-borne transport, including 
actions to correct or counterbalance unfair or discriminatory foreign practices that adversely affect 
U.S. shipping or U.S. carriers in international commerce.  The FMC's mandate also includes oversight 
of collective activities of shipping lines, which ar e exempt from U.S. antitrust laws (see below).89 
103. The United States did not table an offer in the WTO Negotiations on Maritime Transport 
Services, suspended in June 1996.  It has not tabl ed an offer with respect to maritime transport 
services in its initial offer on servic es in the Doha Development Agenda.90 
(b) Domestic water-borne trade 
104. Domestic water-borne trade is subject to national treatment limitations under Section 27 of 
the Merchant Marine Act of 1920, commonly referred to as the Jones Act.  This Act reserves cargo 
service between two points in the United States (including its territories and possessions), either 
directly or via a foreign port, for ships that are regi stered and built (or repaired) in the United States 
and owned by a U.S. corporation, and on which 75% of the employees  are U.S. citizens.  The Jones 
Act does not prevent foreign compan ies from establishing shipping comp anies in the United States as 
long as they meet the requirements with respect to U.S. employees.  In general, the same requirements apply to the domestic passenger service under the Passenger Services Act of 1886. 
105. The application of the Jones Act is subject to certain exemptions.  Water-borne freight 
shipments between the U.S. Virgin Islands and other U.S. ports may be carried by foreign-flag 
                                                     
 
86 Information available online at:  www.marad.dot.gov/MARAD_statistics. 
87 Information available at:  www.marad.dot.gov/MARAD_statistics. 
88 MARAD online information.  Available at:  http://www.marad.dot.gov. 
89 FMC online information.  Ava ilable at:  http://www.fmc.gov. 
90 WTO document, TN/S/O/USA, 9 April 2003. WT/TPR/S/126 Trade Policy Review 
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vessels, and trade with Guam and other U.S. Pacifi c territories may be carried by foreign-built U.S.-
flag ships that meet the ownership and crewing requirements.  In addition, there are some exceptions 
to the application of the Passenger Services Act of 1886.  Public Law 87-77 (46 U.S.C. App. 289b) 
authorizes the transportation of passengers and merchandise in Canadian vessels between ports in Alaska and the United States, and Public Law 98-563 (46 U.S.C. App. 289c) permits the transportation of passengers between Puerto Rico and other United States ports by foreign-flag 
carriers. 
106. Under certain circumstances, waivers to the Jones Act or the Passenger Services Act may be 
granted to foreign and U.S. vessels not protected by the Act.  Public Law 105-383, Title V (as 
amended) authorizes the Secretary of Transportati on to waive the U.S.-built requirements for foreign 
built or rebuilt small passenger vessel s authorized to carry no more th an 12 passengers in a specified 
area.  The granting of the waiver is conditional on the determination by the Secretary that employment 
of the vessel in the coastwise trad e will not adversely affect U.S. vesse l builders or the coastwise trade 
business of any person who employs vessels built in the United States.
91 
107. The Maritime Policy Improvement Act of 2002 (S ection 213 of Title II of the Maritime 
Transportation Security Act of 2002, Public Law No. 107-295) allows some specified foreign-flag 
vessels to engage in U.S. coastwise trade to transport platform jackets from ports in the Gulf of 
Mexico to sites on the Outer Con tinental Shelf for completion of sp ecific offshore projects, except 
when a U.S-flag vessel is available to perform the task.  Section 214 of the Act extends a Jones Act 
waiver for delayed vessel delivery under certain co nditions.  This new provision allows the granting 
of a waiver for self-propelled tank vessels no t built in the United States provided the person 
requesting the waiver is a party to a binding legal contract, executed within 24 months after the date 
of enactment of the Act, with a United States shipyard for the construction in the United States of a 
self-propelled tank vessel.  The ve ssel benefiting from the waiver must be U.S.-owned.  The waiver 
may not be granted to more than three self-propelled tank vessels. 
(c) International water-borne trade 
108. The U.S. international maritime transport mark et is generally open to foreign competition.  
The goal of the Shipping Act of 1984, as amended by the Ocean Shipping Reform Act of 1998 
(OSRA) is to enhance competition in  the international shipping sector by allowing shipping lines to 
enter into individual long-term service contracts wi th importers and exporters, without carrier groups 
being able to restrict this function (see below). 
109. The Maritime Security Program (MSP), intr oduced in 1996 to replace the operating-
differential subsidy (ODS), supports  the U.S.-flag merchant marine by providing a fixed payment to 
U.S.-flag vessel operators.  The ten-year MSP provides funding for 47 vessels to ensure that a certain 
number of militarily useful vessels from the comme rcial fleet are available to meet the nation's 
sealift requirements in time of war or national emergencies.  Funding of up to US$100 million is 
authorized through 2005, but must be determined ev ery year.  In FY 2002, an allocation of US$99 
million was made to MARAD for the MSP;  outlay s in 2001 were some US$98.4 million.  The MSP 
has been encouraging the re-flagging of new vessels to U.S. registry. 
110. The Voluntary Intermodal Sealift Agreement (VIS A) programme, introduced in January 1997 
and sponsored by MARAD, provides the Department of Defense (DOD) with assured access to 
commercial intermodal capacity during time of war or national emergency.  The VISA has three 
activation stages, but they have never been activated.  As of 30 September 2002, there were 52 
                                                      
91 MARAD online information.  Available at: http://www.marad.dot.gov/programs/small vessel/small_ 
vessel_waivers.html. United States WT/TPR/S/126 
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participants in the VISA.  VISA enrolment may be us ed as a condition for receiving priority for award 
of DOD peacetime ocean freight contracts.92 
111. Title I of the Maritime Transportation Secu rity Act of 2002, Public Law No. 107-295, 
introduced, among other things, the requirement for advance electronic transmission of passenger and 
crew manifests from commercial vessels arriving in the United States from a foreign port.  The Act also introduced the requirement that all commerci al vessels entering the territorial sea of the 
United States provide specified information, in cluding name, route, and a description of any 
hazardous conditions or cargo as a condition of entr y.  The Act also amended the Tariff Act of 1930 
to require the advance electronic transmissi on of cargo information (Chapter III(2)(i)). 
112. A number of cargo preferences are in place, for national security reasons, and to guarantee the 
financial viability of companies operating U.S.-flag vessels.  Cargo preferen ces result either from the 
Federal Government's involvement or indirectly be cause of the financial sponsorship of a federal 
programme or guarantee provided by the Federal Government. 
113. The Cargo Preference Act of 1904 requires all items procured for or owned by U.S. military 
departments and defence agencies to be carried exclusively on U.S.-flag vessels.  The Cargo Preference Act of 1954 (P.L. 83-664), as amended, requires that at least 50% of the gross tonnage of 
all government-generated cargo be transported on privately owned, U.S.-flag commercial vessels to 
the extent such vessels are available at fair and r easonable rates.  U nder the Act of 1954, ships built or 
rebuilt abroad must be registered under the U.S. flag for three years to be elig ible to carry preference 
cargoes covered by the Act.  This eligibility require ment does not apply to U.S.-flag vessels carrying 
cargoes under the 1904 Act or Public Resolution 17 (see below).  In 1985, the Merchant Marine Act 
of 1936 was amended to increase from 50% to 75 % the percentage of shipments of agricultural 
cargoes under certain foreign assi stance programmes of the Department of Agriculture and the 
Agency for International Development to be carrie d on U.S.-flag vessels. 
114. During 2002, the 1904 Act generated 4.24 million measurement tons or 90% of the military 
contract cargoes for U.S.-flag vessels.
93  The 1954 Act placed 680,374 metric tons or 88% of the 
government-impelled cargo on U.S.-flag vessels.  Th e agricultural movements generated 4.48 million 
metric tons or 74% for U.S.-flag vessels.  International cargo covered by the cargo preference system 
is a small share of total U.S. international cargo  movements, accounting for less than 1%, on a 
tonnage basis, but representing about a third of all international cargoes carried by U.S.-flag vessels. 
115. Public Resolution No. 17 of 1934 (73rd Congress, 48 Stat. 500, 46 App. U.S.C. §1241) 
provides that where a Government agency makes export loans or credit guarantees, the exported products must be carried exclusively in U.S. vessel s.  The Resolution is applicable to credits of the 
Export-Import Bank (Ex-Im Bank) or other government  instruments.  General waivers are granted for 
partial use of national-flag vessels of recipien t countries under Ex-Im Bank or other government-
financed exports.  These waivers may be granted even  if U.S.-flag vessels are available, but the ocean 
carriage of the recipient country may not exceed 50% of the total movement under the credit.  They 
are specific to a particular credit and subject to reciprocal treatment for U.S.-flag vessels on the part of the recipient country.  Individual cargo prefer ence waivers may also be granted by MARAD under 
other circumstances.  Applications for statutory (non-availability) waivers may be made when U.S. 
vessels are not available within a reasonable time or  at reasonable rates.  During calendar year 2002 
PR-17 generated 35,615 metric tons of which 91% was carried on U.S.-flag vessels. 
                                                     
 
92 Maritime Administration Office of Statistical and Economic Analysis. 
93 A measurement ton corresponds to 40 cubic feet. WT/TPR/S/126 Trade Policy Review 
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116. The Alaska Power Administration Sale Act of 1995  requires that Alaska crude oil exports be 
carried in U.S.-flag vessels.  The last Alaskan crude oil was exported in April 2000.  Since that time 
all Alaskan crude oil production has moved to the U.S. West Coast market for refining and domestic 
consumption. 
(d) Port services 
117. The United States has 361 public ports, which handle most U.S. overseas trade.  The top 50 
ports in the United States account for about 90% of all the cargo tonnage;  the 25 top container ports 
account for 98% of all container shipments.  Cruise ships embark from at least 16 ports.  The 
authorities have noted that all U.S. port services are available on a non-discriminatory basis. The United States does not grant preferential treatment to any countries with respect to the use of port and 
harbour facilities;  however, vessels of from Ca mbodia, Cuba, Iran, Iraq, Libya, North Korea, and 
Syria are prohibited from entering U.S. ports on national security grounds. 
118. The United States maintains an MFN exempti on covering restrictions on performance of 
longshore work when making U.S. port calls by crews of foreign vessels owned and flagged in 
countries that similarly restrict U.S. crews on U.S.-flag vessels from longshore work.
94  The 
Immigration and Nationality Act of 1952, as amended, prohibits non-U.S.-national crewmembers 
from performing longshore work in the United Stat es.  The Act provides a reciprocity exception for 
longshore work by the crews of vessels both registered in and owned by nationals of countries that 
allow the crews of U.S. vessels to perform longshore work. 
119. The Trade Act of 2002 introduced, for national security reasons, new documentation 
requirements for all water-borne cargo to be exported that is moved by a vessel carrier from a port in the United States.  The documentation must be submitted by the shipper to the vessel carrier or its 
agent no later than 24 hours prior to departure of the vessel.  The Act forbids any marine terminal 
operator to load any cargo unless instructed by the vessel carrier that such cargo has been properly 
documented.  Cargo that is not properly documente d and has remained in the marine terminal for 
more than 48 hours after being delivered to the marine  terminal operator is subject to search, seizure, 
and forfeiture.  In February 2003, the U.S. Customs and Border Protection started implementing the 
Advance Manifest Regulation, or "24-hour  reporting rule" (Cha pter III(2)(i)). 
(e) Competition policy considerations 
120. Both U.S. and foreign operators of liner shipping  services benef it from exemptions to antitrust 
law, including the Sherman and Clayton Acts;  these exemptions do not apply to carriers that 
generally do not have fixed-schedul es.  Under the Shipping Act of 1984, liner operators can enter into 
agreements immune from antitrust prosecution to fix pr ices, discuss pricing policies, or share assets or 
cooperate on operational matters.  These agreements must be filed with the FMC, which is responsible 
for reviewing them, to avoid anti-competitive beha viour, and maintaining a system containing the 
service contracts between ocean co mmon carriers and shippers.  Th e FMC also has responsibility for 
reviewing operational and pricing agreements am ong ocean common carriers and marine terminal 
operators, ensuring that common carriers' rates and charges are accessible to the shipping public 
electronically, and regulating rates of go vernment-owned or -controlled carriers. 
121. Under the Ocean Shipping Reform Act of 1998 (OSRA), which introduced some competition-
enhancing amendments to the 1984 Shipping Act promoting the use of service contracts with 
importers and exporters, the FMC retains the power to  review the rates of foreign-government-owned 
carriers to ensure that they are not below a "just and reasonable" level. 
                                                     
 
94 WTO document S/C/W/71, 24 November 1998. United States WT/TPR/S/126 
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122. Under the Foreign Shipping Practices Act of  1988 (FSPA), the FMC may investigate and 
address conditions adversely affecting U.S. carriers in foreign trade, when such conditions do not 
exist for foreign carriers in the United States.  Th e FMC is authorized to meet or adjust conditions 
unfavourable to shipping in the U. S. foreign trade that result from fore ign laws, rules or regulations or 
the competitive methods or practices of foreign shippi ng owners or operators, under Section 19 of the 
Merchant Marine Act of 1920.  A Task Force on Re strictive Foreign Practices was created in 2000 for 
ongoing review and analysis by FMC officials.  The FMC is statutorily authorized to take 
countervailing action to address such practices.  In FY 2002, the FMC monitored potentially 
unfavourable or discriminatory shipping practices by a number of foreign governments, including 
China and Japan, but no FSPA or Section 19 action was taken.95 
123. During FY 2002, the FMC investigated and prosecuted malpractices including market-
distorting activities (e.g. secret rebates, misdes cription of commodities, unlawful use of service 
contracts).  Most of these malpractice investiga tions resulted in compromise settlements of civil 
penalties, which amounted to some US$2.5 million in FY 2002.  The FMC applies an Alternative 
Dispute Resolution programme, which became effective in August 2001, and provides for a variety of dispute resolution means.  Under this programme, pa rties are encouraged to resolve disputes through 
conciliation, arbitration, or other similar means. 
124. Under the Port Security Grants Program, U.S.  ports may benefit from grants from the 
Transportation Security Administra tion (TSA) for security assessme nts and strategies for mitigating 
vulnerabilities and for enhancing car go and passenger security and acce ss control.  The Port Security 
Grant Program funds security planning and projects to improve dockside and perimeter security.  In 
2003, TSA grants were awarded to 199 state and local governments, and private companies for 
US$170 million.  In addition, the Department  of Homeland Security (DHS) also provided 
US$75 million in port security for specific projects from the FY 2003 supplemental budget.  The DHS 
also announced US$58 million in funding for Oper ation Safe Commerce, a pilot programme in 
coordination with the Department of Transportation that brings together private business, ports, local, state, and federal representatives to analyse current security procedures for cargo entering the country.  In 2002, US$92 million were awarded in the first round of Port Security grants.
96 
(f) Shipbuilding and ship repairs 
125. The Jones Act provides that U.S. shipbuilders be the sole suppliers of ships on domestic 
routes;  in this respect, under paragraph 3(a) of  the GATT 1994, the United States was granted an 
exemption from GATT rules for measures prohibi ting the use, sale, or lease of foreign-built or 
foreign-reconstructed vessels in commercial appli cations between points in national waters or the 
waters of an exclusive economic zone. 
126. MARAD provides financial assistance to U.S. and foreign shipowners and U.S. shipyards 
through the Federal Ship Financing Program (Title  XI).  This programme consists of federal 
government guarantees of private-sector financing or  refinancing obligations for the construction or 
reconstruction of both U.S.-flag and foreign-owned ve ssels in U.S. shipyards.  The guarantees are up 
to 87.5%, for up to 25 years depending on the type of project.  In FY 2002, new applications from 
eight companies and shipyards for projects costin g a total of US$278.4 million were approved, 
representing US$225.4 million in guarantees.  In FY 2001, 12 applications were approved for projects 
costing a total of US$871.1 million with guarantees of US$729.6 million. 
                                                      
95 Federal Maritime Commission (2003). 
96 Transport and Security Administration online info rmation.  Available at:  http://www.tsa.gov/public/ 
display?theme=40&content=85. WT/TPR/S/126 Trade Policy Review 
Page 132 
 
 
127. Under the Capital Construction Fund (CCF) and Construction Reserve Fund (CRF), U.S. 
citizens owning or leasing vessels may obtain tax benefits to construct qualified vessels.  The CCF 
provides tax-deferral benefits to vessel operators in U.S.-foreign commerce, Great Lakes, non-
contiguous domestic trade, and U.S.  fisheries.  CCF vessels must be built in the United States and 
documented under the laws of the United States.  Th e purpose of the CCF programme is to make up 
for the competitive disadvantage operators of U.S.-flag vessels face in the construction and 
replacement of their vessels relative to foreign-flag operators whose vessels are registered in countries 
that do not tax shipping income.97  The CRF is a financial assistance  scheme that provides tax deferral 
benefits to U.S.-flag operato rs;  eligible parties can defer gains attributable to the sale or loss of a 
vessel, provided the proceeds are used to expand or modernize the U.S. merchant fleet. 
128. The criteria for the determination of shipyard  capability were established by the joint 
MARAD/Navy Shipyard Mobilization Base Analysis (SYMBA) in 1982.  Based upon the SYMBA, 
there are currently 93 shipyards and ship-repair fac ilities capable of constructing or repairing vessels 
400 feet in length or greater in the United States.  These 93 shipyards employed approximately 74,200 
persons of which 44,700 were production employees.  There are many other shipyards in the United 
States that have other capabilities, employing an additional 22,000 production and other workers.  
There are no restrictions on foreign investment  in U.S. shipyards or ship-repair facilities. 
129. U.S.-flag vessels repaired abroad face a 50% ad valorem  duty when re-entering the 
United States, based on the cost of equipment an d non-emergency repairs obtained in foreign 
countries.  U.S.-owned foreign-flag vessels are not subject to the duty, and under the NAFTA and the 
Chile and Singapore agreements, this duty was terminated.  The OECD Shipbuilding Agreement, 
signed but not ratified by the United States, would el iminate this duty for countries signatory to the 
Agreement. 
(5) AIR TRANSPORT SERVICES  
(i) Introduction 
130. U.S. airlines have been considerably affected  by the fall in consumer demand that followed 
the 11 September 2001 attacks in the United States. Between August 2002 and mid-2003, two of the 
main U.S. airlines (US Airways and UAL Corpora tion, United Airlines' parent) filed a petition for 
reorganization under Chapter 11 of the U.S. Bankruptcy Code, although US Airways subsequently 
emerged from bankruptcy.  American Airlines repor ted a net loss of US$3.5 billion after special items 
for 2002, up from US$1.8 billion in 2001. 
131. Reflecting in part the weakness of the U.S. ec onomy in 2001, and the intense competition in 
this market, several U.S. airlines were already posting losses before the 11 September attacks.98  
According to a study by the International Civil Av iation Organisation (ICAO), passenger revenues of 
airlines on international routes in North America (C anada, Mexico, United States) were not covering 
costs in 1999:  the revenue to cost ratio was 0.80, compared with a world average of 0.96, and 1.05 in Europe, mainly because of intense competition driving down fares.
99 
132. U.S. domestic air transport operations in 2002 represented a market of approximately 
US$79 billion in revenues (including passenger and cargo traffic, both scheduled and non-scheduled), 
while revenues of U.S. carriers from international services are in the order of US$27 billion.  Traffic 
                                                      
97 MARAD online information.  Available at:  http://www.marad.dot.gov/TitleXI/crf.html. 
98 Bureau of Transportation Statistics Financial data on U.S. airlines is available online at:  
http://www.bts.gov/oai/indicators/airtraffic/special/sept_financials.pdf. 
99 ICAO (2002). United States WT/TPR/S/126 
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within the United States (passenge r, mail, and cargo) accounts fo r about one third of the world 
aviation market;  according to the authorities, this  share has been on a declining trend, reflecting 
growth in other regions of the world.  About 28% of U.S. trade value moves via air cargo.100 
133. Seventeen of the world's 30 largest airports are located in the United States.  U.S. airports 
recorded considerable falls in traffic over 2001 and 2002, with declines reaching 10% in New York 
and nearly 16% in San Francisco.  Virtually all U.S. airports with commercial services are owned by 
state or local governments.  About four airports with significant commercial services (the largest 
being Indianapolis International Airport) are opera ted through outsourcing and management contracts;  
such arrangements are common in the provision of  more limited scope airport services such as 
terminal and parking area operations, ground transp ort, building maintenance, advertising, baggage 
handling, and construction and engineering.  Th e United States has numerous airport services 
providers exporting their management skills and a numb er of U.S. airports have engaged foreign firms 
for these services. In particular,  the U.S. ground-h andling market is the largest in the world, and is 
open and competitive.  The market has fostered the development of independent (non-airline) ground 
handling corporations and liberal access to self-handling by airport users. 
(ii) Regulatory framework 
134. Air transport policy is the responsibility of th e Office of the Secretary of Transport (OST) at 
the Department of Transportation (DOT).  The Federal Aviation Administration (FAA) at the DOT 
oversees certified air carriers, and monitors fo reign air carriers operating in U.S. territory.101  All 
code-sharing and other alliances amon g air carriers operating in the Un ited States, including U.S. or 
foreign carriers, require approval from the DOT.102  The OST reviews applications for code-sharing 
on economic and policy grounds, to determine if the a pproval will be in the public interest.  The FAA 
reviews the safety aspects of the proposed a lliance, and then advises OST of its position.103 
135. By statute, U.S. airlines must be substan tially owned and effectiv ely controlled by U.S. 
citizens.104  Any foreign ownership in a U.S. carrier is limited to a maximum of less than 25% of 
voting shares.  In addition, the president and at least two thirds of the board of directors and other managing officers must be U.S. citizens.  Howeve r, the DOT has, on a case-by-case basis, allowed 
foreign citizens to own up to 49% of an airline’s stock by using non-voting shares above 25%, 
provided that actual control remains in the hands of  U.S. citizens and an ope n-skies agreement exists 
between the United States and the homeland of th e foreign investor (e.g. KLM's investment in 
Northwest in the early 1990s). 
136. The provision of domestic air services is permitted only to U.S. carriers.  Thus foreign airlines 
are prevented from performing cabotage, i.e. competing with U.S. airlines serving domestic routes.  
Crews engaged in domestic air passenger and freight service must be U.S. nationals or resident aliens;  
air carriers engaged in international services may use foreign nationals in their flight crews. The "wet" 
leasing of aircraft (with crew and, typically, main tenance, and insurance) to  U.S. carriers remains 
restricted to U.S. companies and U.S. citizens.
105 
                                                      
100 U.S. Department  of Transportation (2003). 
101 Federal Aviation Administration online information.  Available at: http://www.faa.gov. 
102 Under code-sharing arrangements, companies place their code on the other airline's flights, thus 
adding routing options and new destinations for customers without increasing capacity. 
103 For code-sharing, see online information.  Available at:  http://www.intl.faa.gov/restrictions/ 
codapp.htm. 
104 49 USC40102 (a)(15). 
105 Federal Aviation Administration (2003). WT/TPR/S/126 Trade Policy Review 
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137. The Fly America Act generally requires U.S.  government-financed transportation of 
passengers and cargo to be on U.S.-flag air carriers.106  A U.S. carrier code-share on a foreign airline 
is considered as a U.S. carrier service for this pu rpose.  However, the law grants authority for the 
United States to enter into bilatera l or multilateral agreements to allo w the provision of such services 
by foreign air carriers, if such agreement is co nsistent with U.S. inte rnational aviation policy 
objectives and provides for the exchange of rights or benefits of similar magnitude. 
138. In a recent policy shift, the DOT proposed ch anges to the U.S. Congress in early 2003 that 
would allow foreign investors to hold up to 49% of the voting equity in a U.S. carrier.107  T h e  
authorities indicated that the proposed change is in tended to create greater access for U.S. carriers to 
global capital markets.  The change would not affect any requirements to ensure that United States airlines are controlled by U.S. citizens.  Under curre nt rules, if a carrier is found to be owned by non-
citizens, the DOT would normally require the divestitu re of sufficient voting stock to bring the carrier 
back into compliance with the statute, and coul d revoke the licence if it failed to do so. 
139. In order to assist the U.S. aviation industry af ter the 11 September attacks, the U.S. President 
signed into law, on 22 September 2001 the Air Transportation Safety and System Stabilization Act (ATSSSA), which made available funds to compensate U.S. air carriers' losses suffered as a result of 
the attacks.
108  Under the Act, up to US$5 billion in co mpensation was authorized for direct losses 
incurred by air carriers as a result of any federa l ground stop order issued by the Secretary of 
Transportation (or its continuation);  and for the in cremental losses by air carriers incurred beginning 
11 September 2001 and ending 31 December 2001, as a direct result of the attacks. At the close of the 
programme on 31 December 2002, the DOT had transferred a total of just over US$4.6 billion to 426 U.S. air carriers. 
140. In addition to the federal grants, the Act made available to airlines up to US$10 billion in 
federal loan guarantees.
109  The guarantees were to be allocated to airlines on a discretionary basis by 
the Air Transportation Stabilization Bo ard, established for that purpose.110  Borrowers had to submit 
their applications no later than June 2002.  Approxi mately US$1.6 billion in loan guarantees has been 
committed;  the only application pending as at October 2003, was that of United Airlines. 
141. Two distinct programmes were established under the ATSSSA to help airlines meet increased 
insurance costs after September 2001.  The two pr ogrammes require two separate transactions and 
may be in effect for different periods of time.  Under the first FAA Aviatio n Insurance Program, the 
FAA provides, inter alia , indemnity for third-party aviation war-risk liability beyond US$50 million 
per occurrence, following the cancellation of this coverage by commercial insurance underwriters.111  
There is no aggregate limit to the overall disbur sements, but the maximum per occurrence limit is 
twice the limit the carrier had in  its war risk liability policy prior to 11 September 2001.  Since 
November 2002, domestic airlines may, in addition  to extended third party war risk coverage, obtain 
expanded coverage for war risk hull and passenger, crew, and property liability. 
142. The second programme, also run by the FAA, consists, inter alia , of reimbursements to U.S. 
air carriers for the increase in the cost of insu rance premiums, relative to the premium that was in 
                                                      
106 The Act refers to Section 40118 of Title 49 of the U.S. Code (49 USC 40118). 
107 See for example Airline Business , July 2003;  and The Financial Times , 27 May 2003.  
108 The Act is available online at:  http://www.treas.gov/offices/domestic-finance/atsb/hr2926.pdf. 
109 See for example U.S. Genera l Accounting Of fice GAO (2001). 
110 The Regulations for Air Carrier Guarantee Loan Program are found in the Federal Register of 
12 October 2001.  Available online at:  http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=2001_ register&docid=f:12ocr2. pdf. 
111 Information available online at:  http://insurance.faa.gov. United States WT/TPR/S/126 
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effect at the beginning of September 2001.  Paym ents for this support were to be made from a 
revolving fund established for this purpose.112  Approximately US$60 million was disbursed for 
30 days of additional war risk premium expense immediately after 11 September 2001.  According to 
the authorities, no further payments were being made or contemplated. 
143. Prior to September 2001, support to the U.S. ai r transport industry had been confined largely 
to the provision of federal subsidies for servic e to remote areas. The main programmes were the 
DOT's Essential Air Service (EAS) Subsidy Programme (under which approximately US$100 million 
were spent in 2002) and the grants provided to small communities under the Small Community Air 
Service Development Pilot Program (approximat ely US$20 million), under which funds were 
appropriated for the first time in FY 2002 (Octob er 2001-September 2002).  Under the EAS Program 
a community is eligible for subsidies if it is more  than 70 miles away from the nearest medium or 
large hub airport, and if the service costs less than US$200 per passenger. 
144. To cut costs after 11 September 2001, major air lines have retreated from airports in small and 
midsize cities.  According to a recent GAO Study, new financial incentives granted by local 
governments since September 2001 have been the most effective instrument to attract airline services back to small communities.
113  These have consisted mostly of subsidies, revenue guarantees, and 
reduced airport fees. 
145. With respect to airport services, the FAA has slot  regulations in place at three U.S. airports:  
New York’s Kennedy and La Guardi a airports and Washington’s Reag an National Airport. The FAA 
slot limits at Chicago O’Hare International Airport were eliminated in 2002.  The remaining airports 
with scheduled service (some 400) do not have regulatory slot limits for domestic or international flights.  Any short-term imbalance between demand and capacity is handled though the use of traffic 
management initiatives by air traffic control.  The sl ot regulations at Kennedy and La Guardia airports 
are set to expire on 1 January 2007.  The authorities have indicated that U.S. slot-allocation 
regulations for international flights follow many of the International Air Transport Association 
(IATA) World-wide Scheduling Guidelines. 
146. The DOT considers air traffic control services to be an "inherently governmental function". 
However, although air navigation services are su pplied mainly by the FAA, the FAA has been 
contracting with private companies to staff air tr affic control towers at small airports.  This 
programme involves 206 contract towers handling approximately 23% of flights.
114  I n  
December 2000, the U.S. President signed an order authorizing the establishment of the Air Traffic Organization (ATO), a performance- based organization within the FAA designed to oversee the U.S. 
aviation system.
115  The ATO would be responsible for the provision of day-to-day operational air 
traffic services.  The establishment of the ATO is still under review. 
147. As noted in the Secretariat Report for the previous Review of the United States, different 
administrative arrangements exist for re-certificatio n of repair stations in the United States and 
abroad.  For example, certification by the FAA of repair stations located w ithin the United States, 
whether operated by U.S. companies or by fore ign companies exercising mode 3 rights, have 
indefinite validity.  The authorities have explained that this is because they are under continual 
surveillance by local FAA inspectors.  Certificates  for stations located outside the United States, 
regardless of the companies' nationality, must be renewed every one or two years, following 
                                                      
112 The legislation is available online at:  http://apo.faa.gov/Insurance/49USC443.pdf. 
113 See General Accounting Office (2003a). 
114 DOT online information.  available at:  http://www.dot.gov/affairs/dot05602.htm. 
115 The Order is available online at:  http://www1.faa.gov/ats/ars/portfoliomanagement/Downloads/ 
whitehouse.pdf. WT/TPR/S/126 Trade Policy Review 
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inspection by visiting FAA inspectors.  U.S. certif ication of Canadian sta tions is not necessary 
because, since the 1950s, the United States has accept ed work on U.S. products by Canadian-certified 
repair stations;  in turn, Canada has accepted wo rk on Canadian products by U.S.-certified repair 
stations. 
(iii) International agreements 
148. Traffic rights, together with services directly related to the exercise of traffic rights, are 
outside the scope of the GATS, which covers comput er reservation system (CRS) services, the selling 
and marketing of air transport services, and aircraft  repair and maintenance services undertaken while 
an aircraft is withdrawn from service (see also below), specifically excluding line maintenance.  U.S. GATS commitments are limited to aircraft repairs and maintenance.  In addition, the United States has 
scheduled MFN exemptions with regard to the sale and marketing of air transport services and the 
operation and regulation of CRS services. 
149. For the purpose of the WTO GATS negotiations , as well as its bila teral negotiations and 
regulatory scheme, the United States considers "wet " leasing to be a part of traffic rights, and 
therefore excluded from GATS disciplines.  In contrast, "dry" leasing of aircraft (leasing without crew) is deemed by the United States to be a busine ss service, along with other leases of industrial 
equipment without operators.  U.S. companies participate in this market  both as lessors and as lessees.  
In the view of the U.S. authorities, "dry" leasing is not excluded from the GATS because it is not 
covered by the exclusions contained in the Air Transport Annex. 
150. The United States, like many WTO Members, has not scheduled any GATS obligations with 
respect to airport services or ground handling becaus e it considers these to be outside the purview of 
the GATS.
116  Clauses allowing for ground handling by U.S. carriers themselves or for U.S. carriers to 
select among competing ground-handling firms in the airports of partner countries (and reciprocally) 
have been inscribed in most b ilateral air-transport agr eements entered into by the United States. 
151. The NAFTA's provisions on air transport also "carve out" to a large extent the air transport 
sector from the free-trade and investment rules applicable to other sectors.117  However, the NAFTA  
does include specialty air services in addition to airc raft maintenance and repairs, subject to a number 
of reservations (Annex I);  specialty air services  are not included in the U.S. GATS commitments.118  
Under Annex I of the NAFTA, the U.S. took a number of "MFN" exemptions and national treatment 
reservations with respect to air transport.119  These include (1) aircraft repair, overhaul or maintenance 
activities performed in Canada;  (2) investment in  air transportation, reflecting the citizenship 
requirements that apply to the operation of domestic air service and to the operation of international scheduled and non-scheduled air service as U.S. air carriers (see below).  The United States took a 
third "MFN" exemption and national treatment reserva tion with regard to cross-border provision and 
investment in specialty air services:  the provision of certain air specialty services is dependent on a 
                                                     
 
116 The U.S. position on airport services is contained in WTO document S/C/W/198, 3 October 2001, 
para. 36.  The list of Members with WTO obligations on airport services in these areas can be found in WTO document S/C/W/59, 5 November 1998. 
117 NAFTA regulations on air transport are contained in Chapter 12, notably Articles 1201 and 1213. 
"MFN" in the NAFTA context means that benefits extended to one party must be extended to the other. 
118 Specialty air services means:  aerial mapping, aerial surveying, aerial photography, forest fire 
management, fire fighting, aerial advertising, glider towing, parachute jumping, aerial construction, heli-
logging, aerial sightseeing, flight training, aerial inspection and surveillance, and aerial spraying services. 
119 NAFTA, Annex I, available online at: http://www.nafta-sec-alena.org/DefaultSite/legal/index_ 
e.aspx?articleid=252#air. United States WT/TPR/S/126 
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reciprocity test, while "foreign civil aircraft" require  prior authority to conduct specialty air services in 
the U.S. territory. 
152. Open-skies agreements (OSAs) have remained the cornerstone of the DOT's international air 
transport strategy, and the United States is party to almost 60 such agreements.120  An OSA permits 
each country's airlines to fly between any city in th eir home country and any city in the participating 
countries.  A commercially important aspect of OSAs  is that they allow unrestricted "fifth freedom" 
rights, whereas traditional bilateral air service agreements often contai ned restrictions, for example on 
pricing or capacity.121  OSAs are viewed by the DOT as a necessary (although not the only) 
prerequisite for antitrust immunity to be granted to alliances with foreign airlines.  Due to the 
importance of the U.S. market for these foreign alli ance partners, this link appears to have been a 
factor in some of the OSAs signed since 1992. 
153. The DOT considers that OSAs maximize poten tial competition and fac ilitating new services 
through cooperative arrangements among the particip ating countries' airlines.  However, like other 
bilateral air-service agreements, OSAs generally reserve traffic rights to airlines from the two parties 
in the agreement, and do not grant seventh freedom rights.122  The authorities have noted, however, 
that certain OSAs grant carriers of both parties se venth freedom rights for cargo operations, as does 
the Multilateral Agreement on the Liberaliz ation of Air Transportation (see below). 
154. OSAs also contain ownership and control rest rictions, whereby airline designations are 
approved by the other party provided the substantial ownership and effective control provisions are 
respected.  Although in case of mergers or take-o vers, foreign airlines risk no longer meeting the 
ownership requirements for access to the U.S. market  under an OSA, the authorities have noted that 
the United States is not obliged to revoke such rights;  and that ownership and control clauses have 
been waived in several instances in the inte rest of competitiveness and ensuring the fuller 
participation of certain trading partners in the aviation market (e.g. SAS, Air Afrique, BMI). 
155. The United States has OSAs with each EU Member country except Greece, Ireland, Spain, 
and the United Kingdom.  A late-2002 decision by  the European Court of Justice (ECJ) found that 
eight Member States’ bilateral ai r-transport agreements with the United States infr inged the EU’s 
governing treaty in several respects.  In June 2003, EU Member States adopted a mandate for the 
European Commission to negotiate a comprehensive civil aviation agreement with the United States 
that would replace the existing bilateral agreements. 
156. In December 2001, Peru joined the Multila teral Agreement on the Liberalization of 
International Air Transportation (MALIAT), concluded in 2000 among the United States, Chile, New Zealand, Singapore, and Brunei.
123  Samoa  followed suit in July 2002.  As described in the 
Secretariat Report for the previous Review of the United States, signatory countries may retain their 
own citizenship or ownership requirements, and eff ective control must remain in the home country.  
                                                      
120 The list of open-skies agreements entered into by the United States is available online at:  
http://ostpxweb.dot.gov/aviation/intav/avtnintl.htm. 
121 The "fifth freedom" is defined by ICAO as "the  right or privilege, in respect of scheduled 
international air services, granted by one State to another State to put down and take on, in the territory of the 
first State, traffic coming from or destined to a third State". 
122 The seventh freedom is defined as "the right or privilege, in respect of scheduled international air 
services, of transporting traffic between the territory of the granting State and any third State with no 
requirements to include on such operation any point in the territory of the recipient State i.e. the services need 
not connect to or be an extension of any service to/from the home State of the carrier". 
123 Department of Transport online information.  Available at:  http://www.dot.gov/affairs/2000/ 
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In addition, the agreement creates a multilateral process for dealing with issues like accession, 
amendments to the agreement, and dispute resolu tion.  The agreement provides for seventh freedom 
rights for all cargo operations, as well as an optional protocol that allows willing partners to exchange 
seventh freedom passenger and cabotage rights.124  Brunei, New Zealand, a nd Singapore have already 
signed this protocol. 
(6) TELECOMMUNICATION SERVICES  
(i) Market structure and developments 
157. Turnover in the U.S. telecommunications se rvices market reached US$345 billion in 2001, 
making it the largest market in the world.125  Hundreds of carriers with foreign interests operate in the 
United States.  Annual growth of turnover in U. S. telecommunications accelerated between 1991-96 
and 1996-01 (from 7.6% on average to 9.2%).  Ac cording to the OECD, three factors explained this 
acceleration:  the liberalization of the wireless market  after 1995, the advent of a commercial Internet, 
and the opening of local access markets to competition following the passage of the 
Telecommunications Act of 1996.126 
158. Available information suggests that the U.S. market  of international services providers is also 
highly competitive:  in 2001, 52 facilities-based an d facilities-resale carriers reported that they 
provided international telephone service, as well as private-line services and other miscellaneous 
services.  A number of these carriers are foreig n-owned: in 2002-03, 29 foreign-owned companies 
filed international circuit status reports.  All th ose companies are facilities-based carriers (either own 
or leased facilities).  In addition, 625 carriers pr ovided international message telephone service on a 
pure resale basis, reselling the services of und erlying U.S. facilities-base d and facilities-resale 
carriers. 
159. During 2000-01 the industry was confronted with excess capacity resulting from the over-
investment of the late 1990s, just as the slowing economy reduced the demand for telecommunication 
services.  As a result, several firm's revenues could not keep up with costs and a number of large-scale 
bankruptcies occurred.  Though these were not dire ctly related to telecomm unications services, the 
situation was compounded by some large cases of  accounting fraud, whereby certain large U.S. 
corporations, including in the telecommunication sectors, masked core fundamental problems and 
artificially inflated revenue growth.127  Despite these problems, the United States continued to 
maintain an open and competitive market in telecommunications. 
(ii) Regulation 
160. The Federal Communications Commission (FCC)  regulates the entry and operations of 
telecommunications carriers, dome stic and foreign, on the basis of the Communications Act of 1934, 
                                                      
124 The eighth freedom or "consecutive cabotage" is defined as "the right or privilege, in respect of 
scheduled international air services, of transporting cabotage traffic between two points in the territory of the granting State on a service which originates and terminates in the home territory of the foreign carrier or (in 
connection with the so-called Seventh Freedom) outside the territory of the granting state". 
125 OECD (2003b), Table 3.1.  See also the U.S. Federal Communications Commission online 
information.  Available at:  http://www.fcc.gov. 
126 OECD (2001) see also OECD online information.  Available at: http://www.oecd.org/pdf/ 
M00039000/M00039268.pdf. 
127 See the statement by the chairman of the U.S. Federal Communications Commission (FCC) 
available online at:  http://ftp.fcc.gov/Speeches/Powell/2003/spmkp301.txt. United States WT/TPR/S/126 
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as amended by the Telecommunications Act of 1996.128  The FCC rules and regulations are codified 
in Title 47 of the Code of Federal Regulations.129  Pursuant to the Communications Act, the FCC has 
broad authority to regulate in the public interest.  Accordingly, th e FCC has authority to adopt rules 
and regulations, to adjudicate disputes, to grant and revoke licenses, and to impose penalties and fines for violations of law. 
161. The universal service provisions in the Communications Act of 1934 require common 
carriers, as defined under the Act, to provide access to telecommunications services at reasonable and 
affordable rates throughout the country, including rural, insular, and high costs areas, and to public 
institutions.
130  To finance this universal service, telecommunications companies must pay a 
percentage of their interstate end-user revenues to  the Universal Service Fund.  The contribution is 
revised quarterly depending on the needs of the universal service programmes.  In the fourth quarter 
of 2003, this contribution factor was 9.2%.  In  2002, universal service support needs totaled 
US$5.9 billion. 
162. FCC authority with respect to in ternational services is contained in the Foreign Participation 
Order of 1997.  This replaced the effective compe titive opportunities (ECO) test with an open-entry 
standard for applicants from WTO Members who apply for licences for services covered by the WTO Agreement on Basic Telecommunications Services.
131  These applicants are not required to 
demonstrate that their markets offer effective competitive opportunities in order to:  (1) obtain Section 
214 authority to provide international services;  (2) receive authorization to exceed the 25% indirect 
foreign-ownership benchmark in Section 310(b)(4) of the Communications Act for common carrier 
wireless licences;  or (3) receive submarine cable landing licences.  In lieu of the ECO test, the Foreign Participation Order presumes that entry is pro-competitive and therefore adopts streamlined 
procedures for granting most applications.
132  The authorities noted that since 1999 the FCC has 
granted more than 500 applications of companies ha ving 10% or greater foreign ownership to provide 
either international facilitie s-based or resale services in the United States. 
163. The FCC also revised the compe titive safeguards that apply to the provision of international 
telecommunications services in the U.S. market .  The Commission narrowed the existing "no special 
concessions" rule so that it only prohibits U.S. carri ers from entering into exclusive arrangements with 
those foreign carriers that have sufficient market power to affect competition  adversely in the U.S. 
market.  The Foreign Participation Order adopted a re buttable presumption that carriers with less than 
50% market share in the foreign market lack such market power.  In add ition, the FCC revised the 
competitive safeguards that apply to U.S. carriers classified as domin ant due to an affiliation with a 
foreign carrier that has market power on the foreign end of an international route.  The Foreign 
Participation Order relies in large part on reporting requirements to prevent affiliated carriers from 
causing harm to competition and consumers in the U.S. market.133 
164. The FCC also considers other  factors when considering a licence application from a foreign 
operator.  In particular, the Commission defers to  the "Executive Branch" on national security, law 
                                                      
128 FCC online information.  The Act is  available at:  http://www.fcc.gov. 
129 See FCC online information.  Available at: http://wireless.fcc.gov/rules.html. 
130 An explanation of the U.S. universal service regime is available online at:  
http://www.fcc.gov/wcb/universal_service/welcome.html. 
131 The ECO test allowed foreign applicants to enter the U.S. market if their home markets offered 
effective competitive opportunities for U.S. companies. 
132 The full text of the Foreign Participation Order go to Commission Rulemakings is available online 
at:  http://www.fcc.gov/ib/pd/pf/wto.html. 
133 The dominant carrier classifications are set out in 47 CFR 63.10. WT/TPR/S/126 Trade Policy Review 
Page 140 
 
 
enforcement, foreign policy, or trade policy concerns the Executive Branch may raise134;  according to 
the authorities, no licence has been denied on such grounds. 
165. Under Section 1377 of the Omnibus Trade and Competitiveness Act of 1988, the 
United States annually reviews trading partne rs' compliance with their obligations under 
telecommunications agreements ente red into with the United States.  The 2003 report listed a number 
of country-specific complaints.135  Any dispute regarding practices by WTO Members must be 
resolved in accordance with WTO provisions.  For example, the issues at stake in the dispute 
regarding Mexico's commitments under the GATS w ith respect to telecomm unications were initially 
the subject of Section 1377 reviews.136 
166. Individual state commissions have the authority to  regulate the rates, terms, and conditions of 
intra-state, non-radio-based basic telecommunications services.  At the previous U.S. Trade Policy 
Review, Japan expressed concern that each stat e not only has different application forms and 
procedures, but also has different terms and conditions for certification, and different contents and 
forms for licences' reports;  such differences have , according to Japan, caused serious burdens upon its 
operators.137  The authorities emphasized that the sa me requirements apply to all providers 
irrespective of nationality. 
(iii) Market access 
167. U.S. commitments on basic telecommunications a ttached to the Fourth Protocol of the GATS 
cover virtually all services, using an y kind of transmission technology.138  In practice, foreign firms 
may supply local, long-distance, and international telecommunications services, using any means of technology, on either a facilitie s-based or resale basis. 
168. Under Section 310 of the Communications Act 1934, direct ownership of a common carrier 
radio licence may not be granted to or held by the fo llowing agents or their representatives:  foreign 
governments, non-U.S. citizens, corporations not or ganized under the laws of the United States, or 
U.S. corporation of which more than 20% of the capital stock is owned or voted by any of the three 
agents mentioned.  The restrictions on direct in vestment are statutory requirements that the FCC 
cannot waive. 
169. As for indirect investment, the Commission implements the requirements of the Act through 
petitions filed by foreign applicants.  Specifically , Section 310(b)(4) require s the FCC to find that 
disapproval of indirect ownership greater than 25%  in broadcast and common carrier radio licences 
would not serve the public interest .  An indirect investment involves the setting up of a U.S. company 
under U.S. law by another U.S. company that is foreign-owned and also set up under U.S. law.  In 
reviewing proposed foreign investment pursuant to Section 310, the Commission relies on principles 
set forth in the 1997 Foreign Partic ipation Order, including a presump tion that foreign investment in 
the U.S. market by entities from WTO member countrie s is consistent with the public interest.  Three 
                                                     
 
134 See Foreign Participation Order, para. 59. 
135 See USTR online information.  Available at:   http://www.ustr.gov/sectors/industry/Telecom1377/ 
index.htm. 
136 See WTO/DS204 series. 
137 WTO document WT/TPR/M/88/Add.1, 8 January 2002. 
138 These commitments are contained in WTO document GATS/SC/90/Suppl.2, 11 April 1997. United States WT/TPR/S/126 
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WTO Members have called for this indirect investment principle to be cast in new legislation, thus 
providing the full security of law to foreign firms of WTO Member countries.139 
170. The United States implemented its WTO comm itments for satellite services through the 
DISCO-II Order adopted in Novemb er 1997.  These commitments allowed foreign satellite operators 
to provide satellite servi ces to the U.S. market.  Foreign owne rship of earth stations is permitted 
within the Section 310 framework described above, when such earth stations provide service on a 
common carrier basis;  foreign ownership of ea rth stations providing services on a non-common 
carrier basis is not limited. 
171. In a 1999 Order, the FCC streamlined the process by which non-U.S. satellites may obtain 
authority to serve the U.S. market.140  According to the authorities, under the streamlined procedures 
approved foreign space-station operators can market services to earth-station customers in the 
United States in the same way as U.S. satellite pr oviders.  Upon the space-station operator's request, 
its foreign satellite will be considered for inclusio n on the Permitted Space Station list, which enables 
virtually all licensed earth stations to access certa in non-U.S. satellites without further regulatory 
approval.141  The authorities noted that more than a do zen foreign satellites have been added to the 
Permitted Space Station List since mid-2000, allowi ng virtually all licensed U.S. earth-stations to 
access any of these satellites immediately to provide certain services in the United States. 
172. The 1997 WTO commitments in telecommuni cations by the United States specifically 
exclude one-way satellite transmissions of direct to home (DTH) and direct broadcast satellite (DBS) 
television services and of digital audio services.142  Moreover, attached Article (II) MFN exemptions 
contain a provision for differential treatment of co untries due to application of reciprocity measures, 
or through international agreements guaranteeing market access, or national treatment for one-way 
satellite transmission of DTH and DBS television  services and of digital audio services.143  According 
to the authorities, the FCC has authorized the use of certain satellites license d by Mexico, and Canada 
for the distribution of broadcast programming directly to consumers. 
173. In August 1999, the FCC had authorized direct access to the International 
Telecommunications Satellite Orga nisation (INTELSAT) satellite system.  Since then, over 80 
companies have reportedly applied for this direct access.144  During 2000, the FCC also took steps to 
facilitate the privatization of INTELSAT, consiste nt with the Open-Market Reorganization for the 
Betterment of International Telecommunications Ac t (the ORBIT Act).  The FCC granted New Skies 
                                                      
139 Written questions by Canada, the EU and Japan, WTO document WT/TPR/M/88/Add.1, 
8 January 2002. 
140 The title of the Order is:  Amendment of the Commission’s Regulatory Policies to Allow Non-U.S.-
Licensed Space Stations to Provide Domestic and International Satellite Service in the United States, First Order 
on Reconsideration, 1999 (DISCO II First Reconsideration Order).   Available online at:  http://www.fcc.gov/ 
Bureaus/International/Orders/1999/fcc99325.txt. 
141 Exceptions are direct broadcast satellite, direct to home and digital audio radio service. 
142 WTO document GATS/EL/90/Supp.2, 11 April 1997.  A direct broadcast satellite is a high-powered 
satellite that transmits or retransmits signals intended for direct reception by the public.  The signal is 
transmitted to a small earth station or dish mounted on homes or other buildings. 
143 WTO document GATS/EL/90/Supp.2, 11 April 1997. 
144 FCC online information.  Available at:  http://www.fcc.gov/Daily_Releases/Daily_Business/ 2000/ 
db0525/fc00186c.txt. WT/TPR/S/126 Trade Policy Review 
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(an  INTELSAT spinoff) access to the U.S. market in 1999, subject to certain requirements in the 
ORBIT Act, and determined in 2001 that New Skies had fulfilled those requirements.145 
174. It was noted in the Secretariat Report for the previous U.S. Review that the Communications 
Satellite Corporation (Comsat) wo uld continue serving as the U. S. signatory to INTELSAT until 
INTELSAT's privatization, at which point it would be come a shareholder.  Subsequent to Comsat’s 
purchase by Lockheed Martin, Lockheed Martin be came the U.S. signatory up until privatization in 
2001, at which point, it became a shareholder in INTELSAT.  Lockheed Martin thereafter sold most 
of the former Comsat to different companies but retained its shareholding in the privatized 
INTELSAT.  In 2003, Lockheed Martin sold the unit of Comsat that provided INTELSAT services in 
the U.S. to privatized INTELSAT. 
175. In October 2001, the authorities granted Inmarsat access to the U.S. market for mobile 
satellite services.  Inmarsat, privatized in 1999, con tinues to provide service in the U.S. market for 
maritime, aeronautical, and international mobile satellite services.146 
(iv) Pricing issues 
176. According to OECD data, the U.S. market pr ices are below the OECD averages for most 
telecommunications services, particularly when comparisons are made using purchasing power parity.  
This applies to fixed and wireless  telephone charges, and also to internet access charges and to 
charges for leased lines.147  The high level of competition is probably an important factor in the 
relatively low level of prices in the U.S. market.  With respect to international services, an additional 
factor has been the benchm ark settlement rate policy. 
177. The FCC's Benchmark Order of August 1997, re quires U.S. carriers to negotiate  the 
international settlement rates paid to foreign carrie rs for terminating calls at a level commensurate 
with the specific rates tied to the economic de velopment of the countr y where calls terminate.148  A 
benchmark rate change was established from US$0.15 per minute for upper-income countries to 
US$0.23 per minute for lower-income  countries, to be implemented over a five-year transition period 
starting January 1998, and was to be fully implemented by January 2003. 
178. The FCC's International Settlements Policy (ISP) Reform Order of 1999 reformed the policy 
that had generally applied to a rrangements between U.S. and foreign telecommunication carriers for 
the exchange of public switched tr affic (e.g. the accounting rate sy stem) and expanded the possibility 
of commercial arrangements between carriers.149  In the past, the FCC required that all U.S. carriers’ 
dealings with foreign carriers be made public, and pr ecluded any U.S. carrier from entering into an 
arrangement with a foreign carrier that was preferential to a particular U.S. carrier.  The ISP Reform 
Order abolished these requirements as they apply to  arrangements with fore ign carriers that lack 
market power, as well as with dominant foreign carri ers that have settlement rates at least 25% below 
                                                      
145 See Memorandum Opinion and Order, FCC 01-107, paras. 34-40 (rel. March 29, 2001) (New Skies 
Order), the Matter of New Skies Satellites, N.V. Request for Unconditional Authority to Access the U.S. 
Market. 
146 The Inmarsat Order is FCC 01-272, released on 9 October, 2001. 
147 OECD (2003b) Chapter VI. 
148 Under the accounting rate system, the originating carrier bills the customer for international calls 
and compensates the carrier in the called country for terminating calls, based on the (fixed) settlement rate, 
which is one half of the accounting rate.  As competition has increased, commercial negotiations between 
carriers are progressively supplanting these regulations. 
149 The full text of this Order is available online at:  http://www.fcc.gov/Bureaus/International/ 
Orders/1999/fcc99073.pdf. United States WT/TPR/S/126 
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the applicable benchmark settlement rate.  The Comm ission is considering further reform of its ISP 
policy. 
(v) Standards 
179. The FCC endeavours to follow technology-neutral  policies, allowing licensees to choose the 
equipment best suited to their needs.  In the area of mobile telephony systems, the FCC has 
maintained such a policy, allowing licensees to choose their own signal transmission standard.  
Several standards are used;  the authorities indicated  that interconnection is generally worked out 
between the respective services providers.  There tends to be a lower average mobile phone 
penetration in the United States than in comparable countries that have adopted a single standard for signal transmission.  According to the authorities, re asons for the lower U.S. pe netration rate could be 
related to the historically higher wireline penetratio n in the U.S. compared with other industrialized 
countries, as well as the U.S. policy requiring  the receiving party to pa y for mobile phone calls. 
180. The United States and its trading partners have, for a number of years, debated the appropriate 
implementation of third-generation (3G) mobile wi reless telecommunications systems.  Discussions 
have been taking place both bilaterally and in the International Telecommunication Union (ITU).  
According to the FCC, U.S. mobile carriers have the flexibility to deploy technologies, including 3G, 
that will allow them to offer high-speed mobile data  services using their existing spectrum, but efforts 
to allocate and license addition al spectrum suitable for offering advanced wireless services had 
continued.
150  The authorities explained in the context of this Review that the 120 MHz frequency had 
been allocated for advanced wireless systems that may include 3G;  that some of this additional 
spectrum has been licensed;  and that plans for auctioning the rest were being considered as of October 2003. 
(7) A
UDIOVISUAL SERVICES  
181. Audiovisual services consist of the production and distribution of entertainment, including 
films, home video entertainment, and television pr ogrammes.  The transmission of this entertainment 
can be carried out through different transmission mechanisms, including through terrestrial, over-the-
air broadcasting or by cable or satellite.  With  technological progress, the mechanisms used to 
transmit audiovisual content and telecommuni cation services have become increasingly 
indistinguishable.151 
182. The U.S. audiovisual sector produces feature films as well as television series for broadcast, 
cable, and DBS distribution.  After theatrical releas e, feature films are frequently distributed via pay 
television distribution platforms, such as cable and DTH satellite TV, and then via broadcast TV.  The 
audiovisual sector includes severa l large broadcast networks, which provide programming to many of 
the over 1,700 local television stations.152  They compete with non-broadcast distribution networks, 
which include approximately 230 national cable pr ogramming networks and more than 50 "premium 
networks".  In the United States, 44% of audiovi sual revenues are derive d from the home video 
entertainment market, 40% from TV markets, and 18% from theatrical entertainment.  In 2003, over 85% of households received thei r video programming via satellite or cable. During the 2001-02 TV 
                                                     
 
150 For information regarding  mobile competition in the United States, see 8th CMRS Competition 
Report, FCC 03-150 [online].  Available at:  http://wireless.fcc.gov/archive.html. 
151 For example, the authorities have noted that in the classification used for GATS services, cable and 
satellite services are not included in the audiovisual subcategory;  however, these constitute a support that is 
widely used to transmit entertainment services. 
152 Local TV stations distribute network programming and other programming from local, regional or 
national sources. WT/TPR/S/126 Trade Policy Review 
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season, broadcast stations had a 47% share compared  with the non-broadcast networks’ 53% share of 
viewing. 
183. As noted above, in the case of telecommunications services, under Section 310 of the 
Communications Act, radio and television broadc ast licences may not be owned by a foreign 
corporation or a company of which more than 20% of the capital stock is owned or voted by non-U.S. citizens;  by a corporation chartere d under the laws of the United States  that is directly or indirectly 
controlled by a corporation more than 25% of whos e capital stock is owned by non-U.S. citizens;  or 
by a foreign government or a corporation of which an y officer or more than 25% of the directors are 
non-U.S. citizens. 
184. With the exception of regulations prohibiti ng obscenity, the Federal Government does not 
regulate the production, distribution or import of films.  Nor does the Government restrict or limit 
television programming, or home video entertainment that is produced or distributed by foreign 
entities.  The FCC regulates video content only to a very limited degree:  broadcast media are subject 
to statutory political advertising requirements;  commercial television stations must provide minimum 
quantities of children's programming, and so-calle d indecent programming on broadcast media is 
relegated to the 10:00 p.m. to 6:00 a.m time period. 
185. Six ownership restrictions are cu rrently in place, with the objective of promoting competition, 
diversity, and localism in media production.  The Dual Network Rule permits an entity to own a 
maximum of two broadcast networks as long as one of the networks is not ABC, CBS, NBC or Fox.  
The National Television Ownership Rule limits the viewing audience that one entity can control to 
35%.  The Broadcast-Newspaper Cross-Ownership Ru le bans a company from owning a newspaper 
and broadcast stations in the same local area.  The Local Television Multiple Ownership Rule permits 
ownership of two TV stations in a market, with  some limited restrictions.  The Local Radio 
Ownership Rule limits the number of radio statio ns a company may own depending on market size.  
The Television-Radio Cross-Ownership Rule limits  the number of television and radio stations an 
entity may commonly own in a local market. 
186. In 2001, the FCC began a Media Ownership Policy Re-examination of these rules, in the 
context of the biennial review of regulations, which is mandated under the Telecommunications Act.  
The resulting Report and Order adopted on 2 June 2003 retained the Dual Network Ownership 
Rule.
153  The Order relaxed the limits on ownership of local TV stations by a single company.  The 
FCC incrementally increased the 35 % limit contained in the National Television Ownership Rule to a 
45% limit on national ownership.  The FCC found that the limits on local radio ownership contained in the Local Radio Ownership Rule continue to be  necessary in the public interest, but changed the 
methodology for defining a radio market.  Change s were also made to both the Television-Radio 
Cross-Ownership Rule and the Broadcast-Newspa per Cross-Ownership Rule which, among other 
things, eliminated the newspaper-broadcast cros s-ownership ban and the television-radio cross-
ownership ban in markets with nine or more TV stat ions.  The new ownership rules were stayed by an 
appellate court before they could become effective.
154  The existing six ownership rules remain in 
place during judicial review of the FCC’s ownership rules adopted on 2 June 2003. 
187. In its GATS Schedule of MFN exemptions, the Un ited States also reserved the right to "allow 
the deduction for expenses of an advertisement carried by a foreign broadcast undertaking and 
directed primarily to a U.S. market only where the broadcast undertaking is located in a foreign 
                                                      
153 See FCC News Release, 2 June 2003 [online].  Available at:  http://www.fcc.gov /Daily_Releases 
/Daily_ Business/2003/db0602/DOC-235047A1.pdf. 
154 Prometheus Radio Project v. Federal Communications Commission,  No. 03-3388 (3rd Cir. Sept. 
3, 2003) ( per curiam)(order granting  motion to stay effective date of FCC’s new ownership rules). United States WT/TPR/S/126 
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country that allows a similar deduction for an  advertisement placed with a U.S. broadcast 
undertaking".  The purpose of this exemption is to "encourage the allowance of advertising expenses 
internationally".155  According to the authorities, in practic e these measures apply adversely only to 
Canada. 
(8) FINANCIAL SERVICES  
(i) Recent market developments 
188. The financial services sector, comprising bankin g, insurance, and securities, has been one of 
the fastest growing activities in the U.S. economy in  recent years:  its share of GDP increased from 
6.9% in 1995 to 9% in 2001.  Although in 2001 and 2002 the industry was affected by developments in the securities market, by a reduction in the numb er of merger and acquisitions (with the consequent 
fall in financial advisory and custody fees), and by the 11 September terror ist attacks, it recovered 
somewhat in the first half of 2003. 
189. The financial sector in the United States is estimated to have employed some 6.1 million 
people in late 2001, making it the third largest se rvice employer, after hea lth and business services.
156  
Exports of financial services expanded rapidly between 1998 and 2002 (Table IV.10).  Affiliate 
transactions are significantly larger than cross-border transactions. 
190. There were 3,672 banks in the United States  at 31 December 2002, each with assets of 
US$100 million or more.  Total U.S. assets of th ese banks were US$5.94 trillion, representing almost 
57% of GDP.157  Also at the end of 2002, foreign banks from 62 countries operated in the 
United States.  Foreign bank operations included 246 branches of foreign banks, 54 agencies, 78 U.S. commercial banks majority-owned by foreign banks, four Edge Act corporations owned at least 25% 
by foreign banks, and 165 representative offices.
158  The U.S. offices of foreign banks controlled 
US$1.34 trillion in U.S. assets, accounting for appr oximately 18.3% of the total assets of the U.S. 
commercial banking system, 11.4% of the loans, and 14.8% of the deposits.  Branches and agencies 
account for some three quarters of the assets of the banking offices operated by foreign banks.  
Foreign branches and agencies are involved primarily in wholesale ra ther than retail banking.  Foreign 
bank branches and agencies account for over one fifth of all loans to U.S. businesses. 
191. The United States has the largest securities markets in the world.  The market value of equity 
and options sales on U.S. exchanges in 2001 wa s US$13.1 trillion (over 12 0% of GDP), of which 
US$12.7 trillion were in stocks.  Some 84.2% of th e value traded (US$11.2 trillion in 2001) was on 
the New York Stock Exchange (NYSE), with the American Stock Exchange (AMEX) coming second with 6.3% of the value traded.
159  The overall stock market capita lization almost doubled between 
1997 and 2001, before experiencing a sharp correcti on in 2002 and rebounding some in 2003.  As at 
May 2003, there were 2,743 listed companies in the NYSE, of which 470 were foreign.  In 2002 and 
the first five months of 2003, 40 new fo reign companies were listed in the NYSE. 
                                                      
155 WTO document GATS/EL/90, 15 April 1994. 
156 Securities Industry  Association (2002). 
157 See online information.  Available at:  http://www.federalreserve.gov/releases/lbr/current/lrg_ 
bnk_lst.pdf. 
158 Edge Act corporations are separate subsidiaries limited to international banking activities specified 
in the Edge Act.  Domestic activities permitted include receipt of deposits from foreign governments, financing 
of contracts, projects performed abroad, financing imports and exports. 
159 The total market value of shares traded on the NYSE was US$9.9 trillion on 30 April 2003.  See 
online information.  Available at:  http://www.nyse.com/marketinfo/p1020656068262.html?displayPage=%2 
Fmarketinfo%2Fmarketinfor.html. WT/TPR/S/126 Trade Policy Review 
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Table IV.10 
Trade in financial services, 1998-02 
(US$ million and per cent)  
 1998 1999 2000 2001 2002  Average growth 
rate (%), 1998-02 
Cross-border transactions       
Exports       
Financial services 13,551 15,493 18,008 17,627 18,698 8.3 
Banking and securities 11,327 13,410 15,522 15,228 15,859  8.7 
Insurance, net 2,224 2,083 2,486 2,399 2, 839  6.3 
Premiums received 7,278 6,760 8,455 8,531 11,937  13.1 
Losses paid 5,054 5,750 6,405 8,594 8,619  14.3 
Imports       
Financial services 12,830 9,784 12,162 15,662 19,013 10.3 
Banking and services 3,590 3,418 4,564 4,049 3,665  0.1 
Insurance, net 9,240 6,366 7,598 11,613 15,348 13.5 
Premiums paid 20,398 20,857 26,888 40,382 47,156 23.3 
Losses recovered 11,158 18,172 18,764 35,965 30,914 29.0 
Affiliate transactions       
Sales to U.S. persons by foreign affiliates .. 93,797 108,495 112,307 ..  
  Finance, except depository institutions .. 15,318 31,104 27,212 .. .. 
  Insurance .. 78,479 77,391 85,095 ..  
Sales to foreign persons by U.S. affiliates 78,044 84,496 100,657 102,859a ..  
  Finance, except depository institutions 14,920 31,641 38,633 37,467 a ..  
  Insurance 63,124 52,855 63,210 65,392 ..  
.. Not available. 
a Does not reflect the full total, since information has been suppressed in certain cases to avoid disclosure of data of indivi dual 
 companies. 
Source : U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business,  October 2003. 
192. Several major incidents of securities laws violations came to light during the 2001-03 period, 
and measures have been taken against a number of  financial service providers, generally for reasons 
of failure to disclose information, or fraudulent accounting or loans.  Action by the Securities and 
Exchange Commission has led to the imposition of r ecord fines, including those applied to ten large 
investment firms in April 2003 (see below). 
193. The U.S. insurance market is the world's largest, with gross insurance premiums of 
US$1 trillion in 2002, of which approximately US$458 billion in life and health insurance, and 
US$342 billion in property and casualty insurance.160  Overall premium volume grew by about 3.5% 
annually between 1992 and 2001.161  The United States is fourth in the world with respect to insurance 
density (premiums per capita), with US$3,266 per head  in 2001;  it is tenth with respect to insurance 
penetration (premiums as a percentage of GDP), with premiums for the whole insurance business 
accounting for some 9% of GDP in 2001.  Some US$47.2 billion in premiums were paid through 
cross-border trade to foreign-ba sed insurers to cover risks in the United States in 2002.  They 
consisted mostly of reinsurance.  Some US$11.9 billi on were paid to U.S.-own ed insurers established 
abroad.  In 2001, losses paid to U. S. firms recorded a steep increase in  the aftermath of 11 September, 
reaching US$36 billion, almost twice as much as the year before;  they fell some in 2002, to 
US$30.9 billion in 2002. 
                                                      
160 Information provided by the authorities, from the National Association of Insurance Commissioners. 
161 Swiss Re, Sigma , No. 6/2002 [online].  Available at:  http://www.swissre.com. United States WT/TPR/S/126 
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(ii) Legislative and regulatory framework 
(a) The Gramm-Leach-Bliley Act 
194. The passage of the Gramm-Leach-Bliley (GLB) Act (Financial Services Modernization) in 
November 1999 codified the gradual consolidation of U.S. financial regulation that had been taking 
place over the past decade.162  The GLB Act facilitates affiliati ons among banks, securities firms, 
insurance companies, and other financial institutions , and thus breaks from the segmentation imposed 
by the Glass-Steagall Act, which restricted affilia tions between banks and se curities firms, and from 
the Bank Holding Company Act of 1956, which restri cted affiliations between banks and insurance 
companies.  The Act does not alter the walls between banking and commerce. 
195. Under the GLB Act, domestic an d foreign banks may affiliate with entities that engage in 
securities trading, insurance, underwriting, and other ac tivities that are financial in nature or incidental 
to a financial activity, provided certain capital and managerial standards are met.  A U.S. bank 
wishing to affiliate with insurance or other fina ncial services companies must first set up a bank 
holding company under the Bank Holding Company Act;  foreign banks are not required to set up 
holding companies.  Qualifying bank holding companies (referred to as financial holding companies or FHCs), including foreign banks, may then control banking, securities, or insurance firms.  The 
GLB Act does not remove the restriction on banks fr om directly selling and underwriting insurance:  
bank holding companies that are FHCs may now affi liate with insurance companies, and the financial 
holding company will be the heart of the resulting financial services group (although the insurance 
affiliate remains an independ ent legal entity from the FHC). 
196. The Federal Reserve is the umbre lla regulator for financial conglo merates that include a bank.  
Securities and insurance companies can become FHCs, by acquiring a bank, provided they meet 
certain criteria.  The activities of subsidiaries of FHCs are regulated by the appropriate primary bank 
and sectoral regulators, such as the Office of the Comptroller of the Currency (OCC) in the case of 
national banks;  a state banking agency and the Federal Reserve or Federal Deposit Insurance 
Corporation (FDIC) in the case of state-chartere d banks;  the Securities and Exchange Commission 
(SEC) in the case of securities firms;  and a Stat e insurance commission in the case of insurance 
companies.  Prior to the GLB Act, financial co nglomerates without a commercial bank were not 
subject to consolidated regulatio n.  The GLB Act extended conso lidated regulation requirements to 
investment bank holding companies, which may elect to  be supervised at the group level by the SEC.  
The SEC has proposed rules to implement this section of the GLB Act. 
197. Provisions in the GLB Act concerning branches and agencies potentially affect numerous 
foreign banks as most operate in the United States  through these two modalities;  subsidiaries of 
foreign banks are generally treated as domestic banks.
163  The GLB Act provides that "well 
capitalized" and "well managed" standards comparable  to those applied to U.S. banks be applied to 
foreign banks operating a branch or agency in the Un ited States "giving due regard to the principle of 
national treatment and equalit y of competitive opportunity".164  To address concerns of foreign banks 
that the proposed capital standards went beyond the Basle requirements, the U.S. modified the capital 
standards to make the leverage  ratio an additional factor ra ther than a numerical screen.165  The ratios 
                                                      
162 The GLB Act was notified to the WTO in document S/C/N/121, 6 June 2000. 
163 Branches and agencies have comparable powers and are subject to similar supervision;  agencies, 
however, may not accept deposits from U.S. citizens or residents. 
164 Final rules implementing the financial holding provisions of the GLB Act are accessible in FRB 
online information.  Available at:  http://www.federalreserve.gov. 
165 See Federal Reserve online information.  Available at:  http://www.federalreserve.gov/boarddocs/ 
press/boardacts/2000/20001221 3/attachment.pdf. WT/TPR/S/126 Trade Policy Review 
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are applied to foreign banks that elect to be tr eated as FHCs and whose home country supervisors 
have adopted risk-based capital st andards consistent with the Basle Accord.  Other foreign banks are 
assessed individually. 
198. In May 2003, 550 banks had effectively become or were being treated as financial holding 
companies.166  These included 26 foreign banks.  The authorities indicated that most FHCs were set 
up by smaller U.S. banks seeking to e ngage in insurance brokerage activities. 
199. Government-sponsored enterprises (GSEs) are private companies established and chartered 
by the U.S. Government for public policy purposes in  the financial sector.  GSEs include:  the Federal 
National Mortgage Association (Fanny Mae);  the Federal Home Loan Mortgage Corporation 
(Freddie Mac);  the Farm Credit System (Far mer Mac);  the Federal Agricultural Mortgage 
Corporation;  the Federal Home Loan Banks;  and the Student Loan Mortgage Association (Sallie 
Mae), which is on a congressionally mandated track to  rescind its GSE charter.  While the benefits 
provided to the GSEs vary according to each GSE's charter, some common benefits include an  
exemption from state and local taxation and potentia l access to a back-up credit line with the U.S. 
Treasury.  In addition, GSE debt is eligible for use as collateral for public deposits, for unlimited investment by federally chartered ba nks and thrifts, and for purchase by the Federal Reserve in open-
market operations.  GSE securities are not guaranteed by the U.S. Government, but they are treated as 
government securities for certain purposes under U.S. securities laws.  GSE obligations are classified 
by financial markets as "agency securities" and pr iced at yield above those on U.S. Treasuries, but 
below those on AAA corporate obligations.
167  The Federal Housing Enterp rises Financial Safety and 
Soundness Act of 1992 (GSE Act, P.L. 102-550) established the current regulatory structure for Fannie Mae and Freddie Mac;  other GSEs are regulated under a different legal structure. 
(b) Banking services 
200. The Federal Reserve Board (FRB) shares re sponsibility for supervising foreign bank 
operations in the United States with the Office of the Comptroller of the Cu rrency (OCC), the Federal 
Deposit Insurance Corporation (FDIC), and state regulators. 
201. The International Banking Act of 1978 (IBA), which introduced the application of U.S. 
federal banking laws and regulations to U.S. branch es and agencies of foreign banks, is still the main 
legislation governing the operation of foreign banks  in the United States.  The IBA provides for the 
application of national treatment to foreign banks an d offers them the option of establishing federally 
licensed branches and agencies in addition to state-licensed offices.  The Riegle-Neal Interstate Banking and Branching Act (RNIBBA) of 1994 introduced the possibility of interstate branching by merger or by de novo  establishment of branches.  Although a ll states introduced legislation to give 
effect to the branching by merger provisions of the RNIBBA, inter-state branching by de novo  
establishment is permitted in only 18 States, the District of Columbia, and Puerto Rico. 
202. After the passage  of the GLB Act, the FRB ad opted a final rule to implement sections 23A 
and 23B of the Federal Reserve Ac t.  The GLB Act created a new en tity, the financial subsidiary, an 
affiliate that receives modified treatment under Se ction 23A.  In addition, the GLB Act required the 
FRB to address the application of sections 23A and 23B to derivatives and intra-day extensions to 
credit.  The FRB's Regulation W, effective 1 Apr il 2003, comprehensively implements sections 23A 
and 23B of the Federal Reserve Act.  In general,  section 23A limits a (Federal Reserve System) 
member bank's covered transactions with any sing le affiliate to no more than 10% of the bank's 
capital stock and surplus, and transactions with al l affiliates combined to no more than 20% of the 
                                                     
 
166 The list of institutions is available online at:  http://www.federalreserve. gov/generalinfo/fhc. 
167 Congressional Budget Office (1985), and (2003b). United States WT/TPR/S/126 
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bank's capital stock and surplus.168  The statute also requires all tr ansactions between a member bank 
and its affiliates to be on terms consistent with sound banking practices.  Section 23B requires that 
certain transactions between a bank and its affiliates occur on market terms.  Regulation W unifies in 
one public document the statutory restrictions with  affiliates and the FRB's interpretations of and 
exemptions from sections 23A and 23B.169 
203. The United States maintains a policy of natio nal treatment towards the U.S. branches, 
agencies, securities affiliates, and other operations of foreign banks.  Bound commitments have been 
made by the United States in market access and na tional treatment for all s ubsectors included in the 
Annex on Financial Services in the GATS, and in line with the Understanding on Commitments in 
Financial Services.170   Under current legislation, foreign banks may establish a commercial presence 
in the U.S. market either by establishing federal or  state-licensed branches, agencies, or representative 
offices, or by establishing or acquiring a national or state subsidiary bank.  U.S. residents may deposit 
funds with foreign institutions that do not mainta in a commercial presence in the United States. 
204. Foreign banks are generally subject to geographi c and other limitations in the United States 
on a national treatment basis;  where such limitations  do not conform to national treatment, they have 
been reserved as market access restrictions in the GATS.171  For example, all directors of a national 
bank must be U.S. citizens unless the bank is an a ffiliate or subsidiary of a foreign bank, in which 
case only a majority of the board need be U.S. citizen s;  approximately half of the states require also 
all or the majority of the board of directors of depos itory financial institutions to be U.S. citizens.  
Interstate expansion by a foreign bank through the establishment of branches by merger with a bank 
located outside the "home state" of a foreign bank is granted national treatment. 
205. Branches and agencies account for some three quarters of the assets of the banking offices 
operated by foreign banks.  As noted above, forei gn branches and agencies are involved primarily in 
wholesale banking and seldom in retail banking.  This is partly because a foreign bank is required to 
establish an insured banking subsidiary (except fo r foreign bank branches engaged in insured deposit-
taking activities as of 19 December 1991) in order to accept or maintain domestic retail deposits of less than US$100,000.  The authorities noted, however, that even before 1991, when they were permitted to accept retail deposits in branches, fore ign banks were primarily involved in wholesale 
banking.  The preference of foreign banks for branches may also be because, in some cases where 
states allow branches, and for federal branches, foreign branches are generally not required to commit 
organizational capital.  The treatment of capital varies by state, however. 
206. Foreign banks are required to register under the Investment Advisers Act of 1940 to engage in 
securities advisory and investment management serv ices in the United States, while domestic banks 
are exempt from registration unless they advise registered investment companies. 
                                                     
 
168 Covered transactions include purchases of assets from an affiliate, extensions of credit to an 
affiliate, investments in securities issued by an affiliate, guarantees on behalf of an affiliate, and certain other 
transactions that expose a bank to an affiliate's credit or investment risk.  Although sections 23A and 23B by 
their terms apply only to banks that are members of the Federal Reserve System, other federal laws subject insured non-member banks and savings associations to sections 23A and 23B in the same manner and to the 
same extent as member banks. 
169 12 CFR Part 223, [Regulation W; Docket No. R-1103], Transactions between Member Banks and 
their Affiliates.  The full text of the final rule is available online at:  http://www.federalreserve.gov/boarddocs/ 
press/bcreg/2002/20021127/attachment1.pdf. 
170 The United States' schedule of MFN exemptions in financial services is contained in WTO 
document GATS/EL/90/Suppl.3, 26 February 1998. 
171 WTO document TN/S/O/USA, 9 April 2003. WT/TPR/S/126 Trade Policy Review 
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207. Foreign banks without commercial presence may solicit and transact business with customers 
in the United States.  Initial entry into the United St ates through the establishment or acquisition of a 
nationally chartered bank subsidiary by a foreign pe rson is permitted in every state.  Additionally, 
there are relatively few limitations on the establishm ent of an initial federal branch or agency by a 
foreign bank.  The are commercial presence limitations, however, at the state level;  these limitations vary according to the state.  Initial entry through the establishment of state-chartered banks and state-
licensed branches and agencies is subject to limitations in certain states.  For example, no state branch 
or agency licence is available in 18 states, although,  according to the authorities, these states, for the 
most part, are of limited commercial interest to foreign banks.
172  State branch licensing is not 
available in Idaho and West Virginia, but state agency  licensing is possible;  state branch licensing is 
subject to limitations in California, Hawaii, Massachusetts, Oregon, Pennsylvania, Utah, and 
Washington.  Initial entry or expansion by a foreig n person through acquisition or establishment of a 
state-chartered commercial bank subsidiary is prohibited or limited in 28 States.173  California sets 
limits on foreign non-bank ownership of an intern ational banking corporation.  Branch licences for 
foreign banks are not available in six states, but agency licences are.174  Representative offices of 
foreign banks are not permitted in 18 states.175 
(c) Securities services 
208. The Securities Exchange Act of 1934 grants the Securities and Exchange Commission (SEC) 
regulatory authority over U.S. securities markets an d dealers.  Broker-dealer s, whether foreign or 
domestic, are generally required to register with th e SEC if they wish to solicit business with U.S. 
persons;  U.S. law exempts foreign broker-dealer s from registration requirements under certain 
circumstances.  National treatment is granted to fore ign broker-dealers regarding registration with the 
SEC.  Most states require broker-dealers to register with the state regulatory authorities. 
209. The Investment Company Act (ICA) of 1940 grants the SEC regulatory authority over 
domestic and foreign investment companies.  A foreign investment company is prohibited from 
publicly offering its shares in the United States unless the SEC issues an order, on a case-by-case 
basis, permitting the company to register under the Act, based on a finding that it is both legally and practically feasible to effectively enforce the provi sions of the Act against the company and that the 
issuance of the order is otherwise consistent with th e public interest and the protection of investors. 
210. Under the Investment Advisers Act of 1940, re gistration with the SEC is generally required 
for persons or firms, whether foreign or domestic, engaged in the business of providing advice on securities for compensation.  Both domestic and fore ign investment companies must register with the 
SEC before selling shares to the public.  A foreign investment company may not register its shares 
unless the SEC issues an order, but the Act generall y grants national treatment to foreign advisers.  
Foreign investment advisers registered with the SEC are not required to have a U.S. place of business 
or set up a U.S. subsidiary or branch.  The SEC,  however, imposes certain requirements, such as 
record keeping, to enable it to monitor complianc e with the Investment Advisers Act.  Foreign 
investment advisers are able to register with the SEC regardless of the amount of assets under 
                                                     
 
172 Arizona, Arkansas, Colorado, Indiana, Iowa, Minnesota, Montana, Nebraska, New Mexico, North 
Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, and Wisconsin. 
173 Alabama, Arizona, Arkansas, Colorado, Delaware, Indiana, Kansas, Louisiana, Maryland, 
Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Vermont, Virginia, Washington, West Virginia, Wisconsin, 
and Wyoming. 
174 The States are Delaware, Georgia, Louisiana, Mississippi, Missouri, and Oklahoma. 
175 Arizona, Arkansas, Colorado, Kansas, Kentucky, Michigan, Mississippi, Montana, North Dakota, 
Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, Wisconsin, and Wyoming. United States WT/TPR/S/126 
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management, while domestic advisers must register  with State regulators if they manage less than 
US$25 million and do not advise an SEC-registered company. 
211. In addition, U.S. banks must register as investment advisers only if they advise an investment 
company registered with the SEC under the Investment Company Act, whereas foreign banks generally must register as investment advisers if they engage in the business of providing investment 
advice for compensation.  The United States took a national treatment reservation in the GATS for 
this different treatment.  In July 2002, the SEC adopted a new Final Rule (17 CFR Part 270 Release 
No. IC-25666; File No. S7-21-01) that introduced  amendments to the Investment Company Act by 
expanding the scope of its provisions with re spect to permitted merg ers and other business 
combinations between certain affiliated invest ment companies, and allowing mergers between 
registered investment companies and certain unregistered entities.
176 
212. The NAFTA contains specific disciplines for trad e in financial services (banking, securities, 
and insurance).  In general, the financial services provisions of the NAFTA ha ve a broader reach than 
the commitments taken by the United States under the GATS.177  In particular, the scope of cross-
border provision of banking and other financial serv ices is fully covered in the NAFTA, whereas the 
scope of U.S. GATS commitments exclude core cro ss-border banking and insurance activities, which 
are limited to maritime transport insurance, rein surance and retrocession, services auxiliary to 
insurance and the transfer of financial information, data processing, and the supply of advisory and 
non-intermediation "auxiliary" banking services.  The NAFTA provisions on establishment and cross-
border trade guarantee existing access provided by a State, as well as subsequent improvements.  The 
United States granted Jordan no preferential treatment  in financial services under their FTA, which 
contains the same list of commitments for these services that the United States scheduled under the 
GATS. 
213. The Securities Act of 1933 and the Securities Exchange Act of 1934 require registration of 
securities with the SEC prior to their offer or sale.  Foreign issuers can opt to use different registration 
and periodic reporting forms than those used by domestic users.  These forms are based on international reporting standards, an d generally allow foreign issuers to submit periodic reports to the 
SEC according to home  country requirements.
178  The National Securities Markets Improvement Act 
of 1996 prevents states from prohibiting, limiting, or imposing any conditions on offerings of certain 
securities, including those listed on the NYSE, the National Association of Securities Dealers 
Automated Quotation/National Market System, and securities issued by re gistered investment 
companies.  The Primary Dealers Act of 1988 provides for national treatment of foreign-owned dealers of U.S. government securities, as long as U. S. firms operating in the government debt markets 
of the foreign country are accorded "the same  competitive opportunities" as domestic companies 
operating in those markets.  In this respect, the United States took an MFN exemption with regard to 
participation in issues of government-d ebt securities in its GATS Schedule. 
214. Under the Commodity Exchange Act (CEA), the Commodity Futures Trading Commission 
(CFTC) has regulatory authority over futures and op tions trading in the United States.  Generally, 
persons or entities that solicit or accept orders from person s located in the United States, its territories 
or possessions, and that accept money, securities or property to margin, guarantee or secure any 
futures or options contract must register as Futures Commission Merchants (FCM), or obtain 
                                                     
 
176 Information available online at:  http://www.sec.gov/rules/final/ic-25666.htm#executive. 
177 For a comprehensive overview of the interaction of NAFTA's Chapter 14, Financial Services, and 
the WTO provisions see Schefer (1999), pp. 315-364. 
178 These standards are the International Organization of Securities Commissions' International 
Disclosure Standards for Cross-border Offerings and Listings by Foreign Issuers. WT/TPR/S/126 Trade Policy Review 
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exemption from registration.  National treatment is granted to foreign FCMs.179  There is a minimum 
net capital requirement of the greatest of US$250,000 or 4% of the amount of funds the FCM is 
required to set aside for customers trading on commodity exchanges.180 
215. Part 30 of the CFTC's regulations (17 C.F.R. Part 30) governs the manner in which all foreign 
futures and options are offered or sold to foreign futures or options customers.  Rule 30.10 of the 
regulations allows the CFTC to exempt a foreign FCM from compliance with registration 
requirements.  To receive such relief, the firm's home-country regulator must demonstrate, among 
other things, that it provides a comparable system of regulation and must enter into an information-
sharing agreement with the CFTC.  Once a firm r eceives confirmation of Rule 30.10 relief, it may 
engage in the offer or sale of foreign futures and options contracts to persons located in the United States without registering w ith the CFTC on the terms specified in the Rule 30.10 Order.  
Some 18 regulatory and self-regulatory author ities from ten countries currently benefit from 
Rule 30.10 relief.
181  CFTC Rule 30.5 provides similar re lief for non-domestic introducing brokers, 
commodity pool operators, or commodity trading advisors. 
216. In general, registered or exempt persons may offer or sell foreign exchange-traded futures and 
option products to persons located in the United Stat es, its territories or posse ssions without additional 
approvals, although special procedures apply to th e offer and sale of foreign broad-based security 
index and sovereign debt products (product requirements).182  In the first case, CFTC staff must first 
issue a no-action letter to allow the offer or sale of a foreign exchange-traded broad-based security 
index futures contract in the United States (no-action relief).  There are currently 60 Foreign Security 
Index Futures contracts for which no-action relief had been granted. 
217. Debt obligations of a foreign government must be designated as an exempted security by the 
SEC before a futures contract or option can be offered or sold in the United States.  Government debt 
instruments issued by 21 countries have been designated as exempted securities.183 
218. The Sarbanes-Oxley Act of 2002 (Public Law No: 107-204) introduced important regulatory 
changes to reinforce supervision of the securities industry.  The Act established a Public Company 
Accounting Oversight Board (PCAOB), under the gene ral oversight of the SEC, to oversee the audit 
of public companies that are subject to U.S. securities laws and enforce compliance with accounting 
and auditing standards.  Stricter auditing standards were set, to include, for example, a seven-year 
retention period for audit work papers and the use of Generally Accepted Accounting Principles.  The 
Sarbanes-Oxley Act contains provisions to rein force the independence of auditors of public 
companies, require rotation of audit partners working on audits of public companies, and require 
                                                      
179 As of 30 September 2002, the following foreign persons were registered with the CFTC:  91 brokers 
out of a total of 8,624;  17 floor traders out of a total of 1,330;  and 1,981 associated persons out of a total of 
45,381.  Two foreign firms were registered as FCMs, out of a total of 179, some of which are owned by foreign 
parent companies.  The numbers, based on data from the CFTC's FY 2002 Annual Report , show a slight 
increase in foreign participation in the past few years (See WTO, 1999).  The CFTC's report is available online 
at:  http://www.cftc.gov/files/anr/anr2002.pdf. 
180 The CFTC has recently proposed to amend these requirements (see Federal Register Vol.68, p. No. 
131, pp. 40,835-40,84840, 9 July 2003). 
181 Australia, Brazil, Canada, France, Germany, Japan, New Zealand, Singapore, Spain, and the 
United Kingdom.  Information available online at:  http://www.cftc.gov/cftc/cftcreports.htm. 
182 In this context, the CFTC has states that a "customer located outside the United States" means a 
non-resident, non-U.S. customer, but may encompass non-resident U.S. national as well.  See Federal Register, 
Vol. 57, p. 36,369, 13 August 1992. 
183 Argentina, Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, 
Ireland, Italy, Japan, Mexico, the Netherlands, New Zealand, Spain, Sweden, Switzerland, the United Kingdom, 
and Venezuela. United States WT/TPR/S/126 
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certification of financial statements by the CEOs an d CFOs of public issuers.  The Act also imposes 
certain corporate governance requirements on domestic  and foreign issuers listed in the United States.  
The authorities noted that, in implementing the co rporate governance sections of the Act, the SEC 
helped foreign issuers to avoid conflicts of laws with home country jurisdictions, where consistent 
with the spirit and intent of the Sarbanes-Oxley Act.  Other provisions of the Act prohibit personal 
loans by a corporation to its exec utives, address securities analysts  and broker-dealers conflicts of 
interest, and amend federal crimin al law to impose criminal penaltie s for knowingly altering records 
to obstruct a federal investigation or a matter in bankruptcy.  The Act establishes a criminal liability 
for failure of corporate officers to certify financial reports or certifying them falsely. 
219. Enforcement actions can be undertaken by both the SEC and the CFTC.  Investigations may 
include both domestic and foreign companies and cooperation is often sought from foreign 
counterparts.  The CFTC has signed 21 MOUs with foreign agencies, while the SEC has over 30 
formal information-sharing arrangem ents.  In FY 2002, there were 448 requests to foreign authorities 
for enforcement assistance. The CFTC's focus in r ecent years has been on fighting retail foreign 
currency fraud and unlawful operations.184  Other important cases included an investigation in 2002 of 
alleged manipulative trading practices in energy-related markets by Enron, and other energy trading firms.  The SEC's enforcement actions included cases of undisclosed information and fraudulent 
transactions, and violations by firms of auditor's independence.  One of the most prominent cases 
investigated by the SEC in the 2001-03 period, invo lved the action against ten major investment firms 
dealing with conflicts of interest be tween research and investment banking.
185  In April 2003, the SEC 
settled with these ten firms enforcement actions invo lving reforms that require the firms to sever the 
links between research and investment banking. 
(d) Insurance services 
220. The U.S. insurance services sector is regula ted primarily at the state level.  Insurance 
companies, agents, and brokers must be licensed under the law of each state in which the risk they 
intend to insure is located, and are authorized to offer insurance services only in the State where they 
are licensed.  In addition, in most states, insure rs must submit rate filings, since state regulators 
approve the premium rates companies may charge.  The authorities have noted that, in practice, once 
an insurer establishes operations in its state of domicile, other states rely on that domiciliary state 
regulator for primary oversight responsibilities, fa cilitating licensing in other states.  Licensing 
requirements differ among states and by line of in surance, but important steps towards harmonization 
have been adopted through the implementation, by a majority of states, of the NARAB requirements 
of the GLB Act (see below).  These steps could help to increase efficiency in the insurance market. 
221. The U.S. insurance market is open to foreign direct investment through acquisition of an 
insurance company licensed in a given state.  Forei gn companies may also incorporate in a given State 
as a subsidiary of a foreign insurance company, with the exception of Minnesota, Mississippi, and 
Tennessee.  Foreign companies may also be license d to operate as branches in 36 states and the 
District of Columbia.186  In the case of foreign companies operating as a branch, operations are limited 
                                                      
184 Commodity Futures Trading Commission (2002), pp. 23-24. 
185 The ten firms against which enforcement actions were taken are: Bear, Stearns & Co. Inc.;  Credit 
Suisse First Boston LLC;  Goldman, Sachs & Co.;  Lehman Brothers Inc.;  J.P. Morgan Securities Inc.;  
Merrill Lynch, Pierce, Fenner & Smith Inc.;  Morgan Stanley & Co. Inc.;  Salomon Smith Barney Inc.; UBS Warburg LLC;  and U.S. Bancorp Piper Jaffray Inc.  See online information available at:  http://www.sec.gov/ 
news/press/2003-54.htm. 
186 The 14 States that do not allow non-U.S. insurance branch licensing are Arkansas, Arizona, 
Connecticut, Georgia, Hawaii, Kansas, Maryland, Minnesota, Nebraska, New Jersey, North Carolina, 
Tennessee, Vermont, and Wyoming.  WT/TPR/S/126 Trade Policy Review 
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in principle to writing premiums based on the capital deposited in each state where it intends to do 
business.  This requirement is often waived, in prac tice, particularly if the applicant has a qualifying 
deposit in another state.  Companies are liable for th e full amount of their assets in the United States. 
222. States require companies to be licensed in the State to conduct insurance business within their 
borders and across their borders whether by mail, telephone, or over the Internet.  Some exceptions, however, are in place, and they vary from state to  state.  For example, 19 states exempt large 
industrial placements meeting certain conditions from compliance with re sidency requirements.
187 
223. All states except Connecticut, Kansas, Massachusetts, Mississippi, Oklahoma, Texas, and 
Wisconsin (and the District of Columbia and the Co mmonwealth of Puerto Rico), apply some kind of 
exemption to marine, aviation, or transport insurance (MAT in the WTO Understanding on 
Commitments in Financial Services).188  Exceptions from the residency requirement may also occur in 
the case of "surplus lines" insurance, for which state regulations may allow, under certain conditions, 
placing out-of-state coverage of the residual value of  risk that in-state insure rs refuse to underwrite, 
and that is not covered by industrial or MAT exemptions.  Under certain specific conditions and with 
some exceptions, foreign reinsurers  may write insurance in the United States even when not licensed 
in a particular state.  U.S. citizenship and in-sta te residency requirements apply in most states to 
suppliers of broking, and agency and other services auxiliary to insurance.  Some states also have 
specific continuing e ducation requirements. 
224. A federal tax on gross premium income is charge d at a rate of 1% on all life insurance and on 
reinsurance, and at 4%, on non-life insurance premiums covering U.S. risks paid to companies not incorporated under U.S. law, or under the laws of  countries with which the United States has double 
taxation treaties.  These rates are listed in the U.S. GATS Schedule. 
225. The National Association of Insurance Commissioners (NAIC), a national voluntary 
organization of state insurance regulatory author ities coordinates and/or standardizes regulatory 
requirements through the development of NAIC model laws.  During the 1990s the NAIC 
implemented the Uniform Treatment Project to a ddress the possible problems created by the multi-
state licensing system;  participating states agreed to license non-resident producers, who are in good 
standing in their resident states, without imposing  restrictions or qualifications additional to those 
required of resident producers.  To implement th e process, the NAIC developed instruments like the 
Uniform Application for Individual Non-Resident Lice nse, which is currently accepted in 46 states.  
Among other measures encouraged by the NAIC to harmonize regulatory practices, the Uniform Certificate of Authority Application (UCAA) is of particular importance.  The UCAA allows foreign 
and domestic insurers to file copies of the same application for admission in all participating states.  
Each participating State still performs its own review of each application.  All states now accept the 
UCAA. 
226. In the interest of more uniformity, the NAI C also developed the Producer Licensing Model 
Act (PLMA), which was adopted in 2000.  Among other things, the PLMA establishes uniform 
definitions for the six major lines of insurance ( life, accident and health, property, casualty and 
variable life and annuity, and personal lines), to help determine when a licence is required.  This is a 
step towards uniformity since these definitions coul d not be found in some state statutes;  it also 
contains uniform exceptions to licensing requirements.  The PLMA creates a uniform application 
process for both resident and non-resident applicat ions, and establishes uniform standards for licence 
denials, non-renewals, and revocations, as well as fo r agents appointments.  A non-profit affiliate of 
                                                     
 
187 See WTO (2001), Chapter IV(7)(i v)(c), for a complete list. 
188 WTO (2001), Table IV.5. United States WT/TPR/S/126 
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the NAIC, the National Insurance Producer Registry (NIPR), has developed and implements an 
electronic producer database to stre amline the producer licensing process.189 
227. The passage of the GLB Act introduced uniformity or reciprocity requirements among the 
states for agents and brokers.  Following the GLB Act, if states did not enact uniform laws and 
regulations or a system of reci procal licensing by 12 November 2002, a National Association of 
Registered Agents and Brokers (NARAB) would be  established to provide a mechanism through 
which uniform licensing, appointment, and other insurance producer sales qu alification requirements 
and conditions could be adopted and applied on a multi-state basis, triggering, in fact, federal pre-
emption of state licensing laws. 
228. To satisfy the NARAB requirements of the GLB Ac t, a majority of states have implemented a 
reciprocal licensing system for brokers.  As of February 2003, all states except New Mexico and 
New York had passed the Producer Licensing Model Act (PLMA) or other licensing laws with the 
intent of satisfying the reciprocity licensing mandate s of GLBA.  Also, 38 states had been certified by 
the NAIC as meeting the requirements for produc er licensing reciprocity under the GLBA, with 
Pennsylvania expected to become reciprocal when it s law became effective in June 2003.  Pursuant to 
the Declaration of Reciprocity and the PLMA, a system of reciprocal licensing is being implemented whereby a resident producer may obtain a non-resident licence. 
229. The NAIC has been encouraging other pro-market initiatives in recent years, such as the 
system for electronic rate and form filing (SERFF) and the Coordinated Advertising, Rate and Form 
Review Authority (CARFRA).  For products not reviewed by the CARFRA, the NAIC has launched 
an improvements to state based systems plan.
190  NAIC members approved in December 2002 the 
creation of an interstate insurance product regulatio n compact (IIPRC) to establish a single point of 
filing for insurance products .191  The authorities noted that state legislatures will review the IIPRC 
starting with the 2004 legislative sessions.  
230. The U.S. Schedule of Specific Commitments in Financial Services contains an "additional 
commitment" for insurance that notes that the United States Government welcomes efforts by the NAIC to promote the harmonization of state insurance regulation and to review with the states the 
question of citizenship requirements for the boards of directors of foreign insurance providers, and 
encourages the NAIC to continue to work with state governments in these areas.
192 
231. Among the legislation recently passed regarding the insurance industry, the Terrorism Risk 
Insurance Act of 2002 Public Law No: 107-297, passed in November 2002, introduced a Terrorism Insurance Program (Title I) in the Department of the Treasury, to pay the federal share of 
compensation for insured losses resulting from acts of terrorism.  The prog ramme has a duration of 
three years, from 1 January 2003 to 31 December 2005.  The Act fixes the federal share of 
compensation for insured losses of an insurer at  90% of the portion of such losses exceeding the 
insurer deductible required to be paid during th e programme year up to an aggregate maximum of 
US$100 billion.  The Act directs the Secretary of the Treasury to determine the pro rata share of 
insured losses to be paid by each insurer that incurs insured losses under the programme. 
                                                     
 
189 Information available online at:  http://www.naic.org. 
190 Information available online at:  http://www.naic.org. 
191 Compacts are binding agreements between two or more states, which pre-empt State laws.  Details 
on the Insurance Product Regulation Compact are available online at:  http://www.naic.org/compact/docs/ compact (AnnLife)(12-8-02).doc. 
192 WTO document GATS/SC/90/Suppl.3, 26 February 1998. WT/TPR/S/126 Trade Policy Review 
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232. Companies licensed in any of the U.S. States may benefit from the provisions of the Act, as 
well as non-licensed companies that are an eligible  surplus line carrier listed on the Quarterly Listing 
of Alien Insurers of the NAIC, or have been approved for the purpose of offering property and 
casualty insurance by a federal agency in connec tion with maritime, energy, or aviation activity.  
While preserving the general jurisdiction or regulat ory authority of the state insurance commissioners 
over the insurance business, the Act declares that for claims resulting from an act of terrorism a 
federal cause of action is the exclusive one, pre-empting any state cause of action. 
(9) SELECTED PROFESSIONAL SERVICES  
233. The United States runs a significant trade surplus in professional and business services, which 
reached around US$18.1 billion dollars in 2002 (Table I.5).  Exports are diversified geographically, with 24.8% of receipts origina ting in Asia and the Pacific, and over 15.6% in Latin America in 
2001.
193  Imports are more concentrated, and almost two thirds of payments are made to European 
countries or Canada.  Desp ite growing internationalization, interna tional trade in professional services 
remains hindered by complex domestic regulations,  both in the United States and abroad, including 
local presence and nationality or state-domicile re quirements, and restrictions on the legal form of 
entry and on ownership. 
234. Under U.S. law, the power to regulate professions  is reserved for the states, which generally 
set up licensing boards to administer their licensing or registration procedures.  Foreign-qualified 
professionals who are licensed to practice in a U.S. jurisdiction must comply with all applicable laws 
and regulations of that jurisdiction.  The absence of  a uniform regulatory regime at the national level, 
means that different market access conditions apply at  the state level, with reciprocal treatment being 
widely used;  this adds to the complexity of mark et entry for both domestic and foreign suppliers.  
The authorities have noted, however, that mo del rules developed by national professional 
organizations are promoting greate r uniformity or harmonization.194  Most states apply special rules 
and thresholds for the procurement of professional services (Chapter III(4)(iii)). 
235. The Federal Government has the power to nego tiate framework agreements in international 
trade negotiations with U.S. trading partners with respect to professional and business services on 
behalf of the states.  The USTR establishes the frameworks under which mutual recognition 
arrangements (MRAs) are negotiate d, and reviews them to ensure that they are consistent with 
international trade agreements.195  The framework contained in the NAFTA encourages the relevant 
negotiating bodies to develop mutually acceptable standards and criteria for licensing and certification, and provides a set of  objective criteria for consideration in any such negotiations. 
236. Representatives of the professions and the co mpetent authorities negotiate MRAs with their 
foreign counterparts.  Representatives of the profession may include members of a professional 
society or a group of professional organizations , while the competent authorities might include 
members of state licensing boards, national associatio ns of state boards, or other such organizations.  
State governments maintain authority over impl ementation of licensing provisions of such 
agreements.  Examples of this are the agreement with Canadian accountants signed in 1991;  an agreement with Australian accountants in 1996;  an agreement with Canadian architects in 1994;  and 
an agreement on engineering education (Washington Accord) with Canada, Australia, New Zealand, 
                                                     
 
193 Bureau of Economic Analysis (2001).  U.S. Department of Commerce, "U.S. International Services:  
Cross-Border Trade and Sales, Through Affiliates, 1986-2002", Table 7.16, Business Professional and 
Technical Services, Unaffiliated, 2001 [online].  Available at:  http://www.bea.doc.gov/bea/di/ 
1001serv/1003serv/Tab7.xls. 
194 WTO document S/WPDR/W/23, 10 March 2003. 
195 WTO document S/WPDR/W/23, 10 March 2003. United States WT/TPR/S/126 
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the United Kingdom, and Ireland in 1989.  The Washington Accord was expanded in 1995 and 1999 
to include South Africa and Hong Kong, China. 
237. U.S. GATS commitments in professional serv ices cover legal, acc ounting, auditing and 
bookkeeping, taxation, architectural, engineering,  integrated engineering, urban planning and 
landscape architectural services.  Generally, the U.S. commitment s contain only a limited number of 
market access or national treatment restrictions for modes 1 (cross-border supply), 2 (consumption 
abroad) and 3 (commercial presence).  The most common limitations are the requirement that 
partnerships are limited to licensed persons, or in-state office or residency requirements.  Mode 4 
(presence of natural persons) is unbound for all pr ofessional categories except as indicated in the 
horizontal section of the Schedule. 
(i) Accounting services 
238. U.S. accounting firms and their in ternational networks of affiliate d firms generate over half of 
the industry's world-wide revenue.  The world-wide  gross revenues of the top ten U.S. accounting 
companies reportedly exceed US$50 billion annually.196  Since the demise of Arthur Andersen in 
2002, four large multinational accounting firms ho ld a significant share of the U.S. market.197  
Although most of these companies are active worl d-wide, U.S. cross-border trade in accounting 
services remains limited, since trade mostly takes place through a commercial presence (affiliate).  In 
2002, exports totalled US$360 million, while imports were US$716 million, compared with 
US$366 million and US$844 million, respectively, in 2001.198 
239. The United States has participated actively in  work undertaken by the WTO Working Party 
on Professional Services, especially in developing the guidelines for MRAs and disciplines on domestic regulation in accountancy.  As part of the ongoing negotiations in services, the United States 
offered to consider undertaking the implementation of the GATS Disciplines in Regulation of the 
Accountancy Sector, adopted in 1998, if other Members did the same. 
240. Accountancy business is regulated by state la w and by professional self-regulation in the 
United States.  An accounting practitioner must be licensed as a certified public  accountant (CPA) by 
one of the 54 State, or Territorial Boards of Accountancy.
199  The National Association of State 
Boards of Accountancy (NASBA) is an umbrella organization representing the sub-federal licensing 
boards.  Professional self-regulation applies to the setting of standards and codes of professional 
conduct;  these are developed by professional bodies such as the American Institute of Certified 
Public Accountants (AICPA), which are privately run.200 
241. The AICPA is the national professional organi zation representing the accounting profession 
in public practice, business and industry, governmen t, and education.  The Auditing Standards Board 
(ASB) of the AICPA issues auditing, attestation,  and quality control standards and guidance.  
However, AICPA membership is not mandatory for any CPA.  The Financial Accounting Standards 
Board (FASB) of the Financial Accounting Foundation is the primary source of accounting standards and has been recognized by the Securities and Exchange Commission (SEC) as the accounting standards setter (see below).  The SEC has authority  to set accounting standards for public companies, 
                                                     
 
196 WTO document S/CSS/W/20, 18 December 2000. 
197 Deloitte Touche Tohmatsu, Ernst & Young International, KPMG International, and Price 
Waterhouse-Coopers Lybrand.  
198 Borga and Mann (2003). 
199 All states, except Arizona, North Carolina and Wyoming, prohibit the practise of public 
accountancy without a licence.  WTO document S/WPPS/W/7/Add.10, 24 July 1996.  
200 Information on AICPA is available online at:  http://www.aicpa.org/index.htm.  WT/TPR/S/126 Trade Policy Review 
Page 158 
 
 
but generally follows FASB standards.  Code s of conduct are developed by the AICPA and 
supplemented by the SEC and the Independent St andards Board (ISB).  There are also state 
independent CPA societies.201 
242. Auditing activities are reserved for CPAs, and au ditors must be licensed by the regulatory 
authorities of each state where they wish to practice.  There are, in general, no nationality requirements.  Auditing for all companies is genera lly regulated by the State Boards of Accountancy, 
and for publicly traded companies by the SEC.  Foreign accountants must pass the Uniform CPA 
Examination, and meet the other state laws and state Board regulations.
202 
243. Auditing licences are granted and regulated by the individual states and territories; but all 
states require that applicants pass the Uniform CPA Examination.203  Foreign education and 
professional experience may be ta ken into account for admission to the Uniform CPA Examination;  
however, the extent varies from state to state.204  U.S. citizenship is not re quired for licensing, except 
in North Carolina.205  However, 25 states and the District of Columbia require residency, and 13 
require an in-state office for licensing.  Nearly all states allow accounting firms to operate only as sole 
proprietorships, partnerships or professional cor porations.  The authorities noted that these corporate 
structure requirements are designed to ensure that th e licensed professional is personally liable for his 
or her actions. Sole proprietorships or partnershi ps are limited to persons licensed as accountants, 
except in Iowa where accounting firms must incorporate.206  Temporary licensing is granted in 35 
jurisdictions. 
244. In 1992, the AICPA and NASBA introduced their joint Uniform Accountancy Act (UAA) 
and Uniform Accountancy Act Rules, a model bill to provide a uniform approach to regulation of the 
accounting profession.  The UAA was amended most re cently in 2002:  the most significant change 
relates to greater ease of mobility across state lines  for CPAs, both in person and electronically, who 
practice across State lines and hold a valid licence deemed substantially equivalent, or if they are 
individually deemed substantially equivalent.  Ho wever, a new license is required in case of 
relocation to another State. 
245. The AICPA and NASBA have concluded MRAs  with accountants from Australia and 
Canada.207  Because of the decentralized regulation of these professions, these agreements have to be 
implemented by each state regulatory authority in or der to have effect in the jurisdiction.  The MRA 
with Canada has been implemented by 41 states.  W ith respect with the MRA with Australia, 33 states 
have provisions implementing the MRA for Austra lian Chartered Accountants, and 26 for Australian 
Certified Practicing Accountants 
246. The period under review was characterized by corporate scandals, such as the Enron, 
WorldCom, and Tyco cases, which put in evidence the need to strengthen accounting and financial 
regulations.  In response to this, important regulato ry changes were introduced in the United States.  
The most significant of these were embodied in the Sarbanes-Oxley Act of 2002 (P.L. No. 107-204), 
which reinforced accounting supervision (see section (8)).  The Act established the Public Company 
                                                      
201 The 50 States, Washington, D.C., Puerto Rico, the Virgin Islands and Guam all have independent 
CPA societies. 
202 Information available online at:  http://www.nasba.org. 
203 Some states may require an additional exam on ethics and local regulations.  
204 WTO document S/WPPS/W/7/Add.10, 24 July 1996.  
205 Citizenship is not required if the applicant is from a country that extends similar privileges to 
North Carolina citizens.  
206 WTO documents GATS/S/C/90, 15 April 1994, and TN/S/O/USA, 9 April 2003.  
207 WTO documents S/C/N/51, 10 February 1997, and S/C/N/68, 13 March 1998. United States WT/TPR/S/126 
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Accounting Oversight Board (PCAOB), under the SEC, to oversee the audit of public companies 
subject to securities laws.  All accounting firms par ticipating in the audit of public companies in the 
United States, including foreign firms, must be registered with the PCAOB.  The Act also sets a 
seven-year retention period for audit papers, and contains provisions to reinforce auditor's independence, prevent conflic ts of interests, and extends the application of rules governing corporate 
governance to issuers listed in the United States, wh ether domestic or foreign.  To promote auditor 
independence, the Act prohibits auditors from performing specified non-audit services 
contemporaneously with an audit, it also mandates  audit partner rotation on a five-year basis, and 
requires auditors to report to audit committees, to be created under the Act.
208 
247. Pursuant to the Sarbanes-Oxley Act, the SEC issued a number of regulations.  In 
January 2003, the SEC passed final rules strengthening the Commission's requirements regarding 
auditor independence.209  Other actions undertaken by the SEC include the recognition of the FASB as 
the U.S. accounting standard setter;  the adoption of rules to increase the independence of outside 
auditors and of rules governing the retention of audit records by outside auditors;  and the adoption of 
rules forbidding the improper influence on outside auditors.210  Th e SEC als o iss ued regulatio ns to 
improve disclosure and financial reporting.  During the implementation of the Sarbanes-Oxley Act, 
the SEC initiated action and achieved  settlements with several auditing firms related to violations of 
auditor's independence. 
248. The new regulations gave non-U.S. auditors of U.S. public companies until May 2004 to 
register with the PCAOB.  The registration and oversight requirements have met opposition from 
other countries, which claim that the Sarbanes-O xley Act and its implementing regulations would 
assert extensive jurisdiction over non-U.S.-based accounting firms.  The authorities noted that the 
PCAOB has made certain accommodations in its registration rules for non-U.S. firms to avoid 
conflicts of law with home country rules.  As a result of the Act and the SEC regulations, auditing 
firms will be prohibited from providing certain non-audit services to their clients;  however, the 
provision of tax-advice services, one of the largest income-earners for auditing firms, merely requires 
the approval of the firms' auditing committees. 
(ii) Legal services 
249. Trade in legal services has expanded rapidly du ring the last decade.  In 2002, cross-border 
exports of legal services totalled US$3.3 billion, co mpared with US$1.9 billion in 1996, and imports 
totalled US$1.2 billion, resulting in a large trade surp lus.  Foreign affiliate operations have become 
increasingly important in the provision of legal servi ces;  a great deal of this trade involves foreign 
legal consultancy services.  Sales of legal services abroad by U. S. affiliates were estimated at 
US$821 million in 2000, while sales to U.S. citi zens by foreign affiliates were just US$23 million.211 
                                                      
208 The prohibited non-audit services are:  bookkeeping;  financial information systems design and 
implementation;  appraisal or valuation services;  actuarial services;  internal audit outsourcing services;  
management functions or human resources;  broker or dealer, investment adviser, or investment banking services;  legal services;  and expert services unrelated to the audit.  To engage in non-audit services that are not 
expressly prohibited, audit committee pre-approval and disclosure is required. 
209 Securities and Exchange Commission, 17 CFR Parts 210, 240, 249 and 274.  Release No. 33-8183; 
34-47265;  35-27642; IC-25915;  IA-2103, FR-68, File  No. S7-49-02 RIN 3235-AI73.  Available online at:  
http://www.sec.gov/rules/final/33-8183.htm. 
210 Summary of SEC Actions and SEC Related Provisions Pursuant to the Sarbanes-Oxley Act of 2002, 
Press Notice, 30 July 2003.  Available online at:  http://www.sec.gov/news/press/2003-89a.htm. 
211 Borga and Mann (2000). WT/TPR/S/126 Trade Policy Review 
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250. As specified in the United States' list of spec ific commitment under the GATS, legal services 
(practice as a qualified U.S. lawyer) must be supplied by a natural person;  no cross-border supply is 
permitted.  For mode 3, partnership in law firms is limited to persons licenced as lawyers.  However, 
foreign companies can establish subsidiaries in th e United States.  Citizenship is required for 
representation before the United States Patents Offic e, but there are no other nationality requirements 
for licensing of lawyers.  Nine jurisdictions main tain in-state office requir ements for licensing, and 
16 jurisdiction maintain in-state or U.S. residency requirements.212  The United States has made 
commitments to accord market access and national treatment for the provision of foreign legal 
consultancy services in 16 jurisdictions;  these in clude major international commercial centers, such 
as California, Florida, Illinois, New York, and Texas.  In its initial o ffer in the current WTO 
negotiations on services, the United States made no new offers in legal services.213 
251. The legal profession is regulated at the subnat ional level, with each state or jurisdiction 
setting its own requirements with respect to, among others, diploma or title, minimum age, particular, 
registration, and fees.  Although professional examin ations are not uniform across jurisdictions, there 
are several multi-jurisdictional examinations used by the states as a part of their bar examination or as a supplement to the bar examination.  Applicants , including foreign, may qualify by passing the bar 
examination after completing a degree from a U.S. law school accredited by the American Bar 
Association (ABA).
214  A lawyer may appear only in the c ourts of the State where he or she is 
licensed.  Foreigners may qualify by meeting th e same state licensing requirements as U.S. 
nationals.215 
252. Lawyers licensed in foreign countries may be ce rtified as foreign legal consultants (FLCs), 
without passing an examina tion, as long as they are in good standing in their home country.  FLCs can 
advise on the law of any country in which they are qualified and on international law, counsel in 
international business transactions, and dispute resolu tions proceedings other than before courts, such 
as arbitration and mediation services, if authorized by state law.  They may not give advice on local 
laws without a backup opinion from a locally license d lawyer.  FLCs may enter into partnerships with 
U.S. lawyers in any of the 24 jurisdictions that permit FLCs.216 
253. The Sarbanes-Oxley Act (section 307) contains language that led to the revision of aspects in 
which lawyers deal with clients, particularly with respect to confidentiality, requiring disclosure of 
material violation or breach of fiduciary duty.  In January 2003, the SEC adopted final rules to 
implement this by setting standards of professiona l conduct for attorneys appearing and practising 
before the SEC.217  The rules do not cover foreign attorneys who do not advise clients regarding U.S. 
law;  otherwise foreign attorneys are covered to th e extent they practice before the SEC.  The rules 
allow an attorney, without the consent of an issuer c lient, to reveal confidential information related to 
his or her representation to the extent the attorney  reasonably believes necessa ry to prevent the issuer 
from committing a material violation likely to cause su bstantial financial injury;  to prevent the issuer 
                                                      
212 The nine jurisdictions are the District of Columbia, Indiana, Michigan, Minnesota, Mississippi, New 
Jersey, Ohio, South Dakota, and Tennessee;  the 16 jurisdictions are Hawaii, Iowa, Kansas, Massachusetts, 
Michigan, Minnesota, Mississippi, Nebraska, New Jersey, New Hampshire, Oklahoma, Rhode Island, South 
Dakota, Vermont, Virginia, and Wyoming. 
213 WTO document TN/S/O/USA, 9 April 2003. 
214 ABA online information.  Available at:  http://www.abanet.org. 
215 New York allows those with prior education and practice in a country whose jurisprudence is based 
on English common law to take the bar without additional legal education.  
216 However, only 15 States (Alaska, California, Connecticut, Florida, Georgia, Hawaii, Illinois, 
Michigan, Minnesota, New Jersey, New York, Ohio, Oregon, Texas, and Washington) and the District of Columbia have bound commercial presence for legal services in the WTO. 
217 Information available online at:  http://www.sec.gov/news/press/2003-13.htm. United States WT/TPR/S/126 
 Page 161 
 
 
from committing an illegal act;  or to rectify the consequences of an act in which the attorney's 
services have been used.  The rules pre-empt state legislation, but not the ability of a state to impose 
more rigorous obligations on attorneys that are not inconsistent with the rules. 
(iii) Architectural and engineering services 
254. In 2002, U.S. cross-border exports of architectural, engineering, and other technical services 
(AET) were US$1.9 billion, down from US$2.1 billion in 2001, and considerably below the 
US$2.6 billion registered in 1999 .  Imports were US$312 million in  2002, up from US$125 million in 
2001, resulting in a trade surplus of US$1.6 billion.  Exports in 2002 were evenly distributed between 
Canada, Western Europe, Latin America, and Asia-Pacific countries.  Canada and the 
United Kingdom were the top suppliers to the U.S. market.  Commercial presence is considerably 
more important in international trad e in AET services, since most if it is undertaken by affiliates in 
foreign markets.  For example, AET-related sa les by U.S. affiliates of foreign firms were 
US$5.8 billion in 2000.218 
(a) Architectural services 255. The U.S. GATS Schedule binds market access in modes 1, 2 and 3, with the exception of a 
commercial presence limitation applie d by Michigan, where two thirds of the officers, partners, and/or 
directors of an architectural firm must be licensed in that state as architects, professional engineers, 
and/or land surveyors.  In its initial offer on servi ces in the context of the Doha Development Agenda, 
the United States noted that it would consider undertaking commitments for architects similar to those 
adopted for accountants in the WTO Disciplines in Regulation of the Accountancy Sector, adopted in 1998, if others did the same.
219 
256. The American Institute of Architects (AIA) represents the profession of architecture in the 
United States.220  The practice of architecture requires regist ration, which is at the sub-federal level:  
all U.S. jurisdictions have esta blished architectural registration boards.  Registration laws and 
requirements vary among states;  however, the National Council of Ar chitectural Registration Boards 
(NCARB), the umbrella organization of 55 state a nd territorial architectural registration boards, 
promotes uniform national standards in governing the architectural profession.  Registration boards 
generally require a professional degree in architect ure from a programme accr edited by the National 
Architectural Accrediting Board (NAAB), three year s of training, and a pass of the NCARB Architect 
Registration Examination (ARE).  Architects wi th a degree from foreign or U.S. non-NCARB 
accredited institutions may request the NCARB to  determine the equivale nce of their degree. 
257. The NCARB Certificate reciprocally qualifies those registered in one jurisdiction to be 
registered in another of the 55 NCARB member boards and most Canadian jurisdictions without 
satisfying additional education, training or examin ation requirements.  In this respect, certificate 
holders can more easily respond to business opportu nities in other states.  The requirements for the 
certificate are similar to those for registration, except  that,  in addition, the applicant must satisfy the 
NCARB's Intern Development Program (IDP) training requirements.  Unlike registration, however, certification does not qualify a person to practice architecture in a jurisdiction.  More than 30,000 
architects in the United States are NCARB-certified. 
258. An Inter-Recognition Agreement was reached in June 1994 between the NCARB and the 
Committee of Canadian Architectural Councils (C CAC), establishing requirements for certification 
                                                     
 
218 Bureau of Economic Analysis (2003a).  
219 WTO document TN/S/O/USA, 9 April 2003. 
220 Further information is available online at:  http://www.aia.org/institute. WT/TPR/S/126 Trade Policy Review 
Page 162 
 
 
applicable to U.S. and Canadian architects.  As of August 2003, all U.S. states (plus the District of 
Columbia, Guam, and the Northern Mariana Islands), as well as ten Canadian provinces had adopted 
the agreement.221  The NACRB has also signed protocols for practice in a host nation with Australia, 
China, the Czech Republic, and New Zealand.  The NCARB, together with the American Institute of 
Architects, is exploring the possibility of mutual re cognition of architectural licensing standards.  In 
December 2002 an Accord on Co-operation and Pr ofessionalism in Architecture was signed, which 
promotes and facilitates architectural practice be tween the EU and the United States.  Under the 
objectives of the accord, the three organizations w ill move toward the mutual recognition of architects 
by establishing agreed-upon standards in education, training, and licensing.222 
(b) Engineering and integrated engineering services 
259. In the GATS, the United States undertook market-access commitments in modes 1, 2 and 3 
regarding engineering and integrated engineering services.  The only reservations involve citizenship 
requirements for licensing of professi onal engineers in the District of  Columbia and in-state residency 
requirements in 12 States.223  In its initial offer on services in the context of the DDA, the 
United States noted that it would consider undertaking commitments for engineers similar to those adopted in the WTO Disciplines in Regulation of the Accountancy Sector, if others did the same.
224 
260. A licence is required in all U.S. jurisdictions for both U.S. citizens and foreign persons to 
engage in engineering activities.225  Licensing laws for professional engineers often vary from state to 
state;  however, they generally require graduation from an engineering programme accredited by the 
Accreditation Board for Engineering and Technolo gy (ABET);  the Fundamentals of Engineering 
exam;  responsible engineering experience (generally about four years);  and subsequent to this the Principles and Practice of Engineering exam.
226 
261. The National Council of Examiners of Engin eering and Surveying (NCEES) is the umbrella 
organization of the sub-federal professional engineer ing and land surveying licensing authorities.  The 
NCEES has developed a model law to promote uniform licensing laws and licensing procedures 
across U.S. jurisdictions;  the model la w was last revised in August 2002.227  Mobility between U.S. 
jurisdictions is often granted based on reciprocity. 
262. The ABET signed an MRA, known as the Washington Accord, with foreign professional 
bodies from Australia, Canada, Ireland, New Zeala nd, and the United Kingdom in 1988;  Hong Kong, 
China and South Africa became signatories later.   Signatories to the agreement recognize the 
substantial equivalence or comparability of their respective accreditation processes.  An MRA was also signed with Canadian and Me xican professional bodies in the context of NAFTA in June 1995. 
                                                     
 
221 Information available online at:  http://www.ncarb.org/reciprocity/interrecognition.html.  
222 Information available online at:  http://www.ncarb.org/NewsClips/dec02ace.htm. 
223 Idaho, Iowa, Kansas, Maine, Mississippi, Nevada, Oklahoma, South Carolina, South Dakota, 
Tennessee, Texas, and West Virginia.  
224 WTO document TN/S/O/USA, 9 April 2003. 
225 WTO document S/C/W/77, 8 December 1998.  
226 Information available online at: http ://www.ncees.org/licens ure/licensing_boards. 
227 Available online at:  http://www.ncees.org/introduction/about_ncees/ncees_model_law.pdf. United States WT/TPR/S/126 
 Page 163 
 
 
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