WORLD TRADE ORGANIZATION ORGANISATION MONDIALE DU COMMERCE ORGANIZACIÓN MUNDIAL DEL COMERCIO

WT/TPR/M/126/Add.2 25 March 2004

(04-1324)

Trade Policy Review Body 14 and 16 January 2004

Original: English/ anglais/ inglés

TRADE POLICY REVIEW

UNITED STATES

Minutes of Meeting

Addendum

Chairperson: H.E. Mrs. Mary Whelan (Ireland)

This document contains the Interim Responses from the United States Government.1 __________________________________________________________________________________ Organe d'examen des politiques commerciales 14 et 16 janvier 2004

EXAMEN DES POLITIQUES COMMERCIALES

ÉTATS-UNIS

Compte rendu de la réunion

Addendum

Présidente: S.E. Mme Mary Whelan (Irlande)

Le présent document contient les réponses intérimaires du gouvernement des États-Unis.1 __________________________________________________________________________________ Órgano de Examen de las Políticas Comerciales 14 y 16 de enero de 2004

EXAMEN DE LAS POLÍTICAS COMERCIALES

ESTADOS UNIDOS

Acta de la reunión

Addendum

Presidenta: Excma. Sra. Mary Whelan (Irlanda)

En el presente documento figuran las respuestas preliminares del Gobierno de los Estados Unidos.1

1 In English only./En anglais seulement./En inglés solamente.

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INTERIM RESPONSES FROM

THE UNITED STATES GOVERNMENT

Chapter 2 - INVESTMENT (2) Foreign Investment Regime Question (Korea) Reference: page 29, para. 76 Paragraph 76 describes restrictive measures on fishing operations and direct investment by foreigners. Could the U.S. government provide us with information with respect to the reasons for placing restrictions on fishing operations and direct investment by foreigners? Answer Given that fish are a limited and transient natural resource, governments must impose rules on the allocation of the resource. Over time, it has become common practice for countries to allocate this resource on the basis of nationality. Many countries thus impose certain restrictions on foreign ownership in the fisheries sector. Reasons for giving preference to nationals include practical limits on the ability of governments to enforce domestic laws with respect to foreign vessels collecting a transient natural resource. The United States, however, has sought to achieve an appropriate balance between these practical law enforcement concerns and its otherwise open investment policy by providing various exceptions to these restrictions. Exceptions exist, for example, for smaller-sized fishing vessels, for vessels fishing in particular areas, and for vessels from countries that have entered into bilateral fishing agreements with the United States. Chapter 3 - BY MEASURE (1) Customs Procedures, Rules of Origin, Tariffs, Customs Fees (including Customs Security Issues) Question (China #89) Does the U.S. have any schedule to lower its tariff on textiles and clothing? Answer Under the Uruguay Round Agreement, the United States agreed to a phased reduction in tariff rates for textiles and apparel products. Tariffs on textile and apparel products will decline from a trade weighted average of 17.2 percent ad valorem to a trade weighted average of 15.2 percent ad valorem. The majority of these reductions were phased over the 10 years. The final Uruguay Round tariff reductions occurred on January 1, 2004. With regard to the DDA negotiating agenda, the U.S. Government supports significant movement toward the harmonization and/or elimination of textile and apparel tariffs and elimination of non-tariff barriers. Given the sensitivity of these products for a large number of WTO members, clearly progress in this area can only be achieved in the context of broad participation encompassing key players, both developed and developing. This most likely would be facilitated through a sectoral approach.

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Question (China #90) China would like to know what steps the U.S. will take to comply with the TMB recommendation. Answer The United States continues to believe that the methodology used is consistent with Paragraph 241 of the Working Party Report and that, therefore, it would not be appropriate to make any adjustment to the methodology applied. The United States has asked that the TMB reconsider its recommendation. Question (China #91) How does the United States ensure that interested parties will be informed of the petition promptly? Answer On May 21, 2003 the Committee for the Implementation of Textile Agreements (CITA) published a notice in the Federal Register setting forth procedures it would follow in considering requests from the public for textile safeguard actions on imports from China under Paragraph 242 of the Protocol of Accession. (On August 18, 2003, CITA published another notice in the Federal Register clarifying those procedures). That notice specifies, inter alia, that with respect to any request for a safeguard that CITA has accepted for consideration, CITA will publish a Federal Register notice requesting public comments and commencing a 30 day comment period. The Federal Register notice and the request, with the exception of information marked “business confidential”, are posted by the Department of Commerce’s Office of Textiles and Apparel on the internet. Question (China #92) How does it ensure that interested parties will get sufficient information? Answer The procedures set forth in the May 21, 2003 Federal Register notice provide that comments received in response to a request, with the exception of information marked “business confidential”, will be available for review by interested parties. Question (China #93) How does it ensure that interested parties will have enough time to defend themselves? Answer The procedures ensure that interested parties have a 30 day period during which such parties may comment on any request for a safeguard that CITA has accepted for consideration. With respect to China, the procedures set forth in the May 21, 2003 Federal Register notice provide that, following an affirmative determination on a request, CITA will request consultations with China within 30 days of the receipt for request for consultations, and every effort will be made to reach agreement on a mutually satisfactory solution within 90 days of receipt of the request for consultations. Question (India #5) Although India is a beneficiary of the GSP, it has been noticed that inappropriate customs duty is being imposed by U.S. authorities on imports of Jute Yarn, Net Leon, Wave Fabric and Jute Bags.

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Further, the U.S. authorities insist upon production of VISA for export of Jute Bag, which is normally applicable to textiles under quota. Would the U.S. authorities take steps to remove this anomaly. Answer Jute yarn and bags are bound at a zero rate effective 1/1/2004. We do not have a textile visa requirement for jute bags. We are unfamiliar with the terms “Net Leon” and “Wave Fabric” and do not know what they reference. Question (India #9) Burdensome customs procedures in textiles, clothing and footwear: For these products, customs formalities require providing excessively detailed and voluminous information. Some of the information asked for seems irrelevant for customs or statistical purposes. For example, in the case of garments with an outer shell of more than one construction or material, it is necessary to give the relative weight, percentage values and surface area of each component; for outer shell components which are blends of different materials, it is also necessary to include the relative weights of each component material. Would the U.S. authorities give the underlying reason for seeking such voluminous information? Answer The Bureau of Customs and Border Protection requires sufficient documentation in order to properly classify products upon entry. Proper classification is important for duty and quota purposes. Documentary requirements are transparent as they are provided in published circulars and on the website for the Bureau of Customs and Border Protection. Question (India #27) Unilateral changes in Rules of Origin by U.S.A have affected trade in textiles and clothing. As part of its legislation implementing the results of the Uruguay Round, the U.S. substantially altered its rules for determining the origin of textiles and clothing products. The modified rules, put into effect July 1996, have resulted in changes disadvantageous to developing countries. As the process of harmonization of Rules of Origin is in progress, India requests that no unilateral changes are made in the Rules of Origin in detriment of developing countries. Could the U.S. delegation offer its response to this? Answer The United States fully justified its rules of origin in the WTO Dispute brought by India. In DS243, the Panel found that India failed to establish that sec. 334 of the URAA, sec. 405 of the Trade & Development Act of 2000, and the Customs Regulations contained in 19 C.F.R. 102.21, are inconsistent with the Uruguay Round Agreement on Rules of Origin.

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Question (India #28) The Integration Programme for Stage 3: The U.S. integration programme for stage 3, being implemented from 1 January 2002, continues the trend witnessed in stages 1 and 2. Thus, although it would result in integration of the minimum of 18% required under the ATC, it has contributed little to liberalization of quota restrictions. The process of integration of items has been very reluctant and tardy. In effect, commercially meaningful integration has not been done. Canada & Norway, on the other hand, who are also operating quotas under the ATC have significantly reduced the restraints under the phase-out programme during the first two stages. On the contrary, the U.S. appears to have adhered to the strictly ‘legal’ requirements of the integration process, without taking into account commercial considerations. We would like to have a clarification from the U.S. authorities on the rationale behind the items selected for integration and whether the U.S. authorities are planning to take steps to make the phase-out programme commercially more meaningful to textile exporting developing countries. Answer At the request of importers for certainty and clarity, the U.S. published its complete integration schedule in 1995 and fully met its obligations under the WTO Agreement on Textiles and Clothing. Question (India #29) Adverse Conversion factor for export of yarn: The U.S. quota for yarn is indicated in Square Meter Equivalent (SME) whereas yarn is exported in kilogrammes. U.S. authorities use a standard conversion factor from kgs to SME for yarn which is reportedly without any scientific basis. This creates an artificial barrier as quota utilisation is shown to be higher than it should be in such cases. Can the U.S. delegation indicate how this anomaly is to proposed to be addressed. Answer The SME (square meter equivalent) factors in our bilateral agreement with India were developed in close consultation with our industry and are standard in our textile agreements, and have been notified and continued under the WTO Agreement on Textiles and Clothing (ATC). Question (Indonesia #2) The customs procedures for import of textile and garment to the US require the presentation of detailed and voluminous information, leading to additional costs and in some instances include business confidential processing methods. Indonesia believes that much of this information is irrelevant for customs use or statistical purpose. It is also Indonesia's concern that as the phasing-out of the quota system draws near, the US industry is pressing the Administration to put in place an even closer monitoring system that may require not only detailed information, but also additional information for the purpose of imposing a trade remedy as necessary. Answer The Bureau of Customs and Border Protection requires sufficient documentation in order to properly classify products upon entry. Proper classification is important for duty and quota purposes. Documentary requirements are transparent as they are provided in published circulars and on the website for the Bureau of Customs and Border Protection.

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Question (Japan #23) The U.S. imposes high tariffs, for example 25% on most trucks (8704). Compared with Japan, which sets its rates at 0% on the same items, the U.S. figure remains considerably hight. Japan would also like to know why the U.S. imposes tariff rates on trucks 10 times higher than those on passenger vehicles (the bound rate being at 2.5%). According to the minutes of the 2001 Trade Policy Review, the U.S. stated its willingness to engage the matter in comprehensive market access negotiations on goods based on the WTO’s built-in agenda. Japan thus requests the earliest possible elimination of the peak tariff. Answer The United States has continued to be an advocate of multilateral tariff reductions in the Doha negotiations and will continue to be engaged on these topics as long as there continues to be ambition among other members for multilateral liberalization. Tariffs in sensitive sectors are included in this approach – the U.S. has repeatedly stated its willingness to reduce and eliminate tariffs in sensitive sectors if other WTO members are willing to do the same. Question (Japan #41 & 42) Reference: p. 75, para. 193 and p. 59, para. 119 The sanctions measures taken by the U.S. based on related acts (the Iran and Libya Sanctions Act, the Cuban Liberty and Democratic Solidarity Act, the Burmese Freedom and Democracy Act as well as local and municipal sanctions acts) discourage, significantly and unreasonably, investment into, and the establishment of economic relations with, the countries targeted by those laws, which affects not only U.S. private enterprises, but also those world-wide. In legal terms, they constitute an extraterritorial application of domestic laws, which is not permissible under general international law and may cause a problem of inconsistency with the WTO agreements. Moreover, fairness, transparency and predictability have not been observed in their applications. Particularly regarding the Iran and Libya Sanctions Act, Japan has taken every opportunity, including those available under the Japan-U.S. Regulatory Reform and Competition Policy Initiative, to urge the U.S. not to apply the Act in a manner that may constitute a double standard. Japan, therefore, strongly requests the U.S. to ensure the consistency of these acts with international laws, and to implement them prudently. The application of these acts to enterprises of third countries is especially discouraged. What is the U.S. view on these points? Answer We appreciate the views of all our trading partners in this matter. The Iran and Libya Sanctions Act (ILSA) remains U.S. law. As you have noted, in August 2001, the Act was extended for a further five years, until 2006, with amendments. By its terms, ILSA applies to those who engage in activities covered by the statute, without distinction by nationality. The legislative history of the Act indicates a concern by Congress that the law be applied in a manner consistent with the international obligations of the United States. Question (Korea) Compared with the average U.S. tariff rate of 2.4% on fisheries products, the 35% tariff rate on tuna in oil in airtight containers seems to be excessive. Is there any special reason for maintaining this high tariff rate?

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Answer The United States, like all WTO members, has a small number of specific domestic sensitivities where slightly higher tariff rates are sometimes applied (please note in para 50 of Chapter III that according to the WTO Secretariat, the number of total U.S. tariff lines exceeding 15% is only 6.6%). The United States has continued to be an advocate of multilateral tariff reductions in the Doha negotiations and will continue to be engaged on these topics as long as there continues to be ambition among other members for multilateral liberalization. Tariffs in sensitive sectors are included in this approach – the United States has repeatedly stated its willingness to reduce and eliminate tariffs in sensitive sectors if other WTO members are willing to do the same. Question (Mexico) According to the Report by the Secretariat the CBP and the Department of Commerce may apply different criteria to determine the origin of goods. On this basis, Mexico will appreciate that the U.S. could indicate which criteria would prevail in cases where CBP and the Department of Commerce consider that a product is originating of different countries and an indication of the costs that will be incurred in such cases by importers due to the need of complying with different requirements. Answer No criterion prevails over another because the differing criteria are applied for the administration of different programs. CBP criteria determine, for example, the country of origin for marking purposes, while the Department of Commerce determines scope of an antidumping or countervailing duty order. Question (Mexico) The Report by the Secretariat states that country of origin markings are mandatory for most imported manufactured products and for many agricultural products. Therefore Mexico would appreciate that the US could indicate the applicable criteria to exempt products of country of origin marking requirements. Answer Exceptions to the country of origin marking requirements are set out in 19 U.S. Code Section 1304 and in the corresponding regulations in 19 Code of Federal Regulations Part 134. Questions (New Zealand) What is the U.S. justification for maintaining high tariff protection in sectors such as agricultural food products? What program does the U.S. have for the reduction and eventual elimination of such tariffs? When does the U.S. intend to reduce or eliminate tariff peaks? Answer The U.S. tariff rates for agricultural products are low, particularly compared to most WTO members. The average rate for food products coming in to the United States is 12%, not counting the many products that benefit from GSP. To address the problems of high agricultural tariffs worldwide, the United States has submitted a very ambitious and aggressive proposal for reducing tariffs in the WTO

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negotiations. In addition, the United States has proposed the elimination of all tariffs by a date certain. The United States is fully committed to further reform in world agricultural trade. Questions (New Zealand) How does the United States justify the long-standing delay in resolving New Zealand’s request for access to the United States for live honeybee and honeybee semen? In particular when, in view of New Zealand’s honey bee health (New Zealand has superior honey bee status than Australia, Burma, France, Great Britain, and Sweden) and there is no specific scientific basis for further denying such access on SPS grounds? When will USDA publish the Proposed Rule and associated Risk Assessment for New Zealand honeybees? Answer The final rule on New Zealand honeybees is currently under review in the Office of General Council. The most recent risk assessment was published in August 2002 and can be found at can be found in the following location: http://www.aphis.usda.gov/ppq/pra/honeybees/nzealandbee_pra.pdf Question (New Zealand) To what extent does USDA expect food aid donations to continue and to what volume? Answer The United States is currently planning to donate 3.5 - 4.0 million metric tons of food aid in U.S. fiscal year 2004 (Oct. 1, 2003 - Sept. 30, 2004). This is a decrease from the fiscal year 2003 donations of approximately 4.5 million metric tons. This fiscal year 2004 tonnage is only an estimate, however, and may change during the fiscal year depending on whether or not any emergency food aid needs arise. Question (New Zealand) What has been undertaken since the last US Trade Policy Review to minimize the potential disruptions on trade caused by food aid? Answer The United States adheres to the “Principles of Surplus Disposal and Consultative Obligations” as laid out by the Consultative Subcommittee on Surplus Disposal (CSSD). The primary discipline under the CSSD is the usual marketing requirement (UMR). The UMR is an average of the preceding five years of commercial imports for the particular recipient country and commodity in question. The maximum level of food aid to avoid commercial disruption is the difference between the country’s consumption needs and the UMR plus domestic supplies (production and stocks). The United States uses the UMR as a tool to determine whether food aid will displace normal commercial imports or adversely affect domestic production.

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Question (New Zealand) Is the USDA notifying these donations through the CSSD mechanism of the FAO? Answer Yes, the United States notifies its food aid donations through the CSSD. We are currently up-to-date with the required notifications. Chapter 3 - MEASURE (2) Remedies: Anti-Dumping, Countervailing, and Safeguards Actions Question (Canada #1) The Secretariat Report refers to the current status of the Foreign Sales Corporation Repeal and Extraterritorial Income Exclusion Acts provisions. Please indicate when the US proposes to rescind its WTO-inconsistent corporate tax provisions with a view to ending its illegal export subsidies. Answer The United States has made clear its commitment to work with the U.S. Congress to fully comply with the prior recommendations and rulings of the Dispute Settlement Body concerning the Extraterritorial Income Act. Both branches of Congress are currently considering legislative proposals that would repeal the ETI Act. While the United States cannot specify the precise date on which this will occur, the United States is confident that the ETI Act will be repealed in the reasonably near future. Question We understand that, out of the 361 sunset reviews of AD and CVD orders completed between July 1998 and July 2003, the question of whether the expiry of the duty would be likely to lead to continuation or recurrence of dumping or of subsidization has been examined by the Department of Commerce in 269 cases. Out of these 269 cases, we understand that the Department of Commerce has made negative determinations in only 3 sunset reviews. Please briefly describe the factors examined in making such determinations and explain why the proportion of negative determinations is so low. Answer The AD and SCM Agreements provide for the conduct of expiry (sunset in U.S. parlance) reviews to determine whether expiry of the duty (revocation of an order in U.S. parlance) would be likely to lead to continuation or recurrence of dumping or subsidization and injury. Under the United States sunset regime, there are two agencies that play a role in the conduct of sunset reviews. The Department of Commerce (“Commerce”) has the responsibility for determining whether revocation of an order would be likely to lead to continuation or recurrence of dumping or subsidization. In making its likelihood determination, Commerce considers, inter alia, information concerning dumping and import volumes for the subject merchandise. The U.S. International Trade Commission (“USITC”) has the responsibility for determining whether revocation of an order would be likely to lead to continuation or recurrence of material injury. Canada’s figures, even if accurate, are incomplete and misleading because they do not reflect completed sunset reviews, i.e., where both Commerce and the USITC have made their final likelihood determinations. Of the 321 sunset reviews of antidumping

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and countervailing duty orders initiated between July 1998 and December 1999, almost 50 percent were revoked. Question (Canada #3) Canada would like to point out that the Continued Dumping and Subsidy Offset Act of 2000 (the CDSOA, also known as the Byrd Amendment) was successfully challenged at the WTO and found to be inconsistent with the United States' obligations under the Anti-Dumping and Subsidies Agreements. In June of 2003, an Arbitrator gave the US 11 months from the Appellate Body Report to bring its measure into compliance with its WTO obligations. Why has the US ignored the reasonable period of time established by the Arbitrator (until December 27, 2003) and not complied with the Appellate Body ruling? When can Canada expect the US to repeal this measure that has been found to be WTO inconsistent? Answer The United States Administration proposed repeal of the Combined Dumping and Subsidy Offset Act in its fiscal year 2004 budget, and has been working with the U.S. Congress on appropriate legislation. In addition, a bill was introduced in the U.S. Senate to amend the CDSOA in a WTO-consistent manner. The United States will continue to seek compliance with the DSB recommendations and rulings. Question (Canada #4) The Report refers to the non-conformity of the Anti-Dumping Act of 1916 with multilateral rules and recent bills introduced to address the issue. Will the Administration convey to Congress the urgency of enacting a measure that repeals the Act and terminates pending cases (e.g., S 1080)? Answer The United States Administration has conveyed to Congress the importance of timely repeal of the 1916 Act which would terminate pending cases. The Administration will continue to work with Congress towards this end. Question (Chile #1) Given the significant increase in antidumping measures applied in recent years and their negative impact on trade, in addition to the opinion of various WTO members on the lack of justification for many of the investigations and measures adopted, does the U.S. think it is possible to decrease the discretionality and substantially increase the number of investigations conducted and measures adopted solely by making improvements in procedures that do not affect the substance of the AD and SCM Agreements? Answer The mandate of the Doha Declaration, to "clarify and improve" the AD and SCM Agreements, is not limited either to substantive or to procedural provisions of those Agreements. That being said, the United States believes that there must be substantial progress made in improving the transparency of trade remedy measures to allow Members and other interested parties to see that those measures have been conducted in accordance with WTO Rules. That is not to say that substantive clarifications and improvements should not also be made; indeed, the United States has proposed a number of such topics for discussion in the Negotiating Group on Rules.

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Question (Chile #2) Does the U.S. believe that it is necessary to resolve the ambiguities and the gaps existing in the Antidumping Agreement in order to prevent the proliferation of excessively onerous investigations, of arbitrary application, and misuse of antidumping measures? If so, is it considering improving the rules and disciplines of the Agreements in order to achieve this goal? Answer The United States has made numerous proposals to the Negotiating Group on Rules to clarify and improve the AD and SCM Agreements in ways which minimize the possibility for misuse of trade remedy measures while also increasing the effectiveness of those remedies. Question (Chile #3) The United States indicated in a communication to the Negotiating Group on Rules (document TN/RL/W/27) the importance it attaches to the need to identify disciplines on trade-distorting practices, in order to improve the ability to forecast trends in trade on the global level and reduce the need to use trade remedies. Does the United States believe that while disciplines that prevent trade-distorting practices are being strengthened or established, trade remedies must not be restricted or regulated more extensively in order to prevent the undue proliferation and discretional use of such measures? Answer The discussion of disciplines on trade distorting practices does not preclude a parallel discussion of other ways in which the AD and SCM Agreements should be clarified and improved. The United States has made numerous proposals to the Negotiating Group on Rules to clarify and improve the AD and SCM Agreements in ways which minimize the possibility for misuse of trade remedy measures while also increasing the effectiveness of those remedies. Question (Chile #4) With regard to antidumping investigation procedures, especially the treatment of Section 201 and Countervailing Duties, Chile has learned that the United States might change the way that the Department of Commerce calculates the dumping margin so as to be able to deduct duties applicable under Section 201 of the 1974 Trade Act and countervailing duties under the 1930 Customs Tariff Act from the export price and the reconstructed export price in calculating the dumping margin. When does the U.S. Government anticipate that this change will become effective? Does the U.S. Government expect that there will be any incompatibility in this change with prior DOC interpretations, or with WTO agreements, especially with respect to the application of Article VI of the GATT or the Agreement on Subsidies and Countervailing Duties? Answer The U.S. government is currently considering its position on issue and is in the process of evaluating public comments that have been filed.

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Question (China #20) As the "reasonable period of time" for implementation has expired [regarding the Combined Dumping and Subsidy Offset Act], what detailed measures will the United States adopt to implement the WTO recommendation? Answer The United States Administration proposed repeal of the Combined Dumping and Subsidy Offset Act in its fiscal year 2004 budget, and has been working with the U.S. Congress on appropriate legislation. In addition, a bill was introduced in the U.S. Senate to amend the CDSOA in a WTO-consistent manner. The United States will continue to seek compliance with the DSB recommendations and rulings. Question (China #21) Is the US prepared to notify the detailed programme and timetable to comprehensively repeal the Byrd Amendment? Answer The U.S. Congress determines the timing and content of legislation in the United States. The U.S. Administration will continue to work with the U.S. Congress to achieve early passage of legislation on the CDSOA bringing the United States into compliance with its WTO obligations. Question (China #22) Could the US please elaborate whether there are relevant provisions on the procedures for an industry or sector to apply for the market economy conditions pursuant to the criteria provided in the national anti-dumping legislation of the US. If not, please inform us of the plan and timetable to provide such procedures. Answer Section 771(18)(B) of the Tariff Act of 1930, as amended, lists the six factors that the Department of Commerce must consider in making a non-market economy country determination. The Department initiates an inquiry into a country's non-market economy status only on request from that country's government. Such inquiries are conducted within the framework of a quasi-judicial proceeding, which is fully open to participation by the public and all interested parties and is subject to strict due process and transparency requirements. If, as a result of its inquiry, the Department determines that graduation to market economy status is warranted, producers' prices and costs are then used for purposes of calculating normal value. NME producers can also have their prices or costs used to calculate normal value if they operate in a market-oriented industry ("MOI"). The Department has discussed with PRC government officials several times the Department's three-pronged MOI test and the procedures for submitting a MOI claim, and the Department would be more than happy to do so again. Question (China #23) Could the US Delegation provide some information about the progress of repealing 1916 Anti-dumping Act in the Congress?

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Answer There are three bills pending in the U.S. Congress to repeal the 1916 Act. One bill in the U.S. Senate, S. 1080, would repeal the 1916 Act and terminate all pending cases. Two bills, H.R. 1073 in the U.S. House of Representatives and S. 1155 in the U.S. Senate, would repeal the 1916 Act but not affect 1916 Act litigation already underway. The United States is continuing to work with the U.S. Congress to pass legislation repealing the 1916 Act and terminating pending cases. Question (China #33) Please clarify the method adopted by the US [in the case of apple juice from China] for calculating the average anti-dumping rate of enterprises subject to voluntary verification and the legal basis thereof. Question (China #34) Could the US please elaborate how it will avoid such practices in future anti-dumping investigations? Answer (China #33-34) In calculating rates applied to cooperative exporters not selected for examination, the United States generally follows the methodology described in section 735(c)(5) of the Tariff Act. Question (China #41) Regarding the “calculation methodology of “changing ownership” used in countervailing measure investigations and determinations,” prior to November 8, 2003, had the US DOC already rectified the calculating methodology? If not, please explain why. Answer On June 23, 2003, the U.S. Department of Commerce adopted a new methodology for analyzing changes of ownership in the countervailing duty context. Commerce is applying this new methodology to all countervailing duty investigations and reviews initiated on or after June 30, 2003. An explanation of this new methodology was published in the Federal Register under Notice of Final Modification of Agency Practice Under Section 123 of the Uruguay Round Agreements Act, 68 FR 37125 (June 23, 2003). Question (Chinese Taipei) Reference: p. 3 In view of the fact that at least 6% of the anti-dumping measures currently enforced in the US involve Taiwanese exporters, we would be particularly interested in knowing whether the US has any plan to improve its investigation procedures regarding sunset reviews, in recognition of the principle of terminating anti-dumping and countervailing measures after 5 years of implementation. Answer Article 11.3 of the AD Agreement and Article 21.3 of the SCM Agreement permit the authorities to evaluate an antidumping or countervailing duty order, respectively, five years from its imposition; they do not require the termination of an order after five years if a sunset review results in a determination that termination of the order would be likely to lead to continuation or recurrence of dumping or subsidization and injury. The Unites States' laws and regulations concerning the conduct of sunset reviews are consistent with the applicable WTO obligations.

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Question (India #21) The WTO agreement provides for guidelines and procedures to be followed while imposing anti-dumping duties. The lesser duty principle (the lesser of dumping margin and injury margin) is widely adopted in most countries while determining the antidumping duty. However, the US follows the dumping margin rule. This results in imposition of unnecessarily higher dumping duties. We would like to have a clarification from the US authorities on the reasoning behind following this methodology. Answer Article 9.1 of the Antidumping Agreement (AD Agreement) states that "[i]t is desirable that imposition [of antidumping duties] be permissive in the territory of all Members, and that the duty be less than the margin [of dumping] if such lesser duty would be adequate to remove the injury to the domestic industry." Consequently, Article 9.1 provides Members the option of implementing a "lesser duty rule". Therefore, consistent with the WTO and in full compliance with Article 9.1 of the AD Agreement, U.S. law does not contain a lesser duty provision. The lesser duty provision of the AD Agreement assumes that an antidumping authority can make an empirical computation of the amount of duty needed to remove injury to the domestic industry. The question refers to this as an “injury margin,” a term which does not exist in the AD Agreement. Such a calculation would entail considerable practical problems, and to our knowledge, there is no common understanding of what could constitute a reasonable "injury margin" that reflects all the factors specified in Article 3.4 of the AD Agreement. Given that these factors are not all measurable in the same manner, it is far from clear how any methodology could derive a single “margin” from them. In the Rules negotiating group, the United States has asked other Members to provide further clarification on how they calculate a lesser duty. To date, the United States has not received a clear response from any Member as to how they implement a lesser duty rule and calculate a lesser duty. Indeed, we are unaware of any WTO Member that has devised a method of quantifying injury that can take into account all the factors specified in Article 3.4 of the AD Agreement. Question (India #26) State level subsidies: Extensive subsidies are provided in the US at the state level for both export promotion and industrial development. These are often not even mentioned as subsidies and not reported to the WTO under Article 25 of the Agreement on Subsidies and Countervailing Measures. To name a few, these programmes include the Business Finance Programme of the states of Maryland and Pennsylvania, business assistance programmes of the states of North Carolina and Washington and the loan guarantee programme of the state of Indiana. Could the United States provide details of subsidy programmes in existence at the sub-federal level (viz, state level and below) and on their WTO compatibility. Answer Pursuant to Article 25 of the Agreement on Subsidies and Countervailing Measures, the United States has notified 330 sub-federal programs, including numerous programs from the specific states mentioned in the question. We refer India to document G/SCM/N/95/USA. We stand ready to answer any questions on specific programs India may have in the course of the review of the U.S. subsidy notification during the upcoming meetings of the Committee on Subsidies and Countervailing Measures.

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Question (Korea) Reference: page 47, para. 74-76 The U.S. Department of Commerce is reportedly considering deducting Section 201 and CVD duties from the constructed export price in dumping margin calculations. What is the U.S. government’s position on this matter? Answer The U.S. government is currently considering its position on this issue and is in the process of evaluating public comments that have been filed. Question (Korea p.48) The U.S. government failed to implement the WTO ruling against the Continued Dumping and Subsidy Offset Act of 2000, also known as the Byrd Amendment Act, within an agreed reasonable time period that elapsed on December 27, 2003. Can the United States provide any detailed plan to implement the ruling of the WTO/DSB? Answer The United States Administration proposed repeal of the Combined Dumping and Subsidy Offset Act (the “Byrd Amendment”) in its fiscal year 2004 budget, and has been working with the U.S. Congress on appropriate legislation. In addition, a bill was introduced in the U.S. Senate to amend the CDSOA in a WTO-consistent manner. The United States will continue to seek compliance with the DSB recommendations and rulings. Question (Switzerland #18) § 57 ff. outlines the safeguards in the steel sector. On December 4, 2003, the U.S. announced the full and immediate termination of its steel safeguards. The decision had been taken by President George W. Bush because the measures, introduced in March 2002, had achieved their purpose by helping U.S. producers consolidate and regain competitiveness. Nevertheless, the Steel Import Licensing System, introduced on February 1, 2003 is still in place. The system was put in place to provide timely statistical data on steel imports to monitor significant changes in steel imports. What are the reasons to keep this system in place? When or under what conditions will it be terminated? What measures have been taken that this system does not become an unduly administrative burden? Answer On December 4, 2003, the President issued a proclamation terminating the safeguard measures; he also directed the Secretary of Commerce to continue the steel import licensing system which was established effective February 1, 2003, until the earlier of March 21, 2005 or such time as the Secretary of Commerce establishes a replacement program. The licensing procedure is automatic and consistent with the Agreement on Import Licensing Procedures. Registered importing companies, their brokers or their agents may apply for a steel import licence through the steel licensing website. Licenses are issued immediately upon completion of the electronic application form. No fees are charged for either registering on the system or for applying and obtaining a license.

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Chapter 3 - BY MEASURE (3) TBT/SPS Measures and Environment (including Bio-terrorism) MMPA Questions (Canada) Canada continues to have concerns regarding the consistency of the U.S. Marine Mammal Protection Act (MMPA) with U.S. WTO obligations. In past WTO reviews of US trade policy, the US delegation has cited in defence of the MMPA, that a waiver is available, subject to certain conditions, to allow imports of marine mammal products. However, in response to the last TPR questions, the US delegation stated that since 1975, no application for an import waiver had been received. Question (Canada) On what objective basis would the U.S. Secretary of Commerce grant a waiver for the commercial import and retail of marine mammal products? Answer The U.S. Secretary of Commerce may waive the MMPA's moratorium on the taking of marine mammals if such taking is in accord with sound principles of resource protection and conservation. In addition, in order to grant a waiver for the import of marine mammal products, the Secretary must certify that the program for taking marine mammals in the country of origin is consistent with the MMPA. Implementation of a waiver would entail formal rulemaking and the issuance of permits. Thus, the waiver process provides relief from the MMPA's trade ban with respect to marine mammal products. Question (Canada) If a country requested a waiver of the prohibition of importing marine products and provided documentation of the following conditions, NOAA could waive the moratorium. The population stock from which the animals came would have to be within their Optimum Sustainable Population levels, and the taking for importation would not cause the population level to drop below their optimum sustainable yield. In addition, regardless of the waiver provision, there are several prohibitions of the MMPA that would continue to apply to any import. Marine mammals or marine mammal products cannot be imported if the marine mammal was pregnant, nursing, or less than 8 months old at the time of the taking, taken from a stock designated as depleted, taken in an inhumane manner, taken in violation of the MMPA or in violation of the law of the country in which it was taken, or the sale of the marine mammal product is illegal in the country of origin.

Question (Canada) If the conditions for a waiver were met, how would such a waiver be implemented for the commercial import and retail of marine mammal products?

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Answer The process for waiving the moratorium is a formal rule-making that includes a hearing before an Administrative Law Judge, and any person could request, in writing, to be a party to the hearing. The entire process can be summarized as follows: 1. Waiver and regulations - Formal rulemaking process in accordance with 50 CFR part 228 and considering the criteria described above. If a waiver is warranted, NMFS would need to promulgate regulations that would allow issuance of permits to import marine mammal products for commercial purposes. 2. Permits - NMFS could then issue permits in accordance with the regulations. Question (Canada) How can the waiver process be justified as relief from the import ban considering WTO obligations? Answer The United States believes that the regulatory regime under the Marine Mammal Protection Act, as described in the detailed answers to Canada's questions, is consistent with our WTO obligations. In addition to a waiver, Canada understands that permits would be required to import and sell marine mammal products in the US. However, the MMPA and its regulations do not provide for commercial imports or sales in the United States. Question (Canada) How do permits allow for the commercial importation and retail of marine mammal products? Answer The waiver process itself involves formal rulemaking that would allow the issuance of permits to import marine mammal products for commercial purposes. The permits could be issued in accordance to the regulations that were promulgated following the formal rulemaking and the waiver of the moratorium. Question (Canada) How can that be justified considering WTO obligations? Answer The United States believes that the regulatory regime under the Marine Mammal Protection Act, as described in the detailed answers to Canada's questions, is consistent with our WTO obligations. If the waiver provisions of the MMPA do provide relief from the trade ban with respect to marine mammal products, then the Presidential order that consideration be withheld “...of any Canadian requests for waivers to the existing moratorium on the importation of seals and/or seal products into the United States” removes any possible relief from the trade ban for Canada.

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Question (Canada) How is this defensible under WTO obligations? Answer The United States believes that the regulatory regime under the Marine Mammal Protection Act, as described in the detailed answers to Canada's questions, is consistent with our WTO obligations. Question (Colombia #1) Paragraph 128 of the Secretariat’s report states that in order to meet the Constitutional requirements of due process, most States have enacted statutes containing transparency procedures. For example, most States have enacted administrative procedure acts whose procedures are similar to those of the federal APA. The majority of States have also enacted statutes that provide for public access to information and judicial procedures. As regards Technical Regulations applied to products, what progress has been made in standardizing requirements at the state and federal level? Answer Title IV of the Trade Agreements Act of 1979 (Public Law 96-39), as amended by the Uruguay Round Agreements Act (Public Law 103-465), prohibits U.S. agencies from employing standards, technical regulations or conformity assessment procedures as unnecessary obstacles to trade. This legislation includes the Administration’s commitment to promote state agencies’ compliance with U.S. obligations under the WTO through reasonable measures including through state-federal consultation and cooperation. Should specific questions regarding the WTO consistency of state or local regulations or procedures be brought to our attention, USTR would engage in consultations with interested state authorities to ascertain whether there is in fact a compliance issue and, if so, how best to proceed. Question (Colombia #5) Paragraph 142 of the report explains that APHIS has regulatory responsibility to safeguard U.S. animal and plant resources from exotic pests and diseases. In the case of risk analysis specifically, where there are delays in the approval process, have measures been taken to expedite the process? Answer USDA has substantially increased staffing to perform and review risk assessments over the past few years. Question (EU #5) Reference: Bio-terrorism Act of 2002 Why did the FDA not carry out a specific risk assessment during the development of the proposed set of four far-reaching rules to implement the food-related provisions of this Act?

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Answer FDA has published the risk assessment with the interim final rule. Under the U.S. system, legislation is not normally put into effect until the final regulations take effect. The risk assessment may be found on the FDA Website at http://www.cfsan.fda.gov/~dms/rabtact.html. Question: What efforts are being made by the FDA to reduce the impact of these new measures on trade? Answer FDA has encouraged public comment at every stage of the bioterrorism regulations’ development. FDA developed and published proposed regulations which were open to public comment from both domestic and foreign parties. We also conducted numerous outreach meetings directed at foreign stakeholders, both within the U.S. to foreign embassy officials in Washington and via videoconference. We received numerous comments from foreign governments, industries, and trade associations on both rules. We reviewed each comment that was submitted during the comment period and developed the final rule, taking the comments into account. In the case of the prior notice and registration regulations, we are allowing for several opportunities for interested individuals to provide comments even as we begin implementing the interim final rule to make sure that we minimized any negative effect on trade while ensuring our food safety and security. We have published a compliance policy guide that describes the US strategy for maintaining an uninterrupted flow of food imports while improving their safety in accordance with the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act) requirements. Question: Will there be a review mechanism of the parent legislation from the date of implementation of the new measures, and if not, why not? Answer The Public Health Security and Bioterrorism Preparedness and Response Act of 2002 was signed into law by President Bush, on June 12, 2002. It is now public law (PL107-188). It is the U.S. legislative body - our Congress - that makes laws and amends existing laws. From time to time, Congress reviews existing legislation as it deems necessary. Question: More specifically regarding the new record-keeping measures, what efforts are being made to improve the manifest lack of communication between US agencies such as the FDA, Tax and Trade Bureau, and US Customs? Answer FDA has worked closely with sister agencies in the development of the bioterrorism regulations. In the US regulatory system, the Office of Management and Budget coordinates all draft proposed and final rules and ensures that all regulations are reviewed by any agency that may be affected by the regulation. Any affected agency may provide comments or not clear a regulation pending further consideration. This process makes sure that all affected agencies are consulted prior to a regulation being published.

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Question (Korea) Reference: page 65, para.146-149 Does the US government have any intention to streamline such burdensome procedural requirements? Answer FDA has encouraged public comment at every stage of the bioterrorism regulations’ development. FDA developed and published proposed regulations which were open to public comment from both domestic and foreign parties. We also conducted numerous outreach meetings directed at foreign stakeholders, both within the U.S. to foreign embassy officials in Washington and via videoconference. We received numerous comments from foreign governments, industries, and trade associations on both rules. We reviewed each comment that was submitted during the comment period and developed the final rule, taking the comments into account. In the case of the prior notice and registration regulations, we are allowing for several opportunities for interested individuals to provide comments even as we begin implementing the interim final rule to make sure that we minimized any negative effect on trade while ensuring our food safety and security. We have published a compliance policy guide that describes the US strategy for maintaining an uninterrupted flow of food imports while improving their safety in accordance with the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrorism Act) requirements. FDA included an economic impact analysis in the proposed rules for affected entities to review and provide comment, and made revisions to the rules based on the comments we received to further minimize the impact to trade consistent with the requirements in the Act. Both interim final rules include a regulatory impact analysis. Question (Switzerland #1 set II) Switzerland has taken note that the U.S. has not yet ratified neither the PIC, the POPs nor the Basel Convention although the U.S. is one of the main financial contributors to these conventions. What are the U.S. intentions referring to the ratification of these chemical and waste conventions? Answer The United States intends to join the PIC, POPs and Basel Conventions and is currently developing the necessary implementing legislation in order to join. Chapter 3 - BY MEASURE (5) Subsidies Question (China #11 and #12) FSC/ETI (12) Would the US Government expect that other Members will follow the practice of the US thus harming the world environment of fair trade and the implementation of WTO Agreements? (13) Does the US have any plan on repealing or amending the relevant legislation inconsistent with the WTO Agreements?

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Answer The United States has made clear its commitment to work with the U.S. Congress to fully comply with the prior recommendations and rulings of the Dispute Settlement Body concerning the Extraterritorial Income Act. Both branches of Congress are currently considering legislative proposals that would repeal the ETI Act. While the United States cannot specify the precise date on which this will occur, the United States is confident that the ETI Act will be repealed in the reasonably near future. Question (Brazil) How does the American federal government follow the initiatives of business assistance at local levels and check their compatibility with the WTO rules? How are the U.S. commitments to the WTO complied at local levels since those initiatives are not notified to the Federal Government? Answer The United States federal government has devoted considerable time and resources in working with government officials at the sub-federal level to ensure their cognizance of the commitments the United States has undertaken as a WTO Member. The current degree of close cooperation between federal and sub-federal governments is evidenced by the subsidies notification made by the United States in 2003 to the Committee on Subsidies and Countervailing Measures pursuant to Article 25 of the Agreement on Subsidies and Countervailing Measures (see, G/SCM/N/95/USA). In this notification, the United States notified 330 sub-federal programs, nearly double the number of programs notified in 2002. Chapter 3 - BY MEASURE (7) Intellectual Property Rights Question (Canada) Reference: (v) Intellectual Property Rights; Section 337 investigations; Paragraph 297 In 1989, a GATT panel found that Section 337 of the United States Tariff Act of 1930 violated GATT obligations and yet, as noted in paragraph 297, 47 new Section 337 investigations involving unfair practices related to intellectual property rights were initiated against foreign companies. What steps are being taken by the United States to ensure that non-American companies do not face additional procedural burdens in defending against allegations of intellectual property infringement, contrary to international trade obligations? Answer The United States amended section 337 of the Tariff Act of 1930, 19 U.S.C. para. 1337, as part of U.S. implementation of the Uruguay Round results. These amendments addressed the recommendations of the GATT panel cited in the question. Specifically, inter alia, the amendments: - Eliminated the requirement that the USITC issue a final determination within a fixed period of

time. Instead, the amendment provides that the ITC must complete its investigation "at the earliest practicable time" and requiresthe USITC, within 45 days of initiating an investigation, to establish a "target date" for its completion. See 19 U.S.C. para. 1337(b)(1). These requirements

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are consistent with federal district court rules and district court efforts to avoid delay, such as by establishing a schedule for the completion of various stages of litigation;

- Provide a means to prevent subjecting imported goods to infringement proceedings in two fora

simultaneously. A district court hearing an infringement case is required to stay its proceedings, at the request of a respondent in a section 337 proceeding, in respect of any claim involving the same issues as those pending before the ITC. In addition, the statute provides for the record in an ITC proceeding to be transferred to the Federal district court for its use, with the intended benefit of eliminating any duplication of effort or expense; and

- Provide that a respondent in a section 337 action may file with the USITC any counterclaim that

may be filed with a federal court. If the claim is of the form of a defense to the alleged violation of section 337, the USITC will consider the matter; otherwise the counter claim is removed to a federal district court. See 19 U.S.C. para. 1337(c).

Question (Chile #9) While the subject of exhaustion of rights with respect to copyright and patents seems clear, such is not the case with regard to manufacturing marks or trademarks. Could you specify the rules that apply to the exhaustion of rights for manufacturing marks or trademarks and the applicable norms or case law? Do the same legal provisions apply to geographic indications? Answer Current U.S. law provides owners of U.S. registered trademarks with the legal basis to stop parallel imports. The underlying law that establishes U.S. national exhaustion can be found in the U.S. Customs provision 19 U.S.C. 1526(a)-(c). Under 15 U.S.C. §1054, registered certification marks and collective marks are afforded the same protection afforded to trademarks; therefore, the owner of a registered geographical indication certification mark also has the legal basis to stop parallel importation. See also, K Mart Corp. v. Cartier, Inc., 486 U.S. 281 (U.S. 1988) and Lever Bros. Co. v. United States, 796 F. Supp. 1 (D.C. Cir. 1992). Question (Chile #9 bis) Is there any recent case law regarding Title 28 USC 1498? Please indicate to what cases the pertinent legal decisions refer. Answer Yes, there are several recent cases cited in the 2003 “Cumulative Annual Pocket Part (on pages 153-158) of the United States Code Annotated (© 1994, West Publishing Co., St. Paul, Minnesota), dealing with a variety of issues, including what is “reasonable and entire compensation”, infringement, jurisdiction, etc. Because of the number and variety of cases, no attempt is made to summarize them here. Question (Chile #10) Once a drug has been registered in the Orange Book, the owner of a patent can prevent the entry on the market of a generic competitor by filing a lawsuit. This stays the entry of the generic product on the market for a period of 30 months or until the suit is settled. Does U.S. law provide for the possibility that the generic drug can be put on the market if the patent expires during the 30-month period or before the suit is settled? Are there any statistics available as to how long these lawsuits take?

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Answer If the patent expires before the 30 -month period or before the law suit is settled, the generic is permitted to enter the market. On average the time between the filing of a patent infringement lawsuit and a district court decision in each case was 25 months and 13 days. Question (China #75) Reference: p. 92, para 270 The U.S. is the only country in the world that adopts the “first invent” system in judging the novelty of patents. The “first invent” system prima facie conforms to National Treatment and MFN rule, however it has caused many inconveniences to national of WTO Members. For example, Article 102 of the Patent Act of the US states that criteria of novelty for inventions created in the US are different from those for invention completed out of the US. Comparing with the US applicants, the above provision is obviously unfavorable to foreign applicants filing applications for patents in the US. Please elaborate what actions the US intends to take to make foreign applicants in an equal position with the US applicants. Answer See answer to Question # 50 (Japan) regarding the first-to-invent system. The suggestion is made in the question that the operation of Section 102 of U.S. patent law produces an effect that favors nationals of the United States. There is no basis for this suggestion. Section 102(a) of the United States patent statute does limit the patent-defeating effect of prior public knowledge or use to knowledge or use of the invention in the United States. The effect of section 102(a) is that an invention claimed in an application for a United States patent will not be treated as being novel if the invention has been disclosed or known to others in the United States. Section 102(a), however, does not distinguish between applications claiming inventions made in the United States versus those made outside the United States; any application for patent that fails to possess novelty through operation of section 102(a) is treated as unpatentable subject matter. Application of section 102(a) is made in an identical fashion to applications for inventions developed in the United States and those that are made outside the United States. Question (China #76) Reference: p. 94, para 277 Section 1498 of the US Code states that when products manufactured and used by the US Government or manufactured or used upon a request by the US Government involve a patent, the patentee has no right to prevent the manufacturing and use of the products by the US Government. This situation is akin to compulsory licensing system without the permission of the patentees as stipulated in Article 31 of TRIPS, but protections to the patentees provided in relevant act of the US is much weaker than those provided in Article 31 of TRIPS. Please explain the consistency of this act with Article 31 of TRIPS.

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Answer Section 1498 of Title 28, United States Code, concerns a limitation on remedies that can be obtained from the United States Government for public non-commercial use of a patented invention by it or a party authorized by it. The United States routinely seeks licenses or permission to use the patented invention from the patentee. In the unlikely event a patentee believes the United States is using the patented invention without permission of the patentee, the United States has waived its sovereign immunity to suits against the United States for infringement of patents. Section 1498 codifies the explicit waiver. Article 44.2 of the TRIPS Agreement authorizes Members to limit the remedies available against non-commercial use of a right by the government to payment of remuneration in accordance with paragraph (h) of Article 31. The United States does limit remedies in this manner; however, Section 1498 does provide for reasonable compensation for use or manufacture of a patented invention by or for the United States. In any event, to the extent applicable, all of the relevant provisions of Article 31 are still complied with. The U.S. Federal Acquisition Regulations -- codified uniform policies used by government agencies when acquiring goods or services -- call Article 31(b) of TRIPS to the attention of the agencies. FAR 27.209 notifies contracting officers of U.S. agencies that Article 31 of TRIPS applies where the law of a member country allows for the use of patents without authorization and advises the contracting officers to consult with legal counsel regarding questions under this section. Question (China #77) Reference: p. 95, para 281 Please provide information on the implementation of the obligation to protect well-known trademark under the TRIPS Agreement in the US domestic legislation and judicial practices. Answer The United States fully implements its obligations under both the Paris Convention and the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) with regard to well-known marks. The United States protects registered as well as unregistered well-known marks, of both domestic and foreign origin, from use and/or registration through the operation of Lanham Act §43(a), §44(b) and §44(h) and under the Lanham Act §2(a) and 2(d). (15 U.S.C., §1125(a), §1126(b) and (h), and §1052(a) and (d)). In cases where there is no use in commerce of the well-known mark in the United States, but the mark is still well-known in the relevant sector of the public, the mark will receive U.S. federal unfair competition protection under the Lanham Act §43(a), §44(b) and §44(h). Lanham Act §44 grants “national treatment” to foreigners entitled to the benefits of the Paris Convention with regard to protection against unfair competition. U.S. federal law protects a mark against infringement or registration by another, whether the mark is registered or not, for goods or services that are the same, similar, related or even unrelated if there is a likelihood of confusion. When making a determination of likelihood of confusion at the United States Patent and Trademark Office (USPTO) or in an infringement action in U.S. federal court, U.S. case law outlines a variety of non-exclusive and non-exhaustive factors that can be used in the analysis. These factors include, but are not limited to, the similarity of the marks, the relatedness or proximity of the goods and/or services, the strength of the plaintiff's mark including the level of commercial recognition, marketing channels used including the similarity or dissimilarity between the consumers of the parties' goods and/or services, the degree of care likely to be exercised by purchasers in selecting goods and/or services, the defendant's intent in selecting its mark, the evidence of actual confusion, the likelihood of expansion in product lines, etc. USPTO Examining Attorneys may refuse to register marks that conflict with unregistered well-known marks, foreign or domestic, whether used or not in the United States, under Lanham Act §2(a) and (d).

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(15 USC §1052(a) and (d)). The USPTO does not make a specific determination in examination as to whether a mark is well-known. USPTO evaluates the strength of the mark in determining the scope of protection to afford a previously registered or unregistered mark against a pending application. Under U.S. law, strong or well-known marks have a wider scope of protection than weaker marks against use of the mark on similar goods or services or even against use on unrelated goods or services. Question (China #78) Reference: p. 97, para 293 The exceptions to copyright protection (Limitations on exclusive rights: Exemption of certain performances and displays) as specified in Article 110.5 of US Copyright Act is inconsistent with Article 13 of TRIPS. Is the US going to make any amendment to such provision so as to make it consistent with the TRIPS Agreement? Answer Please see the response to Question 56 from Japan. Question (China #79) Does the US Government have any plan for such amendment? If yes, please provide the detailed information. Answer Please see the response to Question 56 from Japan. Question (Colombia #1) Paragraph 270 of the Report establishes that, in the case of USPTO-caused delays in the granting of patents, there are formulas to calculate the extension of the term of patent protection. Could you explain how the formula works and give examples of its application? Answer 35 U.S.C. § 154(a)(2) sets the term of a granted U.S. patent at 20 years from the effective U.S. filing date. 35 U.S.C. § 154(b) sets forth conditions under which the patent applicant may extend the patent term to recoup time lost due to administrative delays caused by the PTO. There are five categories of administrative delay for which patent term adjustment may be sought:

(1) failure by the PTO to take certain actions within a specified time; (2) failure by the PTO to issue a patent within 3 years of the application filing date; (3) delays due to successful appellate review; (4) delays due to interference proceedings; and (5) delays due to secrecy orders.

The total period of term extension is the sum of the delays attributable to each of the above-listed categories to the extent that they do not overlap. Thus, the term cannot be extended beyond the actual length of the delay caused, i.e., the same delay, though attributable to more than one category, is counted only once. The statute also allows for a reduction in the patent term restoration to the extent

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of delays caused by the applicant’s failure to engage in reasonable efforts to prosecute the application. The net restoration term is therefore the difference between the amount of delay caused by the PTO minus the amount of delay caused by the applicant. Once an application has been allowed, the PTO calculates what it considers the proper term of adjustment, extending the term one day for each day of the pendency of the delays described above, and provides the applicant with one opportunity to request reconsideration. If, upon reconsideration, the applicant is dissatisfied with the PTO’s determination of adjustment, the applicant may appeal by way of a civil suit against the Director in D.C. District Court. Question (Colombia #2) Is there a similar extension period for delays in the approval for marketing products undergoing the permit process with regulatory agencies like the FDA or the EPA? Answer Yes. The decision of the length of the patent term extension (PTE) is a decision made by the United States Patent and Trademark Office, with input as to the length of the regulatory review period, the approval date, and any prior approvals from the Food and Drug Administration (or the Department of Agriculture, if appropriate). 35 USC 156 provides that a patent owner may file an application for PTE to the USPTO within 60 days of approval of the product by the Food and Drug Administration (FDA). Upon receipt of the application, the USPTO reviews the application for completeness, and forwards a copy of the application to FDA, and requests FDA to confirm the approval date of the product, and that the approval of the product was the first permitted use or commercial marketing of the product under the pertinent section of the Federal Food, Drug and Cosmetic Act. If the application is found to be eligible for extension, the USPTO requests that FDA determine the regulatory review period of the product. FDA notifies the USPTO of the determination, and publishes the determination of the regulatory review period in the Federal Register. For a drug product, the "testing phase" is the period from the beginning of testing (defined in the statute as the date an exception under subsection (i) of section 505 of the Federal Food, Drug, and Cosmetic Act (FFDCA) became effective, and ending on the date an application was initially submitted for the drug product under section 351 or 505 of the FFDCA (i.e., the filing of the new drug application (NDA)). For a drug product, the "approval phase" is the period beginning with the filing of the NDA and ending with the approval of the NDA. See 35 USC 156(g)(1)(A). The time the marketing applicant takes to reply to FDA queries is not taken out of this period. The USPTO then determines the patent term extension. The statute permits a patent owner who has lost patent term due to regulatory review by the FDA to be compensated for the lost term that is no longer than one half of the "testing phase" of the regulatory review plus all of the "approval phase" of the regulatory review. If the number of days in the expression (½("testing phase") plus all of the "approval phase") when added to the original expiration date of the patent would extend the patent to more than 14 years after the approval date of the product by FDA, then the patent term extension is shortened to the difference in time between the original expiration date of the patent and the date that is fourteen years after the approval date of the product. Finally, if the patent term extension according to the earlier calculations would be longer than 5 years, then the PTE is capped at five years. However, if the patent issued before September 24, 1984, and testing began before September 24, 1984, then the cap would be two years, or, if the patent is to an animal drug product, if the patent issued, and testing began, before November 16, 1988, then the cap would be three years.

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Question (Colombia) We have learned that the United States Congress passed the “Fairness in Music Licensing Act of 1998,” thereby amending article 110 (5) regarding limitations to exclusive rights. We understand this law allows some uses without prior and express consent from the right-holder and without remuneration. This situation affects Colombian authors, as we understand it allows for the use, under the conditions described above, of a wide array of Colombian musical works and performances having a large audience in the United States. Has the United States considered amending article 110(5)(A), given the harm this limitation causes copyright-holders from other countries? Answer Please see the response to Question 56 from Japan. Question (EU #45) US law stipulates that the U.S. Government can allow use of the subject matter of a patent without the authorization of the right holder. Does US law provide that the right holder will be notified of such decision as soon as reasonably possible, and does it foresee the payment of adequate remuneration to the right holder? Answer Yes, see answer to question # 76 from China. Question (EU #50) According to US government information, CAFTA would include a provision regarding trade marks and geographical indications based on a "first in time, first in right" principle. Could the US elaborate about these provisions? Answer

While the US-CAFTA FTA text is not yet public, the United States views the concept of "first in time, first in right" as confirming the appropriate balance between trademarks and geographical indications and ensuring that trademarks are fully protected against later established geographical indications. Question (Japan #45) Reference: p.90, para. 265 Please explain how many cases have been judged as having infringing importation (right to control the imports of copyright products) under Article 602 of the Copyright Act? Are there any other cases of having infringing importation, except for the musical CDs? Please provide some statistics on these infringing importation cases. In addition, please explain the relation between controlling the imports of a copyright product and the anti-trust law. Answer Section 602(a) of the U.S. Copyright Act makes the unauthorized importation into the United States of “lawfully made” copies or phonorecords “acquired outside of the United States” an infringement of the distribution right. Section 602 (b) of the Act prohibits the importation of unlawfully made, or

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piratical, copies or phonorecords. Section 602 is not limited to a specific category of protected work (such as sound recordings in the CD format), but rather covers all protected subject matter, including literary works, works of visual art, and audiovisual works. Under sections 602 and 603, U.S. Customs is authorized to seize imports at the border of articles that are made without authorization (i.e., were unlawfully made) and does so on a regular basis. U.S. Customs has no authority to stop the importation of products lawfully made outside the U.S., so it cannot seize parallel imports at the border (i.e., articles that infringe only Section 602(a). Rightsholders, however, have a private right of action under Section 602 to stop infringing parallel imports. Customs does not break down its statistics concerning infringing imports in such a way that we can determine the total number of infringing “parallel” imports seized. Here is the link to the Customs Rulings Online Search System (CROSS): <http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure>. A search of US federal case law reveals approximately thirty cases in which a US federal court has cited Section 602 of the United States Copyright Act. The cases represented many categories of works, including videogames, toys, works embodied in consumer products, sound recordings, and books. US courts have held that the mere exercise of one of the copyright owner's exclusive rights does not create an antitrust violation. If the alleged infringer believes that the exercise of the importation right creates an antitrust violation, then the defendant may raise antitrust or "copyright misuse" defenses. Question (Japan #46) Reference: p. 91, para. 266, p. 92, para. 270 and p. 93, para. 272) Japan has faithfully implemented the "Japanese Actions to be taken by the Patent Office", confirmed by the Japan Patent Office (JPO) and the United States Patent and Trademark Office (USPTO) during the 1994 intellectual property rights working group of the Framework Talks. However, the US has never entirely implemented the introduction of an early publication system without exceptions, nor the improvement of re-examination. Japan strongly requests the US to implement these items in accordance with the agreed actions promptly. Answer The provisions for the adoption of an “early publication” system in the United States that were originally sent to the U.S. Congress (in the 104th Congress) were fully consistent with the obligations of the 1994 United States-Japan patent accords. U.S. obligations in those 1994 patent accords were satisfied by the timely introduction of the relevant bill in the 104th Congress. The U.S. made every effort to have legislation passed that was consistent with the 1994 patent accords, and Congress enacted Public Law 106-113 on November 29, 1999. This law contains a provision to publish, within 18 months, most patent applications filed in the United States. The law also added new opportunities for third parties to participate in reexaminations, including determinations made by the patent examiner to the Board of Patent Appeals and Interferences, in accordance with the understanding reached as part of the Framework Talks. The U.S. Congress more recently passed legislation that would provide for third party appeals to the Federal Circuit in inter partes reexamination. (See Section 13106 of 5P.L. 107-273.) Question (Japan #47) In particular, in order to tackle the following issues, Japan requests the US to promptly implement these items in accordance with the agreed actions of the Framework Agreement in order to abolish the

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early publication systems with exceptions, and to disclose all applications, excluding those non-pending and those under secret order, within 18 months after the first filing date of the patent application. (a)The early publication system in the US, which was introduced in November 2000, provides exceptions whereby patent applications filed in the US, but not filed overseas, or matters included in a patent application filed in the US, but not included in the corresponding application filed overseas, cannot be laid open at the request of the applicant. It might be, therefore, possible that a patent will be granted after a long undisclosed period ("Submarine Patent"). Without knowing whether or not another application is already on file for the same invention, it is unavoidable to invest in R&D in duplication; thus, we are concerned that this system causes serious social and economic loss. Answer Because most patent applications filed in the United States are published within 18 months, we believe that experience with our publication system will demonstrate over time that the need for exceptions will be proven to be unwarranted. Moreover, continuing efforts to further reduce patent pendency in the United States will help to alleviate any problems that these exceptions may cause. (b)Furthermore, USPTO provides that patent protection may be extended to compensate for any amount of processing delays and USPTO-caused delays. Japan would like to point out that there is a possibility of deliberate delays being caused, and that under the current US system of not having an adequate early publication system, there would be other opportunities to create a submarine patent through the extension of patent terms. Answer Extensions of patent term are not available for delays caused by a patent applicant. Question (Japan #48) In addition, any pending applications, already filed with the USPTO at the time of the amendment of the law (before June 8, 1995), continue to benefit from the former patent terms (i.e. a 17-year patent term from the date of the patent grant); the amended patent law not being applicable. There is still, therefore, the possibility that additional submarine patents occur. Answer Because average patent pendency in the United States is approximately two years, the possibility of submarine patents occurring based on applications pending on June 8, 1995, has greatly diminished over time and will continue to do so.

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Question (Japan #49) Reference: pp.91-94, paras. 268-279 Regarding the Plant Breeder's Right, Japan understand that the US is a member of the 1991 Act of the UPOV Convention and that it protects new plant varieties through the Plant Variety Protection (PVP) law and the patent law. (a)Please explain the acts that will cause loss of "novelty" under both the PVP law and the patent law as a plant patent. Answer Under 7 U.S.C. 2402 of the Plant Variety Protection Act (PVPA), a plant variety is deemed new if on the date of filing of the application for plant variety protection, propagating or harvested material of the variety has not been sold or otherwise disposed of to other persons, by or with the consent of the breeder, or the successor in interest of the breeder, for purposes of exploitation of the variety (1) in the United States, more than 1 year prior to the date of filing, or (2) in any area outside of the United States, more than 4 years prior to the filing of the application or in the case of a tree or vine, more than 6 years prior to the date of filing. Under the PVPA, therefore, acts that do not meet these conditions would result in a loss of novelty. Any sexually reproduced or tuber propagated plant variety (other than fungi or bacteria) are covered under the PVPA. (See Section 3 of Public Law 103-349, 108 Stat. 3138, and Sec. 913(a) of Public Law 104-127, 110 Stat. 1186.) Under the Plant Patent Act, a plant variety is deemed new unless: (a) the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent, or (b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States, or (c) he has abandoned the invention, or (d) the invention was first patented or caused to be patented, or was the subject of an inventor’s certificate, by the applicant or his legal representatives or assigns in a foreign country prior to the date of the application for patent in this country on an application for patent or inventor’s certificate filed more than twelve months before the filing of the application in the United States, or (e) the invention was described in — (1) an application for patent, published under section 122(b), by another filed in the United States before the invention by the applicant for patent or (2) a patent granted on an application for patent by another filed in the United States before the invention by the applicant for patent, except that an international application filed under the treaty defined in section 351(a) shall have the effects for the purposes of this subsection of an application filed in the United States only if the international application designated the United States and was published under Article 21(2) of such treaty in the English language; or (f) he did not himself invent the subject matter sought to be patented, or (g)(1) during the course of an interference conducted under section 135 or section 291, another inventor involved therein establishes, to the extent permitted in section 104, that before such person’s invention thereof the invention was made by such other inventor and not abandoned, suppressed, or concealed, or (2) before such person’s invention thereof, the invention was made in this country by

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another inventor who had not abandoned, suppressed, or concealed it. In determining priority of invention under this subsection, there shall be considered not only the respective dates of conception and reduction to practice of the invention, but also the reasonable diligence of one who was first to conceive and last to reduce to practice, from a time prior to conception by the other. The Plant Patent Act 35 U.S.C. 161, applies to asexually reproduced varieties, other than a tuber propagated plant or a plant found in an uncultivated state. With respect to novelty, this Act incorporates the requirements of 35 USC 102 in the Patent Act. See Public Law 92-358, sec. 2, 86 Stat. 501; Public Law 94-131, sec. 5, 89 Stat. 691; Public Law 106-113, sec. 1000(a)(9), 113 Stat. 1501A-565 (S. 1948 sec. 4505); Public Law 106-113, sec. 1000(a)(9), 113 Stat. 1501A-590 (S. 1948 sec. 4806); Public Law 107-273, sec. 13205, 116 Stat. 1903.) Under United States law, however, in order for a publication to defeat novelty, the publication must be an enabling publication under 35 U.S.C. 112, 1st paragraph. Any acts consistent with the above, will defeat novelty under the Plant Patent Act. Question (i) Do the acts of publication, such as the publication of catalogues, the publication of the application in other countries, or the publication of papers on a certain variety, cause a loss of "novelty" of the variety in question? Answer A printed publication can serve as a statutory bar under 35 USC § 102(b) of the Plant Patent Act if the reference, combined with knowledge in the prior art, would enable one of ordinary skill in the art to reproduce the claimed invention, see In re LeGrice, 301 F.2d 929 (CCPA 1962). Therefore, if the plant in question was publicly available, then the granted PBR certificate, combined with knowledge in the prior art, would enable one of ordinary skill in the art to reproduce the claimed plant, and would therefore constitute an enabling disclosure under 35 USC § 102(b), see Ex Parte Thomson, 24 USPQ2d 1618 (Bd. Pat. App. & Int. 1992). The public availability referred to here may include availability to the public in a foreign country. For example, a foreign Plant Breeder’s Right (PBR) certificate may be considered a “printed publication,” and may therefore be prior art against an invention under 35 USC § 102(b), if it constitutes an “enabling disclosure”. This availability must not be confused with the statutory bar of prior use or sale, also contained in section 102(b), as foreign prior use or sale, as such, is not a bar to patentability in the United States. Question (ii) According to the UPOV Act, "the variety shall be deemed to be new if, at the date of filing of the application for a breeder's right, propagating or harvested material of the variety has not been sold or otherwise disposed to others, by or with the consent of the breeder, for purposes of exploitation of the variety". However, the cases described above are acts of publication of the variety, and no act relating to sale or otherwise disposed to others for propagating material or for harvested material are involved. If the cases described above suffer a loss of "novelty" for a variety in the US, please explain why. In addition, please provide the US’s interpretation of Article 6 of the 1991 Act of the UPOV Convention. Answer With the exception of tuber propagated plants (which are subject to the PVPA), asexually reproduced plant varieties are not subject to the PVPA under United States law. Additionally, the United States made a reservation pursuant to Article 35(2) of the 1991 UPOV Convention when it ratified the Convention, and therefore, asexually reproduced plants are not subject to the 1991 UPOV Convention

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(with the exception of tuber propagated plants). Thus, if an asexually reproduced variety loses novelty based on a publication, this is because 7 USC 2402 (which is consistent with Article 6 of UPOV) is not the controlling law; 35 USC 102 is the law that is applied to asexually reproduced plant varieties. Some situations which would result in a loss of novelty under Article 6 of the 1991 UPOV Convention would include sale of a variety in United States more than 1 year prior to filing for a plant breeder’s certificate in the United States, sale of a variety in a foreign country more than 4 years (or 6 years for trees or vines) prior to filing for a plant breeder’s certificate in the United States, or giving away a variety for exploitation within the prescribed time periods, for example. Question (iii) The 1991 Act of the UPOV Convention states that there are certain grace periods for novelty: one year for that taking place within the territory of the Contracting Party and four years (six years for trees and vines) for that outside the territory. Please provide information on the relevant provisions of the grace periods in the US, both under the PVP law and the patent law. Answer 7 U.S.C. 2402 describes the circumstances for which novelty is defeated under the Plant Variety Protection Act. 35 U.S.C. 102 describes the circumstances for which novelty is defeated under the patent law. A prima facie case is made out under 35 U.S.C. 102(a) if, within 1 year of the filing date, the invention, or an obvious variant thereof, is described in a “printed publication” whose authorship differs in any way from the inventive entity unless it is stated within the publication itself that the publication is describing the applicant’s work. In re Katz, 687 F.2d 450, 215 USPQ 14 (CCPA 1982). The term “others” in 35 U.S.C. 102(a) refers to any entity which is different from the inventive entity. The entity need only differ by one person to be “by others.” This holds true for all types of references eligible as prior art under 35 U.S.C. 102(a) including publications as well as public knowledge and use. Any other interpretation of 35 U.S.C. 102(a) “would negate the one year [grace] period afforded under § 102(b).” In re Katz, 687 F.2d 450, 215 USPQ 14 (CCPA 1982). Question (b) Is there any plan to change the provisions for "novelty" in the US laws in the future? If so, please indicate the details of the changes and the timetable. Answer A bill has been introduced before the 108th Congress, but when or if this Congress will take action on this bill is unknown.

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Question (Japan #50) Reference: p.92, para. 270 The US is the only country to use a "first-to-invent" system, which, with regard to the patent system, makes the US rather unique. Moreover, this system lacks certainty and predictability in the sense that a patentee’s status can be overturned by the appearance of a subsequent prior inventor. This involves additional burden to inventors, who are thus required to prepare and keep documentary evidence to prove the date of invention. Many countries, including Japan, have pointed out that this issue creates a barrier for foreign companies when trying to penetrate the US business community. Although the practice of maintaining the first-to-invent system is not necessarily against the TRIPS Agreement, Japan again requests the US to adopt the first-to-file system. This is due to the necessity to maintain a transparent and stable system, as well as to reduce the burdens borne by users through the differing systems. Answer Although the U.S. first-to-invent patent system is unique, it is clearly compatible with the TRIPS Agreement, it has worked well and, indeed, has certain advantages. For example, our system is fairer than first-to-file systems in that it rewards the first inventor who files a patent application rather than the first-to-file an application, regardless of whether that first applicant to file an application was, indeed, the first inventor. From a purely statistical viewpoint there would seem to be little difference in result between a first-to-invent patent system and a first-to-file patent system. More than 99.9% of patent applications filed in the U.S. raise no dispute as to priority of invention. Even when such disputes arise, the inventor who filed first prevails in a significant majority of these cases. The actual effect of a switch to first-to-file system, thus, is likely to have little or no actual significance based upon these statistical findings. With regard to the alleged burden imposed by a first-to-invent system with regard to documentary evidence to prove the date of invention, it should be kept in mind that inventors in most first-to-file systems also maintain such evidence in order to be able to assert “prior user rights” or derivation. Documentary and other objective evidence is required to establish prior user rights in cases where an earlier inventor wishes to continue using an invention that was patented by another party that filed first, and obtained, a patent on that invention. Such evidence is also required prove inventorship where the first person to file derived the invention from the true inventor and is not entitled to the patent. Question (Japan #51) Reference: p.93, para. 271 The "Hilmer" doctrine, which exists in the US, is an application which has a prior art effect only up to the date of the application in the US. Foreign applicants usually file applications, first in their own country and then in the US, thereby claiming priority under the Paris Convention. Due to the "Hilmer" doctrine, such foreign applicants cannot prevent the patent grant from conflicting with applications filed before the actual filing date of any subsequent applications in the US, even during the priority period, and therefore may suffer a disadvantage. Answer The concerns of the Hilmer Doctrine, if any, were mitigated to a large extent by changes to the US patent law that went into effect on June 8, 1995. These changes permit all patent applicants, including those from Japan, to file provisional patent applications that will give them the earliest possible prior

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art date for subsequently filed non-provisional applications. It should also be noted that this issue is under discussion in the ongoing substantive patent law harmonization talks in WIPO. Question (Japan #52) This might be against Article 4B of the Paris Convention, which stresses that acts by a third-party in the priority period "cannot give rise to any third-party right or any right of personal possession" and Article 2.1 of the TRIPS Agreement, which requires compliance with Article 4 of the Paris Convention. Japan therefore requests the US to revise its system. Answer The effective date of a patent application as a prior art reference under the so-called "Hilmer" doctrine is not inconsistent with the obligations of Article 4B of the Paris Convention, as it does not affect the ability of an applicant to obtain a patent where the applicant has made a priority claim that establishes an effective filing date prior to the effective prior art date of the patent. Note that WIPO’s Patent Cooperation Treaty explicitly allows countries to apply the Hilmer doctrine in Article 64.4. Question (Japan #53) Reference: p.94, para. 275 Japan understands that the USPTO implemented a public comment procedure, and is trying to harmonize its patent system with the international system of Patent Law. However, with regard to the unity of invention, under the current US patent system, the scope of inventions that can be included in a single application is, according to what we have been requested so far, narrower than that under the systems of the JPO and the European Patent Office (EPO). Thus, a patentee is obliged to submit multiple applications, thereby increasing the burden. Japan repeats its request to the US to adopt the same criterion for its unity of invention as that of Japan and Europe. Answer The U.S. Patent and Trademark Office has been studying the implementation of unity of invention for national applications for many years. There are serious implementation concerns including revenue, resource allocation and labor management. These concerns must be viewed in the context of the difficulties in coping with application filings that continue to increase year-to-year, especially in high-technology areas. There are also concerns that the current unity standard may not be the best approach to the issue of limiting the claiming of multiple inventions in single applications, especially in those emerging technologies. To that end, the United States, in the ongoing discussions of WIPO’s Standing Committee on the Law of Patents (SCP), has supported the formation of a Working Group to further study this issue. Question (Japan #54) Reference: p.97, para. 289 The Secretariat’s Report describes that the Digital Millennium Copyright Act of 1998 implemented the WCT and the WPPT. However, Japan is of the view that the US Copyright Law does not fully protect the moral rights stipulated in Article 6 (2) of the Berne Convention applied to the WCT, the moral rights of performers stated in Article 5 of the WPPT, the right of making available expressed in Article 8 of the WCT and in Articles 10 and 14 of the WPPT, and the economic rights of performers in their unfixed performances mentioned in Article 6 of the WPPT. Please explain, with the specific provisions of legislation, how these rights are protected in the US.

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Answer Moral rights are protected in the United States not under a single law, but rather through a combination of federal copyright law, state common law, and other federal and state laws. Moral rights are protected in the Copyright Act, not only through section 106A, but also through the application of the author’s economic rights in section 106, such as the right to prepare derivative works under section 106(2). For instance, the protection of the right of integrity will almost always implicate the author’s (or other copyright owner’s) right to reproduce the work or to prepare a derivative work. These are rights that would be involved in preparing a modification of an author’s work that could violate the right of integrity (which is probably the moral right most likely to be violated in the digital manipulation of images or text). Protections for the right of attribution are provided under a combination of state, federal and common laws. The US provides full rights of making available as required by the WCT and WPPT in Section 106 (4)-(6) of the Copyright Act, as further clarified by the definitions in Article 101 of the Act, as further clarified by the definitions in Article 101 of the Act, as well as through case law. The United States protects unfixed or live performances under section 1101 of the Copyright Act. Section 1101 was adopted as part of the Uruguay Round Agreements Act in order to comply with certain portions of Article 14 of the TRIPs Agreement. All of the various remedies for copyright infringement are made available to those who are injured by violations of section 1101. Question (Japan #55) Reference: p.97, para. 292 Regarding Articles 203 and 304 of the Copyright Act, which enables the right holders to terminate transfers and licenses, Japan wishes to have concrete explanations on the following points: (a)the purpose of this system; (b)the basis of the termination period, which is effective for 5 years after expiration of the 35- year period from the date of execution of the grant; and (c)in the case where someone doing business by using the transferred right notices the termination of a grant by the author, how is the safety of the business assured? Answer -- Purpose of Sections 203 and 304 of the Copyright Act In general, the purpose of Section 203 of the Copyright Act, which permits the termination of transfers and licenses in copyrighted works made on or after January 1, 1978, is to allow the author, or the author’s heirs, to recapture the value of the work. The purpose of Section 304(c), which permits the termination of transfers and licenses of renewal rights in copyrighted works made before January 1, 1978, is to allow the author, or the author’s heirs, to recapture the 19-year extension of the renewal term under the 1976 Copyright Act. -- Basis of the Termination Period Under Section 203, termination may be effected at any time during a five-year window, which begins at the end of 35 years from the date of executions of the grant. Under Section 304(c), termination may be effected during the five-year window that begins 56 years from the date copyright protection was originally secured (in the usual case, upon notification with proper notice). -- Business Safety Under both Sections 203 and 304, there are exceptions to termination that help to assure what the U.S. understands as “business safety”. Under Section 203, for example, the owner of a derivative work

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made under a grant before termination may continue to use the derivative work after termination, subject to a duty to continue to comply with the terms of the original grant (such as the payment of royalties). There is a similar provision for the use of derivative works under Section 304. In addition, works made for hire (such as works made by an employee of a business) are not subject to termination under Sections 203 and 304. Question (Japan #56) Reference: p.97, para. 293 As the US was unable to implement the recommendations of the WTO panel on the US Copyright Act, in a reasonable period of the time, which is in violation of TRIPS obligations, the US made a lump-sum payment of US$3.3 million to the EU over a three-year period ending in December 2004 US$1.1 million per year as compensation for the EU’s loss of benefit. Japan would like to ask the US for an explanation on the legal process of this matter in the US. Answer Consistent with the Understanding on Rules and Procedures Governing the Settlement of Disputes, the United States and the European Communities reached a mutually satisfactory temporary arrangement with respect to the dispute United States -_ Section 110(5) of the U.S. Copyright Act (DS 160). The arrangement, which the United States and the European Communities have notified to WTO Members, covers the period commencing at the end of the “reasonable period of time” for implementation in this dispute and ending December 21, 2004. Pursuant to this arrangement, the United States made a lump-sum payment of $3.3 million to the European Communities, to a fund established to finance activities of general interest to music copyright holders, in particular awareness-raising campaigns at the national and international level and activities to combat piracy in the digital network. The funds were appropriated by the U.S. Congress.

The mutually satisfactory temporary arrangement addresses the dispute for a three-year period. Prior to the end of the period, the United States and the European Communities will enter into consultations with a view toward reaching a final resolution. Chapter 4 - BY SECTOR (1) Agriculture Question (Chile #1) Paragraph 12 indicates that the Farm Act does not include a budget ceiling, although there are a number of mechanisms that impose limits on spending. One of such measures is the “circuit breaker” clause under which domestic supports would not exceed WTO limits. How are the domestic supports reviewed under this clause? Has it been necessary to invoke this clause during this period? Answer The United States Department of Agriculture continually monitors actual spending in each of its programs. If actual spending levels approach commitment levels, the Secretary of Agriculture is notified, and further spending is closely watched in case the "circuit breaker" provision of the 2002 Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to be invoked. This provision has not been used.

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Question (Chile #2) With respect to the agricultural notifications that must be made to the WTO, for what reason were support programs for the period 1999-2000 not notified? Does the failure to provide notification affect the monitoring system of the “circuit-breaker” clause? Answer The United States is in the process of preparing Domestic Support notifications to the Committee on Agriculture. We will submit the notifications for programs under the 2002 Farm Act for which exemption will be claimed as soon as possible. The United States remains committed to the notification process and will work to fulfill all its WTO obligations. No, a lack of notification does not affect the monitoring system of the “circuit-breaker” clause. The USDA continually monitors spending for each of its programs. If actual spending levels approach commitment levels, the Secretary of Agriculture is notified, and further spending is watch in case the provision of the 2002 Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to be invoked. This provision has not been used. Question (China #6) Could the US Delegation please explain the reason why the notification obligations were not implemented? Please inform us of the plan on the earliest implementation of these obligations. Answer The United States is in the process of preparing Domestic Support notifications to the Committee on Agriculture for programs under the 2002 Farm Bill for which exemption will be claimed and will submit these notifications as soon as possible. The United States remains committed to the notification process and will work to fulfill all its WTO obligations.

Questions (China #16 & #17) Could the U.S. explain the consistency of this measure with WTO principle of national treatment? Does the U.S. intend to modify the regime for peanut imports and enhance its transparency in accordance with the WTO rules?

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Answer The U.S. peanut import tariff rate quota (TRQ) was implemented following the Uruguay round of the WTO. The TRQ set a maximum quantity of peanuts permitted into the U.S. each year at a reduced tariff rate of 9.35 cents/kg (6.6 cents/kg for shelled peanuts). The total quantity permitted under the TRQ provision is 52,906 MT (shelled weight) and allocated between Argentina (43,901 mt) and other (9,005 MT). These amounts have remained unchanged since 2000. Additional provisions under bi-lateral free trade agreements (FTA) allow for peanut imports at zero duty for select countries (Mexico, Israel, Chile). Duty rates and TRQ limits are published in the Harmonized Tariff Schedule of the United States. Provisions of the TRQ are provided in note 2 to the Chapter 12 duty rates and in general note 15 to the tariff schedule concerning bi-lateral free trade agreements. Since the TRQ was developed and set during WTO negotiations, it would thereby be consistent with the WTO principle of national treatment. The TRQ was designed to provide access for foreign suppliers to the U.S. market. The TRQ replaced previous market access provisions that effectively barred access for foreign peanuts into the U.S. market. All importers are given equal access into the U.S. market with in their respective quota allotments. Question (China #42) Please provide information on what measures the U.S. has taken in this respect since then. Answer The U.S. Administrative Procedures Act requires the publication of proposed rules and comment periods that conform to SPS obligations. Questions (China #43, #44, and #45) What domestic legislation prevents the U.S. from doing so? We would appreciate it if the U.S. could provide us the full text of the relevant legislation. How would the U.S. justify the situation of a high percentage of inconsistency in terms of comment period provided by the U.S. for the SPS notifications, for example 57.3% of the US SPS notifications were less than or equal to 30 days, 92.3% less than 60 days for the year 2002? What measures will the U.S. take in order to abide by the recommendations of the SPS committee and the TBT Committee on the no less than 60 day comment period? Answer At any time any contracting party finds the comment period insufficient in length, they are encouraged to contact the WTO inquiry point. Questions (China #46 & 47) Is it the consideration of the US behind this legislation that consumers would more likely choose products originating in the U.S. when they are labeled with the country of origin? If not, what is the consideration behind the measure? Since imported meat products have already undergone relevant inspection and quarantine, how does the U.S. consider the impact of this practice on equitable competition between foreign and U.S. products?

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Answer The effects of country of origin labeling (COOL) requirements on consumer behavior cannot be determined at this time because much depends on how industry implements the regulation. In a nation of brand conscious consumers, the 2002 Farm Act COOL provision is Congress’ response to consumer stated preferences for country of origin labeling. USDA will be paying close attention to ensure that the implementation of mandatory COOL regulations will be consistent with US trade obligations. Currently, the COOL compliance is only voluntary and it is not known when the mandatory regulations will be fully implemented. Question (China #48) What are the inspection and quarantine standards adopted by the U.S. for Asian pears and apples from China? Are such standards different from international quarantine standards? Answer Inspection and quarantine standards are developed through analysis of the pest risk associated with the imported commodity in accordance with international standards. Question (China #49) Is there a time limit for inspection and quarantine of imported goods in the US? Has such time limit been respected in the inspections of Asian Pears and apples from China? Answer

Time requirements for inspection at the port-of-entry are based on a variety of factors including clearance of documentation through U.S. Customs and available time for agricultural inspection. Every effort is made to expedite perishable commodities. All imported fruit is subject to some level of inspection. No specific time limits have been established for importation of China-origin pears. China-origin apples have never been authorized to be imported into the United States. Once pests are found on shipments of a specific commodity additional scrutiny is given to subsequent shipments. Additionally, with regard to China-origin pears, many of the current problems were not found at the port-of-entry but rather in retail fruit markets. Question (China #50) Could the US please clarify the scientific justification in terms of SPS for refusing the importance of Chinese bergamot pears? Answer The U.S. is not familiar with a market access request for China-origin bergamot pears. However, we are familiar with a market access request for fragrant pears. Are fragrant pears and bergamot pears the same commodity? The proposed rule to authorize importation of China-origin fragrant pears was published for public comment during the summer of 2003. Public comments are currently being addressed in preparation for publication of a final rule that would authorize importation of China-origin fragrant pears.

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Question (China #51) Why did the US refuse to conduct the pest risk analysis? Answer

Again, the U.S. is not familiar with a market access request for China-origin bergamot pears. If this is the same commodity as fragrant pears a pest risk analysis was conducted. Question (China #52) Could the U.S. explain the necessity of these practices and their consistency with the rule of harmonization and the principle of least trade restrictiveness contained in the WTO Agreement on TBT and SPS? Answer

These inspections are performed upon arrival to ensure that any peanuts imported into the United States meet our standards, as applied to both imported and domestic product. Question (China #80) Why has the U.S. not yet notified WTO of this 2002 Farm Bill? Answer The Farm Security and Rural Investment Act of 2002 (i.e. the 2002 Farm Act) itself is not a program to be notified, but instead encompasses a wide variety of agricultural programs. The 2002 Farm Act extends many ongoing programs, thus only a few notifications of new programs are required. As regulations for new programs are put into place and the new programs get up and running, the United States will submit the required DS-2 notifications to the WTO.

Question (China #81) What is the annual average amount of direct payment and counter-cyclical payments provided according to the new Farm Bill? Answer The total amount to be paid to farmers through the direct payment and counter-cyclical payment programs are calculated using data on historical crop yields and acreages. Unlike direct payments, counter-cyclical payments will be made only if certain crop prices drop below predetermined levels. Since future prices are unknown, average spending levels for these programs is also unknown. What is known is that the United States will not exceed its $19.1 billion AMS ceiling as agreed to in the Uruguay Round Agreement on Agriculture. Question (China #82) Please clarify the impact of such Bill on the prospect of the on-going multilateral agricultural negotiation.

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Answer In the current agricultural negotiations, the United States is committed to reaching substantial reductions in trade-distorting support and export subsidies, coupled with substantial increases in market access. As stated above, the United States is bound by the Uruguay Round agreement to limit AMS spending to an agreed-upon level. Question (China #83) Is such a bill contradictory to the stated attitude of the US on the agricultural negotiations in the “Doha Round” as appeared in the Report by the US Government? Answer In the current agricultural negotiations, the United States is committed to reaching substantial reductions in trade-distorting support and export subsidies, coupled with substantial increases in market access. As stated above, the United States is bound by the Uruguay Round agreement to limit AMS spending to an agreed-upon level. The United States will continue to abide by its Uruguay Round commitments while continuing to push other countries to liberalize trade. Question (China #84) The increase of subsidies to agriculture by the US is contrary to the negotiation objective of “reductions of, with a view to phasing out, all forms of export subsidies” as set out in Para 13 of the Doha Ministerial Declaration. What is the US opinion on this issue? Answer The United States remains committed to the Doha objective of reducing with a view to phasing out export subsidies. The 2002 Farm Act does not authorize increased use of export subsidies. Question (China #85) Does the US plan to make an amendment to this bill so as to reduce the subsidies to agriculture substantially? Answer The 2002 Farm Act will be in place through 2007. If the Doha round of negotiations finishes on schedule, reductions commitments will begin at the same time as the negotiations for the new farm bill. Therefore no amendments to the current bill are planned. Question (China #86) When will the US notify its domestic support data since 2000, including data of “Amber Box” and de minimis? Answer The Farm Security and Rural Investment Act of 2002 (i.e. the 2002 Farm Act) itself is not a program to be notified, but instead encompasses a wide variety of agricultural programs. The 2002 Farm Act extends many ongoing programs, thus only a few notifications of new programs are required. As

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regulations for new programs are put into place and the new programs get up and running, the United States will submit the required DS-2 notifications to the WTO. Question (China #87) What is the US intention to expand offset loan price for its agricultural products and include more products under its loan coverage? Is the increase of loan by the US contrary to its initiative of reducing trade-distorting domestic support to agricultural products at the multilateral since such loan falls into the Amber Box? Answer While the 2002 Farm Act continues past programs such as loan deficiency payments to support agricultural prices and farm incomes, we expect to fully meet our obligations under the Uruguay Round Agreement on Agriculture. The United States will not exceed our WTO limits. Again, the United States remains committed to an ambitious outcome of reducing global trade distortions in agriculture through the WTO. We strongly encourage other countries to move forward in the negotiations to achieve substantial reform. Question (China #88) How does the U.S. determine the target price of the counter-cyclical subsidy? Answer National average prices will be used to determine final counter-cyclical payment rates. USDA’s National Agricultural Statistics Service (NASS) determines the annual average prices for the marketing year. NASS collects monthly data on prices paid to farmers. Question (Colombia #1) Has the United States defined any parameters for making headway in its agricultural policy, both in terms of access and domestic aid, and export subsidies? Answer Recently, United States Ambassador Zoellick has sent a letter to your trade minister suggestion options for negotiations. We look forward to engaging in ambitious multilateral trade negotiations in 2004. Question (Colombia #2) What is planned for tariff quotas on various types of products, including broomcorn brooms (HS 9603.10), tuna, and agricultural products? High out-of-quota tariffs on agricultural products do not allow for exports from developing countries in important sectors such as the sugar industry. Answer

The United States has submitted a very ambitious and aggressive proposal for reducing tariffs in the WTO negotiations. In addition, the United States has proposed the elimination of all tariffs by a date certain. The United States is fully committed to further reform in world agricultural trade.

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Question (EU #1) What are the reasons for the continuing lack of US recognition of the principle of regionalization, as incorporated in the WTO SPS Agreement, in cases of the outbreak of an animal disease? Answer USDA’s Animal and Plant Health Inspection Service (APHIS) has made significant progress in regionalizing the European Union for Classical Swine Fever (CSF). On April 7, 2003, APHIS published a final rule recognizing Austria, Belgium, Greece, Portugal, the Netherlands, and certain regions of Germany and Italy as free of CSF. France, Spain, and Luxembourg had been included in the original proposed rule (published in June 1999), but they were not included in the final rule because of subsequent CSF outbreaks. On November 24, 2003, APHIS published in the Federal Register a completed risk analysis for CSF covering France and Spain. After the public comment period has closed in late January 2004 and depending on the nature of the comments, APHIS would then proceed to publish a final rule to declare these two Member States free of CSF. On October 16, 2003, APHIS published a final rule recognizing the CSF-free status of East Anglia. APHIS is also working on a draft novel rule that contains a new approach to the EU, which will involve recognition of all 15 current EU member states as low risk for (not free of) CSF to allow for more flexible response options in the case of future outbreaks. Question (EU #7) The EC notes that US continues to use food aid and export credits to reduce government stocks of agricultural commodities. Is the US ready to consider helping the DDA-process move forward by accepting to classify as export subsidies all measures used for subsidizing exports? Answer The US averages approximately $3.4 billion in credit guarantees annually, of which the subsidy component is minimal. Export credits and export subsidies are not interchangeable as they have different policy objectives and different impacts on global markets. Direct export subsidies are clearly among the most trade-distorting measures in agricultural trade, designed to lower prices and displace commercial competition. On the other hand, export credit programs have a minimal impact on trade and are used to assist importing countries in financing commodity imports. In recognition of the importance of the elimination of export subsidies, the USG is willing to support a parallel reduction of the trade-distorting component of export credits. We also believe disciplines are necessary to ensure that export credit programs do not circumvent export subsidy commitments and that developing countries are able to access affordable credit to address food security and economic development needs. Almost all of the food aid provided by the United States is purchased from the open market and all food aid is provided in response to an identified need. The United States does not agree that food aid is an export subsidy. However, in the WTO agricultural negotiations, the United States is working with other Members on multilateral disciplines for food aid programs with the goal of continuing necessary, humanitarian assistance. Question (EU #8) The main agriculture and industry lobbies in the US have been arguing for some years that the strength of the dollar was hurting their export competitiveness. At the same time, the position of the agriculture groups towards Congress and the US government has been to "max out" the trade distorting agriculture support allowed to the US under the WTO. Now that the US government and

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Federal Reserve are no longer pursuing a strong dollar, can the world look forward to a substantial reduction in US domestic subsidies as well? Answer The United States is well within its WTO commitments in its support to farmers. However, in the negotiations of the DDA, we have called for substantial reductions in trade-distorting domestic support and have made consecutive proposals to achieve that goal, including the US/EU framework mentioned in the previous question. We look forward to working with the EU and other WTO members towards a bold, ambitious, comprehensive package of reforms for global agriculture. Question (India #2) Sugar Tariffs: The sugar industry is protected by high tariffs (to the extent of 32.8% MFN tariffs on raw sugar and 42.5% on refined sugar). These tariffs, in addition to providing protection to domestic sugar producers, have also increased the use of alternative sweeteners such as high fructose corn syrup, eroding the natural sugar market in the U.S. In the long run, the high tariffs will lead to a permanent change in the sugar demand patterns in the U.S. Please provide the U.S. view on this point and on the unintended effects of high tariffs. Answer

The U.S. government closely monitors all commodity markets and is always alert to changes in these markets. U.S. policy is created through numerous means and with extensive consultation with all stakeholders in an effort to create and administer programs that serve the interest of the American people. Further information about the U.S. sugar program can be found at several United States Department of Agriculture websites, http://www.fas.usda.gov/htp/sugar/sugar.html, http://www.fas.usda.gov/import.html, and http://www.fsa.usda.gov/ao/epas/dsa.htm. Question (India #6) TRQ on leaf tobacco: Imports of leaf tobacco into USA are subject to TRQs from September 1995. Of a total quota of under TRQ for 2002/2003 of 1,50,700 (sic) tons (both Flue cured and light air cured tobacco including Burley), the bulk of the quota is allocated to 9 designated quota recipient countries. A residual TRQ of 3,000 tons is available to all other countries including India, although India is the second largest producer of tobacco in the world. The out of quota tariff rate is 360%. Prior to 1995 India could export any volume of tobacco at MFN duty rates to USA. After introduction of TRQ Regime in 1995, Indian exports of tobacco to the US are rendered uneconomical. In view of this, the US delegation is requested for information on whether they propose to take action to review TRQ regime in tobacco and enhance the residual quota from its present level of 3000 tons. The US authorities are also requested to provide information on the mechanism for allocating unfilled TRQs in tobacco.

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Answer The tobacco TRQ was based on historical shipments of leaf tobacco to the United States. The top 9 countries were given quota allotments. According to the TRQ rules, a country is not required to fill its quota in any given year and the unused quota is not reallocated. If a quota country does not fill its quota, it does not lose its allotment. A non-country specific quota is set at 3,000 metric tons on a first come/first-serve basis. Only Congress can change TRQ allotments. Question (India #11) Payments into Escrow account on Bidi (tobacco) exports: The US requires tobacco product manufacturers and importers who are non-participating in the Master Settlement Agreement (MSA) to pay a specified amount into a qualified Escrow account for products sold in the US. The amount to be paid on this account works out to nearly four times the cost of manufacturing one Bidi. This has acted as a severe barrier for Bidi exporters from India and consequently, there have been no Bidi exports from India to the US during this year. We would like to have a clarification from the US authorities on the reasoning behind the requirement to pay specified amounts into an Escrow account and the basis for calculation of such amounts? Given the severe market access problem faced by India on this account, we are interested in knowing whether there is any move to dispense with the above requirement to remedy this problem? Answer There are 46 MSA states and 4 non-participating states. Any non-participating company that sells a cigarette product in a MSA state is required to pay a fee in escrow. The escrow was set up in order to cover any cost arising from tobacco litigation. The fee is based on the number of cigarettes sold. Each State has a specified fee for the escrow. For example, a State may require a company to pay a fee of .39 cents per cigarette. If the company sells a million cigarettes in a State in a year, the company is required to pay $390,000 in fees in escrow for that State. After 25 years, any unspent money in the escrow will be returned to the company. This fee is required for both domestic and international manufacturers that sell a cigarette product in a MSA State. States will continue to collect fees for these escrow accounts in the future. The United States goal is to reduce cigarette smoking. Most cigarette companies are raising prices in order to pay the fee. Health advocates feel that increased cost for cigarettes will deter some consumers from buying the product. Question (India #14) Prohibition on imports of uncooked meat products: Uncooked meat products such as sausage, ham, and bacon have been subject to a long-standing prohibition on imports despite the fact that meat products may come from disease free regions and that the processing involved should render any risk negligible. Would the US authorities clarify the reasons for continuing with this prohibition and whether there is any move to review this prohibition. Answer The United States does not have a prohibition on imports of uncooked meat products, but does have food safety regulations for all meat sold in the United States. To date, India has not petitioned for certification of its meat inspection system (equivalence). To petition for equivalence, please contact the United States Embassy or the United States Department of Agriculture Food Safety and Inspection Service. For more information on the equivalence process, please visit the following website: http://www.fsis.usda.gov/oppde/ips/EQ/EQProcess.htm.

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Question (India #19) SPS measures on egg products: Import of egg products into the US is allowed only under a regime requiring continuous inspection of the production process whereas a system of periodic inspection of the production process could also be acceptable from the point of view of safety of human health. Continuous inspection is expensive, and thus has a negative effect on prices and competitiveness. Please provide the US view on this point. Is there a possibility of review of the existing system? Answer The United States does not have a prohibition on imports of eggs and products, but does have food safety regulations for all eggs and products sold in the United States. To date, India has not petitioned for certification of its egg inspection system (equivalence). To petition for equivalence, please contact the United States Embassy or the United States Department of Agriculture Food Safety and Inspection Service. For more information on the equivalence process, please visit the following website: http://www.fsis.usda.gov/oppde/ips/. Question (India #23) Subsidies on agricultural products: The US operates a range of programmes which appear to be designed to subsidize and/or promote export of US agricultural products. Some such programmes are (i) the Export Enhancement Program which allows US exporters to apply for a cash subsidy designed to make US products competitive with subsidized exports from other countries; (ii) the Market Access Program which offers a share of costs for promotion campaigns for agricultural products; and (iii) the Export Credit Guarantee Program which offers US Government guarantees targeted at countries which need guarantees to secure financing but show a reasonable ability to repay (The program includes a specific list of commodities per country allocation. It has recently become the main export policy tool of USDA, with annual allocations exceeding US$5 billion and declared annual subsidy levels of over US$400 million. The program has a default rate of over 10% historically, and is reported to be characterized by uncertainty and lack of transparency with respect to the implicit subsidy component stemming from rescheduling of payments.) Would the US delegation comment upon consistency of these schemes with various WTO Agreements including on Subsidies and Agriculture. The US delegation is requested for information on whether they propose to review these subsidy programmes. Answer The US averages approximately $3.4 billion in credit guarantees annually, of which the subsidy component is minimal. Export credits and export subsidies are not interchangeable as they have different policy objectives and different impacts on global markets. Direct export subsidies are clearly among the most trade-distorting measures in agricultural trade, designed to lower prices and displace commercial competition. On the other hand, export credit programs have a minimal impact on trade and are used to assist importing countries in financing commodity imports. In recognition of the importance of the elimination of export subsidies, the USG is willing to support a parallel reduction of the trade-distorting component of export credits. We also believe disciplines are necessary to ensure that export credit programs do not circumvent export subsidy commitments and that developing countries are able to access affordable credit to address food security and economic development needs.

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Question (India #24) Subsidies to sugar: Producer support to sugar in the US amounted to well over US$1.3 billion per year during 1999-2001. The sugar programme supports in the USA depend on a tariff rate quota (TRQ) based on domestic output. Production increases have reduced import quota volume. This decline and price erosion have adversely affected market access to the US sugar market. Please provide the US view on this point. Answer The U.S. sugar tariff rate quota (TRQ) is allocated consistent with WTO rules. Changes in U.S. domestic sugar production cannot reduce sugar access below this minimum. India’s fiscal year (FY) 2004 allocation is 8,424 metric tons raw value, which is the same access level as FY 2003. Further information about the U.S. sugar program can be found on the United States Department of Agriculture’s sugar commodity page, http://www.fas.usda.gov/import.html. Also the official United States Trade Representative press release concerning the FY 2004 sugar allocations is available on their website, www.ustr.gov. Question (India #1 Annexure) We welcome the US assertion in the Government’s Report that the US remains firmly committed to the WTO-based multilateral trading system, and that consistent with the objectives agreed in Doha, the US shares a common purpose with WTO partners towards expanding economic opportunities to the world’s citizens by reducing trade barriers. We also note that as a part of its broader efforts to liberalize trade, the US states that it is pursuant sever regional and bilateral initiatives for free trade areas, in respect of some of which the US exports exceed its exports to “Russia, India, and Indonesia combined” [paragraph 47]. It is our hope and expectation that the US regional initiatives will be consistent with WTO rules, and will be nurtured in a manner that promotes the complementarity of regional and bilateral initiatives with the multilateral Doha Development Agenda. In paragraphs 110 through 113 of the Government Report, the US has drawn attention to its domestic support to farmers as well as export subsidies, including credits, envisaged in the 2002 Farm Bill. The US asserts that it has been making very limited use of export subsidies, and that the trends in outlays, as well the nature of new programmes suggest that the US will continue to meet its Agreement on Agriculture domestic support obligations. We note with concern that the 2002 Farm Bill has a provision by which the AMS ceiling can be exceeded. Moreover, we note from paragraph 6 of the Secretariat Report that the US has not fulfilled its notification obligations with respect to various agriculture notifications including on domestic support and special safeguards applied in agriculture. The US is well aware of the apprehensions of the bulk of the WTO membership as regards the provisions in the 2002 Farm Bill in furthering distortions in agricultural trade. It would be highly desirable therefore for the US to make its notifications expeditiously to that there is greater clarity and certainty as regards various proposals, including the US proposals, on the modalities for negotiations on agriculture under the DDA. We support the apprehensions expressed, in paragraph 22 of the Secretariat Report on domestic support, regarding monitoring of the domestic support levels under the 2002 Farm Bill and would like to know what steps are proposed to be taken in this regard. Answer The United States is in the process of preparing DS:2 notifications to the Committee on Agriculture for programs under the 2002 Farm Act for which exemption will be claimed and will submit these notifications as soon as possible. The United States remains committed to the notification process and will work to fulfill all its WTO obligations.

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Question (India Annexure #2) In its Government Report, paragraphs 123 through 126, the US inter alia outlines that the US will continue to work within the Doha Agenda to reduce poverty and raise the living standard across the globe and that “an ambitious result in market access will be the greatest legacy of our work in the DDA”. As the US is aware, expanding market access in agricultural products alone will not serve to reduce poverty and raise living standards. Economist and agricultural experts have widely documented that the largest welfare gains for the poor residing in the developing countries will stern from elimination of all forms of distorting subsidies, both domestic and on exports. It is our hope that they US will be able to factor in this harsh reality into its approach towards the successful conclusion of the Doha Round. Answer We take note of India’s views. Question (India #3 Annexure) Paragraphs 1 and 11 of the Secretariat Report draw attention to market access in the US, applied inter alia through non-ad valorem duties, prohibitive TRQs, tariff protection in the range of 50 – 350% and tariff escalation across a number of agricultural products. We would like to understand how the US reconciles these barriers, which deny market access opportunities to developing country exports in particular, with its call for trade liberalization under the Doha Development Agenda and the spirit and objectives of the Agreement on Agriculture? Answer The TPR discussion has made clear that developing countries, including India, have depended on the openness of the U.S. market to stimulate global growth. As barriers around the world are reduced, it should be possible for the United States to continue to reduce its remaining barriers, which, relatively speaking, are far fewer in the agricultural sector than for example, those maintained by countries like India. The United States has submitted a very ambitious and aggressive proposal for reducing tariffs in the WTO negotiations. In addition, the United States has proposed the elimination of all tariffs by a date certain. The United States is fully committed to further reform in world agricultural trade. Question (Japan #33) What measures has the US taken to prevent the exportation of GMOs which are unauthorized by the relevant regulations in importing countries? What measures does the US intend to take if unapproved GMOs are found in agricultural products exported from the US to importing countries? Answer Once a biotech event is approved in the United States, it can legally circulate in interstate commerce and be legally exported. It is the responsibility of commercial interests to ensure that exports to a particular country meet all import regulations, and the responsibility of the importing country to implement and apply its import regulations. Civil and legal penalties exist in the United States for cases where the regulatory requirements regarding the development, testing, and release of biotech events are not respected. The United States takes seriously its biotech regulatory and food safety responsibilities to U.S. consumers and customers around the world, and is committed to working closely with other governments on these issues.

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Question (Japan #35) Is the US ready to provide the necessary information for detecting GMOs, unapproved in importing countries, which are released into the environment in the US and/or which have the possibility of being exported? Answer USDA’s Grain Inspection, Packer, and Stockyards Administration (GIPSA) maintains a biotechnology reference laboratory which works with grain handlers, test manufacturers, and life science organizations around the world to help ensure the availability of reliable tests. GIPSA’s reference lab also offers a Proficiency Program to organizations testing for biotechnology-derived grains and oilseeds. This program helps these organizations identify areas of concern and take corrective actions to improve testing capability and reliability. A number of testing laboratories in Japan and other countries have participated in this program. In addition, officials from many countries, including Japan, have toured the reference lab, and are welcome to visit at any time. Question (Japan #58) After abolishing its deficiency payments under the Federal Agriculture Improvement and Reform Act of 1996 (FAIR Act), the US has been providing emergency assistance since 1998 as an additional protection measure under production flexibility contract payments, which was introduced instead, and has introduced Counter Cyclical Payments under the Farm Security and Rural Investment Act (FSRI) of 2002. Please explain why the US has established these payment systems and the background (including why the production limitation is no longer a requisite for deficiency payments under the 2002 Act, while it was a requisite under the 1990 Act). Measures and programs introduced under the Farm Security and Rural Investment Act (FSRI) have already entered into the phase of implementation. Does the US intend to notify some of those measures or programs as new or modified domestic support measures exempt from the reduction commitment? If so, the US should submit a notification as soon as possible in order to ensure transparency and to expand the discussions by Members on the US relevant support measures. Answer Counter-cyclical payments were designed as farm support program that, although linked to prices, would have less trade-distorting effects than traditional price support mechanisms. There is no requirement to limit production because these programs were phased out, as no production is required to receive these payments. The counter-cyclical payments are completely decoupled from production. USDA rulemaking is an open, transparent process. The process and progress for the Farm Act programs is documented on the USDA webpage. As regulations for new programs outlined in the 2002 Farm Act are put into place and the new programs get up and running, the United States will submit the required DS-2 notifications to the WTO.

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Question (Japan #59) The US is proposing a drastic reduction in or even the elimination of, trade distorting measures in the agriculture negotiations, while increasing its direct government payments (Report by the Secretariat, p.102, Chart.1). These two points are incompatible with each other. In particular, it is rational to understand that the US price-related direct government payments and emergency assistance for certain products, such as wheat, rice, soybean and cotton, have export enhancing effects since a sizeable amount of those products is exported. According to the Report by the Secretariat (p.101), the share of exports in terms of value of production was 48% for wheat, 42% for rice, 37% for soybeans, and 39% for cotton. Under the FSRI, the US has institutionalized export enhancing payments by introducing counter cyclical payments for such products and has increased actual payments since 2002. Can the US explain how this policy, and the increase of such payments, are consistent with the US position in the agriculture negotiations, i.e. to phase-out export subsidies? Answer The 2002 Farm Act does not authorize the increased use of export subsidies. The United States remains committed to the Doha Development Agenda objective of reducing, with a view to phasing out, export subsidies. Question (Japan #61) Does the US AMS in 2003 exceed its commitment level? Answer No. In 2003, the United States did not exceed its Uruguay Round commitment level of AMS spending. Question (Japan #62) If the increase in direct government payments and emergency assistance in 2003 results from lower market prices, it is thus possible that the increase in government payments cannot be controlled and that the AMS level exceeds its commitment level when the market price falls ever further. The US commented that no decision had been made as to whether regulations are needed to implement Section 1601(e) of the FSRI (Report by the Secretariat, p.107). With what kind of measures can the US properly monitor the increase in direct payments and ensure that its AMS level does not exceed its commitment level? Answer The United Stated Department of Agriculture continually monitors actual spending in each of its programs. If actual spending levels approach commitment levels, the Secretary of Agriculture is notified and further spending is closely watched in case the “circuit breaker” provision of the 2002 Farm Act, which stops spending to ensure AMS commitment levels are not exceeded, needs to be invoked. Question (Switzerland #8 & #9) According to § 139 some U.S. import restrictions are taken as a response to risks posed by FMD and BSE. In this context meat products are allowed to be directly imported into the US from a non-FMD-free country if certain measures (as described in the Code of Federal Regulations Title 9 Part 94.4) are

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taken in the exporting country. However if these measures on products originating in a non-FMD country have taken place in a third country, the products are banned to be imported to the U.S. What is the scientifically-based justification, including an assessment of the public health risk, of these additional US import restrictions? According to §142 APHIS has regulatory responsibility to safeguard U.S. animal resources from exotic pests and diseases. According to §143 FSIS has specific responsibility for the safety of meat, poultry and certain egg products. How does the U.S. government ensure the cooperation of these two agencies, in order that various regulations and different control systems by these two agencies do not become an unduly administrative burden? Answer Inspections by APHIS and FSIS are required before equivalence determinations can be made. Under the WTO SPS agreement, we welcome products that comply with United States food safety laws. For more information on the United States process for evaluating the equivalence of foreign meat and poultry food regulatory systems, please visit the following website: http://www.fsis.usda.gov/oppde/ips/EQ/EQProcess.htm. The United States has very serious restrictions on FMD, because it is an extraordinarily devastating disease, as the European continent has experienced. Question (Switzerland #13) As mentioned in para 12., page 102, the six-year Farm Act (2002-07) increases reliance on price-dependent support. Such type of measures are known as production-distorting. Could you explain the reasons for the re-orientation (compared with the FAIR Act of 1996 reducing production-distorting support in favour of income supplements) of the package of US support measures in favour of production-distorting measures? Answer The United States has fully complied with WTO commitments. However, to address the distortion in the world marketplace for the agricultural sector, the United States has submitted an ambitious, balanced, and reform-focused proposal focused on all three “pillars” for the WTO negotiations. Question (Switzerland #14) The new programme of counter-cyclical payments (CCPs) uses a target price as a reference. As it appears in the Table IV.3 on page 109, this target price is set rather higher than the average prices recorded during 1999-02. Could you explain the mechanism allowing to set the target price at the level established for the period 2004-07? What is the basis for the calculation and which kind of prevision model allows to determine this target price ?

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Answer The target prices are set in legislation. For additional information, please refer to the following website: http://www.usda.gov/farmbill/index.html. Question (Switzerland #15) As mentioned in § 33 on page 110, federal milk marketing orders establish minimum prices for milk depending on its use by processors. Could you please describe the types of use and how the priorities are set to support one or the other type? Is it possible that some type of milk supported by these measures is purchased by a processing plant at a lower price and therefore represents a form of processing plant support? Answer The Federal Milk Market Order (FMMO) system is based on milk classes which in turn are based on use. Class I is beverage milk and cream—basically what one buys at the store. Class 2 is for soft products which include such things as ice cream and yogurt. Class 3, the largest class is milk used for cheese, while Class 4 is for making nonfat dry milk and butter. In general, prices for class 3 and 4 are set by the markets for the respective products while prices for Classes 1 and 2 are set by the higher of Class 3 or Class 4. Again, as a general rule, Class 2 is 70 cents/cwt higher while Class 1 has regional differentials compared to Class 3 or 4. (Timing and component prices significantly complicates these general rules) The system mainly regulates the first handler of milk after it leaves the farm, plus most milk is delivered to farmer-owned cooperative so its unlikely significant quantities are sold at discount prices. More info can be obtained from http://www.ams.usda.gov/dairy/. Question (Switzerland #16) According to § 40. on page 111, the largest U.S. agricultural export promotion programmes are the Export Credit Guarantee Programme (GSM-102) and the Intermediate Export Guarantee Programme (GSM-103). What is the share of these two programmes in the US total annual export volume and value and for which kind of commodities are they allocated? Answer In FY 2003, based on value, 6.04% of US agricultural exports were traded using USDA's Export Credit Guarantee Programs. The Commodity Credit Corporation selects agricultural commodities and products according to program criteria. Please reference http://www.fas.usda.gov/excredits for a list of eligible commodities. Question (Switzerland #17)

According to table IV.2 (p. 104) some products covered by tariff quotas have reserved access for distinct suppliers. Some of these quotas show fill rates below two third like low fat cheese or even 0% for low- fat chocolate crumb. How do the United States. intend to reallocate unused quotas? Answer

There are numerous quotas that are administered by the United States and many of these quotas differ on how to reallocate unused portions. It is the policy of the U.S. government to administer each quota as effectively as possible within each individual set of requirements. For more information, see the following United States WTO notification: G/AG/N/USA/48.

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Chapter 4 - BY SECTOR (3) Maritime Transport Question (European Union #18) The report of the Secretariat (Paragraphs 99 and 100) states that total international water-borne trade (in volume) was 1.137 million tonnes in 2002 and that domestic water-borne trade was around 946 million tonnes. Can the US indicate the share of domestic water-borne trade that relates to pre-onward carriage of international cargo (“feeder transport”) between US seaports? Can the US indicate the share of domestic water-borne trade that relates to inland waterway transport? Answer The information on pre-onward carriage of international cargo is not available. The inland waterway share of domestic waterborne trade is 562.2 million metric tons or 59.4% of the domestic waterborne trade. Question (European Union #19) The report of the Secretariat (paragraph 2) focuses on initiatives to upgrade and develop maritime transport services in the US. The US restrictions on domestic water-borne transport (paragraphs 104-107) and the restrictions and nationality requirements in US ports (paragraphs 117-119) limits the choice available to operators in terms of optimizing the transportation services they can offer to their customers (e.g. by having to rely more on road transport in stead of coastal shipping). Does the US have any estimation on the additional transportation cost that results from these restrictions? Does the US have an assessment of the environmental implications of using more road transport rather that coastal shipping (by a rough estimation, trucks pollutes 3-4 times more than ships, causes congestions etc.)? Answer Short sea shipping offers a viable mode of transport that could ease congestion on increasingly crowded U.S. highways. The Administration has asked the domestic maritime industry to take a leadership role in further developing this segment of our maritime transport system. Question (European Union #20) The report of the WTO Secretariat describes the ‘Merchant Marine Act’ (Jones Act) and its implications. a. How many ships have been produced in the last years under the ruling of the Jones Act, kindly specify type of ship, purchasing-price and the tonnage of the ships? Answer This information (except for ship purchase price) is reported annually to the WTO Secretariat.

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Question (Norway #2) In the Secretariat report, paragraph 98, it is stated that the U.S. recorded a deficit of US$10.2 billion in freight and port services. We would like to know if the incomes from vessels registered under foreign flag and owned by U.S. shipping companies have been included when calculating these figures. Answer Balance of balance of payments calculations are based upon whether the company is domiciled in the U.S. (for tax purposes) and not whether the vessels owned by these companies are registered under foreign or U.S. flags. Question (Norway #3) In the Secretariat report, paragraph 104, it is stated that the Jones Act does not prevent foreign companies from establishing shipping companies in the U.S. as long as they meet the requirements with respect to U.S. employees. Does this imply that foreign owned shipping companies established in the U.S. may own and register vessels under U.S. flag operating in U.S. cabotage trades? Answer With respect to foreign ownership of Jones Act vessels, U.S. law permits bona fide non-citizen leasing companies to own Jones Act vessels if those vessels are demise chartered to U.S. citizens for a period of 3 years or shorter. For detailed information on this subject please refer to 46 USC 12106(e). Question (Norway #4) In the Secretariat report, paragraph 108, it is stated that the U.S. international maritime transport market is generally open to foreign participation, and para 114-116 describes the exemptions. We would like to know if this implies that no cargo sharing agreements/requirements exist with foreign countries or if such clauses are merely dormant. Answer We have no such agreements. Question (Norway #5) In the Secretariat report, paragraph 116, it is explained that the last Alaskan crude oil was exported in April 2000. Since then all Alaskan crude oil production has moved to the United States. The existing requirement of Alaskan crude oil exports to be carried by U.S.-flagged vessels seems therefore to have become obsolete. Is the United States considering to remove the requirement that Alaska crude oil exports shall be carried by U.S.-flagged vessels? Answer No consideration is being given to removing this requirement.

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Chapter 4 - BY SECTOR (5) Telecommunication Services Question (EU #25) The report points out (paragraph 164) that the FCC considers various factors when considering a licence application from a foreign operator. What kind of ““trade policy concerns”” can affect a licence application from a foreign operator? What are the criteria’’s for assessing ““security concerns”” for a licence application from a foreign operator? Answer The Commission takes into account the entire record and affords the appropriate level of deference to Executive Branch expertise on national security, law enforcement, foreign policy and trade matters. We expect that concerns of trade and foreign policy would be raised only in very rare circumstances. In addition, we note that to date, we have not denied any license based on any of these types of concerns. Question (Korea) Reference: para. 169 Is it correct to understand that entities from WTO member countries are exempt from the public interest review? Answer No. As stated in the Secretariat’s report, in reviewing petitions for proposed foreign investment as required pursuant to Section 310, the Commission relies on principles set forth in the 1997 Foreign Participation Order, including a presumption that foreign investment in the U.S. market by entities from the WTO member countries is consistent with the public interest. Question (Korea) Reference: para. 172 Provide information explaining the reasons for the U.S. classification of DBS/DTH services as telecommunications services. Answer One-way satellite transmission of DBS/DTH services do not have the characteristics of traditional free-to-air broadcast services. Thus, they are classified in the United States as telecommunications services as opposed to broadcast services. Question (Korea) Reference; para. 179 Does the U.S. feel that adopting a single standard would not help enhance the mobile penetration rate in the U.S.?

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Answer No. Having multiple competing standards has not proven to be a deterrent to wide-spread adoption of mobile services in the United States. In fact, without adopting a single standard, 6 wireless operators have nation-wide coverage, and are competing on the basis of innovation and price. Question (Korea) How does the U.S. government interpret the concept and scope of “legitimate public policy objectives in telecommunications services?” Answer While the concept and scope of public policy objectives are not predefined, they have typically included issues common to governmental oversight everywhere, such as safety, consumer protection, competition, and national security. Chapter 4 - BY SECTOR (7) Financial Services Question (Canada #8)

Under the Gramm-Leach-Bliley (GLB) Act introduced in 1999, US banks continue to have little freedom to own and be owned by non-financial companies. The issue of whether banks would be permitted to own non-bank companies as merchant banking investment may be reviewed five years after the enactment of the GLB Act (2004). Does the US foresee more liberalization of the banking sector to permit banks to be owned and to own non-financial companies. Answer The United States does not foresee any changes at this time to the U.S. policy separating banking and non-financial activities in the United States. The Gramm-Leach-Bliley Act (GLBA) continued the longstanding U.S. policy of separation of banking and non-financial activities, generally prohibiting non-financial companies from owning banks. Companies that own banks (bank holding companies) may, however, own non-financial companies through the merchant banking provisions of the GLBA. Such investments are subject to the limitations set forth in the GLBA and the implementing regulations. There is no current proposal to authorize banks directly to own non-financial entities through the merchant banking provisions of the GLBA. Questions (Canada #19) While the United States has undertaken national treatment commitments, some restrictions remain in the banking and insurance sub-sectors (e.g., registration requirements for foreign banks, certain federal excise taxes on life and non-life insurance premiums). In addition, at the state level, market access restrictions remain in the banking and insurance sub-sectors (e.g., establishment, acquisition, licensing). Does the US contemplate a relaxation of these restrictions by state-level governments?

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Answer The U.S. believes that U.S. state treatment of foreign financial services providers is, in general, very liberal. That said, our initial GATS offer reflects some improvements undertaken by the states, for example, in the area of insurance. The U.S. will continue to consult with the states for the purpose of the negotiations. Question (China #108) How many licensing applications have been approved to foreign bankers and insurers since the previous US trade policy review? Answer Over 70 foreign bank applications have been approved by the Federal Reserve since April 1, 2001. However, since the Federal Reserve is not the licensing authority for offices of foreign banks in the United States, in most cases the relevant state or federal licensing authority also must approve the application. We are not aware of any instances during this time period where the Federal Reserve approved an application by a foreign bank that was not also approved by the licensing authority. In general, we note that there are a very large number of foreign banking organizations operating in the United States. These foreign banking organizations own approximately 18 percent of all U.S. banking assets. Question (China #109) Have there been any applications rejected by the licensing authorities in the United States during the same period? If so, how many and why? How many licensing applications are pending for approval? Answer No applications by foreign banks have been rejected by the Federal Reserve during the period since April 1, 2001. Currently, there are five applications by foreign banks pending at the Federal Reserve. Question (China #112) (p. 149, Paras 203, 204, and 205) Various market access restrictions exist in the US banking sector, in particular on the establishment of branches by foreign commercial banks. Complicated approval procedures and prolonged pending period are two common concerns of foreign banks. Up till now, all the applications by Chinese banks to establish branches or representative offices have been pending for a long time with the only exception of Bank of China’s New York branch. For example, the application by Bank of China to set up a branch in San Francisco was filed 10 years ago but the approval is still pending by now. The reasons given by the US competent authorities are not convincing since Bank of China has been approved to set up branches in several other countries in addition to the branch already existed in New York City of the US. Please specify the criteria for approving the establishment of branches of foreign banks.

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Answer The discussion on an individual application for a branch would seem outside the scope of the Trade Policy Review Process. The United States maintains a general policy of national treatment towards the U.S. branches, agencies, securities affiliates, and other operations of foreign banks. We welcome any foreign bank that meets internationally accepted standards on capital adequacy and consolidated supervision. The general criteria for the establishment of branches of foreign banks are set forth in the Foreign Bank Supervision Enhancement Act, as implemented by Regulation K, whether or not an interstate expansion is involved. The following are criteria reviewed by the Federal Reserve in assessing applications by foreign banks to establish branches in the United States. In general, a foreign bank seeking to establish a branch in the United States must be subject to comprehensive and consolidated supervision by its home country supervisor. In certain circumstances, approval may be granted if the home country supervisor is actively working to establish arrangements for consolidated comprehensive supervision. The foreign bank also must have capital that is equivalent to the capital required of a U.S. bank in comparable circumstances. The asset quality of the foreign bank is reviewed in making the capital assessment. The Federal Reserve must determine that it will have access to necessary information to determine and enforce compliance with applicable laws. The Federal Reserve also reviews whether the foreign bank has adopted and implemented procedures to combat money laundering, whether there is a legal regime in place in the home country to address money laundering, and whether the home country is participating in multilateral efforts to combat money laundering. Other criteria include whether the home country supervisor shares supervisory information with other supervisory authorities and whether the home country supervisor has consented to the establishment of the U.S. branch. [Form FR K-2 outlines the required information for an application. It is available on the web at http://www.federalreserve.gov/boarddocs/reportforms/forms/FR_K-220021010_f.pdf.] The federal or state licensing authority may have additional requirements, although such requirements generally are similar to those mentioned above. All of these standards are consistent with international norms. Question (Chinese Taipei #1) In addition to corporate income tax, foreign bank branches in the US are required to pay a 30% “Branch Profit Tax” if the earnings of the foreign bank are not reinvested in the US. Furthermore, the rates of the Branch Profit Tax vary, according to whether or not the home country of the foreign bank has signed a tax treaty with the US. My delegation is of the view that this measure does not conform to the principle of non-discrimination and has placed an excessive burden on Taiwanese banks operating in the US. We would therefore like to see the US review this measure in due course. Answer The United States believes that “branch profit taxes” are fully consistent with our GATS obligations. We note Chinese Taipei’s statement of interest. Question (Chinese Taipei #2) (Secretariat Report: p. 149, para. 205). As indicated, a foreign bank is required to establish an insured banking subsidiary in order to accept or maintain retail deposits of less than US$100,000. These restrictions, effective since 1991, have placed foreign banks operating in the form of branches in a disadvantageous position, which seriously hampers their funding capability.

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We recommend that the US affords the same treatment to foreign bank subsidiaries as it does to branches whose parent banking institutions are properly insured in their domestic market. Answer We would highlight that foreign bank branches engaged in insured deposit-taking activities as of 19 December 1991 were exempted from this requirement. We would note that even before 1991, when they were permitted to accept retail deposits in branches, foreign 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. Question (EU #31) Could the US specify which are the 18 States allowing inter-state branching by de novo establishment, and whether more States contemplate to allow such a possibility? (Reference is made to paragraph 201 of the Secretariats report) Answer Connecticut, Hawaii, Indiana, Maine, Maryland, Massachusetts, Michigan, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, Texas, Utah, Virginia, and West Virginia, (plus Puerto Rico and the District of Columbia). We do not have further information as to what other states might move to permit this type of interstate branching. Question (EU #32) Under US law foreign banks branches may not be required to commit organisational capital omits that they may be required to pledge a certain amount of their assets, computed as a percentage of their third-party liabilities. Could the US explain the current state-of-play of the asset pledge requirements, and possible improvements contemplated, especially in the State of New York? (Reference is made to paragraph 205 of the Secretariats report). Answer Federal and state law require that as a condition of opening a branch or agency, a foreign bank must maintain a pledge of high grade liquid assets in the state where that branch or agency is located. This condition is referred to as the “asset pledge” requirement or “capital equivalency deposit”. The asset pledge is intended to serve as a capital-like cushion for U.S. branches and agencies of foreign banks, as well as to protect creditors and cover liquidation costs in the event of a failure of the branch or agency or foreign banking organization. The United States considers federal and state asset pledge requirements to be prudential and therefore does not list them in its reservations to market access or national treatment. Many states have recently modified their asset pledge requirements to reduce the economic costs imposed on foreign banks. For example, in Illinois, state legislation was amended to grant discretionary authority to the state banking commissioner to apply asset-pledge requirements based on a risk-focussed assessment of safety and soundness for individual banks. In New York, legislation recently reduced the pledge requirement from 5 percent of third party liabilities to 1 percent of third party liabilities; capped the pledge amount to $400 million for well rated institutions; expanded the

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type of assets that may be pledged, including more flexibility for well rated institutions; and allowed the pledge to be calculated on a monthly basis. In 2002, the Office of the Comptroller of the Currency (OCC) implemented more flexible capital equivalency requirements for federal branches of foreign banks to reduce costs for institutions that present low levels of risk. Under U.S. law, federal branches of foreign banks maintain a Capital Equivalency Deposit (CED) equal to 5 percent of their liabilities in trust accounts at other banks. The OCC reduced administrative burdens for low risk branches, as they may now withdraw excess deposits without seeking prior OCC approval. Additionally, the liability base over which the CEDs are calculated has been redefined to exclude liabilities booked on a federal branch’s International Banking Facility, or IBF. An IBF may only accept deposits and extend credits to foreign companies and individuals and to other IBFs. The OCC has recommended legislation that would give the Comptroller the same flexibility that states now have to adjust the 5 per cent CED requirement to take account of the particular circumstances of an individual institution. Question (Hong Kong #6) We note with appreciation that 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. Citizenship requirements are however still maintained in US GATS initial offer and so are the residency requirements (without specification of exact requirements and state coverage) for directors, incorporators, organizers, or executive committee members of depository financial institutions. We would appreciate it if the US could share with us some more details of the exact requirements and the states included. Answer Citizenship, and in some cases residency, is required for incorporators or organizers of depository financial institutions organized under state law, as listed in the US GATS schedule. In the case of boards of directors, the US GATS schedule contains a list of state specific limitations on citizenship requirements of which some would be eased under our latest offer. For example, Louisiana has removed citizenship requirements for board of directors, allowing residents to serve on boards as well and Georgia has reduced their requirement from all to 3/4. If Hong Kong has a more specific area of interest we would be pleased to learn of it. Question (Hong Kong #7) We note that the US has inscribed registration requirements for foreign banks in the provision of securities advisory and investment management services in its GATS schedule. Apart from the registration requirement, we understand that some other discriminatory requirements also exist in US laws, such as citizenship/residency requirements for the majority of the directors and officers, maintenance of assets in the US with a US bank, having a US entity as a principal underwriter and have a US auditor for the company. We would appreciate it if the US could advise us on the compatibility of these restrictions with the US GATS commitments. Answer We are not aware of any practices, including the ones mentioned and listed above by Hong Kong, which are inconsistent with our GATS commitments.

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Question (Japan #88) Discriminatory measures against foreign banks in obtaining the status of financial holding companies (p. 147, para. 197) In order for banks to enter a securities business through an affiliates, it is necessary for them to obtain the status of Financial Holding Companies (FHCs), based on the Gramm-Leach-Bliley-Act enacted in November 1999. The Act provides that foreign banks are required to meet well-capitalized and well-managed standards, comparable to those applied to US banks. Japan requests the United States to clarify the criteria of FRB's judgment regarding these standards. Answer Banks may enter the securities without obtaining FHC status. So-called “section 20” companies may conduct general securities activities, subject to certain limitations. In order to establish “section 20” companies, the foreign bank must meet capital and management standards as applied on a national treatment basis. With respect to the well-capitalized and well-managed standards for becoming an FHC, the Gramm-Leach-Bliley (“GLB”) Act requires capital and management standards for a foreign bank that are comparable to the standards applied to a U.S. bank owned by a FHC, giving due regard to the principle of national treatment and equality of competitive opportunity. In assessing a foreign bank’s capital, the Federal Reserve Board (Board) uses a capital screening test referencing tier 1 and total capital levels calculated under the Basel Capital Accord. The Board also believes, however, that review of a non-U.S. bank’s leverage ratio in particular cases may serve as an indicator that the bank’s capital should receive further scrutiny in determining whether the bank has capital comparable to a well-capitalized U.S. bank. Consequently, a foreign bank’s leverage ratio will be considered by the Board as one of the factors that can be taken into account for purposes of the comparability review. Under this approach, the Board may consider whether the level of a foreign bank’s leverage ratio is such that it indicates that additional analysis should be undertaken in assessing comparability. Such assessments would in all cases be based on all relevant factors, and not merely on the leverage ratio. The foreign bank’s qualification for FHC status would not be dependent upon the leverage ratio. Instead, qualification would depend on the overall capital strength of the foreign bank. Moreover, the Board expects that staff would consult with the foreign bank’s home country supervisor on issues relating to capital. The Board’s requirements are applied to banks on a consolidated basis. This is the internationally accepted method of assessing bank capital. U.S. banks have non-depository subsidiaries and those subsidiaries are consolidated into the U.S. bank’s balance sheet for purposes of assessing capital. Moreover, as noted above, a foreign bank would have the opportunity to submit a pre-clearance request to the Board for a determination on capital status, and would be able to make arguments that it believes demonstrate why its capital should be considered acceptable under the tests. The Board takes into account a foreign bank’s reliance on government support to meet capital requirements in determining whether the foreign bank is well capitalized. In order to assure equality of competitive opportunity, the Board must be able to consider the impact of any assistance a foreign banking organizations receives from its home country for purposes of meeting capital requirements. A bank operating with government assistance is not competing on market terms. With respect to management standards, the Board assesses the foreign bank’s U.S. operations and requires the same rating that U.S. banks must achieve. The Board also consults with the home country supervisor to ensure that the supervisor believes the foreign bank has the capacity to engage in the expanded activities of an FHC.

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Question (Japan #89) Discriminatory measures against foreign banks for raising funds within the United States (p. 149, para. 203) When a foreign bank raises funds within the United States, it is necessary to deposit a certain amount of collateral with the authorities as a guarantee. Under the New York State Banking Law, for instance, the authorities demand bonds of high liquidity as eligible collateral, mainly CDs and CPs. Complying with the requirement causes a substantial opportunity cost, since a much higher return could be expected if invested in other assets. There are also other problems, such as the heavy burden related to administrative procedures and price fluctuation risk of the collateral bonds. Furthermore, according to a research conducted by the Institute of International Bankers (IIB), United States and Canada are the only countries among over 40 countries surveyed, that oblige 'fund collateral posting’ by foreign banks' as business guarantee. Therefore, Japan requests that such action be abolished. Should this not be possible, the qualifications for eligible collateral should be expanded to include, for example, standard loan assets in order to provide flexibility for foreign banks. Japan notes that the OCC has been reviewing this issue. What is the current situation surrounding this review? Answer Federal and state law require that as a condition of opening a branch or agency, a foreign bank must maintain a pledge of high grade liquid assets in the state where that branch or agency is located. This condition is referred to as the “asset pledge” requirement or “capital equivalency deposit”. The asset pledge is intended to serve as a capital-like cushion for U.S. branches and agencies of foreign banks, as well as to protect creditors and cover liquidation costs in the event of a failure of the branch or agency or foreign banking organization. The United States considers federal and state asset pledge requirements that may exist to be prudential and therefore does not list them in its reservations to market access or national treatment. Many states have recently modified their asset pledge requirements to reduce the economic costs imposed on foreign banks. For example, in Illinois, state legislation was amended to grant discretionary authority to the state banking commissioner to apply asset-pledge requirements based on a risk-focussed assessment of safety and soundness for individual banks. In New York, legislation recently reduced the pledge requirement from 5 percent of third party liabilities to 1 percent of third party liabilities; capped the pledge amount to $400 million for well rated institutions; expanded the type of assets that may be pledged, including more flexibility for well rated institutions; and allowed the pledge to be calculated on a monthly basis. In 2002, the Office of the Comptroller of the Currency (OCC) implemented more flexible capital equivalency requirements for federal branches of foreign banks to reduce costs for institutions that present low levels of risk. Under U.S. law, federal branches of foreign banks maintain a Capital Equivalency Deposit (CED) equal to 5 percent of their liabilities in trust accounts at other banks. The OCC reduced administrative burdens for low risk branches, as they may now withdraw excess deposits without seeking prior OCC approval. Additionally, the liability base over which the CEDs are calculated has been redefined to exclude liabilities booked on a federal branch’s International Banking Facility, or IBF. An IBF may only accept deposits and extend credits to foreign companies and individuals and to other IBFs. On January 20, 2004, revised regulations governing Federal branches and agencies of foreign banks will go into effect. Among the changes is a provision permitting a foreign bank with Federal branches and agencies in more than one state to consolidate some or all of its CEDs into one depository bank. A depository bank is considered to be located, under the revised regulations, in those states in which it has its main office or a branch. The revised regulations mark another way in which the OCC is seeking to reduce any regulatory burden associated with the CED requirement.

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Question (Japan #93) Disclosure requirement in the issuance of new stocks as the reorganization. If the US investors own 10 % or more of an equity of a Japanese company, the company must file a registration form to SEC for the reclassification of securities, mergers, consolidations and the acquisitions of assets, in accordance with Article 145 of the General Rules and Regulations promulgated under the Securities Act of 1933. As foreign investors increasingly own Japanese stocks, the above-mentioned requirement is unreasonably burdensome to Japanese companies, which are forced to disclose relevant information by US standards. Japan requests to increase a 10% threshold by about 30%. Answer We note your concern and statement on this matter. Question (Japan #94) Regulations regarding foreign mutual funds sold in the US (p.151. para.213) While approximately 20 US mutual funds are publicly offered in Japan, no Japanese funds have been offered in the US. This imbalance results, in part, from the SEC Rule 7d-1. Whereby the requirements prevent Japanese mutual funds from being offered in the US markets. Japan, therefore, requests the US to relax these requirements. Answer All funds that seek to sell their shares publicly in the United States generally must register with the SEC as investment companies under the Investment Company Act of 1940 (“Company Act”). Section 7(d) of the Company Act requires that any non-U.S. fund that wishes to register as an investment company and publicly offer its securities in the United States must first obtain an order from the SEC. To issue such an order, the SEC must find that "by reason of special circumstances or arrangements, it is both legally and practically feasible to enforce the provisions of [the Act against the non-U.S. fund,] and that the issuance of [the] order is otherwise consistent with the public interest and the protection of investors." Section 7(d) represents a prudential standard that generally ensures that U.S. investors receive the same essential investor protections, whether they acquire shares in a non-U.S. fund or in a U.S. fund. The section provides non-discriminatory, national treatment for non-U.S. funds; that is, any non-U.S. fund that can provide the investor protections required by the Company Act may legally access the U.S. market to the same extent as any U.S. fund. Further, non-U.S. investment advisers may easily register in the United States as investment advisers and offer their services to U.S. funds or establish funds that are organized in the United States. Question (Japan #95) Free participation of US investors in foreign ETF markets (p.151, para.213) It is unclear how the ETFs publicly available in foreign markets are regulated under US law. ETFs are treated in Japan similarly to stocks, but because the exemption clauses applicable to stocks in the US do not apply to ETFs, US investors face difficulty in investing in Japanese ETFs. Japan, therefore, requests the US to exempt ETFs from the process of the filing of registration forms and prospectuses. Answer The regulation of foreign ETFs under the U.S. federal securities laws will depend on the particular structure and characteristics of the ETF. In general, however, the SEC would treat the offer and sale of non-U.S. ETF securities to U.S. investors in the same manner that it treats the offer and sale of any

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non-U.S. fund securities to U.S. investors, which is on a national treatment basis. As described above, all non-U.S. funds that seek to sell their shares publicly in the United States must register with the SEC as investment companies under the Company Act. In addition, because ETFs operate differently from traditional investment companies, U.S. ETFs have had to seek exemptive relief from certain provisions of the Company Act. Non-U.S. ETFs likely would also have to seek exemptive relief to register under the Company Act. Question (Japan #96) Securities services (p152, para.218) Corporate governance takes place in a variety of forms based on regulatory and other differences. Indeed, it seems that, there is no one-size-fit-all standard for corporate governance, as proclaimed in the OECD Principle of Corporate Governance, which was agreed by the OECD members including the US. While recognizing the necessity of avoiding conflicts with foreign legal systems, the Sarbanes-Oxley Act nonetheless requires that the foreign companies listed in the US markets comply with the corporate governance standards. For example, while the Act allows the exemption of a board of corporate statutory auditor system, there exists no similar exemption of the committee system. The Act also puts a burden on foreign companies through such requirements as having to report and evaluate internal control. The US should refrain from applying its corporate governance to foreign companies. It risks inhibiting access unduly to its securities markets by foreign companies. It is not enough to avoid conflicts of various legal systems. Japan would like to seek the US views on this matter. Answer While the Sarbanes-Oxley Act generally makes no distinction between US issuers and foreign private issuers listed in the United States, the SEC is cognizant of the fact that US requirements and foreign requirements could come into conflict. During implementation of the Act, the Commission and its staff sought to learn from foreign regulators and market participants about how the requirements of the Act conflict with local law or local stock exchange requirements, and how foreign laws and regulations address in alternative ways the same issues as the Act. The SEC engaged the foreign community through public roundtables, bilateral and multilateral meetings, and an analysis of foreign comment letters. Where appropriate, the SEC has made accommodations for foreign market participants, including in the two areas raised by the Japanese: audit committee requirements and internal controls reporting. Regarding audit committee requirements, foreign private issuers will have additional time to comply with new listing requirements (by 31 July 2005, rather than by 31 October 2004). In addition, the accommodations will, among other things, allow for alternative structures such as statutory auditors or boards of auditors to perform auditor oversight functions where such structures are provided for under local law, such as in Japan. These accommodations take into account foreign corporate governance schemes while preserving the intended result of the Act to ensure that those with oversight responsibility for a company’s outside auditors be independent of management. Regarding internal controls reporting, the SEC’s rules include the following accommodations for foreign private issuers:

-- Foreign private issuers are not required to begin reporting on internal controls over financial

reporting on an annual basis until the first fiscal year ending on or after April 15, 2005. Also, disclosure of changes in internal controls over financial reporting will be made on an annual basis rather than a quarterly basis.

-- Foreign private issuers must use a suitable framework for evaluating internal controls, but are

not required to use a US framework.

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Questions (Korea) Reference: page 148-149, para. 205, 207 Paragraph 205 indicates that foreign branches and agencies are involved primarily in wholesale banking and seldom in retail banking and this is partly because a foreign bank is required to establish an insured banking subsidiary in order to accept or maintain domestic retail deposits of less than US$100,000. With regard to paragraph 205, please give us specific examples where a branch or an agency can accept domestic retail deposits of less than US$100,000. And please provide us with detailed information on “insured deposits.” Answer Foreign bank branches engaged in insured deposit-taking activities as of 19 December 1991 can accept domestic retail deposits of less than US$100,000. Please consult FDIC.gov for detailed information about “insured deposits”. According to paragraph 207, the United States maintains commercial presence limitations on market access and national treatment for foreign banks at the state level, with respect to the type of business establishment coverage of business (i.e. restriction on retail deposits) and requirements of citizenship or residence. Does the U.S. government have any plan to address these restrictions at the Federal level? Answer Under the U.S. federal system, states retain significant rights to regulate within their borders. Moreover, in light of the dual banking system, foreign banks have the alternative to establish offices at the federal level. Accordingly, the U.S. government has no current plans to address the cited restrictions at the state level. What is the difference between “branch” and “agency” in terms of the conditions of establishment, boundary of business and prudential regulation? Answer The requirements for establishment of branches and agencies are generally the same. The prudential regulation of such offices generally is the same as well. However, agencies are more limited than branches in that deposits may only be accepted from persons and entities that are not citizens or residents of the United States. According to paragraph 210, “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.” Please clarify whether or not this means that cross-border supply (mode 1) and consumption abroad are permitted by the foreign investment advisers registered with the SEC? If so, since the United States has already adopted the Understanding on Commitments in Financial Services whose paragraph B.3 (c) includes investment advisory services, is it correct to understand that the United States has made such a commitment?

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With regard to this issue, could the U.S. government explain the meaning of the following statement in the note on financial services as included in the initial U.S. offer: “the United States will consider, pending on the other Members’ willingness to do likewise, adopting additional mode 1 commitments for certain other activities where the consumer is deemed sufficiently sophisticated to manage any attendant risk, such as allowing mutual funds located in the United States to obtain certain investment advice and portfolio management services from financial services suppliers located outside its territory.” Answer As is the case for many members, actual practice in the U.S. is occasionally, more liberal than our commitments, including in the area mentioned by the Korean delegation. The U.S. stands ready to negotiate reciprocal removal of such “binding gaps.”

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