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David Roth
David Roth

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Demetrios Marantis
Demetrios Marantis

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Miriam Sapiro
Miriam Sapiro

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2013 National Trade Estimate Report on
2013 National Trade Estimate Report on
Ambassador Demetrios Marantis
Office of the United States Trade Representative
The Office of the United States Trade Representative (USTR) is responsible for the preparation of this
report. Acting U.S. Trade Representative Demetrios Marantis gratefully acknowledges in particular the
contributions of Deputy U.S. Trade Representatives Michael Punke and Miriam Sapiro; USTR General
Counsel Timothy Reif; Chief of Staff Lisa Garcia; and Assistant USTR for Public/Media Affairs Carol
Guthrie, Senior Policy Advisor Holly Smith, Senior Advisor David Roth, and all USTR staff who
contributed to the drafting and review of this report. Thanks are extended to partner Executive Branch
agencies, including the Environmental Protection Agency and the Departments of Agriculture,
Commerce, Health and Human Services, Justice, Labor, Transportation, Treasury, and State.
Ambassador Marantis would also like to thank Diana Friedman, Jeffrey Horowitz, and Jeffrey Schlandt
for their contributions.
In preparing the report, substantial information was solicited from U.S. Embassies around the world and
from interested stakeholders. The draft of this report was circulated through the interagency Trade Policy
Staff Committee.
March 2013
AD ...................................................................................
AGOA .............................................................................
APEC ..............................................................................
ASEAN ...........................................................................
ATC ................................................................................
ATPA ..............................................................................
ATPDEA .........................................................................
BIT ..................................................................................
BOP .................................................................................
CACM .............................................................................
CAFTA ...........................................................................
CARICOM ......................................................................
CBERA ...........................................................................
CBI ..................................................................................
CFTA ..............................................................................
CITEL .............................................................................
CTE .................................................................................
CTG ................................................................................
CVD ................................................................................
DSB .................................................................................
EAI………………………………………………... .......
DSU ................................................................................
EU ...................................................................................
EFTA ..............................................................................
FTAA ..............................................................................
FOIA ..............................................................................
GATT ..............................................................................
GATS .............................................................................
GDP ................................................................................
GEC ................................................................................
GSP .................................................................................
GPA ................................................................................
IPR ..................................................................................
ITA ..................................................................................
LDBDC ...........................................................................
MAI .................................................................................
MERCOSUL/MERCOSUR ............................................
MFA ................................................................................
MFN ................................................................................
African Growth and Opportunity Act
Asia Pacific Economic Cooperation
Association of Southeast Asian Nations
Agreement on Textiles and Clothing
Andean Trade Preferences Act
Andean Trade Promotion & Drug Eradication
Built-In Agenda
Bilateral Investment Treaty
Balance of Payments
Central American Common Market
Central American Free Trade Area
Caribbean Common Market
Caribbean Basin Economic Recovery Act
Caribbean Basin Initiative
Canada Free Trade Agreement
Telecommunications division of the OAS
Common Market for Eastern & Southern Africa
Committee on Trade and the Environment
Council for Trade in Goods
Countervailing Duty
Doha Development Agenda
Dispute Settlement Body
Enterprise for ASEAN Initiative
Dispute Settlement Understanding
European Union
European Free Trade Association
Free Trade Area of the Americas
Freedom of Information Act
General Agreement on Tariffs and Trade
General Agreements on Trade in Services
Gross Domestic Product
Global Electronic Commerce
Generalized System of Preferences
Government Procurement Agreement
International Financial Institution
Intellectual Property Rights
Information Technology Agreement
Least-Developed Beneficiary Developing
Multilateral Agreement on Investment
Middle East Free Trade Area
Southern Common Market
Multifiber Arrangement
Most Favored Nation
MOU ...............................................................................
MRA ...............................................................................
NAFTA ...........................................................................
NEC ……………………………………………………
NIS ..................................................................................
NSC .................................................................................
NTR ................................................................................
OPIC ...............................................................................
PNTR ..............................................................................
ROU ................................................................................
SACU ..............................................................................
SADC ..............................................................................
SME ................................................................................
SPS ..................................................................................
SRM ...............................................................................
TAA ................................................................................
TALD ..............................................................................
TBT .................................................................................
TEP .................................................................................
TPRG ..............................................................................
TPSC ...............................................................................
TRIMS ............................................................................
UNCTAD ........................................................................
URAA .............................................................................
USITC .............................................................................
USTR ..............................................................................
VRA …………………………………………………...
WAEMU ........................................................................
WB …………………………………………………….
WTO ...............................................................................
Market-Oriented, Sector-Selective
Memorandum of Understanding
Mutual Recognition Agreement
North American Free Trade Agreement
National Economic Council
Newly Independent States
National Security Council
Normal Trade Relations
Organization of American States
Organization for Economic Cooperation and
Overseas Private Investment Corporation
Permanent Normal Trade Relations
Record of Understanding
Southern African Customs Union
Southern African Development Community
Small and Medium Size Enterprise
Sanitary and Phytosanitary Measures
Specified Risk Material
Trade Adjustment Assistance
Trans-Atlantic Business Dialogue
Trans-Atlantic Consumer Dialogue
Trans-Atlantic Environment Dialogue
Trans-Atlantic Labor Dialogue
Technical Barriers to Trade
Transatlantic Economic Partnership
Trade & Investment Framework Agreement
Trade Policy Review Group
Trade Policy Staff Committee
Trade-Related Investment Measures
Trade-Related Intellectual Property Rights
United Arab Emirates
United Nations Conference on Trade &
United Nations Development Program
Uruguay Round Agreements Act
U.S. Department of Agriculture
U.S. International Trade Commission
United States Trade Representative
Voluntary Restraint Agreement
West African Economic & Monetary Union
World Bank
World Trade Organization
Table of Contents
FOREWORD ................................................................................................................................................ 1
ANGOLA ...................................................................................................................................................... 7
ARAB LEAGUE ........................................................................................................................................ 13
ARGENTINA ............................................................................................................................................. 19
AUSTRALIA .............................................................................................................................................. 29
BAHRAIN .................................................................................................................................................. 33
BOLIVIA .................................................................................................................................................... 35
BRAZIL ...................................................................................................................................................... 39
BRUNEI DARUSSALAM ......................................................................................................................... 47
CAMBODIA ............................................................................................................................................... 49
CANADA ................................................................................................................................................... 53
CHILE ......................................................................................................................................................... 63
CHINA ........................................................................................................................................................ 67
COLOMBIA ............................................................................................................................................. 109
COSTA RICA ........................................................................................................................................... 113
DOMINICAN REPUBLIC ....................................................................................................................... 117
ECUADOR ............................................................................................................................................... 121
EGYPT...................................................................................................................................................... 127
EL SALVADOR ....................................................................................................................................... 131
ETHIOPIA ................................................................................................................................................ 135
EUROPEAN UNION ............................................................................................................................... 139
GHANA .................................................................................................................................................... 163
GUATEMALA ......................................................................................................................................... 167
HONDURAS ............................................................................................................................................ 171
HONG KONG .......................................................................................................................................... 175
INDIA ....................................................................................................................................................... 177
INDONESIA ............................................................................................................................................. 189
ISRAEL .................................................................................................................................................... 201
JAPAN ...................................................................................................................................................... 205
JORDAN ................................................................................................................................................... 221
KAZAKHSTAN ....................................................................................................................................... 223
KENYA .................................................................................................................................................... 229
KOREA ..................................................................................................................................................... 235
KUWAIT .................................................................................................................................................. 245
LAOS ........................................................................................................................................................ 247
MALAYSIA ............................................................................................................................................. 249
MEXICO ................................................................................................................................................... 255
MOROCCO .............................................................................................................................................. 261
NEW ZEALAND...................................................................................................................................... 263
NICARAGUA........................................................................................................................................... 267
NIGERIA .................................................................................................................................................. 271
NORWAY................................................................................................................................................. 275
OMAN ...................................................................................................................................................... 279
PAKISTAN ............................................................................................................................................... 281
PANAMA ................................................................................................................................................. 287
PARAGUAY ............................................................................................................................................ 293
PERU ........................................................................................................................................................ 297
THE PHILIPPINES .................................................................................................................................. 301
QATAR ..................................................................................................................................................... 309
RUSSIA .................................................................................................................................................... 313
SAUDI ARABIA ...................................................................................................................................... 323
SINGAPORE ............................................................................................................................................ 327
SOUTH AFRICA...................................................................................................................................... 331
SRI LANKA ............................................................................................................................................. 337
SWITZERLAND ...................................................................................................................................... 343
TAIWAN .................................................................................................................................................. 345
THAILAND .............................................................................................................................................. 353
TURKEY .................................................................................................................................................. 361
UKRAINE................................................................................................................................................. 365
UNITED ARAB EMIRATES................................................................................................................... 371
VENEZUELA ........................................................................................................................................... 375
VIETNAM ................................................................................................................................................ 381
Appendix I: Report pursuant to Section 734(b) of the Energy Policy Act of 2005
Appendix II: U.S. Export and Foreign Direct Investment Data for Selected Partners
The 2013 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 28th in an annual series
that surveys significant foreign barriers to U.S. exports. This document is a companion piece to the
President’s Trade Policy Agenda published in March. The issuance of the NTE Report continues the
elaboration of an enforcement strategy, utilizing this report, among other tools, in that strategy.
On February 28, 2012, the President signed an Executive Order establishing the Interagency Trade
Enforcement Center (ITEC) within the Office of the United States Trade Representative. Bringing
together staff from a variety of agencies with a diverse set of skills and expertise, ITEC is a single
organization with a clear cross-government commitment to strong trade enforcement. ITEC already has
begun playing a critical role in multiple enforcement actions, including two actions regarding China, and
one each against Argentina, India and Indonesia. The information contained in the NTE represents one of
the important sources upon which ITEC staff can draw as it conducts research and analysis regarding a
number of countries and issues.
In accordance with section 181 of the Trade Act of 1974, as added by section 303 of the Trade and Tariff
Act of 1984 and amended by section 1304 of the Omnibus Trade and Competitiveness Act of 1988,
section 311 of the Uruguay Round Trade Agreements Act, and section 1202 of the Internet Tax Freedom
Act, the Office of the U.S. Trade Representative is required to submit to the President, the Senate Finance
Committee, and appropriate committees in the House of Representatives, an annual report on significant
foreign trade barriers.
The statute requires an inventory of the most important foreign barriers affecting U.S. exports of goods
and services, foreign direct investment by U.S. persons, and protection of intellectual property rights.
Such an inventory facilitates negotiations aimed at reducing or eliminating these barriers. The report also
provides a valuable tool in enforcing U.S. trade laws, with the goal of expanding global trade and
strengthening the rules-based trading system, to the benefit of all economies, and U.S. producers and
consumers in particular.
The report provides, where feasible, quantitative estimates of the impact of these foreign practices on the
value of U.S. exports. Information is also included on some of the actions taken to eliminate foreign trade
barriers. Opening markets for American goods and services, either through negotiating trade agreements
or through results-oriented enforcement actions, is this Administration’s top trade priority. This report is
an important tool for identifying such trade barriers.
This report is based upon information compiled within USTR, the Departments of Commerce and
Agriculture, and other U.S. Government agencies, and supplemented with information provided in
response to a notice published in the Federal Register, and by members of the private sector trade
advisory committees and U.S. Embassies abroad.
Trade barriers elude fixed definitions, but may be broadly defined as government laws, regulations,
policies, or practices that either protect domestic goods and services from foreign competition, artificially
stimulate exports of particular domestic goods and services, or fail to provide adequate and effective
protection of intellectual property rights.
This report classifies foreign trade barriers into nine different categories. These categories cover
government-imposed measures and policies that restrict, prevent, or impede the international exchange of
goods and services. They include:
Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing,
and customs barriers);
Government procurement (e.g., “buy national” policies and closed bidding);
Export subsidies (e.g., export financing on preferential terms and agricultural export subsidies
that displace U.S. exports in third country markets);
Lack of intellectual property protection (e.g., inadequate patent, copyright, and trademark
regimes and enforcement of intellectual property rights);
Services barriers (e.g., limits on the range of financial services offered by foreign financial
institutions, regulation of international data flows, restrictions on the use of foreign data
processing, and barriers to the provision of services by foreign professionals);
Investment barriers (e.g., limitations on foreign equity participation and on access to foreign
government-funded research and development programs, local content requirements, technology
transfer requirements and export performance requirements, and restrictions on repatriation of
earnings, capital, fees and royalties);
Government-tolerated anticompetitive conduct of state-owned or private firms that restricts the
sale or purchase of U.S. goods or services in the foreign country’s markets;
Trade restrictions affecting electronic commerce (e.g., tariff and nontariff measures, burdensome
and discriminatory regulations and standards, and discriminatory taxation); and
Other barriers (barriers that encompass more than one category, e.g., bribery and corruption,i or
that affect a single sector).
Significant foreign government barriers to U.S. exports that prior to the 2010 NTE reports were addressed
under the rubric of “standards, testing, labeling, and certification” measures are now treated separately in
two specialized reports. One report is dedicated to identifying unwarranted barriers in the form of
standards-related measures (such as product standards and testing requirements). A second report
addresses unwarranted barriers to U.S. exports of food and agricultural products that arise from sanitary
and phytosanitary (SPS) measures related to human, animal, and plant health and safety. Together, the
three reports provide the inventory of trade barriers called for under U.S. law.
The two specialized reports were first issued in March 2010. USTR will issue new, up-to-date versions of
these two reports in conjunction with the release of this report to continue to highlight the increasingly
critical nature of standards-related measures and sanitary and phytosanitary issues to U.S. trade policy.
The reports will identify and call attention to problems resolved during 2012, in part as models for
resolving ongoing issues and to signal new or existing areas in which more progress needs to be made.
In recent years, the United States has observed a growing trend among our trading partners to impose
localization barriers to trade – measures designed to protect, favor, or stimulate domestic industries,
service providers, or intellectual property at the expense of imported goods, services or foreign-owned or
developed intellectual property. These measures may operate as disguised barriers to trade and
unreasonably differentiate between domestic and foreign products, services, intellectual property, or
suppliers. They can distort trade, discourage foreign direct investment and lead other trading partners to
impose similarly detrimental measures. For these reasons, it has been longstanding U.S. trade policy to
advocate strongly against localization barriers and encourage trading partners to pursue policy approaches
that help their economic growth and competitiveness without discriminating against imported goods and
services. USTR is chairing an interagency effort to develop and execute a more strategic and coordinated
approach to address localization barriers. This year’s NTE continues the practice of identifying
localization barriers to trade in the relevant barrier category in the report’s individual sections to assist
these efforts and to inform the public on the scope and diversity of these practices.
USTR continues to more vigorously scrutinize foreign labor practices and to redress substandard practices
that impinge on labor obligations in U.S. free trade agreements (FTAs) and deny foreign workers their
internationally recognized labor rights. USTR has also introduced new mechanisms to enhance its
monitoring of the steps that U.S. FTA partners have taken to implement and comply with their obligations
under the environment chapters of those agreements. To further these initiatives, USTR has implemented
interagency processes for systematic information gathering and review of labor rights practices and
environmental enforcement measures in FTA countries, and USTR staff regularly works with FTA
countries to monitor practices and directly engages governments and other actors. The Administration
has reported on these activities in the 2013 Trade Policy Agenda and 2012 Annual Report of the President
on the Trade Agreements Program.
The NTE covers significant barriers, whether they are consistent or inconsistent with international trading
rules. Many barriers to U.S. exports are consistent with existing international trade agreements. Tariffs,
for example, are an accepted method of protection under the General Agreement on Tariffs and Trade
1994 (GATT 1994). Even a very high tariff does not violate international rules unless a country has made
a commitment not to exceed a specified rate, i.e., a tariff binding. On the other hand, where measures are
not consistent with U.S. rights international trade agreements, they are actionable under U.S. trade law,
including through the World Trade Organization (WTO).
This report discusses the largest export markets for the United States, including 57 countries, the
European Union, Taiwan, Hong Kong, and one regional body. Some countries were excluded from this
report due primarily to the relatively small size of their markets or the absence of major trade complaints
from representatives of U.S. goods and services sectors. However, the omission of particular countries
and barriers does not imply that they are not of concern to the United States.
NTE sections report the most recent data on U.S. bilateral trade in goods and services and compare the
data to the preceding period. This information is reported to provide context for the reader. In nearly all
cases, U.S. bilateral trade continued to increase in 2012 compared to the preceding period (with world
Gross Domestic Product and world trade up 3.3 percent and 3.2 percent, respectively). The merchandise
trade data contained in the NTE are based on total U.S. exports, free alongside (f.a.s.)ii value, and general
U.S. imports, customs value, as reported by the Bureau of the Census, Department of Commerce (NOTE:
These data are ranked in an Appendix according to size of export market). The services data are drawn
from the October 2012 Survey of Current Business, compiled by the Bureau of Economic Analysis in the
Department of Commerce (BEA). The direct investment data are drawn from the September 2012 Survey
of Current Business, also from BEA.
Wherever possible, this report presents estimates of the impact on U.S. exports of specific foreign trade
barriers and other trade distorting practices. Where consultations related to specific foreign practices
were proceeding at the time this report was published, estimates were excluded, in order to avoid
prejudice to those consultations.
The estimates included in this report constitute an attempt to assess quantitatively the potential effect of
removing certain foreign trade barriers on particular U.S. exports. However, the estimates cannot be used
to determine the total effect on U.S. exports either to the country in which a barrier has been identified or
to the world in general. In other words, the estimates contained in this report cannot be aggregated in
order to derive a total estimate of gain in U.S. exports to a given country or the world.
Trade barriers or other trade distorting practices affect U.S. exports to another country because these
measures effectively impose costs on such exports that are not imposed on goods produced in the
importing country. In theory, estimating the impact of a foreign trade measure on U.S. exports of goods
requires knowledge of the (extra) cost the measure imposes on them, as well as knowledge of market
conditions in the United States, in the country imposing the measure, and in third countries. In practice,
such information often is not available.
Where sufficient data exist, an approximate impact of tariffs on U.S. exports can be derived by obtaining
estimates of supply and demand price elasticities in the importing country and in the United States.
Typically, the U.S. share of imports is assumed to be constant. When no calculated price elasticities are
available, reasonable postulated values are used. The resulting estimate of lost U.S. exports is
approximate, depends on the assumed elasticities, and does not necessarily reflect changes in trade
patterns with third countries. Similar procedures are followed to estimate the impact of subsidies that
displace U.S. exports in third country markets.
The task of estimating the impact of nontariff measures on U.S. exports is far more difficult, since there is
no readily available estimate of the additional cost these restrictions impose. Quantitative restrictions or
import licenses limit (or discourage) imports and thus raise domestic prices, much as a tariff does.
However, without detailed information on price differences between countries and on relevant supply and
demand conditions, it is difficult to derive the estimated effects of these measures on U.S. exports.
Similarly, it is difficult to quantify the impact on U.S. exports (or commerce) of other foreign practices,
such as government procurement policies, nontransparent standards, or inadequate intellectual property
rights protection.
In some cases, particular U.S. exports are restricted by both foreign tariff and nontariff barriers. For the
reasons stated above, it may be difficult to estimate the impact of such nontariff barriers on U.S. exports.
When the value of actual U.S. exports is reduced to an unknown extent by one or more than one nontariff
measure, it then becomes derivatively difficult to estimate the effect of even the overlapping tariff barriers
on U.S. exports.
The same limitations that affect the ability to estimate the impact of foreign barriers on U.S. goods
exports apply to U.S. services exports. Furthermore, the trade data on services exports are extremely
limited in detail. For these reasons, estimates of the impact of foreign barriers on trade in services also
are difficult to compute.
With respect to investment barriers, there are no accepted techniques for estimating the impact of such
barriers on U.S. investment flows. For this reason, no such estimates are given in this report. The NTE
includes generic government regulations and practices which are not product specific. These are among
the most difficult types of foreign practices for which to estimate trade effects.
In the context of trade actions brought under U.S. law, estimates of the impact of foreign practices on
U.S. commerce are substantially more feasible. Trade actions under U.S. law are generally product
specific and therefore more tractable for estimating trade effects. In addition, the process used when a
specific trade action is brought will frequently make available non-U.S. Government data (from U.S.
companies or foreign sources) otherwise not available in the preparation of a broad survey such as this
In some cases, industry valuations estimating the financial effects of barriers are contained in the report.
The methods for computing these valuations are sometimes uncertain. Hence, their inclusion in the NTE
report should not be construed as a U.S. Government endorsement of the estimates they reflect.
March 2013
Corruption is an impediment to trade, a serious barrier to development, and a direct threat to our collective security.
Corruption takes many forms and affects trade and development in different ways. In many countries, it affects
customs practices, licensing decisions, and the awarding of government procurement contracts. If left unchecked,
bribery and corruption can negate market access gained through trade negotiations, undermine the foundations of the
international trading system, and frustrate broader reforms and economic stabilization programs. Corruption also
hinders development and contributes to the cycle of poverty.
Information on specific problems associated with bribery and corruption is difficult to obtain, particularly since
perpetrators go to great lengths to conceal their activities. Nevertheless, a consistent complaint from U.S. firms is
that they have experienced situations that suggest corruption has played a role in the award of billions of dollars of
foreign contracts and delayed or prevented the efficient movement of goods. Since the United States enacted the
Foreign Corrupt Practices Act (FCPA) in 1977, U.S. companies have been prohibited from bribing foreign public
officials, and numerous other domestic laws discipline corruption of public officials at the State and Federal levels.
The United States is committed to the active enforcement of the FCPA.
The United States has taken a leading role in addressing bribery and corruption in international business transactions
and has made real progress over the past quarter century building international coalitions to fight bribery and
corruption. Bribery and corruption are now being addressed in a number of fora. Some of these initiatives are now
yielding positive results.
The United States led efforts to launch the Organization for Economic Cooperation and Development (OECD)
Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Antibribery
Convention). In November 1997, the United States and 33 other nations adopted the Antibribery Convention, which
currently is in force for 38 countries, including the United States. The Antibribery Convention obligates its parties
to criminalize the bribery of foreign public officials in the conduct of international business. It is aimed at
proscribing the activities of those who offer, promise, or pay a bribe. (For additional information, see and
The United States also played a critical role in the successful conclusion of negotiations that produced the United
Nations Convention Against Corruption, the first global anticorruption instrument. The Convention was opened for
signature in December 2003, and entered into force December 14, 2005. The Convention contains many provisions
on preventive measures countries can take to stop corruption, and requires countries to adopt additional measures as
may be necessary to criminalize fundamental anticorruption offenses, including bribery of domestic as well as
foreign public officials. As of December 2012, there were 165 parties, including the United States.
In March 1996, countries in the Western Hemisphere concluded negotiation of the Inter-American Convention
Against Corruption (Inter-American Convention). The Inter-American Convention, a direct result of the Summit of
the Americas Plan of Action, requires that parties criminalize bribery and corruption. The Inter-American
Convention entered into force in March 1997. The United States signed the Inter-American Convention on June 2,
1996 and deposited its instrument of ratification with the Organization of American States (OAS) on September 29,
2000. Thirty-one of the thirty-three parties to the Inter-American Convention, including the United States,
participate in a Follow-up Mechanism conducted under the auspices of the OAS to monitor implementation of the
Convention. The Inter-American Convention addresses a broad range of corrupt acts including domestic corruption
and trans-national bribery. Signatories agree to enact legislation making it a crime for individuals to offer bribes to
public officials and for public officials to solicit and accept bribes, and to implement various preventive measures.
The United States continues to push its anticorruption agenda forward. The United States seeks binding
commitments in FTAs that promote transparency and that specifically address corruption of public officials. The
United States also is seeking to secure a meaningful agreement on trade facilitation in the World Trade Organization
(WTO) and has been pressing for concrete commitments on customs operations and on transparency of government
procurement regimes in FTA negotiations. In the Trans-Pacific Partnership negotiations, the United States is
seeking expanded transparency and anticorruption disciplines. The United States is also playing a leadership role on
these issues in APEC and other fora.
Free alongside (f.a.s.): Under this term, the seller quotes a price, including delivery of the goods alongside and
within the reach of the loading tackle (hoist) of the vessel bound overseas.
The U.S. goods trade deficit with Angola was $8.3 billion in 2012, down $3.8 billion from 2011. U.S.
goods exports in 2012 were $1.5 billion, down 0.9 percent from the previous year. Corresponding U.S.
imports from Angola were $9.8 billion, down 27.8 percent. Angola is currently the 70th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Angola was $5.7 billion in 2011 (latest data
available), up from $4.7 billion in 2010.
Tariffs and Nontariff Measures
Angola is a member of the WTO and the Southern African Development Community (SADC). However,
Angola has delayed implementation of the 2003 SADC Protocol on Trade (which seeks to reduce tariffs),
which remains low as a result of years of civil war and economic underdevelopment. The government is
concerned that early implementation of the SADC Protocol on Trade would lead to a large increase in
imports, particularly from South Africa.
In September 2008, a tariff schedule came into force that removed duties on the import of raw materials,
equipment, and intermediate goods for industries and reduced tariffs on 58 categories of basic goods. A
new tax was also established on imports of luxury products, which are now subject to a 1 percent
surcharge. The 2008 tariff schedule eliminated personal customs fees and transportation taxes. In
addition to duties, fees associated with importing include clearing costs (2 percent), value added tax (2
percent to 30 percent depending on the good), revenue stamps (0.5 percent), port charges ($500 per day
per 20 foot container or $850 per day per 40 foot container), and port storage fees (free for the first 15
days, then $20 per 20 foot container or $40 per 40 foot container per day).
Tariff obligations for the oil industry are largely determined by individually negotiated contracts between
international oil companies and the Angolan government. Because most U.S. exports to Angola consist
of specialized oil industry equipment, which is largely exempt from tariffs, the annual impact of tariff
barriers on U.S. exports is relatively low. If companies operating in the oil and mining industries present
a letter from the Minister of Petroleum or the Minister of Geology and Mines, they may import, without
duty, equipment to be used exclusively for oil and mineral exploration.
Customs Barriers
Administration of Angola’s customs service has improved in the last few years but remains a barrier to
market access. The Angolan customs code follows the guidelines of the World Customs Organization,
the WTO, and the SADC. The construction of two dry ports for container storage in the Luanda capital
area and the diversion of some marine traffic to the Port of Lobito improved customs clearance. The preclearance of containers before transport to Angola through exclusive pre-shipment inspection provider,
Bureau Veritas, further improves the efficiency of the process. In November 2012, the Vice-Minister of
Transportation reported a two-week average for the clearance of containers at the Port of Luanda.
The importation of certain goods into Angola requires an import license issued by the Ministry of
Commerce. Most forwarding agents can complete this process quickly. The import license is renewable
annually and covers all shipments of the authorized good or category of goods imported by the licensed
importer. The importation of certain goods may require specific authorization from various government
ministries. This often leads to bureaucratic bottlenecks that can result in delays and extra costs. Goods
that require ministerial authorization include the following: pharmaceutical substances and saccharine and
derived products (Ministry of Health); radios, transmitters, receivers, and other devices (Ministry of Post
and Telecommunications); weapons, ammunition, fireworks, and explosives (Ministry of Interior); plants,
roots, bulbs, microbial cultures, buds, fruits, seeds, and crates and other packages containing these
products (Ministry of Agriculture); fiscal or postal stamps (Ministry of Post and Telecommunications);
poisonous and toxic substances and drugs (Ministries of Agriculture, Industry, and Health); and samples
or other goods imported to be given away (Customs).
Required customs paperwork includes the “Documento Único” (single document) for the calculation of
customs duties, proof of ownership of the good(s), bill of lading, commercial invoice, packing list, and
specific shipment documents verifying the right to import or export the product. Any shipment of goods
equal to or exceeding $1,000 requires use of a clearing agent. The number of clearing agents increased
from 55 in 2006 to 155 in 2011, but competition among clearing agents has not reduced fees, which
typically range from 1 percent to 2 percent of the value of the declaration.
Pre-shipment inspection is recommended for most goods including cars, live animals and living plants,
cereals, seeds, food produce, pharmaceuticals, chemicals, alcoholic beverages, and dairy products. The
Bureau Inspection Valuation Assessment Control (BIVAC), a private company associated with Bureau
Veritas, is agent for pre-shipment inspections. Exporters that do not use BIVAC/Bureau Veritas for preshipment inspection are subject to additional inspection upon arrival, another time-consuming and
bureaucratic process.
The government procurement process is not competitive and often lacks transparency. Information about
government projects and procurements is often not readily available from the appropriate authorities and
interested parties must spend considerable time to obtain the necessary information. Calls for bids for
government procurements are sometimes published in the government newspaper “Jornal de Angola,” but
even then the contracting agency may already have a preference for a specific business. Under the
Promotion of Angolan Private Entrepreneurs Law, the government gives Angolan companies preferential
treatment in the procurement of goods, services and public works contracts. However these Angolan
companies often later source goods and contract services from foreign companies.
Angola is not a signatory to the WTO Agreement on Government Procurement.
Angola is a party to the World Intellectual Property Organization (WIPO) Convention, the Paris
Convention for the Protection of Industrial Property, and the WIPO Patent Cooperation Treaty.
Intellectual property is protected by Law 3/92 for industrial property and Law 4/90 for the attribution and
protection of copyrights. Intellectual property rights (IPR) are administered by the Ministry of Industry
(trademarks, patents, and designs) and by the Ministry of Culture (authorship, literary, and artistic rights).
Each petition for a patent that is accepted is subject to a fee that varies by type of patent requested.
Although Angolan law provides basic protection for IPR and the National Assembly is working to
strengthen existing legislation, IPR protection remains weak in practice due to a lack of enforcement
capacity. The government has worked with international computer companies on anti-piracy measures.
No suits involving IPR owned by U.S. citizens or companies are known to have been filed in Angola.
Angola is formally open to foreign investment, but its legal infrastructure makes it difficult to provide
sufficient protection to foreign investors. Smaller firms in non-extractive industries tend to have a more
difficult time conducting business in Angola as compared to larger, multinational corporations engaged in
extractive industries. A private investment law, passed in May 2011, altered benefits and incentives
available for investors. The minimum investment required to qualify for incentives was increased from
$100,000 under the previous law to $1 million under the new law. Investors must enter into an
investment contract with the Angolan state, represented by the National Agency for Private Investment
(ANIP), which establishes the conditions for the investment as well as the applicable incentives. ANIP
offices are located in Luanda and Washington, D.C. The incentives and benefits, which can include
preferential treatment when repatriating funds out of Angola, tax deductions and exemptions, will be
negotiated with ANIP and other ministries of the Angolan government on a case-by-case basis. In
determining whether to grant incentives, consideration will be given to the economic and social impact of
the investment, taking into account the government’s economic development strategy. Larger incentives
with longer validity periods are offered to companies that invest in lesser developed areas outside of the
greater Luanda capital region.
In addition to the process described above, investments with a value between $10 million and $50 million
must be approved by the Council of Ministers, and investments above $50 million require the approval of
an ad hoc presidential committee. By law, the Council of Ministers has 30 days to review an application,
although in practice decisions are often subject to lengthy delays.
The Angolan justice system is slow, arduous, and not always impartial. The World Bank’s “Doing
Business in 2013” survey estimates that commercial contract enforcement, measured by the amount of
time elapsed between the filing of a complaint and the receipt of restitution, generally takes 1,011 days in
Angola. While an existing law includes the concept of domestic and international arbitration, the practice
of arbitration law is still not widely implemented.
Angola’s private investment law expressly prohibits private investment in the areas of defense, internal
public order, and state security; in banking activities relating to the operations of the Central Bank and the
Mint; in the administration of ports and airports; and in other areas where the law gives the state exclusive
Although the 2011 private investment law is part of an overall effort by the Angolan government to create
a more investor-friendly environment, many laws governing the economy have vague provisions that
permit wide interpretation and inconsistent application across sectors. Investment in the petroleum,
diamond, and financial sectors continues to be governed by sector-specific legislation. Foreign investors
can establish fully-owned subsidiaries in many sectors, but frequently are strongly encouraged (though
not formally required) to take on a local partner.
Obtaining the proper permits and business licenses to operate in Angola is time-consuming and adds to
the cost of investment. The World Bank “Doing Business in 2013” report noted that it takes an average
of 171 days in Angola compared to a regional average of 100 days to start a business.
The government is gradually implementing legislation for the petroleum sector, originally enacted in
November 2003 (Order 127/03 of the Ministry of Petroleum). The legislation requires many foreign oil
services companies currently supplying the petroleum sector to form joint-venture partnerships with local
companies on any new ventures. For the provision of goods and services not requiring heavy capital
investment or specialized expertise, foreign companies may only participate as a contractor or resell
manufactured products to Angolan companies. For activities requiring a medium level of capital
investment and a higher level of expertise (not necessarily specialized), foreign companies may only
participate in association with Angolan companies.
In November 2011, the government passed a law requiring oil companies to conduct a much greater share
of their financial transactions through the Angolan banking system. The law will be implemented in
phases. Under the first phase set to begin in January 2013, oil companies will be required to pay their
taxes owed to the Angolan government through a local bank. Under the final phase, oil companies
operating in Angola must use local banks to make all payments, including payments to suppliers and
contractors located outside of Angola. U.S. companies are concerned that Angolan banks may lack the
capacity to process all of these transactions.
A handful of American businesses have reported difficulties repatriating profits out of Angola. Transfers
above a certain amount require Central Bank approval and commercial banks may be reluctant to go
through the required bureaucratic process. Transfers of funds out of Angola to purchase merchandise for
future sale or use in Angola and that can be supported by pro-forma invoices are considerably easier to
Corruption is prevalent in Angola, due to an inadequately trained civil service, a highly-centralized
bureaucracy, antiquated regulations, and a lack of implementation of anti-corruption laws. There
continue to be credible reports that high-level officials receive substantial bribes from private companies
that are awarded government contracts. Gratuities and other facilitation fees are often requested in order
to secure quicker service and approval. It is also common for Angolan government officials to have
substantial private business interests. These interests are not necessarily publicly disclosed and it can be
difficult to determine the ownership of some Angolan companies. The business climate continues to
favor those connected to the government. There are laws and regulations regarding conflict of interest,
but they are not widely enforced. Some investors report pressure to form joint ventures with specific
Angolan companies believed to have connections to political figures.
Angola’s public and private companies have not traditionally used transparent accounting systems
consistent with international norms, and few companies in Angola adhere to international audit standards.
The government approved an audit law in 2002 that sought to require audits for all “large” companies, but
this law is not generally enforced.
Investors have at times experienced harassment, political interference, and pressure to sell their
investments. In some cases, these practices have involved individuals with powerful positions within the
government who exert pressure either directly or through the established bureaucracy. As a result, some
investors have experienced significant delays in payments for government contracts and delays in
obtaining the proper permits or approval of projects.
In November 2009, President Dos Santos called for a zero tolerance policy against corruption. In March
2010, the National Assembly approved a law on Public Probity which requires most government officials
to declare their assets to the Attorney General (though the information is not made available to the general
Angola’s damaged and neglected infrastructure substantially increases the cost of doing business for
investors. Poor roads, destroyed bridges, and mined secondary routes raise transportation costs. While
the government continues its efforts to rebuild Angola’s communications, energy, transportation, and road
infrastructure, many times its efforts fall short because of poor planning, shoddy work, and lack of
capacity among Angolan professional and technical workers. For example, while road infrastructure has
improved, the roadways connecting Angola’s major cities still contain many hazards such as potholes and
poor signage. Cell phone and Internet coverage is unreliable, as communication networks continue to be
oversubscribed in the provinces and sometimes even in the capital city of Luanda. Frequent disruptions
of service also plague the water and power utilities forcing the purchase of back-up electrical generators
and cisterns.
The Arab League’s boycott of Israeli companies and Israeli-made goods, and its effect on U.S. trade and
investment in the Middle East and North Africa, varies from country to country. While the boycott still
on occasion poses a significant barrier (because of associated compliance costs and potential legal
restrictions) for individual U.S. companies and their subsidiaries operating in certain parts of the region, it
has for many years had an extremely limited practical effect on overall U.S. trade and investment ties
with many key Arab League countries. The 22 Arab League members are the Palestinian Authority and
the following states: Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Kuwait, Jordan, Lebanon, Libya,
Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, Yemen, and the
United Arab Emirates. About half of the Arab League members are also Members of the World Trade
Organization (WTO) and are thus obligated to apply WTO commitments to all current WTO Members,
including Israel. To date, no Arab League member, upon joining the WTO, has invoked the right of nonapplication of WTO rights and obligations with respect to Israel.
The United States has long opposed the Arab League boycott, and U.S. Government officials from a
variety of agencies frequently have urged Arab League member states to end the boycott. The U.S.
Department of State and U.S. embassies in relevant host countries take the lead in raising U.S. boycottrelated concerns with political leaders in Arab League member states. The U.S. Departments of
Commerce and Treasury, and the Office of the United States Trade Representative monitor boycott
policies and practices of Arab League member states and, aided by U.S. embassies, lend advocacy
support to firms facing boycott-related pressures from host country officials.
U.S. antiboycott laws (the 1976 Tax Reform Act (TRA) and the 1977 amendments to the Export
Administration Act (EAA)) were adopted to require U.S. firms to refuse to participate in foreign boycotts
that the U.S. does not sanction. The Arab League boycott of Israel was the impetus for this legislation and
continues to be the principal boycott with which U.S. companies must be concerned. The EAA’s
antiboycott provisions, implementation of which is overseen by the U.S. Department of Commerce’s
Office of Antiboycott Compliance (OAC), prohibit certain types of conduct undertaken in support of the
Arab League boycott of Israel. These types of prohibited activity include, inter alia, agreements by
companies to refuse to do business with Israel, furnishing by companies of information about business
relationships with Israel, and implementation of letters of credit that include prohibited boycott terms. The
TRA’s antiboycott provisions, administered by the Department of the Treasury/IRS, deny certain foreign
tax benefits to companies that agree to requests from boycotting countries to participate in certain types of
The U.S. Government’s efforts to oppose the Arab League boycott include alerting host country officials
to the persistence of prohibited boycott requests and those requests’ impact on both U.S. firms and on the
countries’ ability to expand trade and investment ties with the United States. In this regard, U.S.
Department of Commerce/OAC officials periodically visit Arab League members to consult with
appropriate counterparts on antiboycott compliance issues. These consultations provide technical
assistance to host governments in identifying contract language with which U.S. businesses may or may
not comply.
Boycott activity can be classified according to three categories. The primary boycott prohibits the
importation of goods and services from Israel into the territory of Arab League members. This
prohibition may conflict with the obligation of Arab League members that are also members of the WTO
to treat products of Israel on a most favored nation basis. the secondary boycott prohibits individuals,
companies (both private and public sector), and organizations in Arab League members from engaging in
business with U.S. firms and those from other countries that contribute to Israel’s military or economic
development. Such foreign firms are placed on a blacklist maintained by the Damascus-based Central
Boycott Office (CBO), a specialized bureau of the Arab League; the CBO often provides this list to other
Arab League member governments, who decide whether or to what extent they follow it in implementing
any national boycotts. The tertiary boycott prohibits business dealings with U.S. and other firms that do
business with blacklisted companies.
Individual Arab League member governments are responsible for enforcing the boycott, and enforcement
efforts vary widely from country to country. Some Arab League member governments have consistently
maintained that only the League as a whole can entirely revoke the boycott. Other member governments
support the view that adherence to the boycott is a matter of national discretion; a number of governments
have taken steps to dismantle various aspects of it. The U.S. Government has on numerous occasions
indicated to Arab League member governments that their officials’ attendance at periodic CBO meetings
is not conducive to improving trade and investment ties, either with the United States or within the region.
Attendance of Arab League member government officials at CBO meetings is inconsistent; a number of
governments have responded to U.S. officials that they only send representatives to CBO meetings in an
observer capacity, or to push for additional discretion in national enforcement of the CBO-drafted
blacklisted company lists.
EGYPT: Egypt has not enforced any aspect of the boycott since 1980, pursuant to its peace treaty with
Israel. However, U.S. firms occasionally have found that some government agencies use outdated forms
containing boycott language. In past years, Egypt has included boycott language drafted by the Arab
League in documentation related to tenders funded by the Arab League. The revolution and resultant
political uncertainty which have gripped Egypt since early 2011 have left the future of Egyptian
approaches to boycott-related issues unclear. As Egypt’s government fully establishes lines of authority
and formulates basic foreign policy positions, the Administration will monitor closely its actions with
regard to the boycott.
JORDAN: Jordan formally ended its enforcement of any aspect of the boycott when it signed the
Jordanian-Israeli peace treaty in 1994. Jordan signed a trade agreement with Israel in 1995, and later an
expanded trade agreement in 2004 (essentially Israel’s first free trade agreement with an Arab country).
Jordanian-Israeli bilateral trade grew from $10 million in 1996 to approximately $374 million in 2008,
though trade fell (likely a result of the international financial crisis) to an estimated $130 million in 2010
(latest information available). While some elements of Jordanian society continue to oppose improving
political and commercial ties with Israel, government policy does not condone such positions.
LIBYA: Libya does not maintain diplomatic relations with Israel and has a law in place mandating the
boycott. Under the Qaddafi regime, Libyan government entities routinely inserted boycott language in
contracts with foreign companies and government tenders. After the United States lifted trade sanctions
against Libya in April 2004, several U.S. firms shunned business opportunities because of Libya’s strict
enforcement of its boycott law. The 2011 revolution, which led to the downfall of the Qaddafi regime,
and the uncertain political environment which has prevailed since, have made it extremely difficult to
predict the future course of Libyan government policy with respect to the boycott. The post-revolution
Libyan government has not articulated its stance vis-à-vis the boycott. The Administration will continue
to monitor closely Libya’s treatment of boycott issues.
IRAQ: The legal status of Iraq’s boycott laws is ambiguous. A 2009 Council of Ministers decision held
that Saddam-era boycott laws should not be applied. However, some individual Iraqi government officials
and ministries have ignored that decision and continue to request that companies provide boycott-related
information or comply with boycott restrictions. According to data from the U.S. Department of
Commerce, the number of prohibited requests from Iraq has continued to increase, from 7 in 2009 to 69 in
2012 (slightly down from 72 in 2011); Iraq was the second largest source of prohibited requests in 2012.
The Iraqi Ministry of Health continues to request compliance with the Arab League boycott and has not
removed boycott-related requirements from tender documents. In addition, Iraq’s Ministry of Planning
requires U.S. companies to answer a boycott questionnaire about a firm’s relationship with Israel as part
of the patent registration process. The Ministry of Oil also employs boycott-related language. U.S.
officials have urged officials in these ministries to follow the 2009 Council of Ministers decision and
have solicited the assistance of the Ministry of Trade in advocating for compliance with that decision.
YEMEN: Yemen has not put a law in place regarding the boycott, though it continues to enforce the
primary aspect of the boycott and does not trade with Israel. Yemen in the past has stated that, absent an
Arab League consensus to end the boycott, it will continue to enforce the primary boycott. However,
Yemen also continues to adhere to its 1995 governmental decision to renounce observance of the
secondary and tertiary aspects of the boycott and does not maintain an official boycott enforcement office.
Yemen has remained a participant in the meetings of the CBO in Damascus, but continuing serious
political unrest within the country makes it difficult to predict Yemen’s future posture toward boycottrelated issues.
LEBANON: Since June 1955, Lebanese law has prohibited all individuals, companies and organizations
from directly or indirectly contracting with Israeli companies and individuals or buying, selling or
acquiring in any way products produced in Israel. This prohibition is reportedly widely adhered to in
Lebanon. Ministry of Economy officials have reaffirmed the importance of the boycott in preventing
Israeli economic penetration of Lebanese markets.
PALESTINIAN AUTHORITY: The Palestinian Authority (PA) agreed not to enforce the boycott in a
1995 letter to the U.S. Government.
ALGERIA: Algeria does not maintain diplomatic, cultural, or direct trade relations with Israel, though
indirect trade reportedly does take place. The country has legislation in place that supports the Arab
League boycott, but domestic law contains no specific provisions relating to the boycott and government
enforcement of the primary aspect of the boycott reportedly is sporadic. Algeria appears not to enforce
any element of the secondary or tertiary aspects of the boycott.
MOROCCO: Moroccan law contains no specific references to the Arab League boycott. The
government informally recognizes the primary aspect of the boycott due to Morocco’s membership in the
Arab League, but does not enforce any aspect of it. Trade with Israel reportedly does take place, but
cannot be quantified from official statistics. U.S. firms have not reported boycott-related obstacles to
doing business in Morocco. Moroccan officials do not appear to attend CBO meetings in Damascus.
TUNISIA: Upon the establishment of limited diplomatic relations with Israel, Tunisia terminated its
observance of the Arab League boycott. In the wake of the 2011 revolution, the interim Tunisian
government’s policy with respect to the boycott remains unclear.
SUDAN: The government of Sudan supports the Arab League boycott and has enacted legislation
requiring adherence to it. However, there are no regulations in place to enforce the secondary and tertiary
aspects of the boycott.
COMOROS, DJIBOUTI, AND SOMALIA: None of these countries has officially participated in the
Arab League boycott. Djibouti generally supports Palestinian causes in international organizations and
there is little direct trade between Djibouti and Israel; however, the government currently does not enforce
any aspects of the boycott.
SYRIA: Syria diligently implements laws enforcing the Arab League boycott. Though it is host to the
Arab League CBO, Syria maintains its own boycott-related blacklist of firms, separate from the CBO list,
which it regards as outdated. Syria’s boycott practices have not had a substantive impact on U.S.
businesses because of U.S. economic sanctions imposed on the country in 2004; the ongoing and serious
political unrest within the country has led to even greater U.S. restrictions on commercial interaction with
MAURITANIA: Though Mauritania ‘froze’ its diplomatic relations with Israel in March 2009 (in
response to Israeli military engagement in Gaza), Mauritania has continued to refrain from enforcing any
aspect of the boycott.
GULF COOPERATION COUNCIL (GCC): In September 1994, the GCC member countries
(Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) announced an end to their
enforcement of the secondary and tertiary aspects of the boycott, eliminating a significant trade barrier to
U.S. firms. In December 1996, the GCC countries recognized the total dismantling of the boycott as a
necessary step to advance peace and promote regional cooperation in the Middle East and North Africa.
Although all GCC states are complying with these stated plans, some commercial documentation
containing boycott language continues to surface on occasion and impact individual business transactions.
The situation in individual GCC countries is as follows:
Bahrain does not have any restrictions on trade with U.S. companies that have relations with Israeli
companies. Outdated tender documents in Bahrain have occasionally referred to the secondary and
tertiary aspects of the boycott, but such instances have been remedied quickly when brought to
authorities’ attention. The government has stated publicly that it recognizes the need to dismantle the
primary aspect of the boycott. The U.S. Government has received assurances from the government of
Bahrain that it is fully committed to complying with WTO requirements on trade relations with other
WTO Members, and Bahrain has no restrictions on U.S. companies trading with Israel or doing business
in Israel, regardless of their ownership or other relations with Israeli companies. Although there are no
entities present in Bahrain for the purpose of promoting trade with Israel, Israeli-labeled products
reportedly can occasionally be found in Bahraini markets.
Kuwait has not applied a secondary or tertiary boycott of firms doing business with Israel since 1991, and
continues to adhere to the 1994 GCC decision. Although there is no direct trade between Kuwait and
Israel, the government of Kuwait states that foreign firms have not encountered serious boycott-related
problems for many years. Kuwait claims to have eliminated all direct references to the boycott in its
commercial documents as of 2000 and affirms that it removed all firms and entities that were on the
boycott list due to secondary or tertiary aspects of the boycott prior to 1991. Kuwait has a three person
boycott office, which is part of the General Administration for Customs. While Kuwaiti officials
reportedly regularly attend Arab League boycott meetings, it is unclear if they are active participants.
Oman does not apply any aspect of the boycott, and has no laws providing for boycott enforcement.
Although outdated boycott language occasionally appears in tender documents, Omani officials are
working to ensure that such language is not included in new tender documents and have immediately
removed outdated language when brought to their attention. Omani customs processes Israeli-origin
shipments entering with Israeli customs documentation, although Omani firms typically avoid marketing
any identifiably Israeli consumer products. Telecommunications and mail flow normally between the two
countries. Omani diplomatic missions are prohibited from taking part in Arab League boycott meetings.
Qatar does not maintain a boycott law and does not enforce the boycott. However, it normally sends an
embassy employee to observe the CBO meetings in Damascus.
Although Qatar renounced
implementation of the boycott of U.S. firms that do business in Israel (the secondary and tertiary boycott)
in 1994, U.S. firms and their subsidiaries occasionally report receiving boycott requests from public
Qatari companies. An Israeli trade office opened in Qatar in May 1996, but Qatar ordered that office
closed in January 2009 in protest against the Israeli military action in Gaza. Despite this closure, Qatar
continues to allow trade with Israel and allows Israelis to visit the country. Official data from the Qatari
government indicated that there was approximately $3 million in trade between Qatar and Israel in 2009.
Actual trade, including Israeli exports of agricultural and other goods shipped via third countries, is likely
double the official figures. Qatar permits the entry of Israeli business travelers who obtain a visa in
advance. The chief executive of Qatar’s successful 2022 World Cup bid indicated that Israeli citizens
would be welcome to attend the World Cup.
Saudi Arabia, in accordance with the 1994 GCC decision, modified its 1962 law, resulting in the
termination of the secondary and tertiary boycott. Senior Saudi government officials from relevant
ministries have requested that U.S. officials keep them informed of any allegations that Saudi entities are
seeking to enforce these aspects of the boycott. The Ministry of Commerce and Industry has established
an office to address any reports of boycott-related violations; reported violations appear to reflect out-ofdate language in recycled commercial and tender documents. Saudi companies have usually been willing
to void or revise boycott-related language when they are notified of its use.
The United Arab Emirates (UAE) complies with the 1994 GCC decision and does not implement the
secondary and tertiary aspects of the boycott. The UAE has not renounced the primary aspect of the
boycott, but the degree to which it is enforced is unclear. According to data from the U.S. Department of
Commerce, U.S. firms continue to face a relatively high number of boycott requests in the UAE (this
could be attributed to the high volume of U.S.-UAE goods and services trade), which the government
explains is mostly due to the use of outdated documentation, especially among private sector entities. The
United States has had some success in working with the UAE to resolve specific boycott cases.
Commerce Department OAC and Emirati Ministry of Economy officials met in early 2012 to continue
their periodic meetings aimed at encouraging the removal of boycott-related terms and conditions from
commercial documents. The Emirati government has taken a number of steps to eliminate prohibited
boycott requests, including the issuance of a series of circulars to public and private companies explaining
that enforcement of the secondary and tertiary aspects of the boycott is a violation of Emirati policy.
Non-Arab League Countries
In recent years, press reports occasionally have surfaced regarding the implementation of officially
sanctioned boycotts of trade with Israel by governments of non-Arab League countries, particularly some
member states of the 57 member Organization of the Islamic Conference (OIC), headquartered in Saudi
Arabia (Arab League and OIC membership overlaps to a considerable degree). Information gathered by
U.S. embassies in various non-Arab League OIC member states does not paint a clear picture of whether
the OIC institutes its own boycott of Israel (as opposed perhaps to simply lending support to Arab League
positions). The degree to which non-Arab League OIC member states enforce any aspect of a boycott
against Israel also appears to vary widely. Bangladesh, for example, does impose a primary boycott on
trade with Israel. By contrast, OIC members Tajikistan, Turkmenistan, and Kazakhstan impose no
boycotts on trade with Israel and in some cases have actively encouraged such trade.
The U.S. goods trade surplus with Argentina was $6.0 billion in 2012, an increase of $569 million from
2011. U.S. goods exports in 2012 were $10.3 billion, up 4.2 percent from the previous year.
Corresponding U.S. imports from Argentina were $4.4 billion, down 3.3 percent. Argentina is currently
the 29th largest export market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Argentina were
$5.8 billion in 2011 (latest data available), and U.S. imports were $1.7 billion. Sales of services in
Argentina by majority U.S.-owned affiliates were $7.3 billion in 2010 (latest data available), while sales
of services in the United States by majority Argentina-owned firms were $13 million.
The stock of U.S. foreign direct investment (FDI) in Argentina was $13.3 billion in 2011 (latest data
available), up from $11.2 billion in 2010. U.S. FDI in Argentina is mostly in manufacturing and nonbank
holding sectors.
Argentina is a member of the MERCOSUR common market, formed in 1991 and composed of Argentina,
Brazil, Paraguay, Uruguay, and Venezuela. Venezuela was admitted as a full member in July 2012.
MERCOSUR maintains a Common External Tariff (CET) schedule with a limited number of countryspecific exceptions, with most favored nation (MFN) applied rates ranging from 0 percent to 35 percent
ad valorem. Argentina’s import tariffs follow the MERCOSUR CET, with some exceptions. Argentina’s
MFN applied rate averaged 11.4 percent in 2012. Argentina’s average bound tariff rate in the WTO is
significantly higher at 31.8 percent. According to current MERCOSUR procedure, any good introduced
into any member country must pay the CET to that country’s customs authorities. If the product is then
re-exported to any other MERCOSUR country, the CET must be paid again to the second country.
At the MERCOSUR Common Market Council (CMC) ministerial meeting in December 2011,
MERCOSUR members agreed to increase import duty rates temporarily to a maximum rate of 35 percent
on 100 tariff items per member country. Although authorized to implement the decision as early as
January 2012, Argentina waited until January 2013 to publish decree 25/2013 implementing these tariff
increases. These tariff increases are valid for one year but may be extended through December 2014.
The list of products affected can be found at In June 2012, the MERCOSUR CMC further allowed up to 100 additional
country-specific exceptions to the CET to be implemented for as long as one year, through December 31,
2014. As of February 2013, Argentina has not yet implemented this provision.
MERCOSUR member countries are also currently allowed to set import tariffs independently for some
types of goods, including computer and telecommunications equipment, sugar, and some capital goods.
In July 2012, Argentina partially eliminated its exemptions to the CET on capital goods through Decree
1026/2012 and currently imposes the 14 percent CET rate on imports of capital goods that are produced
domestically; imports of certain other capital goods that are not produced domestically are subject to a
reduced ad valorem tariff of 2 percent. A list of the goods affected and their respective tariff rates can be
found in Argentina also
has bilateral arrangements with Brazil and Uruguay on automobiles and automotive parts intended to
liberalize trade and increase integration in this sector among the three countries.
Several U.S. industries have raised concerns about prohibitively high tariffs and other taxes in Argentina
on certain products, including distilled spirits, restaurant equipment, and motorcycles. In early 2012, the
Argentine government announced a tax increase on “high-end” imported cars and motorcycles with the
stated purpose of protecting the domestic industry. Argentine consumers are now required to pay an
additional 10 percent tax on such vehicles imported from outside MERCOSUR.
While the majority of tariffs are levied on an ad valorem basis, Argentina also charges compound rates
consisting of ad valorem duties plus specific levies known as “minimum specific import duties” (DIEMs)
on products in several sectors, including textiles and apparel, footwear, and toys. These compound
import duties do not apply to goods from MERCOSUR countries and cannot exceed an ad valorem
equivalent of 35 percent. Although the DIEMs purportedly expired on December 31, 2010, and the
government of Argentina has not formally extended them, they are still being charged.
During its 39th meeting in August 2010, MERCOSUR’s CMC advanced toward the establishment of a
Customs Union with its approval of a Common Customs Code (CCC) and decision 5610 (December
2010) to implement a plan to eliminate the double application of the CET within MERCOSUR. The plan
was to take effect in three stages with the first phase to have been implemented no later than January 1,
2012. That deadline was not met, however. In November 2012, Argentina became the first MERCOSUR
member to ratify the CCC. The CCC still must be ratified by the other MERCOSUR member countries.
Nontariff Barriers
Argentina imposes a growing number of customs and licensing procedures and requirements, which
makes importing U.S. products more difficult. The measures include additional inspections, port-of-entry
restrictions, expanded use of reference prices, automatic and non-automatic license requirements, and
requirements that importers have invoices notarized by the nearest Argentine diplomatic mission when
imported goods are below reference prices. Many U.S. companies with operations in Argentina have
expressed concerns that the measures have delayed exports of U.S. goods to Argentina and, in some
cases, stopped exports of certain U.S. goods to Argentina altogether.
Since 2011, the government of Argentina increased its reliance on a growth strategy that is based heavily
on import substitution. To carry out this strategy, Argentina increased its use of non-automatic import
licenses (see more detailed discussion below) and imposed other nontariff barriers.
Since April 2010, pursuant to Note 232, Argentina has required importers to obtain a “certificate of free
circulation” from the National Food Institute (Instituto Nacional de Alimentos) prior to importing food
products. This requirement affects all exporters of food products to Argentina and appears to serve as an
import licensing requirement. U.S. companies report that this requirement is used to delay or deny the
issuance of certificates of free circulation, and the issuance of such certificates is often contingent upon
the importer undertaking a plan to export goods of an equivalent value.
Argentina prohibits the import of many used capital goods. Domestic legislation requires compliance
with strict conditions on the entry of those used capital goods that may be imported, which are also
subject to import taxes of up to 28 percent and a 0.5 percent statistical tax. Argentina has carved out
exceptions for some industries (e.g., graphics, printing, machine tools, textiles, and mining), enabling
importation of used capital goods at a zero percent import tax. The Argentina-Brazil Bilateral
Automobile Pact also bans the import of used self-propelled agricultural machinery unless it is rebuilt.
Argentina prohibits the importation and sale of used or retreaded tires (but in some cases allows remolded
tires); used or refurbished medical equipment, including imaging equipment; and used automotive parts.
Argentina generally restricts or prohibits the importation of any remanufactured good, such as
remanufactured automotive parts, earthmoving equipment, medical equipment, and information and
communications technology products. In December 2010, Argentina reintroduced an import prohibition
on used clothing, which is due to expire in 2015.
In August 2012, the Argentine tax authority (Administración Federal de Ingresos Públicos or “AFIP”)
issued Resolution 3373, which increased the tax burden for importers. The value-added tax (VAT)
advance rate rose from 10 percent to 20 percent on imports of consumer goods, and from 5 percent to 10
percent on imports of capital goods. The income tax advance rate on imports of all goods increased from
3 percent to 6 percent, except when the goods are intended for consumption or for use by the importer, in
which case an 11 percent income tax rate applies.
In May 2012, the Argentine National Mining Agency (Agencia Nacional de Minería) issued resolutions
12/2012 and 13/2012 requiring mining companies registered in Argentina to use Argentine-flagged
vessels to transport minerals and their derivatives for export from Argentina and to purchase domestic
capital goods, spare parts, inputs and services, in accordance with the government’s import substitution
Import Licenses:
In 2012, Argentina continued the use of non-automatic licenses to restrict imports generally and to protect
sectors that the Argentine government deems sensitive. Throughout 2012, approximately 600 tariff lines
were subject to non-automatic licenses, including textile products, yarn, and fabrics; iron, steel, and metal
products; automotive parts; chemical products; general and special purpose machinery; and consumer
goods. In January 2013, the non-automatic import license requirements on these products were repealed.
U.S. firms have reported long delays in obtaining import licenses, including delays that significantly
exceed the time periods contemplated by the WTO Agreement on Import Licensing Procedures. U.S
industry notes that the wait time for the issuance of non-automatic licenses generally is between 60 days
to 180 days but can be longer. In many instances, import licenses are denied altogether without
explanation or justification. The lack of transparency in Argentina’s implementation and administration
of its import licensing regime creates uncertainty for U.S. exporters as well as U.S. investors in
Argentina. Obtaining a license is reportedly burdensome and requires multiple duplicative reviews by
several different government offices. Once issued, the certificates are generally valid for 60 days.
U.S. firms have also reported that applications for import licenses are often not approved unless they are
accompanied by a plan to export goods from Argentina of equivalent value to those that are being
imported or a plan to invest in local production facilities. These requirements are not codified in law or
regulation. Rather, they are communicated to companies informally by the Argentine government.
In early January 2012, Argentina announced a new measure, effective on February 1, 2012, requiring
companies to file an online affidavit, known as the Advanced Sworn Statement on Imports (or by its
Spanish acronym “DJAI”) and wait for government review and approval before importing goods. All
goods imported for consumption are subject to the DJAI requirement. This requirement creates additional
delays and is reportedly used to restrict imports, including by imposing export or investment plans of the
type required to obtain product specific non-automatic import licenses. Following the implementation of
the DJAI measure, in September 2012, Argentina eliminated the automatic import licensing requirements
it previously administered on 2,100 tariff lines, mainly involving consumer products.
In response to U.S. Government inquiries about its import licensing regime, Argentina has asserted that
all of these measures are nondiscriminatory and consistent with WTO rules. On August 21, 2012, the
United States requested consultations with Argentina under the dispute settlement provisions of the WTO
Understanding on Rules and Procedures Governing the Settlement of Disputes concerning these import
restrictive measures and practices. The United States, along with Mexico and Japan, held consultations
with Argentina in September 2012. After the consultations failed to resolve the issue, the United States
requested the establishment of a dispute settlement panel in December 2012. The European Union and
Japan joined the United States in its panel request.
Customs Valuation:
Argentina continues to apply reference values to several thousand products. The stated purpose of
reference pricing is to prevent under-invoicing, and authorities establish benchmark unit prices for
customs valuation purposes for certain goods that originate in, or are imported from, specified countries.
These benchmarks establish a minimum price for market entry and dutiable value. Importers of affected
goods must pay duties calculated on the reference value, unless they can prove that the transaction was
conducted at arm’s length.
Argentina also requires importers of any goods from designated countries, including the United States,
that are invoiced below the reference prices to have the invoice validated by both the exporting country’s
customs agency and the appropriate Argentine Embassy or Consulate in that country. The government of
Argentina publishes an updated list of reference prices and applicable countries, which is available at:
In April 2012, Argentina issued General Resolution 3301, which established reference values for other
household articles and toiletry articles of plastics (HS code 3924.90) from several countries, including the
United States.
Customs External Notes 87/2008 of October 2008 and 15/2009 of February 2009 establish administrative
mechanisms that restrict the entry of products deemed sensitive, such as textiles, apparel, footwear, toys,
electronic products, and leather goods. While the restrictions are not country specific, they are to be
applied more stringently to goods from countries considered “high risk” for under-invoicing, and to
products considered at risk for under-invoicing as well as trademark fraud. The full text of Note 87/2008
can be found at: http://www.infolegInternet/anexos/145000-149999/145766/normal.htm.
Ports of Entry:
Argentina restricts entry points for several classes of goods, including sensitive goods classified in 20
Harmonized Tariff Schedule chapters (e.g., textiles; shoes; electrical machinery; iron, steel, metal and
other manufactured goods; and watches), through specialized customs procedures for these goods. A list
of products affected and the ports of entry applicable to those products is available at:
Depending on
their country of origin, many of these products are also subject to selective, rigorous “red channel”
inspection procedures, and importers are required to provide guarantees for the difference in duties and
taxes if the declared price of an import is lower than its reference price.
Since the first measure regarding the limitation of ports of entry was formally announced in 2005, several
provincial and national legislative authorities have requested the elimination or modification of the
specialized customs scheme. Through several resolutions issued by the Customs Authority in 2007, 2008,
2010, and 2011, Argentina has increased the number of authorized ports of entry for certain products.
Customs Procedures
Certificates of origin have become a key element in Argentine import procedures because of antidumping
measures, criterion values, and certain geographical restrictions. In August 2009, AFIP revised through
External Note 4 certificate of origin requirements for a list of products with non-preferential origin
treatment. The products effected include certain organic chemicals, tires, bicycle parts, flat-rolled iron
and steel, certain iron and steel tubes, air conditioning equipment, wood fiberboard, most fabrics (e.g.,
wool, cotton, other vegetable), carpets, most textiles (e.g., knitted, crocheted), apparel, footwear, metal
screws and bolts, furniture, toys and games, brooms, and brushes. To receive the most favored nation
tariff rate, the certificate of origin must be certified by an Argentine consulate. The certificate is valid for
180 days, which has proven problematic for some companies that import goods subject to non-automatic
licenses where major delays in obtaining an import license results in their issuance after the 180 day
validity period for the certificate of origin has expired.
Simplified customs clearance procedures on express delivery shipments are only available for shipments
valued at $1000 or less. Couriers also are now considered importers and exporters of goods, rather than
transporters, and also must declare the tax identification codes of the sender and addressee, both of which
render the process more time-consuming and costly. These regulations increase the cost not only for the
courier, but also for users of courier services. The U.S. Government has raised these policies with the
Ministry of Federal Planning, Public Investment and Services, the Directorate of Customs, and the
National Administration of Civil Aviation.
Argentina imposes export taxes on all but a few exports, including significant export taxes on key
hydrocarbon and agricultural commodities. In many cases, the export tax for raw materials is set higher
than the sale price of the processed product to encourage development of domestic value-added
production. Crude hydrocarbon export taxes are indexed to world commodity benchmarks. Total export
tax revenue in 2012 was equal to 15.5 percent of the value of all Argentine exports (stable from 15.6
percent in 2011), including goods not subject to export taxes.
Despite proposals from within and outside the Argentine Congress to reduce or eliminate export taxes, the
taxes continue to be actively supported and managed by the government of Argentina, as they are a major
source of fiscal revenue and create competitive advantages for downstream processors of the products
subject to the tax. The following major agricultural commodities are currently subject to export taxes:
soybeans at 35 percent, soybean oil and soybean meal at 32 percent, sunflower seed at 32 percent,
sunflower seed meal and sunflower seed oil at 30 percent, wheat at 23 percent, and corn at 20 percent. In
August 2012, Argentina increased its export tax on biodiesel to 32 percent from 20 percent and eliminated
a 2.5 percent rebate. Biodiesel exports are now affected by a sliding scale tax that is reviewed every 15
days. As of the end of 2012, the effective export tax was 19.11 percent. In August 2012, pursuant to
Decree 1513/2012, Argentina extended the 2009 ban on ferrous scrap exports for 360 days. Ferrous scrap
is an important input to steel production.
The CCC, approved during the 39th MERCOSUR CMC meeting in August 2010, restricts future export
taxes and anticipates a transition to a common export tax policy. As noted above, in November 2012,
Argentina became the first MERCOSUR member to ratify the CCC. The other MERCOSUR member
countries have yet to ratify it.
Export Registrations
In addition to levying high export taxes, Argentina requires major commodities to be registered for export
before they can be shipped out of the country. Until 2011, the National Organization of Control of
Agricultural Commercialization (ONCCA) administered the Registry of Export Operations for meat,
grain (including vegetable oils), and dairy products under the provisions of Resolution 3433/2008. After
ONCCA was dismantled in early 2011, part of the administration of the Registry of Export Operations
was transferred to the Ministry of Agriculture (related to dairy and meat exports) and to the Ministry of
Economy (related to grain exports), but reportedly there have been no major changes to procedures for
registering exports. All exports must still be registered, and the government retains the authority to reject
or delay exports depending on domestic price and supply conditions. One of the goals of the export
registration process has been to control the quantity of goods exported, and thereby guarantee domestic
supply. Export registrations of wheat, corn, beef, and dairy products continue to be subject to periodic
restrictions due to shortfalls in domestic supplies.
Argentina continues to impose time restrictions on the validity of grain and oilseed export permits
depending on when the export tax is paid. Under applicable regulations, export permits are valid for 45
days after registration is approved, if the export tax is paid at the time of export. Export permits may be
valid for up to 365 days for corn and wheat and 180 days for soybean and sunflowers products if the
exporter pays 90 percent of the export tax at the time the export license is approved.
Law 25551 of 2011 established a national preference for local industry for most government procurement
if the domestic supplier’s tender, depending on the size of the company, is no more than 5 percent to 7
percent higher than the foreign tender. The preference applies to procurement by all government
agencies, public utilities, and concessionaires. There is similar legislation at the provincial level. These
preferences serve as barriers to participation by foreign firms.
In March 2011, the Argentine Senate approved an amendment to Law 25551 extending the entities
subject to the “Buy Argentine” regime to include: (a) offices within the Argentine public sector
(centralized and decentralized public administration); (b) social security institutions; (c) state-owned
companies; (d) private legal entities engaged in public works and licensees and concessionaires of public
utilities and other services (fixed and mobile communications, freight transportation, mining, oil and gas,
etc.); (e) provincial public entities; and (f) private entities with tax benefits. In addition, the amendment
would also increase the price preference for local suppliers to 10 percent. The draft law is still pending in
the Argentine Lower House Committees.
Argentina is not a signatory to the WTO Agreement on Government Procurement, but it is an observer to
the WTO Committee on Government Procurement.
Argentina continued to be listed on the Priority Watch List in the 2012 Special 301 report. Argentina has
made some progress with respect to intellectual property rights (IPR) enforcement, including two
noteworthy actions that Argentina’s judicial authorities, both civil and criminal, took in 2012 against the
unauthorized distribution of pirated content over the Internet. However, significant concerns remain. IPR
legal enforcement needs to be strengthened in order to combat the widespread availability of pirated and
counterfeit goods. Although some industries report good cooperation with law enforcement authorities,
Argentina’s judicial system remains inefficient with respect to IPR enforcement, and there is a reluctance
to impose deterrent-level sentences. Piracy over the Internet is a growing concern, and overall levels of
copyright piracy, in both the online and hard goods environments, remain high.
Argentina’s patent backlog also remains a key concern. It takes, on average, eight years to nine years for
a patent to be granted in the pharmaceutical, chemical and biotechnology sectors. The lack of adequate
protection against unfair commercial use and unauthorized disclosure of undisclosed test and other data
also remains a concern. Argentina also does not have an effective system to address patent issues
expeditiously in connection with applications to market pharmaceutical products. The United States
encourages Argentina to provide for protection against unfair commercial use, as well as unauthorized
disclosure, of undisclosed test and other data generated to obtain marketing approval for pharmaceutical
products, and to provide an effective system to address patent issues expeditiously in connection with
applications to market pharmaceutical products.
Effective April 1, 2012, pursuant to Resolution 3307, Argentina requires individuals and companies to
file an online affidavit known as the Advance Sworn Statement on Services (or by its Spanish acronym
“DJAS”) and obtain approval prior to offering or purchasing offshore services if the value of the services
to be provided exceeds $100,000. U.S. companies note that the DJAS requirement creates delays and is
used to restrict the purchase of foreign services and to restrict dollar-denominated payments abroad. The
DJAS requirement applies to a wide range of services including professional and technical services,
royalties, as well as personal, cultural and recreational services. This requirement has reportedly resulted
in significant delays in purchasing services from U.S. service providers and has hindered the ability of
Argentine purchasers to promptly transfer payment to the United States.
Audiovisual Services
U.S. industry remains concerned with the added costs associated with exporting movies to Argentina due
to measures governing the showing, printing, and dubbing of films. Industry also has concerns regarding
the practice of charging ad valorem customs duties on U.S. exports based on the estimated value of the
potential royalty generated from the film in Argentina rather than on the value of the physical materials
being imported.
Since August 30, 2011, under Resolution 2114/2011, the National Institute of Cinema and Audiovisual
Arts has been authorized to tax foreign films screened in local movie theaters. Distributors of foreign
films in Argentina must pay screening fees that are calculated based on the number and geographical
locations of theaters at which films will be screened within Argentina. Films that are screened in 15 or
fewer movie theaters are exempted.
Financial Services
Foreign bank branches in Argentina may lend only on the basis of local paid-in capital rather than on the
basis of the parent bank’s capital. This limitation on lending undermines the choice of juridical form
exercised by the bank, i.e., the branch is treated as a subsidiary.
Insurance Services
The Argentine insurance regulator (SSN) issued an order (Resolution 35.615/2011) in February 2011
prohibiting cross-border reinsurance. Since September 1, 2011, local insurers have been able to contract
reinsurance only from locally based reinsurers. Foreign companies without local operations are not
allowed to enter into reinsurance contracts except when the SSN determines there is no local reinsurance
capacity. On October 27, 2011, the Argentine insurance regulator issued Resolution 36.162 requiring that
“all investments and cash equivalents held by locally registered insurance companies be located in
These regulations do not formally require the exchange of dollars into pesos; companies can convert their
holdings to dollar-denominated assets based in Argentina and still be in compliance. Nevertheless,
foreign insurance firms have reported pressure by the Argentine government to sell their dollars for pesos.
Many of these companies have liabilities denominated in U.S. dollars, making this foreign exchange
requirement difficult to meet. U.S. insurance firms also have reported that complying with the Argentine
government’s informal requirements would force them to take losses due to what they believe is an
official exchange rate that over-values the peso.
Pension System
The Argentine Parliament approved a bill to nationalize Argentina’s private pension system and transfer
pension assets to the government social security agency in November 2008. Compensation to investors in
the privatized pension system, including to U.S. investors, is still pending and under negotiation.
Foreign Exchange and Capital Controls
Hard currency earnings on exports, both from goods and services, must be converted to pesos in the local
foreign exchange market. In November 2011, pursuant to Decree 1722/2011, Argentina eliminated the
exceptions previously granted to hydrocarbon and mining exporters. These firms must now exchange
their revenues to pesos on the local foreign exchange market. Revenues from exporting to Argentine
foreign trade zones and from re-exporting some temporary imports are still exempted from this
Time limits on fulfilling the obligation to convert to pesos range from approximately 60 days to 360 days
for goods (depending on the goods involved) and 15 days for services. For certain capital goods and
situations where Argentine exports receive longer-term financing not exceeding six years, Argentine
exporters receive more generous time limits. A portion of foreign currency earned through exports may be
used for foreign transactions.
In April 2012, Argentina issued Resolution 142/12, which reduces the time limits for companies to
convert their export earnings to pesos on the local foreign exchange market to within 15 calendar days.
This requirement virtually halted exports in some industries, such as mining, that were unable to comply
with the new rule. In response, the Argentine government partially eased the requirement and set
differential timeframes ranging from 15 to 360 days depending on the exported product. Tariff lines and
their corresponding timeframes can be found at:
Argentina has expanded its capital control regime since 2003, with the stated goal of avoiding the
potentially disruptive impact on the nominal exchange rate from large short-term capital flows. In May
2005, the government issued Presidential Decree 616 revising registration requirements for inflows and
outflows of capital and extending the minimum investment time period from 180 days to 365 days. The
Decree also expanded the registration requirement to include “all types of debt operations of residents that
could imply a future foreign currency payment to nonresidents” and requires that all foreign debt of
private Argentine residents, with the exception of trade finance and initial public debt offerings that bring
foreign exchange into the market, must include provisions that the debt not need to be repaid in fewer
than 365 days.
Since 2004, both foreign and domestic institutional investors have been restricted to total currency
transactions of $2 million per month, although transactions by institutions acting as intermediaries for
others do not count against this limit. In June 2010, the Argentine Central Bank introduced a regulation
that permitted Argentine residents to conduct more than $2 million per month in foreign exchange
transactions for specific enumerated purposes (e.g., to purchase bonds issued by the federal government,
to deposit in the local banking system, and to finance investment projects). The Central Bank also
requires Argentine residents who purchase more than $250,000 within a year to show that the purchase is
compatible with personal income tax filings.
The Ministry of Economy implemented Decree 616 through resolutions in 2005 and 2006 that imposed
more restrictive controls on the following classes of inbound investments: inflows of foreign funds from
private sector debt (excluding foreign trade and initial public offerings of stock and bond issues); inflows
for most fiduciary funds; inflows of nonresident funds that are destined for the holding of Argentine pesos
or the purchase of private sector financial instruments (excluding foreign direct investment and the
primary issuance of stocks and bonds); and investments in public sector securities purchased in the
secondary market. These inflows are subject to three restrictions: (1) they may not be transferred out of
the country for 365 days after their entry; (2) proceeds from foreign exchange transactions involving these
investments must be paid into an account in the local financial system; and (3) a 30 percent
unremunerated reserve requirement must be met, meaning that 30 percent of the amount of such
transactions must be deposited in a local financial entity for 365 days in an account that must be
denominated in dollars and pay no interest.
As of September 2006, a deposit is not required for capital inflows intended to finance energy
infrastructure works. Furthermore, as of January 2008, a deposit is not required for inflows for the
purchase of real estate property by foreigners as long as the foreign exchange liquidation occurs on the
day of settlement (and transfer of the title). As of February 2009, a deposit is not required for inflows to
be used for tax payments and social security contributions within the 10 days following settlement of the
foreign currency exchange. Violations are subject to criminal prosecution. In October 2007, the
Argentine Central Bank introduced new control measures, banning all foreign entities from participating
in Central Bank initial public offerings. However, foreign firms may still trade Central Bank debt
instruments on the secondary market. In November 2011, insurance firms converting non-Argentine
assets to Argentine assets were also exempted from this requirement.
Argentina increased controls on retail foreign exchange in October 2011. Buyers are required to be
approved by AFIP, which evaluates each request based on the individual’s or company’s revenue stream.
Local business representatives have reported receiving amounts much lower than they requested. This
has hampered the ability of Argentine importers to buy U.S. exports. In July 2012, Argentina also banned
retail foreign exchange purchases for purposes of savings, and only allows such purchases, though with
significant restrictions, for purposes of payment for tourism services abroad. This limited access to
foreign exchange has contributed to the existence of a parallel exchange rate.
U.S. companies have reported that in 2012 the Argentine government limited their ability to make
payments in foreign currency outside of Argentina. The restrictions are often communicated informally
by the Argentine government and may extend to profit remittances, royalty payments, technical assistance
fees, and payments for expenses incurred outside of Argentina. Companies also report that the Argentine
government may eventually permit remittance of a portion of their Argentine-based revenue, but this
amount is often reported to be less than what the company had intended to remit.
Non-Payment of Investment Treaty Awards
Eight U.S. firms have pending cases against the government of Argentina in investor-state arbitration
under the United States-Argentina bilateral investment treaty (BIT).
Some of these claims allege that measures imposed by Argentina during the financial crisis that began in
2001 breached certain BIT obligations. Investor-state arbitral tribunals have ruled against Argentina in a
number of these cases, awarding hundreds of millions of dollars to U.S. investors. To date, Argentina has
resisted paying any awards made to U.S. investors. Argentina has argued that, under the Convention on
the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention),
it is not required to pay damages until a prevailing claimant has completed the potentially lengthy
additional process of taking all necessary steps to enforce a final ICSID award through the Argentine
courts. In 2008, the U.S. Government filed a submission in an arbitration rebutting Argentina’s argument
and reaffirming that Argentina is obligated to pay final ICSID awards immediately. Arbitral tribunals
have consistently rejected Argentina’s argument.
As a result of Argentina’s failure to pay two final ICSID awards, the two U.S. companies to which these
awards are owed filed petitions with the Office of the United States Trade Representative seeking the
suspension of benefits to Argentina under the Generalized System of Preferences (GSP). In March 2012
the President announced the suspension of Argentina’s GSP benefits, which became effective in May
Argentina does not allow the use of electronically produced airway bills that would accelerate customs
processing and the growth of electronic commerce transactions.
The U.S. goods trade surplus with Australia was $21.7 billion in 2012, up $4.4 billion from 2011. U.S.
goods exports in 2012 were $31.2 billion, up 13.3 percent from 2011. Corresponding U.S. imports from
Australia were $9.5 billion, down 6.9 percent. Australia is currently the 11th largest export market for
U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Australia were
$16.1 billion in 2011 (latest data available), and U.S. imports were $6.3 billion. Sales of services in
Australia by majority U.S.-owned affiliates were $45.2 billion in 2010 (latest data available), while sales
of services in the United States by majority Australia-owned firms were $12.4 billion.
The stock of U.S. foreign direct investment (FDI) in Australia was $136.2 billion in 2011 (latest data
available), up from $123.5 billion in 2010. U.S. FDI in Australia is led by the finance and insurance, nonbank holding companies and mining sectors.
Trade Agreements
The United States-Australia Free Trade Agreement (AUSFTA) entered into force on January 1, 2005.
Since then, the U.S. and Australian Governments have continued to closely monitor AUSFTA
implementation and discuss a range of AUSFTA issues. Under the AUSFTA, trade in goods and services
and foreign direct investment have continued to expand, and more than 99 percent of U.S. exports of
consumer and industrial goods are now duty free.
Australia is a participant in the Trans-Pacific Partnership (TPP) negotiations, through which the United
States and 10 other Asia-Pacific partners are seeking to establish a comprehensive, next-generation
regional agreement to liberalize trade and investment. This agreement will advance U.S. economic
interests with some of the fastest-growing economies in the world; expand U.S. exports, which are critical
to the creation and retention of jobs in the United States; and serve as a potential platform for economic
integration across the Asia-Pacific region.
The TPP agreement will include ambitious commitments on goods, services, and other traditional trade
and investment matters. It will also include a range of new and emerging issues to address trade concerns
our businesses and workers face in the 21st century. In addition to the United States and Australia, the
TPP negotiating partners currently include Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru,
Singapore, and Vietnam.
Australia is not a signatory to the WTO Agreement on Government Procurement, but it is an observer to
the WTO Committee on Government Procurement. Under the AUSFTA, the Australian government
opened its government procurement market to U.S. suppliers, eliminating discriminatory preferences for
domestic suppliers and committing to use fair and transparent procurement procedures.
Australia generally provides strong intellectual property rights protection and enforcement through
legislation that, among other things, criminalizes copyright piracy and trademark counterfeiting. Under
the AUSFTA, Australia must notify the holder of a pharmaceutical patent of any requests by a third party
for marketing approval of a product claimed by that patent. U.S. and Australian pharmaceutical
companies have raised concerns that unnecessary delays in this notification process restrict their options
for action against third party products that would infringe their patents if the Australian Therapeutic
Goods Administration granted them marketing approval.
Australia was an active participant in the Anti-Counterfeiting Trade Agreement (ACTA) negotiations and
signed ACTA in October 2011. It has not yet ratified the agreement. ACTA establishes an international
framework that will assist Parties in their efforts to effectively combat the infringement of intellectual
property rights, in particular the proliferation of counterfeiting and piracy, which undermines legitimate
trade and the sustainable development of the world economy.
Audiovisual Services
Australia’s Broadcasting Services Amendment Act requires subscription television channels with
significant drama programming to spend 10 percent of their programming budgets on new Australian
drama programs. This local content requirement does not apply to new digital multi-channels.
The Australian Content Standard of 2005 requires commercial television broadcasters to produce and
screen Australian content, including 55 percent of transmissions between 6:00 a.m. and midnight. In
addition, there are specific minimum annual sub-quotas for Australian (adult) drama, documentary, and
children’s programs. A broadcaster must ensure that Australian-produced advertisements occupy at least
80 percent of the total advertising time screened in a year between the hours of 6:00 am and midnight,
other than the time occupied by exempt advertisements, which include advertisements for imported
cinema films, videos, recordings and live appearances by overseas entertainers, and community service
The Australian commercial radio industry Code of Practice sets quotas for the broadcast of Australian
music on commercial radio. The code requires that up to 25 percent of all music broadcast between 6:00
a.m. and midnight must be performed by Australians. In July 2010, the Australian Communications and
Media Authority (ACMA) announced registration of a new code that provides a temporary exemption for
digital-only commercial radio stations (stations not also simulcast in analog) from the Australian music
quotas. The ACMA will review the exemption in 2013. Since January 2008, all licensees of regional
commercial radio broadcasting licenses have been required to broadcast minimum levels of local content.
The Australian Parliament passed legislation for the National Broadband Network (NBN) in April 2011.
The government-owned NBN Company (NBNCo) that is implementing the network is intended to be a
neutral provider of wholesale high-speed broadband services nationwide. The NBN structure could
improve non-discriminatory access to network services, including for U.S. companies, since NBN will
not compete in retail markets, and thus will have no incentive (as incumbent Telstra formerly did) to
discriminate in favor of an affiliated retailer. In October 2011, shareholders of Telstra endorsed an
agreement to progressively migrate the company’s voice and broadband traffic from its copper and cable
networks to the NBN. In November 2012, the Australian Competition and Consumer Commission sought
comment on Telstra’s plans to migrate customers from its networks to the NBN to ensure that Telstra
does not obtain an unfair advantage from information it receives from NBNCo.
Inward foreign investment in Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975
and Australia’s Foreign Investment Policy. The Foreign Investment Review Board (FIRB), a division of
Australia’s Treasury, screens potential foreign investments in Australia above a threshold value of A$248
million (approximately $257 million). Based on advice from the FIRB, the Treasurer may deny or place
conditions on the approval of particular investments above that threshold on national interest grounds.
Under the AUSFTA, all U.S. “greenfield” investments are exempt from FIRB screening. AUSFTA also
raised the threshold for screening of most U.S. investments in Australia, which now stands at A$1,078
million indexed annually ($1,117 million, indexed annually). All foreign persons, including U.S.
investors, must notify the Australian government and get prior approval to make investments of 5 percent
or more in the media sector, regardless of the value of the investment.
A number of U.S. companies have voiced concerns that various Australian government departments are
sending negative messages about cloud computing services to potential Australian customers in both the
public and private sectors. The government implies that hosting data overseas, including in the United
States, by definition entails greater risk and unduly exposes consumers to their data being scrutinized by
foreign governments. This messaging is on the decline, but has yet to disappear. For example, in its
“Cloud Computing Strategic Direction Paper” the Australian Government Information Management
Office cites the U.S. Patriot Act as the sole example of foreign legislation that presents a legal and
regulatory risk associated with cloud computing. In July 2012, the Personally Controlled Electronic
Health Records Act, which prohibits the overseas storage of any Australian electronic health records,
went into effect. The U.S. Government and business community continue to advocate for a risk-based
approach to ensuring the security of sensitive data as opposed to a geographical one.
Blood Plasma Products and Fractionation
In 2010, the National Blood Authority negotiated a new eight-year contract with Australian company
CSL Limited for the ongoing fractionation of Australian plasma and manufacture of key blood products,
demonstrating its continued preference for handling fractionation of Australian plasma locally and
without public tender. The United States remains concerned about the lack of an open and competitive
tendering system for blood fractionation in Australia.
The U.S. goods trade surplus with Bahrain was $508 million in 2012, down $186 million from 2011.
U.S. exports in 2012 were $1.2 billion, down 0.3 percent from the previous year. Corresponding U.S.
imports from Bahrain were $701 million, up 35.2 percent. Bahrain is currently the 75th largest export
market for U.S. goods.
The United States-Bahrain Free Trade Agreement
Upon entry into force of the United States-Bahrain Free Trade Agreement (FTA) in August 2006, 100
percent of bilateral trade in consumer and industrial products and most agricultural products became dutyfree immediately. Bahrain will phase out tariffs on the few remaining agricultural product lines by 2015.
Textiles and apparel are duty free, providing opportunities for U.S. and Bahraini fiber, yarn, fabric and
apparel manufacturing. Generally, to benefit from preferential tariffs under the FTA, textiles and apparel
must be made from either U.S. or Bahraini yarn and fabric. The FTA provides a 10-year transitional
period for textiles and apparel that do not meet these requirements in order to assist U.S. and Bahraini
producers in developing and expanding business contacts.
In 2002, Bahrain implemented a new government procurement law to ensure transparency and reduce
bureaucracy in government tenders and purchases. The law specifies procurements on which
international suppliers are allowed to bid. The Tender Board is chaired by the Minister of Housing who
oversees all tenders and purchases with a value of BD10,000 ($26,525) or more. The Tender Board plays
an important role in ensuring a transparent bidding process, which Bahrain recognizes is vital to attracting
foreign investment. The FTA requires procuring entities in Bahrain to conduct procurements covered by
the FTA in a fair, transparent, and nondiscriminatory manner.
The Tender Board awarded tenders worth $1.38 billion in 2011, an increase of 10 percent over 2010.
Bahrain has begun tendering several major public infrastructure projects including new roads, bridges,
public housing, utility upgrades, port upgrades, the expansion of Bahrain International Airport, and a five
billion dollar, five-year plan to upgrade the country’s oil and gas industry to greatly increase production.
In 2011, other Member States of the Gulf Cooperation Council (GCC) announced that they would
establish a $10 billion fund over a 10-year period to promote development. The fund is geared toward
infrastructure projects, with donor countries overseeing its use.
Bahrain is an observer to the WTO Committee on Government Procurement, but it is not a signatory to
the WTO Agreement on Government Procurement.
The United States-Bahrain FTA provides for strong intellectual property rights (IPR) protection. As part
of its FTA obligations, Bahrain passed several key laws to improve protection and enforcement for
copyrights, trademarks, and patents. In 2012, Bahrain joined the Budapest Treaty on the International
Recognition of the Deposit of Micro-organisms for the Purposes of Patent Procedures, and made progress
on drafting the laws necessary to accede to the International Union for the Protection of New Varieties of
Bahrain’s record on IPR protection and enforcement is mixed. Over the past several years, Bahrain has
launched several campaigns to combat piracy of cable and satellite television by blocking illegal signals
and prohibiting the sale of decoding devices. Bahrain also launched several public awareness campaigns,
equating IPR piracy with theft. However, the government’s efforts to inspect and seize counterfeit goods
from stores have been unsuccessful, and counterfeit consumer goods continue to be sold openly.
As the six Member States of the GCC explore further harmonization of their IPR regimes, the United
States will continue to engage with GCC institutions and the Member States and provide technical
cooperation on intellectual property policy and practice.
The U.S. goods trade deficit with Bolivia was $916 million in 2012, up $681 million from 2011. U.S.
goods exports in 2012 were $732 million, up 9.7 percent from the previous year. Corresponding U.S.
imports from Bolivia were $1.6 billion, up 82.7 percent. Bolivia is currently the 84th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Bolivia was $406 million in 2011 (latest data
Bolivia’s constitution, adopted in February 2009, establishes broad guidelines to give priority to local
production. However, to date, the only legislation enacted to support this requirement is Law 144 (the
“Productive Revolution Law”) approved on June 26, 2011. The law supports communal groups and
unions of small producers in an effort to bolster domestic food production. The “Productive Revolution
Law” allows the production, importation, and commercialization of genetically modified products, though
it calls for mandatory labeling. The Bolivian government has yet to issue regulations to implement the
law. However, on October 15, 2012 the Bolivian government passed the "Mother Earth Law" (Ley de
Madre Tierra) that calls for the phased elimination of all genetically modified products from the Bolivian
marketplace. Bolivian government officials have since stated that implementing regulations may interpret
the law so as to allow the use of some genetically modified products.
Supreme Decree 29349 of November 2007 established tariff rate categories of 0 percent, 5 percent, 10
percent, 15 percent and 20 percent to be applied to imports of goods into Bolivia. Supreme Decree 1272
of June 2012 amended that decree to permit the imposition of tariffs of 30 percent and 40 percent to
goods imported into Bolivia that compete against sensitive local products, including textiles and leather
products. Bolivia’s simple average applied tariff is 11.2 percent.
In February 2008, Bolivia established by decree a zero percent import tariff for live bovine animals; fresh
bovine meat; fresh, frozen and refrigerated chicken meat; wheat and wheat flour; corn; rice; and vegetable
oil. The decree also prohibits the export of these products, with the exception of vegetable oils and
oilseeds. The decree has been modified several times to establish export quotas and certificates in order
to ensure adequate domestic supply and control domestic prices for specific commodities.
Import Restrictions/Licenses
The export of certain edible products, including sugar, vegetable oils, soy, and sunflower flour, requires
export licenses. At times, exports of staples such as wheat are completely banned due to a Bolivian
government policy of ensuring an adequate supply to local markets. To complement the “Productive
Revolution Law,” on August 2, 2011, the Bolivian government suspended until 2016 import duties on
products typically used for purposes of agricultural production (Supreme Decree 943). These products
include seeds, salt for cattle feeding, animal vaccines, animal drugs, and machinery that might be used for
agricultural purposes.
Nontariff Measures
The Bolivian government generally does not apply specific restrictions, such as permits or import
licenses, to trade in industrial and commercial goods. However, since December 2008, Supreme Decree
28963 has gradually reduced the age of vehicles that may be imported. Since January 2011, the
maximum age of cars permitted for import is three years old. Additionally, Bolivia has prohibited the
importation of diesel vehicles with engine displacement smaller than 4,000 cubic centimeters, all vehicles
that use liquefied petroleum gas, and cars with right side steering. The import prohibition on cars with
right side steering has led to increased demand for U.S. vehicles.
Since October 2008, the importation of guns and ammunition for civilian use (Supreme Decree 29747)
has been prohibited. In accordance with Andean Community Decision 337, Bolivia banned all used
clothing imports in April 2007.
In 2004, Bolivia enacted the “Compro Boliviano” (Buy Bolivian) program through Supreme Decree
27328. This program supports domestic production by giving preference to Bolivian products in
government procurement. Under procurement rules that were modified in 2007 and 2009, the
government must give priority to small and micro-producers and peasant associations in procurements
under $100,000. In addition, the government requires fewer guarantees and imposes fewer requirements
on suppliers that qualify as small or micro-producers or peasant associations.
Bolivian companies also are given priority in government procurement valued between $142,000 and
$5.7 million. Importers of foreign products can participate in these procurements only where locally
manufactured products and local service providers are unavailable or where the Bolivian government
does not select a domestic supplier. In such cases, or if a procurement exceeds $5.7 million, the
government can call for an international tender. There is a requirement that foreign companies submitting
a tender for government consultancy contracts do so in association with a Bolivian company, but the
Bolivian government has been known to make exceptions in strategic sectors, as defined by the
As a general matter, the tendering process is nontransparent. Government requirements and the details of
the tender are not always defined, and procurement notices are not always made public. For example,
none of the government-owned strategic sector companies (including YPFB, ENDE, Mutun, Evaporitic
Resources, and the Hydrocarbon Industrialization Company) are required to publish their tenders through
the official procurement website (SICOES or Sistema de Información de Contrataciones Estatales).
Concerns have been raised that these companies are not required to follow the procedures established in
the national procurement law.
Bolivia is not a signatory to the WTO Agreement on Government Procurement.
Bolivia was listed on the Watch List in the 2012 Special 301 report. The report noted that high levels of
piracy and counterfeiting persist, and there is a continued need to improve criminal and civil intellectual
property rights (IPR) enforcement. The report also stated that Bolivia should provide for more efficient
prosecution of IPR violations, for better coordination among Bolivian enforcement authorities, and for
additional resources to be allocated to enforcement officials.
Government policy changes stemming, in part, from the adoption of a new constitution in February 2009
have raised concerns among foreign investors. Although the new constitution has yet to be fully
implemented, one of its most troubling provisions calls for a limit on foreign companies’ access to
international arbitration in cases of conflicts with the government. It also states that all bilateral
investment treaties (BIT) must be renegotiated to adjust to this and other new constitutional provisions.
Citing these provisions, in June 2012, the Bolivian government became the first U.S. BIT partner to
terminate its BIT with the United States. Existing investors in Bolivia at the time of termination continue
to be protected by the BIT’s provisions for 10 years after the termination of the treaty. In October 2007,
Bolivia became the first country to withdraw from the World Bank’s International Centre for Settlement
of Investment Disputes (ICSID).
The government of Bolivia has reversed the privatization efforts of previous governments and has placed
increasing emphasis on public ownership of strategic enterprises. In an effort to control key sectors of the
economy, the Bolivian government has obtained (through legally required contract renegotiations) at least
51 percent government ownership in a number of companies in the oil, gas, and telecommunications
sectors. As part of re-nationalization negotiations, the Bolivian government in 2009 also re-acquired 47
percent to 50 percent of the shares in four electric companies that were privatized 12 years earlier; in
2010, the government took control of 100 percent of the shares and assumed management control of all
four of these companies. In 2012, the Bolivian government took further control of the energy sector by
nationalizing two additional companies, including a large national electricity transportation company, as
well as the principal electricity distribution company in the Department of La Paz. The government has
announced that additional companies in strategic sectors, including railways, could be nationalized.
The government is also using means other than nationalization to reestablish public sector control over
the economy. In the past few years, the Bolivian government created 20 public companies to operate in
“strategic” sectors such as food production, industrialization of natural resources, air travel, and internal
and external market sales. Private sector entities have expressed concern that these public companies
engage in subsidized, unfair competition and are leading to a state-driven economic system.
The new Bolivian constitution includes requirements for state involvement in natural resource companies.
It states that all natural resources will be administered by the government of Bolivia. The government
will grant ownership rights and control the exploitation, exploration, and industrialization of natural
resources through public companies, communities, and private companies that will enter joint ventures
with the public sector.
With respect to hydrocarbon resources, Article 359 of the new constitution stipulates that all hydrocarbon
deposits, whatever their state or form, belong to the government of Bolivia. No concessions or contracts
may transfer ownership of hydrocarbon deposits to private or other interests. The Bolivian government
exercises its right to explore and exploit hydrocarbon reserves and trade-related products through the
state-owned Yacimientos Petrolíferos Fiscales Bolivianos (YPFB). Beginning in 2006, YPFB benefitted
from nationalization laws that required operators to turn over all production to, and sign new contracts
that give, YPFB control over the distribution of gasoline, diesel fuel, and liquefied petroleum gas. Article
359 allows YPFB to enter into joint venture contracts for limited periods of time with domestic or foreign
entities wishing to exploit or trade hydrocarbons or their derivatives.
Outside the hydrocarbons sector, the government is considering a change to the mining code that may
require all companies to enter into joint ventures with the state mining company, Corporacion Minera de
Bolivia (COMIBOL). In 2012, in part due to the absence of a new mining law, instability has increased in
the sector and several mines have been taken over by protesters, resulting in the Bolivian government
nationalizing two privately held mines, and leaving several others in uncertain circumstances.
Bolivian labor law limits foreign firms’ ability to globally staff their companies by restricting foreign
employees to 15 percent of the work force.
The U.S. goods trade surplus with Brazil was $11.6 billion in 2012, an increase of $413 million from
2011. U.S. goods exports in 2012 were $43.7 billion, up 1.8 percent from the previous year.
Corresponding U.S. imports from Brazil were $32.1 billion, up 1.1 percent. Brazil is currently the 7th
largest export market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Brazil were
$21.7 billion in 2011 (latest data available), and U.S. imports were $6.9 billion. Sales of services in
Brazil by majority U.S.-owned affiliates were $29.9 billion in 2010 (latest data available), while sales of
services in the United States by majority Brazil-owned firms were $1.3 billion.
The stock of U.S. foreign direct investment (FDI) in Brazil was $71.1 billion in 2011 (latest data
available), up from $64.2 billion in 2011. U.S. FDI in Brazil is led by the manufacturing and finance/
insurance sectors.
Brazil is a member of the MERCOSUR customs union, formed in 1991 and comprised of Argentina,
Brazil, Paraguay, Uruguay, and Venezuela. Venezuela was admitted as a full member in July 2012.
MERCOSUR maintains a Common External Tariff (CET) schedule with a limited number of countryspecific exceptions, with most favored nation (MFN) applied rates ranging from zero percent to 35
percent ad valorem. Brazil’s import tariffs follow the MERCOSUR CET, with few exceptions. Brazil’s
MFN applied tariff rate averaged 11.6 percent in 2012. Brazil’s average bound tariff rate in the WTO is
significantly higher at 31.4 percent. Brazil’s maximum bound tariff rate for industrial products is 35
percent, while its maximum bound tariff rate for agricultural products is 55 percent. Given the large
disparities between bound and applied rates, U.S. exporters face significant uncertainty in the Brazilian
market, because the government often changes tariffs to protect domestic industries from import
competition or to manage prices and supply.
Brazil imposes relatively high tariffs on U.S. imports across a wide spread of sectors, including
automobiles, automotive parts, information technology and electronics, chemicals, plastics, industrial
machinery, steel, and textiles and apparel. Brazil is permitted by MERCOSUR to maintain 100
exceptions to the CET until December 31, 2015. Using these exceptions, Brazil maintains higher tariffs
than its MERCOSUR partners on certain goods, including cell phones, telecommunications equipment,
computers and computer printers, wind turbines, certain chemicals and pharmaceuticals, sardines, and
mushrooms. At the MERCOSUR Common Market Council (CMC) ministerial meeting in December
2011, MERCOSUR members agreed to allow member countries to increase import duty rates temporarily
to a maximum rate of 35 percent on 100 items per member country. In October 2012, Brazil issued its list
of 100 products subject to this tariff increase, which will remain in effect through the end of 2013 and
may be extended until the end of 2014. Exports of U.S. products in the categories affected by these tariff
increases totaled approximately $1 billion in 2011. In June 2012, the MERCOSUR CMC authorized each
member country to increase tariffs on an additional 100 products. Brazil’s increases are expected to be
announced and take effect in the first half of 2013.
In August 2010, MERCOSUR’s CMC advanced toward the establishment of a Customs Union with its
approval of a Common Customs Code and decision 5610 (December 2010) to implement a plan to
eliminate the double application of the CET within MERCOSUR. The plan was to take effect in three
stages with the first phase to have been implemented no later than January 1, 2012, but the deadline was
not met. In November 2012, Argentina became the first MERCOSUR member to ratify the CCC. The
CCC still must be ratified by the other MERCOSUR member countries.
As part of its Uruguay Round commitments, Brazil agreed to establish a 750,000 metric ton tariff-rate
quota (TRQ) for wheat. Brazil has never opened the TRQ, and therefore no wheat has been shipped
under the TRQ. In an April 1996 notification to the WTO, Brazil indicated its intent to withdraw the
wheat TRQ and initiated the Article XXVIII process under the GATT 1994. Brazil considers the Article
XXVIII process to be ongoing. In the meantime, Brazil continues to not allow imports of wheat under the
TRQ. The United States will continue to engage Brazil on this issue.
Nontariff Barriers
Brazil applies to imports federal and state taxes and charges that can effectively double the actual cost of
imported products in Brazil. The complexities of the domestic tax system, including multiple cascading
taxes and tax disputes among the various states, pose numerous challenges for U.S. companies operating
in and exporting to Brazil. For example, in December 2011, Brazil raised the Industrial Products Tax
(IPI) by 30 percentage points on vehicles that do not meet a 65 percent local content requirement (defined
as content from MERCOSUR countries and Mexico) and certain other investment and production
requirements. Effective January 1, 2013, Brazil instituted a revised but similar version of this
“temporary” regime that will remain in effect for at least four years. Although the new plan eliminates
the 65 percent local content requirement, locally produced vehicles continue to be taxed at preferential
rates assuming manufacturers comply with a series of requirements. As part of the new program, the
baseline IPI on all vehicles will be revised upward by 30 percentage points, which is equivalent to the
level applied to imported vehicles under the prior regime. However, it allows those meeting certain levels
of local content, fuel efficiency and emissions standards, and required levels of local engineering,
research and development, or labeling standards to receive tax breaks that may offset the full amount of
the IPI. Imported automobiles continue to face a potential 30 percentage point price disadvantage vis-àvis equivalent vehicles manufactured in Brazil even before import duties are levied.
Brazil also prohibits a number of imports, including some blood products and all used consumer goods,
such as automobiles, clothing, and tires, as well as used medical equipment and information and
communications technology (ICT) products. Brazil also restricts the entry of certain types of
remanufactured goods (e.g., earthmoving equipment, automotive parts, and medical equipment). In
general, Brazil only allows the importation of such goods if an importer can provide evidence that the
goods are not or cannot be produced domestically. A 25 percent merchant marine tax on ocean freight
plus port handling charges at Brazilian ports puts U.S. products at a competitive disadvantage vis-à-vis
MERCOSUR products. Brazil applies a 60 percent flat import tax on most manufactured retail goods
imported by individuals via mail and express shipment, which go through a simplified customs clearance
procedure called RTS (simplified tax regime). Goods with a value of over $3,000 cannot be imported
using this regime.
Import Licenses/Customs Valuation
All importers must register with the Secretariat of Foreign Trade (SECEX) to access the Brazilian
Secretary of Foreign Trade’s computerized documentation system (“SISCOMEX”). SISCOMEX
registration requirements are onerous, including a minimum capital requirement. Fees are assessed for
each import statement submitted through SISCOMEX.
Brazil has both automatic and non-automatic import license requirements. Brazil’s non-automatic import
licensing system covers imports of products that require authorization from specific ministries or
agencies, such as beverages (Ministry of Agriculture), pharmaceuticals (Ministry of Health), and arms
and munitions (Ministry of National Defense). Although a list of products subject to non-automatic
import licensing procedures is available on the SISCOMEX system, specific information related to nonautomatic import license requirements and explanations for rejections of non-automatic import license
applications are lacking. The lack of transparency surrounding these procedures can create additional
burdens for U.S. exporters.
U.S. footwear and apparel companies have expressed concern about the extension of non-automatic
import licenses and certificate of origin requirements on non-MERCOSUR footwear to include textiles
and apparel. They also note the imposition of additional monitoring, enhanced inspection, and delayed
release of certain goods, all of which negatively impact the ability to sell U.S.-made and U.S.-branded
apparel, footwear and textiles in the Brazilian market.
In May 2011, the Brazilian government imposed non-automatic import licensing requirements on
imported vehicles, including those originating in MERCOSUR countries. The delays in issuing nonautomatic import licenses negatively affect U.S. automobile manufacturers that export vehicles to Brazil,
particularly those that manufacture vehicles in Argentina for export to Brazil.
U.S. companies continue to complain of burdensome documentation requirements for the import of
certain types of goods, even on a temporary basis. For example, the Ministry of Health’s regulatory
agency, ANVISA, must approve product registrations for imported pharmaceuticals, medical devices,
health and fitness equipment, cosmetics, and processed food products. Currently, the registration process
at ANVISA takes from three to six months for new versions of existing products, and can take more than
six months for new products. Registration of certain pharmaceutical products can take more than a year,
since ANVISA requires that a full battery of clinical testing be performed in Brazil, regardless of whether
or not the drug has already obtained approval from the U.S. Food and Drug Administration.
U.S. companies have also reported that customs officials often apply a higher dutiable value based on a
retail price rather than recognizing the company’s stated transaction value.
The Plano Brasil Maior (“Greater Brazil Plan”) industrial policy offers a variety of tax, tariff, and
financing incentives to encourage production for export and to spur domestic manufacturing, regardless of
whether the company is Brazilian or foreign-owned. The Reintegra program, launched in December 2011
as part of Plano Brasil Maior, exempts from certain taxes exports of goods covering 8,630 tariff codes. It
also introduced a tax credit for exporters of industrialized goods equal to 3 percent of the value of their
exports. To qualify, the imported content of the exported goods must not exceed 40 percent, except in the
case of high-technology goods such as pharmaceuticals, electronics, and aircraft and parts, which are
permitted to have imported content of up to 65 percent. In 2012, the Reintegra program resulted in
approximately R$1.5 billion (approximately $750 million) in refunds to exporters; in 2013, the Ministry
of Finance estimates Reintegra refunds will total approximately R$2.2 billion (approximately $1.1
billion). Plano Brasil Maior also calls for the creation of funds designed to aid small and medium sized
exporters and to cover non-payment by customers in countries where the risk of non-payment is high.
Brazil’s National Bank for Economic and Social Development (BNDES) provides long-term financing to
Brazilian industries through several programs, such as the R$44 billion (approximately $22 billion)
Investment Maintenance Program (PIS). At between 3 percent and 5.5 percent, the interest rates charged
on financing under this program are substantially lower than the prevailing market interest rates for
commercial financing. One BNDES program, FINAME, provides preferential financing for the purchase,
sales operations and exports of Brazilian machinery and equipment, as well as imports of the same types
of goods produced abroad. These programs can be used for financing capacity expansions and equipment
purchases in industries such as steel and agriculture.
Brazil’s Special Regime for the Information Technology Exportation Platform (REPES) suspends PIS
and COFINS taxes on goods imported and information technology services provided by companies that
commit to export software and information technology services to the extent that those exports account
for more than 50 percent of their annual gross income. The Special Regime for the Acquisition of Capital
Goods by Exporting Enterprises (RECAP) suspends these same taxes on new machines, instruments, and
equipment imported by companies that commit for a period of at least two years to export goods and
services such that they account for at least 50 percent of their overall gross income for the previous
calendar year.
Brazil also provides a broad range of assistance to its agricultural sector in the form of low interest
financing, price support programs, tax exemptions and tax credits. An example of such assistance is the
Premium for Product Flow Program (Prêmio para Escoamento de Produto, or PEP), which offers a
payment through an auctioning system to purchasers of certain agricultural commodities including corn,
wheat, and rice, from a rural producer or cooperative, based on the difference between the minimum price
set by the government and the prevailing market price. Each PEP auction notice specifies the commodity
to be tendered and the approved destinations for that product, including export destinations. Another
example is financing provided by BNDES. Of the R$156 billion (approximately $78 billion) BNDES
allocations to the various sectors of the Brazilian economy in 2012, R$18 billion (approximately $9
billion) was set aside for the agriculture and livestock sectors, up 74 percent from 2011. In 2012, BNDES
announced the Prorenova credit line of R$4 billion (approximately $2 billion), available for the calendar
year to finance the renewal and/or expansion of approximately 2.5 million acres (1 million hectares) of
sugarcane fields. BNDES has already announced the extension of Prorenova for 2013.
U.S. companies without a substantial in-country presence regularly face significant obstacles to winning
government contracts and are often more successful in subcontracting with larger Brazilian firms.
Regulations allow a Brazilian state enterprise to subcontract services to a foreign firm only if domestic
expertise is unavailable. Additionally, U.S. and other foreign firms may only bid to provide technical
services where there are no qualified Brazilian firms.
In 2010, Brazil passed a law giving procurement preference to firms that produce in Brazil, whether
foreign-owned or Brazilian, and that fulfill certain economic stimulus requirements such as generating
employment or contributing to technological development, even when their bids are up to 25 percent
more expensive than bids submitted by foreign firms not producing in Brazil. The law allows for
“strategic” ICT goods and services to be restricted to those with indigenously developed technology. In
August 2011, this system of preference margins was folded into Plano Brasil Maior. Government
procurement is just one of many measures under Plano Brasil Maior intended to promote and protect
domestic producers, particularly the labor-intensive sectors facing import competition. In November
2011, the Ministry of Development, Industry, and Commerce implemented an 8 percent preference
margin for domestic producers in the textile, clothing and footwear industries when bidding on
government contracts. In April 2012, Brazil implemented 5 percent to 25 percent preference margins for
domestically produced backhoes, motor graders, and a variety of pharmaceuticals.
Brazil’s regulations regarding the procurement of information technology goods and services require
federal agencies and parastatal entities to give preferences to locally produced computer products based
on a complicated and nontransparent price/technology matrix. In addition, Brazil has made several
attempts over the past decade to enact preferences at the federal, state and local government levels for the
procurement of open-source software over commercial products. Most recently, in December 2011, two
Brazilian legislative committees approved draft Law PL 2269/1999, which would require all Brazilian
federal government agencies and state-owned entities to favor open-source software in their procurement
policies. This legislation is subject to further action in the Brazilian Congress. If enacted, this law would
put U.S. software providers at a severe disadvantage vis-à-vis Brazilian companies. In addition, in
August 2012, the Ministry of Science, Technology and Innovation released a “Bigger IT Plan” intended
to bolster the growth and development of the domestic information technology industry. The program
focuses heavily on software and related services and establishes a new process for the government to
evaluate and certify that software products are locally developed in order to qualify for price preferences
that may be as high as 25 percent.
Pursuant to Decree number 2745/98, the state-controlled oil company Petrobras may issue tenders
through invitation letters, electronic auctions, or national or international bids. From time to time,
however, suppliers have found that Brazil’s Federal Attorney General will question procurement
conducted pursuant to these simplified procedures, resulting in delays in tenders from Petrobras.
Petrobras’ local content requirements are currently established and regulated by Brazil’s National
Petroleum Agency (ANP), which is gradually introducing higher local content requirements with each
bidding round. In addition, local content requirements vary by block (the geographic area that is awarded
by the Brazilian government to oil companies for oil exploration), and within that block, the local content
requirements differ for equipment, workforce, and services. In the past, local content requirements were
as low as 5 percent; however, Brazilian officials have indicated that local content requirements for
Petrobras and other oil companies could reach 80 percent to 95 percent by 2020 in certain product
categories. Technology-intensive equipment and services will likely be subject to higher local content
requirements than low-technology equipment and services. The Oil and Gas Regulatory Framework
introduced in December 2010 requires Petrobras to be the majority operator of new projects, and as a
result, Petrobras is responsible for ensuring that its workforce and its entire supply chain adhere to these
increasingly high local content requirements. ANP fined Petrobras and other oil exploration and
production companies over the last few years for noncompliance with local content requirements; in
September 2011, Petrobras was fined R$29 million (approximately $16.85 million) for noncompliance.
In August 2012, ANP announced that it was reviewing 17 local content waiver requests from five
unnamed operators, requiring that a company prove in its waiver request that it is unable to acquire the
appropriate goods and services locally or that local prices are not in line with international standards.
The United States continues to urge Brazil to become a signatory to the WTO Agreement on Government
Procurement in order to ensure that companies in both countries have access to each other’s’ procurement
Brazil was listed on the Watch List in the 2012 Special 301 report. Brazil has taken steps to address a
backlog of pending patent applications, including by hiring more patent examiners, but long delays still
exist. Brazil has also continued to make progress in enhancing the effectiveness of intellectual property
enforcement, including conducting some notable raids. However, concerns remain with respect to piracy,
particularly Internet piracy. Concerns also persist with respect to Brazil’s inadequate protection against
unfair commercial use of undisclosed test and other data generated to obtain marketing approval for
pharmaceutical products. The United States is also concerned that Brazil’s proposed administrative
procedures conflict with opinions by the Attorney General that had clarified that Brazil’s health authority,
the National Sanitary Regulatory Agency (ANVISA), does not have the authority to review patentability
requirements when analyzing pharmaceutical patent applications.
Audiovisual Services and Broadcasting
Brazil imposes a fixed tax on each foreign film released in theaters, on foreign home entertainment
products, and on foreign programming for broadcast television.
Remittances to foreign producers of audiovisual works are subject to a 25 percent income withholding
tax. Brazilian distributors of foreign films are subject to a levy equal to 11 percent of their withholding
taxes. This tax, called the CONDECINE (Contribution to the Development of a National Film Industry),
is waived for the Brazilian distributor, if the producer of the foreign audiovisual work agrees to invest an
amount equal to 70 percent of the income withholding tax on their remittances in co-productions with
Brazilian film companies. The CONDECINE tax is also levied on any foreign video and audio
Brazil also requires that 100 percent of all films and television shows be printed locally. Importation of
color prints for the theatrical and television markets is prohibited. Domestic film quotas also exist for
theatrical screening and home video distribution.
In September 2011, Brazil enacted law 12.485 covering the subscription television market, including
satellite and cable television. The law permits telecommunications companies to offer television
packages with their services, and also removes the previous 49 percent limit on foreign ownership of
cable television companies. However, new content quotas also went into effect in September 2011, which
require every channel to air at least three and a half hours per week of Brazilian programming during
prime time. Additionally, one third of all channels included in any television package must be Brazilian.
The content quotas are being phased in over a three-year period, with full implementation in September
2013. As before, foreign cable and satellite television programmers are subject to an 11 percent
remittance tax, which does not need to be paid if the programmer invests 3 percent of its remittances in
co-production of Brazilian audiovisual services. In addition, the law delegates significant programming
and advertising regulatory authority to ANCINE, the national film industry development agency. In order
to gauge public opinion regarding the telecommunications sector before proposing revisions to existing
regulations, the Brazilian Telecommunications Agency (ANATEL) organized three public consultations
in late 2011 and submitted the results to the Brazilian Congress. As a result of feedback from the
Brazilian Congress, the Brazilian Supreme Court held further consultations in February 2013. It is
anticipated that revisions to the regulations would be enacted in 2013. While the results of these
consultations are being considered, the law as enacted in September 2011 prevails.
Cable and satellite operators are subject to a fixed levy on foreign content and foreign advertising released
on their channels. Law 10610 of 2002 limits foreign ownership in media outlets to 30 percent, including
the print and “open broadcast” (non-cable) television sectors. Eighty percent of the programming aired
on “open broadcast” television channels must be Brazilian.
Express Delivery Services
U.S. express delivery service companies face significant challenges in the Brazilian market due to
numerous barriers, such as high import taxes, an automated express delivery clearance system that is only
partially functional and low de minimis exceptions from tariffs for express shipments.
The Brazilian government charges a flat 60 percent duty for all goods imported through the Simplified
Customs Clearance process used for express delivery shipments. U.S. industry contends that this flat rate
is higher than duties normally levied on goods arriving via regular mail, putting express delivery
companies at a competitive disadvantage. Moreover, Brazilian Customs has established maximum value
limits of $5,000 for exports and $3,000 for imports sent using express services. These limits severely
restrict the Brazilian express delivery market’s growth potential and impede U.S. exporters doing
business in Brazil.
Financial Services
U.S. companies seeking to enter Brazil’s insurance and reinsurance market must establish a subsidiary,
enter into a joint venture, or acquire or partner with a local company. Banks are subject to case-by-case
approval by the insurance regulator SUSEP (Superintendência de Seguros Privados). The Brazilian
reinsurance market was opened to competition in 2007. However, in December 2010 and March 2011,
the Brazilian National Council on Private Insurance (CNSP) reversed its previous market liberalization
actions through the issuance of Resolutions 225 and 232, which disproportionately affect foreign insurers
operating in the Brazilian market. Resolution 225 requires that 40 percent of all reinsurance risk be
placed with Brazilian companies. In addition, Resolution 232 allows insurance companies to place only
20 percent of risk with affiliated reinsurance companies. In December 2011, CNSP passed Resolution
241, which loosens some of the requirements of Resolution 225 such that foreign firms are no longer
subject to the 40 percent requirement of Resolution 225 if they can show that there is an insufficient
supply on the local reinsurance market.
On August 31, 2012, President Rousseff signed a Provisional Measure decree (MP 564) which allows for
the creation of a state-owned enterprise for reinsurance, the so-called “Segurobras.” The purpose of the
company would be to provide government-backed reinsurance for large infrastructure projects, such as for
World Cup and Olympics construction, which do not have full coverage in the private market.
Segurobras’ broad mandate could allow it to acquire and compete with private companies in the housing
and vehicle insurance markets.
In June 2012, ANATEL held its spectrum auction for mobile broadband services. Applicants were
required to accept, as a condition for bidding on the spectrum, a commitment to meet specific milestones
over time to ensure specific local content for the infrastructure, including software, installed to supply the
licensed service and to ensure a 70 percent local content ratio in the infrastructure by the tenth year.
Foreign Ownership of Agricultural Land
On December 9, 2011, the National Land Reform and Settlement Institute (INCRA) published a set of
new rules covering the purchase of Brazilian agricultural land by foreigners. These rules follow an
August 2010 opinion issued by the Attorney General limiting foreign ownership of agricultural land.
Under the new rules, the area bought or leased by foreigners cannot account for more than 25 percent of
the overall area in its respective municipal district. Additionally, no more than 10 percent of the land in
any given municipal district may be owned or leased by foreign nationals from the same country. The
rules also make it necessary to obtain congressional approval before large plots of land can be purchased
by foreigners, foreign companies, or Brazilian companies with a majority of shareholders from foreign
countries. These restrictions and the accompanying uncertainty of how they will be applied in practice
may discourage U.S. investment in Brazilian agricultural land. There are several proposed bills pending
in the Brazilian Congress which would clarify the process for foreigners who want to purchase land.
The U.S. goods trade surplus with Brunei was $71 million in 2012, a decrease of $90 million from 2011.
U.S. goods exports in 2012 were $157 million, down 14.7 percent from the previous year. Corresponding
U.S. imports from Brunei were $86 million, up 268 percent. Brunei is currently the 139th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Brunei was $55 million in 2011 (latest data
available), down from $57 million in 2010.
Trade Agreements
Brunei is a participant in the Trans-Pacific Partnership (TPP) negotiations, through which the United
States and its 10 Asia-Pacific partners are seeking to establish a comprehensive, next-generation regional
agreement to liberalize trade and investment. This agreement will advance U.S. economic interests with
some of the fastest-growing economies in the world, act as an important tool to expand U.S. exports
which are critical to the creation and retention of jobs in the United States, and serve as a potential
platform for economic integration across the Asia-Pacific region. The TPP agreement will include
ambitious commitments on goods, services, and other traditional trade and investment issues. It will also
address a range of emerging issues not covered by past agreements, including trade and investment in
innovative products and commitments to help companies operate more effectively in regional markets. In
addition to the United States and Brunei, the TPP negotiating partners currently include Australia,
Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
Brunei has expressed support for the U.S.-ASEAN Expanded Economic Engagement (E3) Initiative, a
new framework for economic cooperation designed to expand trade and investment ties between the
United States and ASEAN, promoting new business opportunities and supporting job creation in the
United States and ASEAN countries, as well as laying the groundwork for ASEAN countries to prepare to
join high-standard trade agreements, such as the Trans-Pacific Partnership (TPP) agreement.
Brunei has bound 95 percent of its tariff lines in the WTO. The average bound rate is 25.3 percent and
applied rates averaged 2.5 percent in 2011. With the exception of a few products, including coffee, tea,
tobacco, and alcohol, tariffs on agricultural products are zero. Roughly 130 products, including alcoholic
beverages, tobacco, coffee, tea, petroleum oils, and lubricants, are subject to specific rates of duty and
greater overall protection. Brunei also applies high duties of up to 20 percent on automotive parts,
machinery, and electrical equipment.
Brunei offers preferential tariff rates to many Asia-Pacific countries under various trade agreements. As a
member of the Association of South East Asian Nations (ASEAN), Brunei is reducing intraregional tariffs
as agreed under the ASEAN Free Trade Agreement. Brunei also accords preferential access to its market
to Australia, New Zealand, China, India, South Korea, and Japan (as part of free trade agreements
concluded by ASEAN); to Chile, Singapore, and New Zealand (as part of the Trans-Pacific Strategic
Economic Partnership); and to Japan (under a bilateral Economic Partnership Agreement). At the
November 2012 East Asia Summit, Brunei joined other ASEAN leaders and their six regional free trade
partners--Australia, China, India, South Korea, Japan and New Zealand--in kicking off negotiations for
the Regional Comprehensive Economic Partnership.
All government procurement is conducted by Ministries, Departments, and the State Tender Board of the
Ministry of Finance. Most invitations for tenders or quotations below B$250,000 (approximately
$204,461.07) are published in a bi-weekly government newspaper, but often are selectively tendered only
to locally registered companies. The relevant ministry may approve purchases up to a B$250,000
threshold, but tender awards above B$250,000 must be approved by the Sultan in his capacity as Minister
of Finance based on the recommendation of the State Tender Board. A project performance bond is
required at the tender approval stage to guarantee the delivery of a project in accordance with the project
specifications. The bond is returned to the companies involved after the project is successfully completed.
In July 2010, Brunei established the Centre of Science and Technology Research and Development in its
Ministry of Defense to administer military procurements in a more transparent manner and in accordance
with its Defense White Paper. Under the new procedures, companies are issued an invitation to tender for
each program and bids are evaluated according to established criteria such as performance, cost, and
production time. Although this is an improvement over past practice, the defense award process still
lacks transparency, and some tender decisions are not publically disclosed.
Brunei is not a signatory to the WTO Agreement on Government Procurement.
Brunei was placed on the Special 301 Watch List in 2012. Brunei has made progress on enforcement,
implementing the Patents Order of 2011 in January in 2012. Among other things, the Patents Order
established an independent patent system for the receipt, processing, and granting of patents by a new
Registry of Patents and facilitates the international filing of patents. The United States has continued to
urge Brunei to raise public awareness regarding the importance of intellectual property rights (IPR)
protection, including through public education and enforcement of the Patents Order. The United States
also continues to have concerns regarding pending copyright amendments and the lack of ex officio
authority for IPR enforcement authorities.
Transparency is lacking in many areas of Brunei’s economy. Brunei operates state-owned monopolies in
key sectors of the economy, such as oil and gas, telecommunications, transport, and energy generation
and distribution. However, Brunei has not yet notified its state trading enterprises to the WTO Working
Party on State Trading Enterprises. In addition, Brunei’s foreign direct investment policies are not
transparent, particularly with respect to limits on foreign equity participation, partnership requirements,
and the identification of sectors in which foreign direct investment is restricted.
The U.S. goods trade deficit with Cambodia was $2.5 billion in 2012, down $61 million from 2011. U.S.
goods exports in 2012 were $226 million, up 21.9 percent from the previous year. Corresponding U.S.
imports from Cambodia were $2.7 billion, down 0.8 percent. Cambodia is currently the 129th largest
export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Cambodia was $10 million in 2011 (latest data
available), up from $4 million in 2010.
Cambodia is one of the few least-developed World Trade Organization (WTO) members that took
binding commitments on all products in its tariff schedule when it joined the WTO in 2004. The overall
simple average bound tariff rate is 19.1 percent, while the average applied rate is now 10.9 percent, which
is 0.96 percentage points higher than the rate in 2011. This higher rate can be attributed to Cambodia’s
conversion from the ASEAN Harmonized Tariff Nomenclature (AHTN) 2007 to the AHTN 2012.
Cambodia’s highest applied tariff rate of 35 percent is imposed across a number of product categories,
including a wide variety of prepared food products, bottled and canned beverages, cigars and cigarette
substitutes, minerals including table salt, paints and varnishes, cosmetic and skin care products, glass and
glassware, electrical appliances, cars, furniture, video games, and gambling equipment.
When Cambodia joined the WTO, it was given until January 1, 2009 to implement the WTO Customs
Valuation Agreement (CVA). Cambodia drew up a revised plan for the modernization and streamlining
of customs procedures from 2009 to 2013 in order to meet WTO requirements. The official
implementation of the CVA began on January 1, 2011. The United States continues to work with the
government to address remaining concerns about Cambodia’s implementation of these commitments.
Both local and foreign businesses have raised concerns that the Customs and Excise Department engages
in practices that are nontransparent and that appear arbitrary. Importers frequently cite problems with
undue processing delays, burdensome paperwork, and unnecessary formalities due to administrative
discretion. The United States and Cambodia continue to discuss these and other customs issues under the
bilateral Trade and Investment Framework Agreement.
Cambodia levies trade-related taxes in the form of customs duties, petroleum taxes on gasoline ($0.02 per
liter) and diesel oil ($0.04 per liter), an export tax, and two indirect taxes – a value-added tax (VAT) and
an excise tax – levied on the value of imports. The VAT is applied at a uniform 10 percent rate. To date,
the VAT has been selectively imposed only on large companies, but the Cambodian government is
working to expand the base to which the tax is applied. The VAT is not collected on exports and services
consumed outside of Cambodia (technically, a 0 percent VAT applies). Subject to certain criteria, the
zero rate also applies to businesses that support exporters and subcontractors that supply goods and
services to exporters, such as garment and footwear manufacturers.
Cambodia promulgated a law on public procurement in January 2012, which codified existing
procurement regulations that provided for competitive bidding, domestic canvassing, direct shopping, and
direct contracting.
Competitive bidding is mandatory for the purchase of goods or services worth more than 100 million riels
(approximately $25,000). Bidding is restricted to local companies if the value is less than 1 billion riels
($250,000) for goods, less than 1.2 billion riels (approximately $300,000) for construction projects, or
less than 800 million riels (approximately $200,000) for services. International competitive bidding is
required for expenditures over those amounts.
Despite the general requirement for competitive bidding for procurements valued at approximately more
than $25,000, the conduct of government procurement often is not transparent. The Cambodian
government frequently provides short response times to public announcements of tenders, which often are
not widely publicized. For construction projects, only bidders registered with the Ministry of Economy
and Finance are permitted to participate in tenders. Additionally, prequalification procedures exist at the
provincial level.
Cambodia is not a signatory to the WTO Agreement on Government Procurement.
Stakeholders continue to raise concerns about intellectual property rights (IPR) protection and
enforcement in Cambodia, including widespread copyright piracy and trademark counterfeiting. Pirated
CDs, DVDs, software, garments, and other copyrighted materials, as well as an array of counterfeit
goods, including pharmaceuticals, reportedly are widely available in Cambodia’s markets. Legislation
remains pending to implement commitments with respect to the protection of trade secrets, protection of
encrypted satellite signals or semiconductor layout designs. The draft law on geographical indications is
being reviewed by the Council of Ministers and is expected to be passed in 2013.
Cambodia’s constitution restricts foreign ownership of land. In 2010, a law allowing foreign ownership
of property above the ground floor was enacted. The law further stipulates that no more than 70 percent
of a building can be foreign owned, and foreigners cannot own property within 30 kilometers of the
national border. Foreign investors may use land through concessions and renewable leases. In May
2012, the Cambodian government imposed a moratorium on Economic Land Concessions (ELCs). Since
that time, however, it has granted at least 12 new ELCs. It justified the new ELCs on grounds that they
were either subject to private negotiations or had been agreed to “in principle” prior to the directive and
therefore were not subject to the moratorium.
The Cambodian government has not imposed any specific restrictions on products or services traded via
electronic commerce, and no existing legislation governs this sector. Electronic commerce legislation has
been drafted, but not yet adopted, to facilitate domestic and international electronic commerce by
eliminating legal barriers and promoting public confidence in the authenticity, integrity, and reliability of
data messages and electronic communications.
Both foreign and local businesses have identified corruption in Cambodia as a major obstacle to business
and a deterrent to attracting foreign direct investment. In 2010, Cambodia adopted anticorruption
legislation and established a national Anti-Corruption Unit to undertake investigations, law enforcement
measures, and conduct public outreach. Since the law was enacted 2011, some government officials have
been prosecuted and convicted of corruption.
Judicial and Legal Framework
Cambodia’s legal framework is incomplete and unevenly enforced. While the legislature has passed
numerous trade and investment laws, including a law on commercial arbitration, many business-related
draft laws are still pending. U.S. industry has reported that the judicial system is often arbitrary and
subject to corruption.
To address these concerns, in 2009 the Cambodian government established a commercial arbitration body
called the National Arbitration Center (NAC), an alternative dispute resolution mechanism intended to
more quickly resolve commercial disputes than can be done through the court system. Disagreements
between the Ministry of Commerce and the arbitrators, however, have delayed the start of NAC
operations. Independent arbitrators have been recruited, and the election of a board of directors is due by
the end of 2012, which would enable the NAC to be operational in early 2013.
The smuggling of products, such as vehicles, fuel, soft drinks, livestock, crops, and cigarettes remains
widespread. The Cambodian government has issued numerous orders to suppress smuggling and has
created various anti-smuggling units within governmental agencies, including the Department of Customs
and Excise. The Cambodian government has also established a mechanism within the Department of
Customs to accept and act upon complaints from traders and governments about customs practices.
Enforcement efforts, however, remain weak and inconsistent.
The U.S. goods trade deficit with Canada was $32.5 billion in 2012, down $2.0 billion from 2011. U.S.
goods exports in 2012 were $291.8 billion, up 3.9 percent from the previous year. Corresponding U.S.
imports from Canada were $324.2 billion, up 2.8 percent. Canada is currently the largest export market
for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Canada were
$56.1 billion in 2011 (latest data available), and U.S. imports were $28.0 billion. Sales of services in
Canada by majority U.S.-owned affiliates were $117.3 billion in 2010 (latest data available), while sales
of services in the United States by majority Canada-owned firms were $68.9 billion
The stock of U.S. foreign direct investment (FDI) in Canada was $319.0 billion in 2011 (latest data
available), up from $289.5 billion in 2010. U.S. FDI in Canada is led by the nonbank holding companies,
manufacturing, and finance/ insurance sectors.
The North American Free Trade Agreement
The North American Free Trade Agreement (NAFTA), signed by the United States, Canada, and Mexico
(“the Parties”), entered into force on January 1, 1994. At the same time, the United States suspended the
United States-Canada Free Trade Agreement, which had entered into force in 1989. Under the NAFTA,
the Parties progressively eliminated tariffs and nontariff barriers to trade in goods among them, provided
improved access for services, established strong rules on investment, and strengthened protection of
intellectual property rights. After signing the NAFTA, the Parties concluded supplemental agreements on
labor and environment, under which the Parties are, among other things, obligated to effectively enforce
their environmental and labor laws. The agreements also provide frameworks for cooperation among the
Parties on a wide variety of labor and environmental issues.
In 2012, Canada and Mexico became participants in the Trans-Pacific Partnership (TPP) negotiations,
through which the United States and 10 other Asia-Pacific partners are seeking to establish a
comprehensive, next-generation regional agreement to liberalize trade and investment. This agreement
will advance U.S. economic interests with some of the fastest-growing economies in the world; expand
U.S. exports, which are critical to the creation and retention of jobs in the United States; and serve as a
potential platform for economic integration across the Asia-Pacific region. The TPP agreement will
include ambitious commitments on goods, services, and other traditional trade and investment matters. It
will also include a range of new and emerging issues to address trade concerns our businesses and
workers face in the 21st century. In addition to the United States, Canada and Mexico, the TPP
negotiating partners currently include Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore,
and Vietnam.
Canada eliminated tariffs on all industrial and most agricultural products imported from the United States
on January 1, 1998, under the terms of the NAFTA. Canada has been phasing out the remaining MFN
tariffs on imported machinery and equipment and intends to complete this process by 2015.
Agricultural Supply Management
Canada uses supply management systems to regulate its dairy, chicken, turkey, and egg industries.
Canada’s supply management regime involves production quotas, producer marketing boards to regulate
price and supply, and tariff-rate quotas (TRQs). Canada’s supply management regime severely limits the
ability of U.S. producers to increase exports to Canada above the TRQ levels and inflates the prices
Canadians pay for dairy and poultry products. One of the barriers facing U.S. exports of dairy products is
a 245 percent ad valorem tariff on breaded cheese sticks. The United States is pressing for expanded inquota quantities for these products.
Canada’s compositional standards for cheese entered into force on December 14, 2008, and further
restrict U.S. access of certain dairy products to the Canadian dairy market. These regulations limit the
ingredients that can be used in cheese making, set a minimum for raw milk in the cheese making process,
and make cheese importers more accountable for ensuring that the imported product is in full compliance.
The regulations also are applicable to cheese that is listed as an ingredient in processed food.
Canada announced in 2008 its intention to implement the Special Safeguard (SSG) under the WTO
Agreement on Agriculture for supply-managed goods. The SSG is a provision that would allow
additional duties to be imposed on over-quota trade when import volumes rise above a certain level, or if
prices fall below a certain level. Canada continues to work on the details of this mechanism and monitor
over-quota trade, but has not established a timeframe for announcing the SSG price and volume triggers.
The Canadian Wheat Board
The United States has had longstanding concerns about the monopolistic marketing practices of the
Canadian Wheat Board. Canada passed the Marketing Freedom for Grain Farmers Act in 2011 to
transition the Canadian Wheat Board from a crown corporation to a commercial entity over a five-year
period. The legislation allowed Western Canadian farmers to sell wheat on the open market beginning
August 1, 2012.
Since the changes brought about by the Marketing Freedom for Grain Farmers Act are important to
stakeholders involved in U.S.-Canada trade of grains and oilseeds, several not for profit associations from
both the United States and Canada created a task force in order to provide information to facilitate the
marketing of grain and seed between the United States and Canada.
Restrictions on U.S. Grain Exports
Canada has varietal registration requirements for wheat and barley. Canada eliminated a portion of the
varietal controls in 2008 by no longer requiring that each registered variety of grain be visually
distinguishable based on a system of Kernel Visual Distinguishability (KVD). This KVD requirement
limited U.S. export access to Canada’s grain market because U.S. varieties are not visually distinct and
cannot be registered for use in Canada. While this policy change is an improvement, it will take years
before U.S. wheat varieties are able to complete the necessary field trials to determine whether they will
be registered for use in Canada. In the meantime, due to “grown in Canada” requirements, U.S. wheat,
regardless of quality, will continue to be sold in Canada as “feed” wheat at sharp price discounts
compared to Canadian varieties. U.S. members of the task force described above would like to have a
working group established to look at issues concerning varietal declarations and foreign origin.
Legislation to amend the Canada Grains Act is currently under consideration in the Canadian Parliament.
Restrictions on U.S. Seeds Exports
Canada’s Seeds Act prohibits the sale, advertising for sale in Canada, or importation into Canada of seed
varieties that are not registered in the prescribed manner. In order to apply for seed varietal registration,
which is a long and cumbersome process, the applicant must reside permanently in Canada. This poses a
trade barrier for the many U.S. seeds that are not one of the registered Canadian varieties. Wheat and
barley seeds, among others, are covered under the Seeds Act.
Personal Duty Exemption
On June 1, 2012, Canada increased the cross-border shopping limit for tax-free imports of goods
purchased in the United States. Canadians who spend more than 24 hours outside of Canada can now
bring back C$200 worth of goods duty-free (the previous limit was C$50). Canada raised the duty-free
limit for trips over 48 hours to C$800, an increase from a C$400 limit for stays of up to one week and a
C$750 limit for stays longer than seven days. The United States provides similar treatment for its
returning travelers, but with a much more generous limit of $200 of duty-free goods after visits of less
than 24 hours. However, the United States will continue to press Canada on the lack of parity in the
personal duty exemptions for day shoppers. Canada currently provides no duty-exemption for returning
residents who have been out of Canada less than 24 hours.
Wine and Spirits
Most Canadian provinces restrict the sale of wine and spirits through province-run liquor control boards.
Market access barriers in those provinces greatly hamper exports of U.S. wine and spirits to Canada.
These barriers include cost-of-service mark-ups, listings, reference prices, labeling, discounting,
distribution and warehousing policies. As noted above, Canada increased its personal duty exemption
limit in June 2012. However, Canadian tourists still face high provincial taxes on personal imports of
U.S. wines and spirits upon their return to Canada from the United States, which inhibit their purchases of
U.S. alcoholic beverages.
On January 23, 2012, the United States and Canada signed an agreement to extend the Softwood Lumber
Agreement (SLA) for an additional two years, until October 13, 2015. The SLA entered into force on
October 12, 2006 and was set to expire after October 12, 2013. The 2006 SLA settled extensive litigation
and resulted in the revocation of U.S. antidumping and countervailing duty orders on softwood lumber
from Canada. The SLA is designed to create a downward adjustment in Canadian softwood lumber
exports to the United States through the imposition of Canadian export measures when U.S. demand is
low. The SLA also provides for binding arbitration to resolve disputes regarding interpretation and
implementation of the agreement. Under the SLA, arbitration is conducted under the rules of the LCIA
(formerly the London Court of International Arbitration). The bilateral Softwood Lumber Committee,
established pursuant to the SLA, meets to discuss a range of implementation issues and Canadian
provincial assistance programs for softwood lumber industries. The Softwood Lumber Committee last
met in October 2012, in Quebec City.
On July, 18, 2012, a tribunal issued its finding in an SLA dispute regarding the apparent underpricing of
timber in the interior of British Columbia. At issue was whether British Columbia was justified in selling
increasing amounts of publicly-owned timber in its interior – most of which was used to make softwood
lumber products – at salvage rates. While the tribunal acknowledged the dramatic increase in the amount
of timber sold at salvage prices, and reviewed a number of actions by British Columbia that the United
States had explained helped account for that increase, the tribunal did not find a conclusive link between
the increase and actions taken by British Columbia. British Columbia has issued an update with regard to
its timber pricing systems and the United States will be monitoring the resulting pricing closely.
Canada continued to collect duties in 2012 resulting from a 2011 arbitration award under the SLA. A
tribunal convened under the LCIA found that certain provincial assistance programs in Quebec and
Ontario provide benefits to the Canadian softwood lumber industry in breach of the SLA, and Canada has
imposed additional export charges to collect $59.4 million as compensation for this breach. Canada
began collecting the additional charges on March 1, 2011.
Aerospace Sector Support
Canada released a comprehensive review of its aerospace and space programs in November 2012. The
review offered 17 recommendations intended to strengthen the competitiveness of Canada’s aerospace
and space industries and guide future government involvement in both sectors. Recommendations called
on the Canadian government to create a program to support large-scale aerospace technology
demonstration, co-fund a Canada-wide initiative to facilitate communication among aerospace companies
and the academic community, implement a full cost-recovery model for aircraft safety certification,
support aerospace worker training, and co-fund aerospace training infrastructure.
The review also recommended that the Canadian government continue funding the Strategic Aerospace
and Defense Initiative (SADI). The SADI provides repayable support for strategic industrial research and
pre-competitive development projects in the aerospace, defense, space, and security industries, and has
authorized over $827 million to fund 26 advanced research and development (R&D) projects since its
establishment in 2007.
The Canadian federal government and the Quebec provincial government announced aid to the
Bombardier aircraft company in 2008 not to exceed C$350 million (federal) and C$117 million
(provincial) to support research and development related to the launch of the new class of Bombardier
CSeries commercial aircraft. According to the Public Accounts of Canada, the federal government has
disbursed C$203 million dollars to Bombardier from April 2008 through March 2012. The United States
continues to express its concerns to the government of Canada that any launch aid associated with the CSeries must be consistent with Canada’s international trade obligations.
The United States also has expressed concern over the possible use of Export Development Canada
(EDC) export credit financing to support commercial sales of Bombardier CSeries aircraft in the U.S.
market. The United States continues to urge the government of Canada to refrain from distorting market
competition in accordance with the purpose and principals of the OECD Aircraft Sector Understanding
Canada committed approximately $3.25 million per year from 2009 to 2013 to support the Green
Aviation and Research and Development Network and provides additional funding to the National
Research Council’s Industrial Research Assistance Program to support R&D in Canada’s aerospace
Risk Management Programs for Canadian Pork Producers
Canada provides an array of business risk management programs for its pork producers. The AgriStability
program provides financial assistance to producers when income falls below 70 percent of a producer’s
limited historical reference margin 1, at a compensation rate of 70 percent. This reflects adjustments to the
program that will be effective as of April 2013. The AgriInvest program aims to cover small income
declines by providing matching government funds based on producer contributions. It is essentially a
producer-government savings account. Both AgriStability and AgriInvest are cost-shared 60/40 by the
federal and provincial governments, respectively.
Provincial governments also provide significant subsidies in the form of price stabilization programs and
preferential loans and loan guarantees. Quebec’s Farm Income Stabilization and Insurance Program
(ASRA) provides direct payments to hog farmers. The ASRA program is designed to guarantee a
positive net annual income. One-third of the premium comes from producer participants and two-thirds
comes from the Quebec government.
Ontario established a price protection program similar to ASRA, called the Ontario Risk Management
Program (ORMP), in June 2011. The support level directly relates to the cost of production (a greater
cost of production translates into a greater support level). The program offers producer support of 40
percent from the Ontario government. The federal government does not participate, because of trade
related concerns.
The United States will continue to raise these issues with Canada, including in the U.S.–Canada
Consultative Committee on Agriculture.
Ontario Feed-In Tariff Program
In December 2012, a WTO panel found that Canada breached its obligations under the General
Agreement on Tariffs and Trade 1994, due to particular local-content requirements in Ontario’s Green
Energy and Green Economy Act of 2009 (“Green Economy Act”) that treat imported equipment and
components less favorably than domestic products (see Canada – Certain Measures Affecting the
Renewable Energy Generation Sector (WT/DS412) and Canada – Measures Relating to the Feed-In
Tariff Program (WT/DS426)). On February 5, 2013, Canada appealed the panel reports in both disputes
to the WTO Appellate Body. Japan and the European Union each brought the dispute in 2011 against
certain provisions of Ontario’s feed-in tariff program that require the use of renewable energy generation
equipment made in Ontario, to the exclusion of competing products, including clean energy equipment
manufactured in the United States. The United States participated in the dispute as a third party.
A Texas-based renewable energy firm initiated an investor-state claim under NAFTA chapter 11 against
Canada in July 2011, claiming the Green Economy Act violates Canada’s obligations under the NAFTA
to provide investors with fair and equitable treatment.
Port Hawkesbury Paper Mill
The United States is investigating the nature and extent of assistance provided by the Province of Nova
Scotia to the Port Hawkesbury paper mill following a bankruptcy settlement that resulted in the sale of the
mill to a Canadian firm. Provincial assistance provided through the settlement has made possible the
continuation of significant productive capacity that otherwise would not exist.
Under the Agristability and Agrinvest programs, “margin” refers to a producer’s allowable revenue less allowable
expenses. The historical reference margin is calculated as the average program margin in three of the past five
years, with the highest and lowest years dropped.
Canada is a signatory to three international agreements relating to government procurement (the WTO
Agreement on Government Procurement (GPA), the NAFTA, and the 2010 United States-Canada
Agreement on Government Procurement). The agreements provide U.S. businesses with access to
procurement conducted by most Canadian federal departments and a large number of provincial entities.
However, U.S. suppliers have access under trade agreements to procurement of only seven of Canada’s
Crown Corporations.
Canada has been included since 2009 on the Special 301 Priority Watch List. The 2012 report cited
concerns related to Canada’s copyright laws, border enforcement, and failure to implement the World
Intellectual Property Organization (WIPO) Internet Treaties, which Canada signed in 1997. Canada’s
enforcement against trade in counterfeit goods remains insufficient. On June 29, 2012, Canada adopted
the Copyright Modernization Act. The Act will come into force following additional legislative
procedures and regulatory action. The United States urges Canada to enact further legislation to give
customs officers ex officio authority to take action against counterfeit and pirated goods.
Canada, the United States and other key trading partners, signed the Anti-Counterfeiting Trade
Agreement (ACTA) in October 2011. Canada has yet to ratify the agreement, but introduced domestic
legislation to meet its ACTA commitments. ACTA establishes an international framework that will assist
parties in efforts to effectively combat the infringement of intellectual property rights, in particular, the
proliferation of counterfeiting and piracy, which undermines legitimate trade and the sustainable
development of the world economy.
U.S. stakeholders also have expressed strong concerns about Canada’s current administrative process for
appeals of the regulatory approval of pharmaceutical products, and limitations in Canada’s trademark
regime. In addition, recent decisions by Canadian courts regarding pharmaceutical patents have raised
concern in the U.S. pharmaceutical industry. In November 2012, one U.S. pharmaceutical company
formally served a notice of intent to submit a claim to arbitration under NAFTA Chapter 11, stemming
from a Canadian court’s decision invalidating the company’s patent. Also in November 2012, the
Supreme Court of Canada held that another U.S. pharmaceutical company’s patent covering a major
pharmaceutical product was void.
Canada maintains a 46.7 percent limit on foreign ownership of suppliers of facilities-based
telecommunications services, except for submarine cable operations. This is one of the most restrictive
regimes among developed countries. Canada also requires that at least 80 percent of the members of the
board of directors of facilities-based telecommunications service suppliers be Canadian citizens. As a
consequence of these restrictions on foreign ownership, U.S. firms’ presence in the Canadian market as
wholly U.S.-owned operators is limited to that of a reseller, dependent on Canadian facilities-based
operators for critical services and component parts. These restrictions deny foreign providers certain
regulatory advantages only available to facilities-based-carriers (e.g., access to unbundled network
elements and certain bottleneck facilities). This limits those U.S. companies’ options for providing high
quality end-to-end telecommunications services, since they cannot own or operate their own
telecommunications transmission facilities.
Canada amended the Telecommunications Act in June 2012 to rescind foreign ownership restrictions to
carriers with less than 10 percent share of the total Canadian telecommunications market. Foreign-owned
carriers are permitted to continue operating if their market share grows beyond 10 percent provided the
increase does not result from the acquisition of, or merger with, another Canadian carrier. Canada
announced in March 2012 that it would cap the amount of spectrum that large incumbent companies
could purchase at the next spectrum auction in an effort to facilitate greater competition in the sector.
Canada has announced it will hold the next 700 MHz spectrum auction on November 13, 2013, to be
followed by the 2500 MHz spectrum auction within a year.
In 2009, a cell phone service provider with significant U.S. financial backing was permitted to acquire
wireless spectrum rights in Canada. This represented a rare new entry into a telecom sector dominated by
several large Canadian-owned firms. The provider has since faced numerous legal challenges from its
competitors, who claim that the company violates the Canadian ownership requirements in the
Telecommunications Act, because a foreign conglomerate controls a majority of its debt. Canada’s
Federal Court of Appeal ruled in the provider’s favor in June 2011, securing the company’s right to
operate in Canada. An appeal against this decision was filed to the Supreme Court of Canada; however,
the Supreme Court announced it would not hear the case in April 2012.
Canadian Content in Broadcasting
The Canadian Radio-television and Telecommunications Commission (CRTC) imposes quotas that
determine both the minimum Canadian programming expenditure (CPE) and the minimum amount of
Canadian programming that licensed Canadian broadcasters must carry (Exhibition Quota). Large
English language private broadcaster groups have a CPE obligation equal to 30 percent of the group’s
gross revenues from their conventional signals, specialty and pay services. The Exhibition Quota for all
conventional broadcasters is fixed at 55 percent Canadian programming as part of a group, with a 50
percent requirement from 6 p.m. to midnight.
Specialty services and pay television services that are not part of a large English language private
broadcasting group are subject to individual Canadian programming quotas (time or expenditure or both),
which vary depending upon their respective license conditions.
For cable television and direct-to-home broadcast services, more than 50 percent of the channels received
by subscribers must be Canadian programming services. Non-Canadian channels must be pre-approved
(“listed”) by the CRTC. Canadian licensees may appeal the listing of a non-Canadian service that is
thought to compete with a Canadian pay or specialty service. The CRTC will consider removing existing
non-Canadian services from the list, or shifting them into a less competitive location on the channel dial,
if they change format to compete with a Canadian pay or specialty service.
The CRTC also requires that 35 percent of popular musical selections broadcast on the radio should
qualify as “Canadian” under a Canadian government-determined point system.
General Establishment Restrictions
Under the Investment Canada Act (ICA), the Broadcasting Act, the Telecommunications Act, and
standing Canadian regulatory policy, Canada screens new or expanded foreign investment in the energy
and mining, banking, fishing, publishing, telecommunications, transportation, film, music, broadcasting,
cable television, and real estate sectors.
The ICA has regulated foreign investment in Canada since 1985. Foreign investors must notify the
government of Canada prior to the direct or indirect acquisition of an existing Canadian business of
substantial size. Canada reviews the acquisition by non-Canadians of existing Canadian businesses and
the establishment of new Canadian businesses in designated types of business activity relating to
Canada’s culture, heritage, or national identity where the federal government has authorized such review
is in the public interest.
On December 7, 2012, Canada issued new rules to supplement its guidelines for investment by foreign
state-owned enterprises (SOE), including the stipulation that future SOE bids to acquire control of a
Canadian oil-sands business will be approved on an “exceptional basis only.”
The threshold for review of investments/acquisitions by companies from World Trade Organization
(WTO) Member States was $330 million. Canada amended the ICA in 2009 to raise the threshold for
review to $1 billion over a four-year period. The new thresholds will come into force once regulations
are drafted and published; however future bids by foreign SOEs will remain subject to the current $330
million threshold. Industry Canada is the reviewing authority for most investments, except for those
related to cultural industries, which come under the jurisdiction of the Department of Heritage. Foreign
acquisition proposals under government review must demonstrate a “net benefit” to Canada to be
approved. The ICA sets time limits for the reviews. Once an application for review is received, the
Minister has 45 days to determine whether or not to allow the investment. A 30-day extension is
permitted if the investor is notified prior to the end of the initial 45-day period. Reviews of investments
in cultural industries usually require the full 75 days to complete.
The ICA was amended in June 2012 to allow the Industry Minister to disclose publicly that an investment
proposal does not satisfy the net benefit test and publicly explain the reasons for denying the investment
so long as the explanation will not do harm to the Canadian business or investor. Another amendment
allows the Industry Minister to accept security payment from investors when found by a court to be in
breach of their ICA undertakings. Canada also introduced guidelines that provide foreign investors with
the option of a formal mediation process to resolve disputes when the Industry Minister believes a nonCanadian investor has failed to comply with a written undertaking.
Under the ICA, the Industry Minister can make investment approval contingent on meeting certain
conditions such as minimum levels of employment and research and development. Since the global
economic slowdown in 2009, some foreign investors in Canada have had difficulties meeting these
conditions. Canada blocked a $38.6 billion hostile takeover by an Australian company in 2010 of Potash
Corp. of Saskatchewan as not being of “net benefit” to Canada under the ICA. This was only the second
time an investment has been blocked since 1985. The United States has long expressed concerns that
Canada’s net benefit test is overly broad, lacks transparency, and has the potential to extend into every
sector of the Canadian economy and to implicate issues unrelated to national security, such as
competitiveness and protectionism.
Cross-Border Data Flows
The strong growth of cross-border data flows resulting from widespread adoption of broadband-based
services in Canada and the United States has refocused attention on the restrictive effects of privacy rules
in two Canadian provinces - British Columbia and Nova Scotia. These two provinces have laws
mandating that personal information in the custody of a public body must be stored and accessed only in
Canada unless one of a few limited exceptions applies. These laws prevent public bodies such as primary
and secondary schools, universities, hospitals, government-owned utilities, and public agencies from
using U.S. services when personal information could be accessed from or stored in the United States.
The Canadian federal government is consolidating information technology services across 63 email
systems under a single platform. The request for proposals for this project includes a national security
exemption which prohibits the contracted company from allowing data from going outside of Canada.
This policy precludes some new technologies such as “cloud” computing providers from participating in
the procurement process. The public sector represents approximately one-third of the Canadian economy,
and is a major consumer of U.S. services. In today’s information-based economy, particularly where a
broad range of services are moving to “cloud” based delivery where U.S. firms are market leaders, this
law hinders U.S. exports of a wide array of products and services. The United States will continue
seeking to work with Canadian authorities to identify means of addressing this issue.
Container Size Regulations
Canada announced in its 2012 budget that it would repeal standardized container size regulations for food
products. The Canadian government has stated that these regulations do not provide a food safety benefit
and that the elimination of such regulations would remove an unnecessary barrier for the importation of
new products from international markets. The timeline for implementing the new regulations continues to
be extended, however, and the regulations have not been repealed to date. The Canadian Food Inspection
Agency announced in November 2012 its plans to launch formal consultations in 2013 as part of the
regulatory amendment process. Existing regulations for food container sizes will remain in force until the
review process is complete.
The U.S. goods trade surplus with Chile was $9.5 billion in 2012, an increase of $2.6 billion from 2011.
U.S. goods exports in 2012 were $18.9 billion, up 18.1 percent from the previous year. Corresponding
U.S. imports from Chile were $9.4 billion, up 3.4 percent. Chile is currently the 19th largest export
market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Chile were $3.0
billion in 2011 (latest data available), and U.S. imports were $1.2 billion. Sales of services in Chile by
majority U.S.-owned affiliates were $8.4 billion in 2010 (latest data available), while sales of services in
the United States by majority Chile-owned firms were $398 million.
The stock of U.S. foreign direct investment (FDI) in Chile was $34.2 billion in 2011 (latest data
available), up from $30.5 billion in 2010. U.S. FDI in Chile is reported mostly in the finance/insurance,
and manufacturing sectors.
Trade Agreements
The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004. The FTA is
a comprehensive agreement that eliminates tariffs and opens markets, reduces barriers for trade in
services, provides protection for intellectual property, ensures regulatory transparency, guarantees
nondiscrimination in the trade of digital products, commits the Parties to maintain competition laws that
prohibit anticompetitive business conduct, and requires effective labor and environmental enforcement.
Chile is a participant in the Trans-Pacific Partnership (TPP) negotiations, through which the United States
and 10 other Asia-Pacific partners are seeking to establish a comprehensive, next-generation regional
agreement to liberalize trade and investment. This agreement will advance U.S. economic interests with
some of the fastest-growing economies in the world; expand U.S. exports, which are critical to the
creation and retention of jobs in the United States; and serve as a potential platform for economic
integration across the Asia-Pacific region. The TPP agreement will include ambitious commitments on
goods, services, and other traditional trade and investment matters. It will also include a range of new
and emerging issues to address trade concerns our businesses and workers face in the 21st century. In
addition to the United States and Chile, the TPP negotiating partners currently include Australia, Brunei,
Canada, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.
The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004. Under the
FTA, Chile immediately eliminated tariffs on 87 percent of bilateral trade. All trade in consumer and
industrial goods is duty free beginning in 2013, while remaining tariffs on most agricultural goods will be
eliminated by 2015.
Chile has one of the most open trade regimes in the world, with a uniform applied tariff rate of 6 percent
for nearly all goods. However, there are several exceptions to the uniform tariff. For example, during the
transition period under the FTA, higher effective tariffs will remain for wheat, wheat flour, and sugar due
to the application of an import price band system.
Importers also must pay a 19 percent value-added tax (VAT) calculated on the customs value plus import
tariff. In the case of duty-free imports, the VAT is calculated on the customs value alone.
Import Controls
There are virtually no restrictions on the types or amounts of goods that can be imported into Chile, nor
any requirements to use the official foreign exchange market. However, Chilean customs authorities must
approve and issue a report for all imports valued at more than $3,000. After customs authorities issue the
report, the goods must generally be imported within 30 days. Commercial banks may authorize imports
of less than $3,000. Importers and exporters must also report their import and export transactions to the
Central Bank. Commercial banks may sell foreign currency to any importer to cover the price of the
imported goods and related expenses as well as to pay interest and other financing expenses that are
authorized in the import report. Chile prohibits the importation of used vehicles, used motorcycles, and
used retreaded tires (with the exception of wheel-mounted tires). Some used items originating from a
country that does not have an FTA with Chile are subject to an additional importation charge of 3 percent
over the cost, insurance and freight (CIF) value. Depending on the product, this additional charge can be
eliminated or reduced if the used item is imported from a third country that has an FTA with Chile.
Nontariff Barriers
Chile maintains a complex price band system for wheat, wheat flour, and sugar that, under the FTA, will
be phased out by 2015 for imports from the United States. Mixtures containing more than 65 percent
sugar (e.g., high fructose corn syrup) content are subject to the sugar price band system. The price band
system was created in 1985 and is intended to guarantee a minimum and maximum import price for the
covered commodities. When certain CIF prices (as calculated by Chilean authorities) fall below the set
minimum price, a special tax is added to the tariff rate to raise the price to the minimum price. The
government sets a minimum import price that is normally higher than both international and Chilean
domestic prices.
Since 2008, the minimum price has been adjusted downward by 2 percent per year on U.S. imports. In
2014, Chile’s President will evaluate whether to continue the price band system for other trading partners
or eliminate it entirely by 2015 as required under the FTA.
Companies are required to contract the services of a customs agent when importing or exporting goods
valued at over $1,000 free on board (FOB). The customs agent is the link between the exporter or
importer and the National Customs Service. The agent is responsible for facilitating foreign trade
operations and acting as the official representative of the exporter or importer in the country. Customs
agents’ fees are not standardized. Companies established in any of the Chilean duty-free zones are
exempt from the obligation to use a customs agent when importing or exporting goods.
Chile currently provides a simplified duty drawback program for nontraditional exports. The program
reimburses a firm up to 3 percent of the value of the exported good, if 50 percent of that good consists of
imported raw materials. Exported goods produced with imported capital equipment must have a
minimum CIF value of $3,813 in order to be eligible for duty drawback. The net value of the invoice is
used if the capital equipment in question is also manufactured domestically. Another export promotion
measure allows all exporters to defer import duties for up to seven years on imported capital equipment or
receive an equivalent government subsidy for domestically produced capital goods.
In accordance with its FTA commitments, Chile is eliminating, over a transition period, the use of duty
drawback and duty deferral for imports that are incorporated into any goods exported to the United States.
Full drawback rights were allowed through 2012. Beginning in 2013, however, the amount of drawback
allowed is reduced until it reaches zero in 2015.
Under Chile’s separate VAT reimbursement policy, exporters have the right to recoup the VAT they have
paid when purchasing goods and using services intended for export activities. Any company that invests
in a project in which production will be for export is eligible for VAT reimbursement.
Exporters of services can only benefit from the VAT reimbursement policy when the services are
rendered to people or companies with no Chilean residency. Also, the service must qualify as an export
through a resolution issued by the Chilean customs authority.
The FTA requires procuring entities to use fair and transparent procurement procedures, including
advance notice of purchases and timely and effective bid review procedures for procurement covered by
the Agreement. The FTA contains nondiscrimination provisions that require Chilean entities covered by
the FTA to allow U.S. suppliers to participate in their procurement on the same basis as Chilean suppliers
in procurements covered by the FTA. The FTA covers the procurement of most Chilean central
government entities, 15 regional governments, 11 ports and airports, and 346 municipalities.
Chile is not a signatory to the WTO Agreement on Government Procurement, but it is an observer to the
Committee on Government Procurement.
Chile was listed on the Priority Watch List in the 2012 Special 301 Report. The report notes that in 2011
Chile took steps towards addressing some, but not all, outstanding intellectual property rights (IPR) issues
under the FTA. The report highlights Chile’s ratification of the Convention Relating to the Distribution
of Programme-Carrying Signals Transmitted by Satellites (Brussels Convention) and the Trademark Law
Treaty. In 2011, the Chilean Senate approved the International Convention for the Protection of New
Varieties of Plants. However, the Chilean Congress has not yet approved legislation to implement the
The United States has urged Chile to create a system to expeditiously address patent issues in connection
with applications to market pharmaceutical products and to provide adequate protection against unfair
commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain
marketing approvals for pharmaceutical products. The United States has also urged Chile to implement
protections against the circumvention of technological protection measures, and to amend its Internet
service provider liability regime to permit effective action against any act of infringement of copyright
and related rights, to implement protections for encrypted program-carrying satellite signals, and to
ensure that effective administrative and judicial procedures and deterrent remedies are made available to
rights holders.
In 2013, the United States will continue to work with Chile on IPR-related matters.
Telecommunications Services
Chile maintains high mobile termination rates, the wholesale per-minute rate paid by an originating
mobile provider to the terminating mobile provider when a call is placed from subscribers from one
network to subscribers of another. Although the government-established rates are expected to be revised
in 2013, concerns remain about the impact of these high rates on small mobile providers.
The U.S. goods trade deficit with China was $315.1 billion in 2012, up $19.6 billion from 2011. U.S.
goods exports in 2012 were $110.6 billion, up 6.4 percent from the previous year. Corresponding U.S.
imports from China were $425.6 billion, up 6.6 percent. China is currently the 3rd largest export market
for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to China were
$26.7 billion in 2011 (latest data available), and U.S. imports were $11.3 billion. Sales of services in
China by majority U.S.-owned affiliates were $28.5 billion in 2010 (latest data available), while sales of
services in the United States by majority China-owned firms were $966 million.
The stock of U.S. foreign direct investment (FDI) in China was $54.2 billion in 2011 (latest data
available), down from $58.5 billion in 2010. U.S. FDI in China is primarily in the manufacturing sector.
Prior to its WTO accession in December 2001, China restricted imports through high tariffs and taxes,
quotas, and other nontariff measures, as well as restrictions on trading rights, i.e., the right to engage in
importing and/or exporting goods. Beginning in 2002, its first year in the WTO, China significantly
reduced tariff rates on many products, decreased the number of goods subject to import quotas, expanded
the number of Chinese enterprises with trading rights and the products they could import, and increased
the transparency of its licensing procedures. Subsequently, China has continued to make progress by
implementing tariff reductions on schedule, phasing out import quotas, and expanding trading rights for
foreign enterprises and individuals. Nevertheless, some serious problems remain, such as China’s refusal
to grant trading rights for certain industries that are listed in the following section.
Trading Rights
In its Protocol of Accession to the WTO, China committed to substantial liberalization in the area of
trading rights. Although China did not fully adhere to the agreed phase-in schedule, it put in place a
registration system implementing the required liberalization of trading rights for wholly Chinese-owned
enterprises, Chinese-foreign joint ventures, wholly foreign-owned enterprises, and foreign individuals,
including sole proprietorships. This liberalization is reflected in China’s revised Foreign Trade Law,
issued in April 2004. It provides for trading rights to be automatically available through a registration
process, effective July 1, 2004. In June 2004, the Ministry of Commerce (MOFCOM) issued
implementing rules establishing the procedures for registering as a foreign trade operator. U.S.
companies have reported few problems with the trading rights registration process.
Consistent with the terms of China’s Protocol of Accession to the WTO, the importation of some goods,
such as petroleum and sugar, is still reserved for state trading enterprises. In addition, for goods still
subject to tariff-rate quotas (TRQs), such as grains, cotton, vegetable oils and fertilizers, China reserves a
portion of the in-quota imports for state trading enterprises, while it makes the remaining portion (ranging
from 10 percent to 90 percent, depending on the commodity) available for importation through non-state
traders. In some cases, the percentage available to non-state traders increases annually for a fixed number
of years. (For further information, please refer to the section below on Tariff-Rate Quotas.)
China continued to restrict the importation and distribution of copyright-intensive products such as books,
newspapers, journals, theatrical films, DVDs and music, in contravention of its trading rights and
distribution services commitments, leading the United States to mount a successful WTO challenge to
these policies. In order to comply with the WTO ruling, China agreed to remove these restrictions by
March 2011. China subsequently issued several revised measures and repealed other measures relating to
the restrictions on books, newspapers, journals, DVDs, and music. China did not issue any measures
addressing theatrical films, but requested bilateral discussions. In February 2012, the two sides signed a
Memorandum of Understanding (MOU) regarding the film-related aspects of the WTO ruling. The MOU
provides for increased market access for imported films and better terms of compensation for foreign film
producers. The MOU will be reviewed after five years in order to discuss issues of concern, including
additional compensation for the U.S. side. (For further information, please refer to the section below on
Audiovisual and Related Services.)
Import Substitution Policies
When it acceded to the WTO, China agreed to eliminate all subsidies prohibited under Article 3 of the
WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement), including all forms
of subsidies contingent on the use of domestic over imported goods. In its Protocol of Accession to the
WTO, China also committed that it would not condition import or investment approvals on whether there
are competing domestic suppliers nor impose other performance requirements. In anticipation of this
commitment, China enacted legal changes in 2000 and 2001 to eliminate local content requirements for
foreign investments. Under the prevailing rules, however, investors are still “encouraged” to follow some
of the formerly mandated practices. Instances in which the Chinese government has reportedly pursued
import substitution or similar policies are described below.
Ministry of Industry and Information Technology Equipment Catalogue:
Following intensive dialogue, including under the U.S.-China Joint Commission on Commerce and Trade
(JCCT) and the U.S.-China Strategic and Economic Dialogue (S&ED), regarding concerns about import
substitution provisions, on November 14, 2011, China’s Ministry of Industry and Information Technology
(MIIT) published a revised draft Guiding Catalogue of Indigenous Innovation in Major Technologies and
Equipment for public comment. On a positive note, the revision removed specific eligibility criteria
contained in the 2009 Catalogue Guiding Indigenous Innovation in Major Technology Equipment relating
to import substitution and to the generation of foreign exchange earnings through exports. In addition,
the revised catalogue no longer provides that products will be eligible for government procurement
preferences, nor does it any longer identify subsidies and other benefits for which listed products are
eligible. However, the catalogue’s revised product selection criteria are subjective and vague, and the
government benefits to be accorded are not specifically enumerated. As a result, it is still possible that
listed products could receive benefits that conflict with China’s WTO obligations. The United States will
continue to monitor China’s practices in connection with use of the catalogue.
Automotive Policy:
U.S. automakers and parts manufacturers face significant challenges in China’s automotive market, as
China has implemented a series of policies with a discriminatory effect on foreign enterprises. In May
2004, China issued a new automobile industrial policy: the Policy on Development of the Automotive
Industry, and subsequently issued implementing regulations that unfairly discriminated against imported
automotive parts and discouraged automobile manufacturers in China from using imported automotive
parts in the assembly of vehicles. In 2006, the United States, the EU, and Canada initiated dispute
settlement proceedings against China at the WTO. The WTO ultimately ruled in favor of the United
States. In September 2009, China repealed the challenged measures.
Additional problems emerged after China’s economic policymakers began devoting substantial resources
– and creating new policies – to assist Chinese automobile enterprises in developing cutting-edge New
Energy Vehicle (NEV) technologies and building domestic brands that could succeed in global markets.
China introduced regulations, issued by the National Development and Reform Commission (NDRC) in
2007 and by MIIT in 2009, requiring manufacturers of NEVs in China to “demonstrate mastery” over,
and hold intellectual property rights in, core NEV technologies. Because China only allows foreign
automobile manufacturers to operate in China through joint ventures with Chinese enterprises, and
because none of these joint ventures can be majority foreign-owned, this raised serious concerns that
these policies could compel the transfer of foreign automotive manufacturers’ core NEV technologies to
their Chinese domestic joint venture partners. There were also widespread reports that China would
require all NEVs manufactured in China to be sold under Chinese, rather than foreign, brands.
China has also pursued policies similarly designed to promote the development of a Chinese NEV
component industry at the expense of foreign enterprises. For example, in March 2011, the NDRC issued
a draft Catalogue Guiding Foreign Investment in Industry (“Foreign Investment Catalogue”) that
proposed a new limitation on foreign ownership in NEV parts manufacturing facilities in China to no
more than 50 percent. Previously, foreign automotive parts manufacturers could establish in China as
wholly foreign-owned enterprises. Foreign enterprises also raised questions about whether new consumer
subsidies and other incentive programs being introduced by the Chinese government would be made
available to both domestic and imported NEVs, raising national treatment concerns.
In 2011, the United States repeatedly raised its concerns about China’s NEV policies during the
preparations for the November 2011 U.S.-China JCCT meeting. As a result of these efforts, at the JCCT
meeting, China confirmed that it would not require foreign automobile manufacturers to transfer
technology to Chinese enterprises or to establish Chinese brands in order to invest in China’s market for
NEVs. China also confirmed that foreign-invested enterprises would have equal access to subsidies and
other preferential policies for NEVs and that these policies would conform to WTO rules. With regard to
the new investment restrictions contained in the draft Foreign Investment Catalogue, China removed the
50 percent limit on foreign capital for almost all of the key components of NEVs in the final version,
released in January 2012, but retained the restriction on NEV batteries. The retention of the limit is a
significant limitation on foreign ownership in the NEV sector, as batteries are one of the critical
components of most NEVs, and the United States continues to urge China to eliminate this restriction as
well. The United States will continue to monitor China’s evolving NEV policies and will continue to
engage China on concerns in this important sector.
(For discussion of concerns regarding government procurement policies in the automotive sector, please
refer to the section below on Indigenous Innovation, Technology Transfer and Strategic Emerging
Industry Barriers.)
China’s 2005 Steel and Iron Industry Development Policy (Steel Policy) includes a host of objectives and
guidelines that raise serious concerns. For example, the Steel Policy requires that foreign enterprises
seeking to invest in Chinese iron and steel enterprises possess proprietary technology or intellectual
property in the processing of steel. These provisions appear to remain in effect. Given that foreign
investors are not allowed to have a controlling share in steel and iron enterprises in China, this
requirement could be regarded as a de facto technology transfer requirement. The Steel Policy also
appears to discriminate against foreign equipment and technology imports, encouraging the use of local
content by calling for a variety of government financial supports for steel and iron projects using newly
developed domestic equipment. Even more troubling, the policy calls for the use of domestically
produced steel manufacturing equipment and domestic technologies whenever domestic suppliers exist –
raising serious concerns given China’s commitment under its Protocol of Accession to the WTO not to
condition importation on whether competing domestic suppliers exist.
China’s steel production has grown rapidly and at a rate faster than the growth in its domestic steel
consumption, causing China to become the global leader in steel exports starting in 2006. In bilateral and
multilateral meetings, the United States has argued that China has acted to impose different levels of taxes
on different exports of steel products and steelmaking inputs in a manner that appears to encourage the
export of certain value-added steel products. In Fall 2008, in response to the financial downturn, China
rapidly reduced or removed export duties on many, but not all, steel products to encourage exports during
a period of steeply declining global demand. In a series of moves over several months, China eliminated
export duties on additional semi-finished and finished steel products while it also reinstated or increased
value-added tax (VAT) export rebates. As a result, Chinese steel production reached a record 567 million
metric tons in 2009, a 14 percent increase over 2008. Later, in June 2010, the Ministry of Finance (MOF)
and the State Administration of Taxation removed the 9 percent VAT export rebate on certain steel
products, primarily intermediate hot-rolled products. Because the VAT export rebates on finished pipes,
tubes and other tubular products remained in place, the differential VAT treatment between exports of
hot-rolled products and tubular products actually increased, further incentivizing the production and
export of tubular products.
In June 2010, the State Council published the Opinions on Strengthening Energy Saving and Emission
Reduction and Accelerating Structural Adjustment in the Iron and Steel Sector. This measure reiterated
existing steel policies, specifically identifying a number of well-known objectives for the sector, such as
controlling steel industry growth, strengthening efforts to eliminate outdated capacity, promoting energy
savings and emissions reduction, technical innovation, accelerating mergers, disciplining access to iron
ore imports and promoting domestic iron ore mining, and encouraging domestic steel producers to
explore mining and steel investments abroad.
In October 2011, MIIT published its Twelfth Five-Year Development Plan for the Iron and Steel Industry,
covering the period of 2011 to 2015. The plan itself notes that China’s steel production grew from 350
million MT in 2005 to 630 million MT in 2010. The plan places the Chinese government in the role of
closely managing the development of the steel industry, and furthermore, specifies where to build, close,
or relocate steelmaking capacity, how much to spend on research and development, and the types of
products that should not be produced. The plan also emphasizes “self-sufficiency” in steel production and
sets specific market share targets for domestic steel producers, implying that imports of certain steel
products are too high and should be replaced by domestic production. This high degree of government
direction and decision-making, including over areas such as the allocation of resources into and out of
China’s steel industry, raises concerns in light of China’s WTO commitments. Meanwhile, the plan
provides no indication that China plans to liberalize restrictions on foreign investment in the Chinese
domestic sector, yet it sets out objectives for overseas investment by Chinese iron and steel producers.
The plan also states that incentives will be provided to support investment in foreign iron ore mines and
steel plants to create groups with “powerful international competitive strength.”
China’s steelmaking capacity was 424 million metric tons in 2005, and more than doubled by 2012,
according to OECD estimates. China’s steelmaking capacity has continued to grow and is expected to top
900 million metric tons by 2014. In September 2012, MIIT released the 2012 Regulations and
Conditions of Production and Operation of the Iron and Steel Industry. The new regulations are
formulated in line with Several Opinions of the General Office of the State Council on Further
Strengthening Energy Conservation and Emission Reduction and Speeding Up Restructuring in the Iron
and Steel Industry and the Twelfth Five-Year Development Plan for the Iron and Steel Industry. The new
regulations seek to reduce excess inefficient capacity, increase value-added production, reduce energy
consumption and pollution, and increase steel mills’ social responsibility. However, in 2012, China
approved the installation of significant new large-scale steel plants, and it is unclear whether the
September 2012 measures will succeed in achieving their capacity rationalization, social and
environmental objectives.
China’s Twelfth Five-Year Plan calls for increased research and development in the Chinese
semiconductor sector, replacing the emphasis in former five-year plans on production capacity. In spite
of government investment in the semiconductor sector, this sector remains fairly weak in terms of
innovation. The United States continues to monitor whether or not the new financial support China is
making available to its domestic integrated circuit producers is consistent with the WTO Subsidies
Agreement’s disciplines. Chinese exports of counterfeit semiconductor products have also eroded the
sales of legitimate semiconductor products and created security threats to recipients of these products.
China exempts all phosphate fertilizers except diammonium phosphate (DAP) from the VAT. DAP, a
product that the United States exports to China, competes with other phosphate fertilizers produced in
China, particularly monoammonium phosphate. Both the U.S. Government and U.S. producers have
complained that China has employed its VAT policies to benefit domestic fertilizer production.
Telecommunications Equipment:
There have been continuing reports of MIIT adopting policies to discourage the use of imported
components or equipment. For example, MIIT has reportedly still not rescinded an internal circular
issued in 1998 instructing telecommunications companies to buy components and equipment from
domestic sources.
The Twelfth Five-Year Plan, which began in 2011, anticipates investing up to RMB 600 billion in the
telecommunications sector by 2015. This plan calls for explosive growth in broadband capacity. The
United States and the private sector have criticized China in the past for heavily promoting, supporting,
and favoring one technical standard over others in the telecommunications sphere. During the 2010 JCCT
meeting, China committed to be “technologically neutral” for current and future services and technologies
related to 3G networks and future networks based on new technologies, allowing operators to choose
freely among those technologies. The Chinese government also committed not to provide any
preferential treatment based on the standard or technology used by an operator.
Agricultural Support
At the end of 2011, China submitted notifications on its domestic support policies (for 2005 to 2008) to
the WTO. China reported that the value of its agricultural subsidies, as measured by the Aggregate
Measurement of Support (AMS), is below the WTO-compliant de minimis level of 8.5 percent of the
value of agriculture production. However, there have been reports of additional subsidies to agriculture
as part of China’s recent agricultural reform policy.
While certain categories of agricultural support are permitted under the WTO, China has significantly
increased its support to agriculture. China has a number of agricultural support programs including a
direct payment program, minimum support prices for basic commodities, and significant input subsidies.
China’s classification of certain programs and the methodology China used to calculate certain measures
of its support, particularly with its price support policies and direct payments, present potential concerns.
The United States will continue to monitor and evaluate the potential trade-distorting effects of China’s
new policies.
Tariffs and Other Import Charges
China maintains high duties on some products that compete with sensitive domestic industries. For
example, the tariff on automobiles is 25 percent. Likewise, most video, digital video, and audio recorders
and players still face duties of approximately 30 percent. Some agricultural items continue to face high
tariffs and taxes; for instance, certain tree nut imports face duties of up to 25 percent. After several years
of negotiation between the United States and China, China reduced in-shell almond tariffs from 24
percent to 10 percent effective January 1, 2013.
Tariff Classification
Chinese customs officers appear to have wide discretion in classifying goods, and U.S. companies have
expressed concern that classifications sometimes appear to be arbitrary. The lack of uniformity makes it
difficult to anticipate border charges.
Customs Valuation
China has not uniformly implemented the various customs valuation measures issued following its
accession to the WTO. U.S. exporters continue to report that they encounter valuation problems at many
ports. According to U.S. exporters, even though the Customs Administration’s measures provide that
imported goods normally should be valued on the basis of their transaction price, meaning the price the
importer actually paid, many Chinese customs officials still improperly use “reference pricing,” often
resulting in a higher dutiable value. Moreover, reference pricing appears to be on the rise in recent years.
Products often subjected to reference pricing include information technology products and wood
In addition, some of China’s customs officials reportedly do not apply the rules set forth in the Customs
Administration’s measures as they relate to software royalties and license fees. Following their pre-WTO
accession practice, these officials are still automatically adding royalties and license fees to the dutiable
value (for example, when an imported personal computer includes pre-installed software), even though
the rules expressly direct them to add those fees only if they are import-related and are a condition of sale
for the goods being valued.
U.S. exporters have also continued to complain that some Chinese customs officials are assessing duties
on digital products based on the imputed value of the content, such as the data recorded on a CD-ROM.
China’s own regulations require this assessment to be made on the basis of the value of the underlying
carrier medium, meaning the CD-ROM itself.
China has indicated that it is working to establish more uniformity in its adherence to WTO customs
valuation rules. The United States has assisted this effort by conducting technical assistance programs for
Chinese government officials. In addition, the United States has raised its concerns about particular
valuation problems during meetings of the WTO’s Committee on Customs.
More generally, U.S. exporters still complain of inefficient and inconsistent customs clearance procedures
in China. These procedures vary from port to port, lengthy delays are not uncommon, and the fees
charged appear to be excessive, giving rise to concerns that they are not related to the cost of services
rendered, as required by China’s WTO obligations.
Border Trade
China’s border trade policy also continues to generate most favored nation (MFN) and other concerns.
China provides preferential import duty and VAT treatment to certain products, often from Russia,
apparently even when those products are not confined to frontier traffic as envisioned by WTO rules. In
June 2003, China began to address these concerns when it eliminated preferential treatment for boric acid
and 19 other products. However, several other products continue to benefit from preferential treatment.
Antidumping, Countervailing Duty and Safeguard Measures
Since acceding to the WTO, China has become a significant user of antidumping measures. As of
December 2012, China had a total of 107 antidumping measures in place (some of which predate China’s
membership in the WTO) affecting imports from 17 countries and regions, and 12 antidumping
investigations in progress. China’s significant use of antidumping measures underscores the importance
of China adhering to the transparency and procedural fairness requirements and substantive standards
embodied in WTO rules.
MOFCOM’s predecessor agencies, the Ministry of Foreign Trade and Economic Cooperation (MOFTEC)
and the State Economic and Trade Commission (SETC), issued most of the rules and regulations that
MOFCOM uses to conduct its antidumping investigations. While these measures generally represent
good faith efforts to implement the relevant WTO commitments and to improve China’s pre-WTO
accession measures, they also contain vague language, have gaps in areas of practice, and allow
inordinate discretion in their application. In July 2009, MOFCOM solicited public comment on draft
revisions of its rules for new shipper reviews, antidumping duty refunds, and price undertakings. Once
finalized, China is obligated to notify these revised rules to the WTO to allow an opportunity to review
the rules for compliance with the WTO Antidumping Agreement and to seek any needed clarifications.
In 2012, the United States and other WTO members continued to express serious concerns about key
lapses in transparency and procedural fairness in China’s antidumping investigations. The principal areas
of concern include MOFCOM’s inadequate disclosure of key documents placed on the record by
domestic Chinese producers; insufficiently detailed disclosures of the essential facts underlying
MOFCOM decisions, such as the results of on-site verification, dumping margin calculations and
evidence supporting injury and dumping conclusions; and failure to adequately address critical arguments
or evidence put forward by interested parties.
The United States and other WTO members have also expressed serious concerns about China’s evolving
practice of launching antidumping and countervailing duty investigations that appear designed to
discourage the United States or other trading partners from the legitimate exercise of their rights under
WTO antidumping and countervailing duty rules and the trade remedy provisions of China’s accession
protocol. This type of retaliatory conduct is not typical of WTO members, and it may have its roots in
China’s Foreign Trade Law and antidumping and countervailing duty implementing regulations, which
authorize “corresponding countermeasures” when China believes that a trading partner has
discriminatorily imposed antidumping or countervailing duties against imports from China. Further,
when China has pursued investigations under these circumstances, it appears that its regulatory authorities
imposed duties regardless of the strength of the underlying legal and factual support.
As China’s antidumping regime has matured, many of its antidumping orders have been in effect for five
years, warranting sunset reviews, which MOFCOM calls “expiry reviews.” As of December 2012,
MOFCOM was conducting eight expiry reviews. While none of these reviews involves products from the
United States, every expiry review involving U.S. products to date has resulted in the measure at issue
being extended. Because of the problems that respondents have encountered in China’s antidumping
investigations, it is critical that China publish rules and procedures specifically governing the conduct of
expiry reviews, as required by the WTO Antidumping Agreement. The United States has pressed China
to issue regulations governing sunset reviews for more than two years and will continue to do so.
To date, it appears that only one interested party, a Russian exporter, has filed for judicial review of a
Chinese antidumping proceeding. However, China has not released any information to the public about
the case. As China continues to launch antidumping investigations and apply antidumping measures
against imports, the opportunity for interested parties to seek judicial review will become more critical.
China initiated its first three countervailing duty investigations in 2009. Each of these investigations
involved imports of products from the United States: grain-oriented electrical steel (GOES), chicken
broiler products, and automobiles. These countervailing investigations demonstrated that, as in the
antidumping area, China needs to improve its transparency and procedural fairness when conducting these
investigations. The United States is concerned, for example, about how China applies the principle of
“facts available” under WTO countervailing duty rules. In addition, as in the antidumping area, the
United States has expressed serious concerns about China’s pursuit of countervailing duty remedies that
appear intended to discourage the United States and other trading partners from the legitimate exercise of
their rights under WTO countervailing duty rules and the trade remedy provisions of China’s accession
The United States is currently pursuing three WTO disputes against China in the areas of antidumping
and countervailing duties. The disputes involve China’s antidumping and countervailing duty measures
on imports of GOES, chicken broiler products, and automobiles from the United States.
The United States initiated the GOES dispute in September 2010, arguing that China’s regulatory
authorities imposed the duties at issue without the necessary legal and factual support, and without
observing certain transparency and procedural fairness requirements, in violation of various WTO rules.
A WTO panel was established in March 2011, and eight other WTO members joined as third parties.
Hearings took place in September and December 2011. The panel issued its report in June 2012, finding
in favor of the United States on all significant claims. China appealed the panel’s report in July 2012.
The WTO’s Appellate Body rejected China’s appeal in October 2012. The United States has requested
binding arbitration to set a reasonable period of time for China to comply with the GOES reports.
The United States initiated the chicken broiler products WTO dispute in September 2011. Once again, in
the course of its antidumping and countervailing duty investigations, China’s regulatory authorities
appeared to have imposed the duties at issue without the necessary legal and factual support and without
observing certain transparency and procedural fairness requirements, in violation of various WTO rules.
Consultations were held in October 2011, and the United States requested the establishment of a panel in
December 2011. A WTO panel was established in January 2012, and seven other WTO members joined
as third parties. Hearings took place in September and December 2012, and the panel is scheduled to
issue its report in 2013.
The United States initiated the automobiles WTO dispute in July 2012, raising claims similar to those put
forward in the GOES and chicken broiler products disputes. A WTO panel was established in October
2012, and eight other WTO members have joined the dispute as third parties.
In July 2012, China initiated its fourth countervailing duty investigation against the United States. This
investigation, along with a companion antidumping investigation, involves imports of solar-grade
polysilicon – a major input into the production of solar panels. The investigations are currently ongoing.
Nontariff Barriers
Many U.S. industries continue to indicate that they face significant nontariff barriers to trade, which are
discussed in more detail in various sections below. These barriers include, for example, regulations that
set high thresholds for entry into services sectors such as banking, insurance and telecommunications;
selective and unwarranted inspection requirements for agricultural imports; and the use of questionable
sanitary and phytosanitary (SPS) and technical barriers to trade (TBT) measures. (China’s SPS and TBT
measures are addressed in separate reports issued by USTR.)
China continues to maintain market access barriers to U.S. beef and beef product exports that are
inconsistent with international standards of the World Animal Health Organization (OIE). Reopening
China’s beef market consistent with science and international standards, as well as in a commercially
viable manner, is an important priority. This issue is discussed in detail in USTR’s annual Report on
Sanitary and Phytosanitary Measures.
China currently prohibits the importation of remanufactured products, which it typically classifies as used
goods. China also maintains a general import prohibition that prevents remanufacturing process inputs
(cores) from being imported into China’s customs territory other than to its special economic zones. This
undermines the development of many sectors, such as mining, agriculture, healthcare, transport and
Businesses and consumers are unable to purchase high-quality, lower-cost
remanufactured products produced outside of China. Certain capital equipment companies have found
ways to participate in China’s market through pilot programs and Memoranda of Understanding, but their
activities remain severely restricted and prohibitions on the importation of remanufactured goods and
cores remain a problem. To help address this issue, in 2011 and 2012, the Department of Commerce,
USTR and China’s Ministry of Industry and Information Technology co-chaired the U.S.-China
Remanufacturing Dialogue. Relevant industry and government stakeholders from both countries
participated. Through this dialogue and in other bilateral fora, such as the JCCT, the U.S. Government
has pushed China to lift the ban on the importation of used goods with respect to remanufactured products
and cores, and to expand upon the scope of remanufacturing activity that is allowed to be conducted in
Tariff-Rate Quotas
As part of its WTO accession commitments, China established large and increasing tariff-rate quotas
(TRQs) for imports of wheat, corn, rice, cotton, wool, sugar, rapeseed oil, palm oil, soybean oil, and
fertilizer, with most in-quota duties ranging from 1 percent to 15 percent. Under these TRQ systems,
China places quantitative restrictions on the amount of these commodities that can enter at a low “inquota” tariff rate, and any imports over that quantity are charged a prohibitively high duty. Each year, a
portion of each TRQ is to be reserved for importation through non-state trading entities. China’s Protocol
of Accession to the WTO sets forth specific rules for administration of the TRQs, including increased
transparency and reallocation of unused quotas to end users that have an interest in importing. China
phased out the vegetable oil TRQs in 2006, but currently maintains TRQs for wheat, cotton, corn, rice,
wool and sugar, as well as three chemical fertilizers, including DAP.
The administration of China’s TRQ system has suffered from systemic problems since China’s WTO
accession, including insufficient transparency and administrative guidance affecting how the allocated
quota is used. Although the United States has repeatedly engaged China bilaterally, as well as
multilaterally at the WTO, concerns about inadequate transparency remain. U.S. fertilizer exports to
China have declined throughout the post-WTO accession period, due in part to Chinese government
policies, such as export duties and discriminatory internal taxes that promote the use of domestic
Multi-Level Protection Scheme:
Beginning in 2010 and continuing through 2012, the United States raised its concerns with China about
framework regulations for information security in critical infrastructure known as the Multi-Level
Protection Scheme (MLPS), first issued in June 2007 by the Ministry of Public Security (MPS) and MIIT.
The MLPS regulations put in place guidelines to categorize information systems according to the extent
of damage a breach in the system could pose to social order, public interest and national security.
Among other things, the MLPS regulations bar foreign products from information systems graded level 3
and above, because all products deployed must be developed by Chinese information security companies
and must be based on Chinese intellectual property in their key components. Additional troubling
product testing provisions for level 3 and above require companies to disclose product source code,
encryption keys and other confidential business information. (This topic is discussed in more detail in the
USTR TBT Report.)
To date, hundreds of requests for proposals (RFPs) incorporating MLPS requirements have come from
government agencies, the financial sector, telecommunications companies, the power grid, educational
institutions and hospitals in China. These RFPs cover a wide range of information security software and
hardware, and many of them exclude the purchase of foreign products by incorporating level-3
requirements. If implementing rules for the MLPS regulations are issued and applied widely to
commercial sector networks and information technology infrastructure, they could have a significant
impact on sales by U.S. information security technology providers in China.
At the December 2012 JCCT meeting, China indicated that it would begin the process of revising the
MLPS regulations. It also agreed that, during that process, it would enter into discussions with the United
States regarding U.S. concerns.
Value-Added Taxes (VAT):
China gains a significant amount of annual tax revenue from VAT. This revenue is shared between the
central government (75 percent) and the local government (25 percent). In 2009, the central government
implemented VAT reforms, changing the VAT from production-based to consumption-based. All
enterprises and individuals engaged in the sale of goods, provision of processing, repairs and replacement
services, and import of goods within China are required to pay the VAT, although there are a few
China’s State Council, in October 2011, announced a VAT reform program aimed at resolving doubletaxation issues and providing support to the development of China’s services sector by replacing the
business tax with the VAT in certain industries, including transportation and some modern services. A
business tax-to-VAT pilot program was first launched in Shanghai, and, in the fall of 2012, the State
Council expanded the pilot program. As of February 2013, a total of 12 provinces and municipalities are
participating. The government plans to further expand the business tax-to-VAT program to other
provinces in 2013 and may also increase the number of sectors.
Uneven application of the VAT continues in China. Importers from a wide range of sectors report that,
because taxes on imported goods are reliably collected at the border, they are subject to the application of
a VAT that their domestic competitors often fail to pay. In addition, China’s selective exemption of
certain fertilizer products from the VAT has operated to the disadvantage of imports from the United
China retains an active and constantly changing VAT rebate program for exports. The effect of many of
China’s VAT rebate adjustments, which are often used in conjunction with export duties, is to make
larger quantities of primary and intermediate products in a particular sector available domestically at
lower prices than the rest of the world, giving China’s downstream producers of finished products using
these inputs a competitive advantage over foreign downstream producers. China discourages the export
of the relevant primary and intermediate products by reducing or eliminating VAT rebates and is believed
to also impose export duties on select products, resulting in increased domestic supply and lower
domestic prices. China’s downstream producers, in turn, benefit from these lower input prices as well as
larger VAT rebates on export of their finished products. In some situations, China has also used its
border taxes to encourage the export of certain finished products over other finished products within a
sector, especially the steel and aluminum sectors.
Business Tax on Foreign Services:
Effective January 1, 2009, China issued amendments to its business tax regulations that reinterpreted the
scope of taxable services. Previously, taxes were imposed only on taxable services actually provided
within China. Under the amendments, if services are provided to an enterprise, a non-business
organization or an individual in China, the service provider is liable for business tax regardless of where
the services are performed.
Consumption/Luxury Taxes:
A number of higher-end products currently face consumption or luxury taxes, including large
displacement automobiles and SUVs, recreational vehicles, yachts, and wine. Reports suggest that
additional consumption taxes are being considered, including for general aviation aircraft.
Export Quotas, Duties and Licenses
Since its accession to the WTO, China has continued to impose restraints on exports of raw materials –
including quotas, duties and related fees, licensing requirements and other restraints – as the Chinese
government has continued to guide the development of downstream industries. These export restraints
are widespread. For example, China maintains export quotas and sometimes export duties on antimony,
bauxite, coke, fluorspar, indium, magnesium carbonate, molybdenum, rare earths, silicon, talc, tin,
tungsten, yellow phosphorus and zinc, all of which are of key interest to U.S. producers of downstream
products. These types of export restraints can significantly distort trade, and are normally barred by WTO
rules. In case of China, the trade-distortive impact is exacerbated, because China is the world’s leading
producer of many of the raw material inputs at issue.
China’s export restraints affect U.S. and other foreign producers of a wide range of downstream products,
such as steel, chemicals, hybrid and electric cars, energy efficient light bulbs, wind turbines, hard-disc
drives, magnets, lasers, ceramics, semiconductor chips, refrigerants, medical imagery, aircraft, refined
petroleum products, fiber optic cables and catalytic converters, among many others. The export restraints
can create serious disadvantages for these foreign producers by artificially increasing China’s export
prices for the raw material inputs, which also drives up world prices. At the same time, the export
restraints can artificially lower China’s domestic prices for the raw materials due to significant increases
in domestic supply, enabling China’s domestic producers of downstream products to produce lowerpriced products, thereby creating significant advantages for China’s domestic downstream producers.
The export restraints can also create incentives for foreign downstream producers to move their
operations, jobs and technologies to China.
Despite extensive U.S. engagement in this area starting shortly after China’s WTO accession, China
appears to have maintained its policies for these input materials. In fact, it appears that, over time, China
has increased the artificial advantages afforded to its downstream producers by making the export quotas
more restrictive and by imposing or increasing export duties on many of the raw material inputs at issue.
In June 2009, the United States and the EU initiated a WTO case challenging export quotas, export duties,
and other restraints maintained by China on the export of several key raw material inputs for which China
is a leading producer, including bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon
metal, yellow phosphorus and zinc. A WTO panel was established to hear the case in December 2009,
and 13 other WTO members joined the case as third parties. The panel issued its decision in July 2011,
finding in favor of the United States and its co-complainants on all of the significant claims. China
appealed the decision in August 2011. In a decision issued in January 2012, the WTO’s Appellate Body
upheld the panel’s core findings that China’s export quotas and export duties violate its WTO obligations.
China subsequently agreed to come into compliance with the WTO’s rulings by December 2012. China
removed the export quotas and export duties at issue in December 2012, although it continued to impose
an export licensing requirement on several of the products at issue in the case, which could act as an
export restriction depending on how it is administered.
China’s export restraints on rare earths, a collection of 17 different chemical elements used in a variety of
green technology products, among other products, began to generate significant concern among China’s
trading partners in July 2010. At that time, even though China controls about 97 percent of the global
rare earths market, China sharply reduced its export quotas on rare earth ores, concentrates, oxides,
metals, chlorides, chlorinates, fluorides, carbonates and other compounds, causing world prices for some
of the rare earths to rise dramatically higher than China’s domestic prices, hindering efforts in other
countries to develop expertise in the increasingly important downstream manufacturing of green
technology products. In 2011, China expanded the scope of the products covered by the rare earths quota
to include more downstream products, making the quota even more restrictive than it had been in 2010.
In addition, according to several reports, China’s customs authorities began rejecting rare earth exports
that were not priced above certain minimum export prices. It appears that this practice disrupted the
export quota process and contributed to rapidly increasing prices outside China.
In March 2012, the United States initiated a WTO case challenging China’s export quotas, export duties,
and other export restraints on rare earths, as well as tungsten and molybdenum. These raw materials are
key inputs in a multitude of U.S.-made products and manufacturing sectors, including hybrid car batteries,
wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum, and
chemicals, among many others. Because China is a top global producer of these raw material inputs, its
export restraints can artificially increase prices for the inputs outside of China while lowering prices in
China. This price dynamic creates significant cost advantages for China’s producers when competing
against U.S. producers, both in China’s market and in other markets around the world. It also contributes
to creating substantial pressure on U.S. and other non-Chinese downstream producers to move their
operations, jobs and technologies to China. The European Union and Japan joined in the case as cocomplainants, and joint consultations took place in April 2012. A WTO panel was established to hear the
case at the complaining parties’ request in July 2012, and 18 other WTO members joined the case as third
parties. Proceedings before the panel began in February 2013.
Export Subsidies
A general lack of transparency makes it difficult to identify and quantify possible export subsidies
provided by the Chinese government. China’s subsidy programs are often the result of internal
administrative measures and are not publicized. U.S. industries have alleged that subsidization is a key
reason that Chinese exports are undercutting prices in the United States and gaining market share. Of
particular concern are China’s practices in the steel, petrochemical, high technology, forestry and paper
products, agricultural products, textiles, hardwood, plywood, machinery, aerospace, clean energy, and
copper and other nonferrous metals industries.
China acceded to the WTO in December 2001, but did not submit the first of its annually required
subsidies notifications to the WTO’s Subsidies Committee until April 2006, nearly five years late. The
notification was incomplete and failed to notify any subsidies provided by provincial and local
governments or by state-owned banks as required. In addition, while China notified several subsidies that
appeared to be prohibited under WTO rules, it did so without making any commitment to withdraw them.
Following the submission of China’s 2006 notification, the United States repeatedly raised concerns
about the incomplete notification. During Subsidies Committee meetings in 2009 and 2010, China
pledged to finalize a second subsidies notification. When China failed to submit the notification, the
United States filed a counter notification under Article 25.10 of the Subsidies Agreement in October
2011. The United States identified 200 unreported subsidy programs in its counter notification, including
many provided by provincial and local authorities and many which the United States has found
countervailable in the course of its countervailing duty investigations. Following the United States’ filing
of the counter-notification, China submitted a new subsidies notification. However, the new notification
was incomplete; it only covered the period of 2005 to 2008 and contained numerous overlapping
programs. In October 2012, the United States submitted a written request for information from China
under Article 25.8 of the Subsidies Agreement regarding numerous other central and sub-central
government subsidies that China has not yet notified. Article 25.9 of the Subsidies Agreement requires
that a response to an Article 25.8 request be provided “as quickly as possible and in a comprehensive
manner.” To date, China has not answered the questions in the United States’ Article 25.8 request. The
United States will continue to press China to answer these questions, to submit complete and current
subsidies notifications on a regular basis, and to withdraw any subsidies that are prohibited by WTO
The United States has pursued four WTO dispute settlement cases against China involving claims of
prohibited subsidies. The first three cases led to favorable outcomes, as China modified or repealed the
various challenged measures. The United States initiated its fourth case in September 2012 when it
challenged numerous subsidies provided by the central government and various sub-central governments
in China to automobile and automobile-parts enterprises located in regions in China known as “export
bases.” The challenged subsidies appear to be inconsistent with China’s obligation under Article 3 of the
Subsidies Agreement not to provide subsidies contingent upon export performance. In addition, it
appeared that China failed to abide by various WTO transparency obligations requiring it to publish the
measures at issue in an official journal, notify them to the WTO Committee on Subsidies and
Countervailing Measures and make translations of them available in one or more WTO languages.
Consultations with China took place at the WTO in November 2012.
China’s persistent inadequacies in the protection and enforcement of intellectual property rights (IPR)
continue to present barriers to U.S. exports and investment. China was listed again on the Priority Watch
List in the 2012 Special 301 report. Key concerns include unacceptable levels of retail and wholesale
counterfeiting; persistently high levels of book and journal piracy; end-user piracy of business software;
lack of effective trade secret protection and enforcement; and copyright piracy over the Internet. The
report describes these enforcement-related concerns and summarizes the legal difficulties rights holders
face when attempting to assert their IPR rights in China. The lack of deterrent penalties and other
policies, such as barriers to the market for legitimate products, contribute to the poor record on reducing
IPR crime in China. The report also recognizes industry concerns about the possibility that laws or
policies in a variety of fields might be used to unfairly favor domestic intellectual property (IP) over
foreign IP, including procurement preferences for products with domestically developed IP and the
treatment of IPR in setting standards.
Chinese markets were also prominent in USTR’s Out-of-Cycle Review of Notorious Markets in 2011, as
well as 2012, which identified physical and online markets that have significant levels of piracy and
counterfeiting. Following the publication of the first online list, the Chinese website Baidu reached a
precedent-setting licensing agreement with U.S. and international rights holders in the recording industry
to curtail illegal music downloads. Another Chinese website, Taobao, has also launched new procedures
to facilitate the removal of infringing material from its website.
With respect to copyright piracy and trademark counterfeiting, weaknesses in China’s enforcement
system – criminal, civil, and administrative – contribute to China’s poor IPR enforcement record. There
are also a number of other obstacles to effective enforcement. High value and volume thresholds must be
met in order to initiate criminal prosecution of IPR infringement. U.S. trademark and copyright industries
also report that administrative fines are too low, and imposed too infrequently, to be a deterrent.
Consequently, infringers view administrative seizures and fines merely as a cost of doing business. Civil
damages for infringement are likewise inadequate.
Foreign companies have also had trouble protecting and enforcing their trade secrets against
misappropriation in China. The challenges these companies face in trying to protect their trade secrets in
China are complex, ranging from the enforcement of trade-secret related agreements to difficulties in
gathering evidence in trade secret cases, as well as the lack of a clear legal framework in China for
handling trade secret problems. U.S. companies have found it difficult to obtain relief against those who
have benefitted from trade secrets misappropriation, despite compelling evidence demonstrating the
U.S. companies also have concerns related to China’s patent regime. The United States continues to
encourage China to provide an effective system to expeditiously address patent issues in connection with
applications to market pharmaceutical products. In addition, the United States continues to have concerns
about the extent to which China provides effective protection against unfair commercial use, as well as
unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for
pharmaceutical products.
An exacerbating factor contributing to China’s poor IPR protection has been China’s maintenance of
restrictions on the right to import and distribute legitimate copyright-intensive products, such as theatrical
films, DVDs, music, books, newspapers and journals. These restrictions impose burdens on legitimate,
IPR-protected goods and delay their introduction into the market, creating advantages for infringing
products and helping to ensure infringing products continue to dominate the Chinese domestic market.
As previously reported, after the United States brought a successful WTO case, China issued several
measures, and repealed other measures, relating to its importation and distribution restrictions on
imported books, newspapers, journals, DVDs and music. However, China did not issue any measures
addressing theatrical films. In February 2012, after China had sought an alternative solution to its
compliance with the films-related aspects of the WTO ruling, the United States and China reached an
agreement providing for substantial increases in the number of foreign films imported and distributed in
China each year, along with substantial additional revenue for foreign film producers.
The United States and China continued to engage in bilateral efforts to address a variety of IPR issues.
Just prior to the November 2011 JCCT meeting, China committed to establish a State Council-level
leadership structure, headed by a Vice Premier, to lead and coordinate IPR enforcement across China in
order to enhance China’s ability to crack down on IPR infringement, thereby making permanent the
leadership structure under the special campaign. China also made significant commitments on software
legalization at the 2011 JCCT meeting. China specifically committed to complete its software
legalization efforts at the provincial government level by the middle of 2012 and at the local and
municipal levels by the end of 2013. According to the General Administration for Press and Publications
(GAPP) and the National Copyright Administration of China (NCAC), all government offices at the
provincial level in China completed software legalization by June 30, 2012, but this assertion has not been
independently verified, given the lack of published information by China’s government related to
software audits and inspection efforts.
In addition, China stated, at the 2011 JCCT meeting, that it would increase resources for audits and
inspections of government agencies and would improve the efficiency and accuracy of the audits and
inspections. To help achieve these goals, Chinese government agencies promised to further improve the
management of their software assets, including by the use of technical means. China also pledged to
publish the results of the audits to ensure that there is an accurate accounting of all types of software used
by government agencies. Finally, China committed to further promote the use of licensed software by
state owned enterprises, conduct additional enterprise software management projects, and publish
progress reports on the projects.
In November 2011, at the 22nd JCCT meeting, MOFCOM, USTR, and USPTO signed the U.S.-China
IPR Cooperation Framework Agreement 2012-2013. The United States and China are working together
through the framework to more effectively promote the protection and enforcement of IPR. Finalization
of the details of a 2013 work plan for the framework agreement is under discussion.
At the May 2012 U.S.-China Strategic & Economic Dialogue (S&ED), China reaffirmed its commitment
made during Vice President Xi Jinping’s February 2012 visit to the U.S. that technology transfer would
not be a pre-condition for market access, and agreed to continue intensive, ongoing interagency
discussions. China also committed to improve IPR-related laws and regulations, further strengthen
measures for the pursuit of criminal liability for IPR infringement, and continue enforcement efforts in
IPR border protection to reduce cross-border trade in IPR-infringing goods. Both sides also committed to
fostering a market environment that leads to the increased sales of legitimate IP products and services.
China also affirmed the importance of trade secret protection, and pledged to include this affirmation in
its 2012 work plan for the State Council IPR leading group, which it did.
Major concerns related to potential IPR-related trade barriers since the 2012 NTE and Special 301 reports
include the potential consequence of empowering provincial-level IP Offices to administratively enforce
patent rights, investigate and sanction infringements, and determine and award compensatory damages as
envisioned in the 4th amendments to China’s Patent Law, since this could lead to inconsistent
enforcement approaches. The United States has also expressed concerns regarding the potentially severe
consequences for U.S. businesses conducting research and development in China of draft regulations
issued by the State IP Office related to award and remuneration requirements for “service inventions” or
IP developed in the course of an inventor’s or creator’s employment activities. The United States is
following these developments with great attention, obtaining input from interested U.S. parties,
submitting written comments when appropriate, and engaging with the relevant authorities to ensure that
IP-related policy developments eliminate existing IPR related trade barriers for U.S. rights holders,
without creating new problems.
China imposes restrictions in a number of services sectors that prevent or discourage foreign suppliers
from gaining or further expanding market access. For example, in certain sectors, China either does not
grant new licenses or maintains a licensing review process that is opaque or slow-moving. China also
imposes foreign equity limitations or other discriminatory measures on foreign suppliers in certain
industries. Excessive and sometimes discriminatory capital requirements continue to prove unduly
burdensome for foreign enterprises in many sectors, including telecommunications and construction
Insurance Services
China continues to maintain market access barriers in the insurance sector. Foreign insurance companies
saw very modest growth following China’s WTO accession. China’s formal and informal practices have
combined to keep foreign market share very low. Foreign invested insurance companies’ market share in
the life insurance sector was less than four percent while only 1 percent for the non-life insurance sector
(property and casualty). Foreign life insurance companies can only be established as joint ventures, with
foreign equity capped at 50 percent. And China’s market for political risk insurance is closed to foreign
participation. In May 2012, China amended its regulations to open its mandatory third-party liability
motor vehicle insurance market to foreign participation. The United States will seek to ensure that U.S.
companies obtain maximum benefit from such liberalization.
U.S. companies established in China continue to have difficulty opening new internal branches to expand
their operations. The China Insurance Regulatory Commission (CIRC) is not always consistent in
meeting its own deadlines for reviewing and approving internal branch applications. U.S. companies also
report difficulties in applying for and receiving multiple, concurrent approvals for new internal branches.
In addition, the United States has urged China to ensure that China Post, which has been granted a license
to supply insurance through its existing network of postal facilities, is not given competitive advantages
in terms of regulatory requirements and distribution network for insurance products of other companies.
Private Pensions – Enterprise Annuities
China has not granted any new enterprise annuities services licenses (similar to the U.S. 401(k) system) in
more than five years. Even under previous licensing windows, China licensed very few foreign operators,
and only for limited elements of enterprise annuities services. If China were to re-open its licensing
procedure, any license to manage enterprise annuities would need to be obtained from the Ministry of
Human Resources and Social Security, which must include the China Banking Regulatory Commission
(CBRC), the China Securities Regulatory Commission and CIRC in its decision-making process. This
complex approval process could create barriers to market access. The United States will continue to urge
China to re-open its licensing process and ensure that any such licensing procedures are transparent and
do not discriminate against qualified suppliers.
Banking and Securities Services
Regulations mandate that only foreign-funded banks that have had a representative office in China for
two years and that have total assets exceeding approximately $10 billion can apply to incorporate in
China. After incorporating, these banks only become eligible to offer full domestic currency services to
Chinese individuals if they can demonstrate that they have operated in China for three years and have had
two consecutive years of profits. In addition, foreign banks in China are subject to rules mandating a 20
percent ownership limit on any single foreign investment in a Chinese bank, with total foreign ownership
capped at 25 percent. While foreign banks’ assets in China grew 24 percent in 2011, their share of total
banking assets in China is still below 2 percent. Locally incorporated foreign banks operating in China
face numerous administrative barriers to competing on equal terms with Chinese banks.
With respect to the securities sector, at the May 2012 S&ED, China committed to allow foreign investors
to hold up to 49 percent equity stake in domestic securities joint ventures, up from a 33 percent limit. In
addition, China agreed to shorten the period for securities joint ventures before they can apply to expand
into brokerage, fund management, and trading activities from five years to two years. China also agreed
to allow foreign investors to establish joint venture brokerages to trade commodity and financial futures
and hold up to 49 percent of the equity in those joint ventures.
Electronic Payment Services
In the Services Schedule accompanying its Protocol of Accession to the WTO, China committed to
remove market access limitations and provide national treatment for foreign suppliers providing payment
and money transmission services, including credit, charge, and debit cards, with this commitment
becoming effective with regard to the domestic currency (RMB) business of retail clients. China also
committed to allow the provision and transfer of financial information, financial data processing, and
advisory, intermediation, and other financial services auxiliary to payments and money transmission
services. These electronic payment and related commitments were to be implemented by no later than
December 11, 2006.
After the December 11, 2006 deadline passed without China taking any action, the United States pursued
extensive bilateral engagement, which did not resolve U.S. concerns. The United States requested WTO
consultations in September 2010 over China’s various restrictions on foreign suppliers of electronic
payment services. Consultations were held in October 2010, but failed to resolve the dispute. At the
United States’ request, a WTO panel was established to hear the case in March 2011, and six other WTO
members joined the case as third parties. Hearings before the panel took place in October and December
2011, and the panel issued its decision in July 2012. The panel found the challenged restrictions to be
inconsistent with China’s commitments under the GATS. China decided not to appeal the panel’s
decision and subsequently agreed to come into compliance with the WTO’s rulings by July 2013.
In 2010, the PBOC issued a set of rules requiring licenses for online payment transmission services, and
began a process of accepting and processing applications for Payment Settlement Organization licenses.
The rules stipulate that foreign-invested service suppliers will be governed by a separate set of rules to be
issued by PBOC, and set a deadline of September 1, 2011 for existing suppliers to comply with the
licensing requirement. As no rules for foreign-invested suppliers have been issued to date, service
suppliers with foreign investment facing a possible shutdown of their businesses had to divest their
foreign-owned stakes to obtain licenses by the September 1 deadline. In 2011, PBOC, which has yet to
clarify how it will treat foreign-affiliated suppliers, issued 40 licenses in two tranches. To date, no
foreign-affiliated suppliers have been licensed.
Foreign banks are interested in issuing credit and debit cards in China. In 2008, the first application to
issue local currency credit and debit cards was approved for an offshore entity, although regulators have
been slow in approving foreign banks’ direct participation in this business. In August 2012, Citigroup
became the first U.S.-based bank to issue its own credit card in China.
Retailing Services
The United States remained concerned that China treats domestic companies more favorably than foreign
companies regarding zoning and urban development requirements, and imposes additional informal
minimum capital requirements on foreign suppliers. In addition, China maintains the right to impose
foreign equity approval restrictions on foreign chain stores operating more than 30 stores in China that
seek to sell certain commodities.
Sales Away From a Fixed Location
In 2010, MOFCOM delegated authority for approving direct sales products to provincial authorities, a
move that allowed localization of products and faster approvals. This is a welcome step, but a number of
concerns remain, as China maintains unduly burdensome “service center” establishment requirements,
caps and other restrictions on sales force compensation, and discriminatory qualification requirements
affecting foreign direct sellers.
Express Delivery Services
The United States continues to monitor China’s implementation of its 2009 Postal Law and related
regulations, including a new permitting system introduced under the State Postal Bureau’s (SPB’s)
September 2009 Measures for the Management of Express Delivery Business Permits. The United States
remains concerned that China’s regime does not treat foreign and domestic companies equally, despite
China’s WTO commitment to open the domestic express delivery services sector to foreign competition
by 2005. To date, the SPB has severely delayed review and approval of its newly mandated domestic
(point-to-point within China) express package delivery business permits for U.S. express delivery
companies, significantly handicapping their ability to compete. The United States also is concerned that
China may not provide adequate protection to the existing operations of U.S. companies as such new
permits are issued. In contrast, the SPB has continued to quickly approve permit requests from Chinese
domestic express delivery companies, allowing them broad access to the Chinese marketplace. The
Postal Law also excludes foreign suppliers from the important document segment of China’s domestic
express delivery market. In addition, the United States is concerned that any additional Postal Law
implementing regulations, including those related to the universal service fund requirement, may unfairly
affect foreign companies.
In July 2010, the General Administration of Customs of China (GACC) eliminated the RMB 400
(approximately $64) de minimis exemption for advertising materials and samples imported to China. As
a result, importers of these goods that had previously been exempted now are required to obtain a customs
registration code. However, the process of obtaining such a code is cumbersome and limiting. Further,
GACC practices relating to the classification of packages for tax purposes and GACC processes for the
collection of duties run counter to international best practices, creating confusion for companies. These
requirements add administrative and cost burdens to express delivery service providers and slow the
shipping process.
On the related issue of air freight forwarding, wholly foreign-owned express delivery companies cannot
qualify for an Air Transport Agency license, and therefore do not have the ability to directly load cargo
on Chinese domestic or international flights, but instead must work through a Chinese agent.
Construction, Engineering, Architectural, and Contracting Services
The Rules on Administration of Foreign-Invested Construction Enterprises (known as Decree 113) and
Rules on the Administration of Foreign-Invested Construction Engineering and Design Enterprises
(known as Decree 114) impose more restrictive conditions on foreign firms than existed prior to China's
WTO accession. These decrees require foreign-invested enterprises to incorporate in China, impose high
minimum registered capital requirements, and burdensome personnel staff requirements. Decree 113 also
limits the scope of projects (in terms of size and scale) open to participation by foreign-invested
enterprises. Two Ministry of Construction circulars impose additional discriminatory restrictions.
Circular 200 prohibits foreign companies from providing project management services unless they also
have construction or design enterprise approvals. Under Circular 202, foreign construction engineering
design companies do not have the right to apply for a comprehensive “Grade A” design license, as
domestic companies do.
Logistics Services
The Ministry of Transport (MOT) has been slow to approve applications by foreign logistics firms, and is
unwilling to issue nationwide trucking licenses, limiting the ability of foreign firms to build economies of
scale. In addition, local regulations in almost all major Chinese cities restrict daytime access by trucks.
China’s enforcement efforts are often targeted at foreign transport/logistics firms, while local firms are
permitted to operate without being in full compliance.
China’s State Council supports the logistics industry as part of the Chinese government’s industry
revitalization plans for 10 key industries. Foreign logistics firms with investments in China have raised
concerns about inadequate transparency for implementing measures, equitable treatment, and efforts to
strengthen industry standardization. Although modern logistics is listed in the encouraged investment
category in the latest Foreign Investment Catalogue, China limits foreign participation in certain aspects
of its domestic express delivery sector and includes certain freight rail transportation in the restricted
category, both of which are inconsistent with further development of its logistics sector.
Aviation Services
The United States and China negotiated an amended bilateral air services agreement, which was signed in
July 2007. Although China agreed to work with the United States towards the mutual goal of eliminating
frequencies limitations on passenger and cargo flights, the Civil Aviation Authority of China (CAAC) has
not engaged with the United States to schedule new rounds of negotiations since August 2011.
Additionally, China’s unfavorable interpretation of cargo hub provisions in the agreement has resulted in
U.S. cargo carriers experiencing difficulties in getting their operating schedules approved by the CAAC.
Foreign participation in China’s telecommunications market, including both basic and value-added
telecommunications services, remains very limited. China maintains foreign equity restrictions and a
multitude of other barriers in the telecommunications sector, including investment approval procedures
that are nontransparent and lengthy. Although China has the world’s largest fixed landline, mobile, and
broadband markets measured by subscribership, the lack of opportunities for foreign service suppliers is
China’s regulator for the sector, MIIT, while nominally separate from current
telecommunications operators, maintains extensive influence and control over their operations and the
overall structure of the market. China’s foreign equity restrictions (a maximum of 49 percent foreign
equity for basic telecommunications and 50 percent for value-added telecommunications) severely
diminish commercial opportunities in the sector.
Not only was there no new market entry in the basic telecommunications sector over the past decade, but
China also forced the consolidation of the sector in 2008, reducing the number of national operators from
six to three—China Mobile, China Telecom, and China Unicom. China’s policy is to permit only foreign
joint ventures with existing, state-owned licensees. This policy has further reduced market access
opportunities for U.S. suppliers and limited the potential for additional competition in the Chinese
telecommunications market. Although not explicitly stated in rule or policy, China appears to apply an
economic needs test to new entrants in this sector to avoid “unhealthy competition.” China also shows
reluctance to authorize new services or technologies which might compete with the revenue of incumbent
operators, such as cable modem service, Voice over Internet Protocol (VoIP), or WiFi over a mobile
handset. In September 2008, in response to a long-standing U.S. request, China slightly reduced basic
telecommunications capitalization requirements to RMB 1 billion (approximately $160 million). This
level is still excessively high and makes it commercially unattractive for most foreign operators to invest
in the sector, particularly for leased line, resale, and corporate data services, which require no new
building of facilities. Although China recently announced plans to open its market to resale of mobile
services to private sector companies (that is, not just the three state-owned providers listed above),
China’s draft regulations suggest that foreign companies would not be allowed to participate in such
liberalization, another source of great concern.
At the December 2010 JCCT meeting, China agreed to technology neutrality for 3G networks and future
networks based on new technologies, such as 4G, allowing operators to choose freely among those
technologies without the Chinese government providing any preferential treatment based on the standard
or technology used by an operator. The United States will continue to monitor this situation closely.
Regarding value-added telecommunications, although there are over 20,000 licensed domestic
telecommunications value-added suppliers in China, as of December 2009, MIIT has issued only 19
value-added licenses to foreign companies, including five U.S.-affiliated companies. One difficulty
foreign companies face in obtaining a license is the lack of clarity regarding which services a foreignaffiliated firm is permitted to offer. In addition, MIIT seems to classify certain value-added corporate
data services (IP-VPN) as value-added when offered domestically, but as basic (and thus capped at lower
foreign equity levels and subject to higher capitalization requirements) when offered internationally.
MIIT has provided no justification for this practice. China agreed at the 2011 JCCT meeting to publish in
draft and allow public comment on the revision to its value-added telecommunications services catalogue.
Regarding satellite services, such as video transport services for Chinese broadcasters or cable companies,
foreign satellite operators remain severely hampered by Chinese policies that prohibit foreign satellite
operators from obtaining licenses to operate these services in China. China’s rules only allow foreign
operators to use a licensed Chinese satellite operator to provide these services. The policies make it
difficult for foreign operators to develop their own customer base in China, as Chinese satellite operators
essentially have a right of first refusal with regard to potential customers.
China made a draft of its Telecommunications Law available for review and comment on an unofficial
basis in the fall of 2009. This draft contains troubling elements, including provisions that would codify
China’s foreign equity limitations for the sector, complicating ongoing efforts in the WTO and other fora
to encourage China to liberalize this sector, and other issues of concern to industry. China has been
working on the draft law for over 10 years. MIIT still lacks a specific authorizing statute for its powers.
In addition, the opening of broadband spectrum access for wireless Internet access has been highly limited
in China. Bureaucratic disagreements between MIIT and the State Administration of Radio, Television,
and Film seem to be a key factor in broadband’s paralysis. MIIT’s 2012 announcement that a portion of 5
GHz bandwidth will be allocated for commercial use is a positive step, but overall broadband access
remains highly restricted.
Online Services
China operates the world’s most restrictive and comprehensive Internet filtering regime, which affects a
broad range of commercial activity conducted via the Internet. Chinese authorities closely monitor and
routinely filter Internet traffic entering China, focusing primarily on the content they deem objectionable
on political, social, or religious grounds, but often arbitrarily blocking access to other content that is not
clearly offensive or objectionable. Since the 2008 Olympics, a concerted effort to reassert control appears
to have been instituted, through what the Open Net Initiative termed “Control 2.0” and an effort to “set
the agenda for coverage, rather than suppress it.” At the time of the 2012 18th National People’s
Congress, China experienced one of the most restrictive periods of Internet access in recent history.
Specific foreign websites were completely blocked, while overall access was extremely limited, and
Virtual Private Networks (VPNs), on which many foreign firms rely to conduct their online functions,
were largely blocked.
Changes to Internet filtering can occur without warning or public explanation. While the filtering
ostensibly is to address public interest concerns enumerated in law, Chinese government authorities rarely
issue lists of banned search terms or banned sites, with little justification or means of appeal, putting
Internet-enabled services in a precarious position, caught between complying with the law and
implementing apparently arbitrary restrictions.
China’s Internet regulation regime is exceedingly complex and nontransparent. Internet content
restrictions for Internet Content Providers, electronic commerce sites and application service providers
located in China are governed by a number of measures, not all of which are public. Since 2000, these
measures have increased, with as many as 12 government entities wielding authority over Internet access
and content. Some of these measures restrict who may report news and place limits on what exactly may
constitute news. In addition to interfering with news reporting in the traditional sense, these measures
may also provide a basis for Chinese authorities to interfere with the normal business reporting operations
of non-news organizations, such as multinational corporations, if they use the Internet to keep clients,
members, their headquarters, and other interested parties informed about events in China.
This complex regulatory regime governing online services has resulted in several high-profile cases
which have affected foreign firms’ delivery of online services, such as search engine and web domain
registration. Uncertainty also continues regarding a number of other online service areas, such as
mapping and other online content distribution methods.
In 2011, in an effort to streamline the bureaucratic regulatory process governing the Internet, China
established the State Internet Information Office (SIIO). Its officers are drawn from the agencies
mentioned above that have authority over Internet content and access. Given U.S. concerns that China’s
arbitrary blocking of commercial websites undercut U.S. WTO services trade rights, USTR posed a series
of questions to China regarding China’s plans to regulate the Internet, including with reference to SIIO’s
publication of a White Paper on that issue. The United States met with China in April 2012 to seek more
detail regarding an initial response that China had provided in 2011. The United States continues its
outreach to China to discuss these issues in more detail and to ensure more transparency and predictability
in such regulations.
Audiovisual and Related Services
Importation and distribution of books, newspapers, journals, sound recordings, videos, films, and
television programs remain highly restricted. Inconsistent and subjective application of censorship
regulations further impedes market growth for foreign providers. China’s large black market for foreign
DVDs and other home entertainment video products continues to grow because market access restrictions
create a demand for pirated goods in the absence of legitimately licensed home or theatrical
At both the central and regional levels, interconnected agencies under the State Administration for Radio,
Film and Television (SARFT) dictate the terms under which films can be produced and distributed.
SARFT permits only one film importer and two film distributors (which are both components of the same
monopoly managed by SARFT) to operate in China. For theatrical releases, the monopoly dictates the
number of films that will be imported, when the films will be released in China’s market, and the
compensation paid to foreign film producers. In addition, the Chinese government sets strict guidelines
with respect to the public screening of foreign films. Under Article 44 of the Regulations for the
Administration of Films, issued by the State Council in 2001, the total annual screening time for foreign
films must not exceed one-third of the total screening time of all films (domestic and foreign).
Television quotas are also highly restrictive. The Administrative Measures on the Import and Broadcast
of Extraterritorial Television Programs, effective October 23, 2004, restrict foreign television drama and
film programming to no more than 25 percent of total airtime, and other foreign programming to no more
than 15 percent of total air time. Foreign programming, including animated programs, is banned between
7:00 P.M. and 10:00 P.M. on terrestrial stations. SARFT’s Interim Regulation on Digital Cable TV Pay
Channels (November 14, 2003) restricts foreign programming to a maximum of 30 percent of total
airtime on pay television channels.
Major concerns for imported films include censorship reviews by Chinese authorities, which can delay
the arrival of imported foreign films on Chinese movie screens. In addition, the Chinese government has
historically decreed “black-out periods” during which no new revenue-sharing foreign films may be
released, in order to prevent competition with Chinese films being released during the same period.
Banning the release of new foreign titles or removing popular foreign films during peak seasons not only
hurts theatrical revenues but also contributes to increased piracy, as pirates meet immediate consumer
demand for foreign titles by offering illegal downloads through the Internet, on pirate optical discs and
pirate video-on-demand channels.
China also continues to require that film prints be made in local laboratories for most theatrical
distribution, and for all home video distribution. Local printing and duplication requirements reduce
rights holders’ ability to control the quality of a film copy and may result in increased costs.
For sound recordings, China limits market access opportunities for imported sound recordings in a
manner similar to the limitations imposed on films for theatrical release or home viewing. The Ministry
of Culture’s Opinion on the Development and Regulation of Network Music bans foreign ownership of
firms supplying digital music services, requiring that entities engaging in the online distribution of sound
recordings in China be wholly Chinese-owned entities. This regulation was amplified in rules established
jointly by MIIT and SARFT, explicitly restricting audio and video distribution services (including over
electronic networks such as the Internet) to state-owned entities.
As discussed above in the section on Trading Rights, the United States initiated a WTO dispute settlement
case against China in April 2007 challenging the importation and distribution restrictions applicable to
certain copyright-intensive products, including books, newspapers, journals, theatrical films, videos and
sound recordings, and associated services. The WTO panel that heard the case issued its decision in
August 2009, ruling in favor of the United States on all significant issues. China appealed the panel’s
decision in September 2009. The WTO’s Appellate Body rejected China’s appeal on all counts in
December 2009. China agreed to comply with these rulings by March 2011. China subsequently issued
several revised measures, and repealed other measures, relating to its distribution of restrictions on
imported books, newspapers, journals, DVDs, and music. However, China did not issue any measures
addressing theatrical films. In February 2012, after China had sought an alternative solution to its
compliance with the films-related aspects of the WTO ruling, the two sides entered into an MOU that
provides for increased market access for imported films and better terms of compensation for foreign film
producers. The MOU will be reviewed after five years.
Investment in China’s audiovisual sector is highly restricted. For television production, joint ventures or
cooperative firms must have a minimum capital requirement of RMB 2 million (approximately
$275,000), foreign capital is capped at 49 percent, and two-thirds of the programs of a joint venture or
cooperative firm must have Chinese themes.
In August 2005, the State Council issued a directive stating that private capital cannot be used to establish
or operate a news agency, newspaper, publishing house, radio station, or television station. The directive
also stated that radio and television signal broadcasting and relay stations, satellite networks and
backbone networks are closed to private capital.
Travel and Tourism Services
Group Travel
In December 2007, the United States and China signed an MOU to facilitate Chinese group leisure travel
to the United States and the marketing in China of U.S. destinations or businesses. The first group of
Chinese leisure travelers visited the United States under the MOU in June 2008. In November 2009, the
United States and China agreed to implement the second phase of the MOU to include an additional 12
jurisdictions, bringing the total to 21. As part of the December 2010 JCCT meeting, the United States and
China agreed to implement the third phase of the MOU, opening the market to three additional provinces
in China. During the 2011 JCCT meeting, China and the United States agreed to expand the MOU,
opening the market for the sale of packaged travel to three additional provinces, and bringing the total
number of province-level administrative districts covered by the MOU to 27 out of a total of 31. The
United States will continue to press China to broaden the scope of access to include the remaining
In order to obtain a 10-year license, foreign travel and tourism firms in China must register with the China
National Travel Administration (CNTA) and deliver a required feasibility study to CNTA/Ministry of
Commerce, as well as an annual report on future investment and possible sectoral expansion. China
continues to apply an annual sales requirement on foreign travel agencies, although there are no such
requirements for domestic agencies.
Computer Reservation Systems/Global Distribution Systems
China requires all Chinese travel agents and airlines to connect into China’s nationally owned and
operated computer reservation system/global distribution system when booking airline tickets for
domestic flights and outbound international flights as well as hotel, car, or other travel service bookings.
Foreign global distribution systems have been excluded from providing their services to Chinese travel
agents and Chinese airlines in China, the world’s second-largest domestic air travel market and a rapidly
growing international market. In October 2012, the CAAC published long-awaited regulations for the
global distribution services market. However, these provisional rules have limited application and the
new do not seem to liberalize access to China’s domestic air market in any commercially meaningful
way. China also has not yet explained how it intends to implement the new measures.
Education and Training Services
The Ministry of Education (MOE) restricts participation by foreign educators and trainers. China permits
only nonprofit educational activities that do not compete with the MOE-supervised nine years of
compulsory education, thereby inhibiting much-needed foreign investment in the education sector. China
also bans foreign companies and organizations from offering educational services via satellite networks.
Foreign universities may set up nonprofit operations, but must have a Chinese university host and partner
to ensure that programs bar subversive content and that imported informational material is adapted to suit
local conditions.
Legal Services
Foreign law firms face numerous restrictions on the scope and structure of their activities in China, as
well as other barriers affecting market access. Current Chinese laws and regulations prohibit foreign
firms from practicing Chinese law, and Chinese lawyers must temporarily forfeit their license to practice
law while working for a foreign law firm. As a result, foreign firms are unable to hire Chinese-qualified
lawyers to practice Chinese law as employees of their firms, or otherwise provide advice on Chinese law
to clients. China also maintains restrictions on cooperation with Chinese law firms (including investment
and profit-sharing restrictions) that further limit market opportunities. Foreign law firms are concerned
that they are not being allowed, in some cases, to attend, along with their clients, certain regulatory
proceedings administered by Chinese government agencies, including MOFCOM mergers and
acquisitions reviews. Typically foreign law firms would provide consultancy and legal advisory services
to clients as part of such reviews.
China also maintains regulatory requirements for foreign representative legal offices that are not applied
to Chinese law firms, as set forth in the December 2001 Regulations on the Administration of Foreign
Firm Representative Offices and July 2002 implementing rules. The measures appear to create an
economic needs test for foreign law firms seeking to establish representative offices in China. In
addition, a foreign law firm may not establish an additional representative office until its most recently
established office has been in practice for three consecutive years. China also requires that
representatives of foreign law firms must have practiced for no less than two years outside of China as a
member of a bar or law society of a WTO Member. Foreign lawyers seeking to provide legal services in
China must undergo a lengthy approval process that can take more than one year, during which they must
leave the country periodically to renew their visas.
Substantial differences in official tax policies applied to the representative offices of foreign law firms in
comparison with taxes applied to Chinese law firms, coupled with inconsistent tax enforcement policies,
represent an additional significant hurdle to supplying legal services in China.
The volume of foreign direct investment (FDI) in China rose by 8.1 percent in 2011 to $124 billion, but
was only $91.7 billion as of the end of October 2012, a year-on-year decline of 3.45 percent. China is the
world’s second-largest destination for FDI, after the United States. However, investors in China continue
to voice concerns about the lack of transparency, inconsistent enforcement of laws and regulations, weak
IPR protection, corruption, and an unreliable legal system that fails to enforce contracts and judgments.
Although China’s leadership has repeatedly affirmed its commitment to further open China to foreign
investment, including during the May 2012 S&ED, in practice, China has not followed through on this
promise, except in limited instances. China also pursues other actions that discriminate against or
otherwise disadvantage foreign investors. For example, China’s investment restrictions are often
accompanied by other problematic industrial policies, such as the increased use of subsidies and the
development of China-specific standards. Many of these developments appear to represent protectionist
tools created by industrial planners to shield inefficient or monopolistic enterprises, particularly those in
which the Chinese government has an ownership interest, from competition.
The United States has continued to raise its concerns about China’s investment restrictions on multiple
occasions in bilateral fora, such as the JCCT, the S&ED, and the Investment Forum, as well as in WTO
meetings. The United States and China are also engaged in bilateral investment treaty (BIT) negotiations
launched in 2008. At the 2012 S&ED, the United States and China agreed to intensify BIT
negotiations. To date, the two sides have held eight negotiating rounds, including meetings in October
and December 2012.
Investment Requirements
Upon accession to the WTO, China assumed the obligations of the Agreement on Trade Related
Investment Measures (TRIMS Agreement), which prohibits trade-related investment measures that
violate GATT Article III obligations to treat imports no less favorably than domestic products and GATT
Article XI obligations not to impose quantitative restrictions on imports. In its Protocol of Accession to
the WTO, China also specifically agreed to eliminate export performance, local content, and foreign
exchange balancing requirements from its laws, regulations, and other measures, and not to enforce the
terms of any contracts imposing these requirements. In addition, China agreed that it would no longer
condition importation or investment approvals on these requirements or on other requirements such as
technology transfer and offsets.
Although China has revised many of its laws and regulations to conform to its WTO investment
commitments, some of these measures continue to raise WTO concerns, including those that require
parties to conduct certain amounts of research and development in China, or to register their intellectual
property in China or license it to Chinese entities, frequently state-owned enterprises, as well as those that
“encourage” technology transfers to China, without formally requiring them. The United States remains
concerned that these measures and activities of Chinese agencies, when reviewing investment
applications, are resulting in U.S. companies either directly, or indirectly through negotiations with
Chinese state-owned enterprises, being required to transfer technology on terms that are not consonant
with commercial business dealings, particularly given the high degree of discretion Chinese agencies
wield when reviewing investment applications. Similarly, some laws and regulations “encourage”
exportation or the use of local content. Moreover, according to U.S. companies, some Chinese
government officials, even in the absence of applicable language in a law, regulation or agency rule, still
consider factors such as export performance and local content when deciding whether to approve an
investment or to recommend approval of a loan from a Chinese policy bank, which is often essential to
the success of an investment project.
Investment Guidelines
Foreign Investment Catalogue:
China’s foreign investment objectives are defined in part through its Foreign Investment Catalogue,
which is revised every few years. China’s latest revised Foreign Investment Catalogue went into effect
on January 30, 2012. The Foreign Investment Catalogue employs vague language and lacks
transparency. For example, sections of the Foreign Investment Catalogue appear to be inconsistent with
foreign investment regulations and policies issued by ministries and/or local governments. In addition,
the Foreign Investment Catalogue includes several key sectors, such as telecommunications, certain
insurance services, legal services, and logistics, in its “restricted” category. The United States has
provided formal comments to China on the Catalogue, noting that it fails to make substantial progress in
opening China’s markets to greater foreign investment and, in some cases, imposes new limitations in
sectors that had previously been more open. Regulators are reportedly in the process of revising the
Foreign Investment Catalogue for the undeveloped central and western regions in order to guide more
investment to those regions. In any case, China has the ability to liberalize its investment regime even
without a formal amendment of the Catalogue.
For discussion of concerns regarding the Foreign Investment Catalogue in the automotive sector, see the
sections titled: Import Barriers, Import Substitution Policies, and Automotive Policy.
Administrative Measures to Restrict Investment
In August 2012, the NDRC published Draft Administrative Measures for the Examination and Approval
of Foreign Investment Projects for public comment. The United States is very concerned that the foreign
investment approval process contemplated in the draft (and to a large extent, already in place) creates
significant uncertainty for foreign investors and lacks transparency, and could be used to block market
access, even in sectors China deems to be “permitted” or “encouraged” for foreign investment. China
also would maintain vague approval conditions relating to assessing “the public interest," and to overall
national economic and social development planning, that only apply to foreign investors.
In December 2006, the State-owned Assets Supervision and Administration Commission (SASAC) issued
the Guiding Opinion Concerning the Advancement of Adjustments of State Capital and the Restructuring
of State-Owned Enterprises. Statements accompanying the release of this measure identified an
expansive list of sectors deemed critical to the national economy. This measure explained that “pillar”
and “backbone” industries, such as automotive, chemical, construction, electronic information, equipment
manufacturing, iron and steel, nonferrous metals, science and technology, and survey and design, must
remain under relatively strong state control. Reportedly, SASAC officials also identified a separate set of
seven strategic sectors in which state capital must play a leading role, including aviation, coal, defense,
electric power and grid, oil and petrochemicals, shipping, and telecommunications. SASAC committed to
restrict foreign participation in these sectors by preventing further foreign investment in state-owned
enterprises operating in these sectors.
In October 2008, the National People’s Congress issued the Enterprise State-Owned Assets Law. Among
other provisions, Article 57 of the law states that, where state-owned assets are transferred to a foreign
investor, the transfer must not harm the national security or public interests of China. It remains unclear
how SASAC implements these policies in practice or, in the context of the Enterprise State-Owned Assets
Law, how it interprets the “national security” and “public interests” of China. In August 2010, the State
Council issued the Opinions on Promoting Enterprise Merger and Restructuring, which promotes
consolidation of enterprises in six industries, most of which are dominated by state-owned enterprises,
including the automobile, steel, cement, aluminum, rare earths, and machinery manufacturing industries.
China also continued to employ various sector-specific measures designed to impose new requirements
on foreign investors. For example, in January 2010, China imposed a new restriction on foreign
investment in the offshore wind power market. At that time, China’s National Energy Administration
(NEA) and the State Oceanic Administration (SOA) jointly issued the Interim Measures for Offshore
Wind Power Development and Construction, stipulating that offshore wind farm investment projects in
China must be undertaken by either a Chinese enterprise or a Chinese majority-controlled enterprise with
foreign ownership of no greater than 49 percent. Measures affecting foreign investment in the automotive
and steel sectors are discussed above in the section on Import Substitution Policies.
In June 2009, revisions to the Provisions on the Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors, originally issued in 2006, were promulgated by MOFCOM and five other government
agencies. Under the 2006 measure, foreign mergers and acquisitions of domestic enterprises that would
result in “actual control” of a domestic enterprise in a “key industry” with “potential impact on national
economic security” or that would give control of a famous Chinese trademark or traditional Chinese
brand to a foreign investor required approval at the central government level by MOFCOM. The 2006
measure also placed MOFCOM in the role of determining if the domestic acquisition target has been
appropriately valued. The 2009 revisions neither removed nor provided greater clarity with respect to
terms such as “national economic security” and “critical industries,” and also retained the provision
permitting denial of a foreign investor’s acquisition if a famous trademark or a traditional Chinese brand
is being acquired. Changes in these areas would have provided useful clarity for foreign investors, and
the continued lack of precision raises concerns that administrative ambiguity will continue to provide a
basis for uneven administration and for differential treatment of Chinese and foreign investors.
In February 2011, China released the State Council Notice Regarding the Establishment of a Security
Review Mechanism for Foreign Investors Acquiring Domestic Enterprises. The notice established an
interagency Joint Conference, led by NDRC and MOFCOM, with the authority to block foreign mergers
and acquisitions of domestic firms that it believes may have an impact on national security. The Joint
Conference is instructed to consider the impact of a proposed transaction on national defense, economic
stability, social stability, and the research and development capabilities of key national security
technologies. MOFCOM issued implementing rules for the system in August 2011. The United States
has voiced its strong concerns about the broad scope and opaque structure of the review mechanism. The
concerns center on China’s application of the broad scope of review the system allows, the determination
of “actual control” under the system, the criteria for determining risks to national security, the relationship
between these review process and other existing reviews of foreign investment, and the ability of nongovernment entities to call for reviews of transactions in which they are not directly involved. China
committed at the May 2012 S&ED to focus its security reviews solely on national security concerns and
to adhere to specific timelines and review standards.
Other Investment Issues
Private Equity and Venture Capital:
Foreign private equity and venture capital investments are subject to a variety of regulatory limitations in
China. Restrictions on foreign exchange conversion, for instance, are still a major hurdle for private
equity funds investing in China. China’s Qualified Foreign Limited Partnerships (QFLP) pilot program,
launched initially in Shanghai, followed by Beijing and Tianjin, has made establishing an RMB fund
somewhat easier for qualified foreign firms by eliminating the requirement for State Administration of
Foreign Exchange (SAFE) approval of every foreign exchange transaction. Under the QFLP program,
qualified foreign private equity firms can launch RMB-denominated funds using overseas capital up to a
quota permitted by the license granted to that firm. However, QFLPs must still work with MOFCOM for
approval of investment plans, acquisitions, and capital contribution transactions. In addition, the quota
limits will likely restrict participation by some of the largest foreign private equity firms, and China’s
continued concerns about “hot money” inflows may limit the pace of continued reform and opening in
this sector. In general, China still lacks a uniform set of national rules for foreign private equity
investment. In addition, it is still unclear how SAFE will allocate quotas to foreign private equity firms.
Holding Companies:
Foreign-invested holding companies in China are at least 25 percent, and usually 100 percent, owned by
foreign investors to manage their investments and provide services to their subsidiaries in China. Holding
companies are barred from engaging in manufacturing or other types of production, but may engage in
trading, distribution, and research and development. Because holding companies are subject to an
approximately $30 million minimum registered capital investment requirement, and must already have at
least one subsidiary in China, only large multinationals with ambitious expansion plans in China tend to
be interested in establishing them. Some restrictions on services provided by holding companies and on
holding companies’ financial operations remain in place, in addition to constraints on the ability to
balance foreign exchange internally. Profit and loss consolidation within holding companies also remains
prohibited. In addition, rules promulgated in August 2011 require that all dividends, interest, liquidation
proceeds, and other income received by holding companies be treated as an increase to registered capital
before it can be reinvested in projects in China. This requirement appears inconsistent with government
policy to encourage the establishment of holding companies, as it is likely to force foreign-invested
holding companies to make capital-inefficient reinvestments of income, delaying or reducing their ability
to declare and repatriate dividends to their shareholders.
Securities Investments:
China continues to open its domestic securities markets to foreign investors. Through the Qualified
Foreign Institutional Investor (QFII) program, foreign institutional investors may apply for QFII licenses,
which permit limited access to Chinese financial markets, subject to a quota. Chinese authorities enacted
reforms to expand the investment scope and lower the minimum qualification requirements of QFIIs,
including granting QFIIs access for the first time to China’s interbank bond market. In 2012, China
granted $15.8 billion in QFII quota and approved 72 new QFII licenses. As of February 2013, China has
granted a total of $40 billion to over 177 foreign entities since the program was launched in 2002.
Access to Capital Markets;
Foreign-invested firms in China are limited in their ability to raise capital domestically. China’s controls
on capital flows and differences between its accounting standards and those of other countries remain the
main obstacles in developing the so-called “panda bond market,” where foreign entities issue RMBdenominated debt in China. Meanwhile, the market for RMB-denominated debt issued in Hong Kong
(“dim sum” bonds) was opened to foreign companies in 2010, and after tremendous initial growth, it has
seen a slowdown in issuance. In late 2012, China appears to have yet again put on hold plans to create an
“international board” of the Shanghai Stock Exchange where foreign companies could list. Allowing
foreign firms greater access and freedom to trade in these assets would add substantial expertise, liquidity
and competition to the Chinese market.
Some loosening of capital controls was announced in late 2012. Starting in mid-December 2012, foreign
investors will not need regulatory approval to open bank accounts, remit profits, and transfer money
between different domestic accounts, according to recent public comments from SAFE. Limits on the
number of foreign-currency accounts and the amount of money that can be transferred will also be
loosened. In total, SAFE will cancel 35 rules on regulatory approval and simplify 14 others. These
moves are expected to encourage long-term capital inflows. Nevertheless, foreign exchange transactions
on China’s capital account are still tightly regulated. To date, foreign firms remain generally satisfied
with their ability to repatriate profits. With respect to capital inflows, several foreign firms continue to
note difficulties in obtaining government approval to bring in foreign capital to expand their businesses.
According to the Ministry of Finance (MOF), China’s government procurement for 2011 was
approximately $180 billion, using MOF’s narrow definition of government procurement spending. This
figure represents approximately 11 percent of total fiscal spending, an increase of more than 30 percent
over the 2010 published figure.
Accession to the WTO Agreement on Government Procurement
China is not a signatory to the WTO Agreement on Government Procurement (GPA). In accordance with
China’s Protocol of Accession to the WTO, it became an observer to the WTO Committee on
Government Procurement in 2002. China also committed, in its Protocol of Accession, to initiate
negotiations for accession to the GPA “as soon as possible.” China initiated GPA accession by
submitting its application for accession and initial offer of coverage in December 2007.
The United States and other GPA Parties noted that significant improvements would be needed in China’s
initial market access offer to bring China’s coverage to a level commensurate to other Parties. In
accordance with its commitment at the May 2010 S&ED meeting, China submitted its first revised GPA
accession offer in July 2010. While the revised offer reflected some improvement over China’s initial
offer, the United States and other GPA Parties noted a number of changes necessary to bring China’s
coverage to a level comparable to that of the other GPA Parties. The Parties particularly emphasized the
need to include sub-central entities and certain state-owned enterprises that engage in government
activities in its subsequent offer.
At the December 2010 JCCT meeting, China committed to accelerate its accession to the GPA and to
submit a robust revised offer in 2011. In addition, during Chinese President Hu’s state visit in January
2011, China agreed that its revised offer would include sub-central entities. On November 30, 2011,
China submitted its second revised offer, which included several sub-central entities. Although the
revised offer was an improvement over the previous offer, it still did not provide terms comparable to the
extensive procurement that the United States and other Parties cover under the GPA. Specifically, the
offer lacked coverage of state-owned enterprises engaged in procurements for government purposes,
included insufficient coverage of sub-central entities and services, maintained excessively high
thresholds, and proposed overly broad exclusions to coverage.
At the May 2012 S&ED meeting, China committed to submit “a new comprehensive revised offer that
responds to the requests of the GPA parties before the [GPA] committee’s final meeting in 2012.” China
subsequently submitted its third revised offer in November 2012. This revised offer still falls well short
of the coverage provided by the United States and other GPA parties, as China responded to few requests
made by GPA parties. The United States, the EU, and other GPA parties described the revised offer as
highly disappointing, both in terms of scope and coverage, and pushed China to submit a revised offer
commensurate to other Parties by July 2013. At the December 2012 JCCT meeting, China agreed to
engage seriously with the United States on outstanding core issues relating to the scope of projects that
qualify as government procurement and situations where state-owned enterprises in China engage in
government procurement activities.
Government Procurement Regime
In January 2003, China issued a Government Procurement Law (GPL), which generally reflects GPA
obligations and incorporates provisions from the United Nations Model Law on Procurement of Goods.
However, the GPL does not cover all Chinese procurement, as noted below. Further, it directs central and
sub-central government entities to give priority to “local” goods and services, with limited exceptions.
In 2010, China circulated two draft measures intended to implement its Government Procurement Law.
The first draft measure, the Regulations to Implement the Government Procurement Law, was issued by
MOF in January 2010. The United States submitted comments on the draft measures, in which, among
other things, it expressed concern that the draft measure did not provide a GPA-consistent regime. The
United States also expressed concern that the draft measure did not provide more specificity about the
conduct of government procurement. The second draft measure, the Administrative Measures for
Government Procurement of Domestic Products, was issued for public comment in May 2010 by MOF,
MOFCOM, NDRC and the General Administration of Customs. In accordance with China’s October
2009 JCCT commitment, this draft measure set out requirements for products to qualify as “domestic
products,” ensuring that products produced in China by foreign-invested enterprises receive the same
treatment as products produced by any other firm in China, including wholly-Chinese owned enterprises.
The United States submitted comments on this draft measure in June 2010, in which it expressed concerns
about the lack of details regarding how the draft measure would be implemented. As of January 2013,
neither of the draft regulations had been issued in final form.
The GPL generally does not cover tendering and bidding for large-scale public works and government
infrastructure projects. Those projects are subject to a different regulatory regime, established by China’s
Tendering and Bidding Law (TBL), which entered into force in January 2000. While official figures for
procurement covered under the TBL are not available, analysts estimate that this procurement may exceed
$200 billion. In September 2009, the State Council finally circulated NDRC’s draft implementing
regulations for the TBL for public comment. In October 2009, the United States submitted written
comments on these draft regulations in which it emphasized, among other things, the need for greater
clarification of the relationship between the TBL and the GPL, and the need to define “domestic
products.” At the end of December 2011, the State Council issued the final implementing rules for the
TBL. The new rules entered into effect on February 1, 2012.
In November 2009, MOST, NDRC and MOF issued the Circular on Launching the 2009 National
Indigenous Innovation Product Accreditation Work, requiring companies to file applications for their
products to be considered for accreditation as “indigenous innovation products.” This measure provided
for preferential treatment in government procurement to any products granted this accreditation, which
was based on criteria such as the ownership or development of a product’s intellectual property in China.
Subsequently, the United States and U.S. industry, along with the governments and industries of many of
China’s other trading partners, expressed serious concerns to China about this measure. In April 2010,
MOST, NDRC, and MOF issued a draft measure for public comment, the Circular on Launching 2010
National Innovation Product Accreditation Work. The draft measure would have amended certain of the
product accreditation criteria set forth in the November 2009 measure, but would have left other
problematic criteria intact. At the May 2010 S&ED, China agreed that its innovation policies would be
consistent with a number of innovation principles and agreed to begin intensive multi-agency discussions
of innovation policies in the U.S.-China Innovation Dialogue.
At the December 2010 JCCT meeting, China took additional important steps to address U.S. concerns
about its indigenous innovation policies. China agreed not to maintain any measures that provide
government procurement preferences for goods or services based on the location where the intellectual
property is owned or was developed. China also agreed to take into account U.S. views on its Draft
Regulations Implementing the Government Procurement Law, which provide for government
procurement preferences for indigenous innovation products. During Chinese President Hu Jintao’s
January 2011 state visit, China further committed to delink its innovation policies from the provision of
government procurement preferences. To implement President Hu’s commitment, at the May 2011
S&ED, China agreed to eliminate all of its government procurement product accreditation catalogues and
revise the Draft Regulations Implementing the Government Procurement Law to eliminate the provision
requiring government procurement preferences for indigenous innovation products. On June 23, 2011,
MOF issued a circular effectively canceling the implementation of the Measures on Budget
Administration for Government Procurement of Indigenous Innovation Products, the MOF Circular on
Issuing ‘Measures on Assessment for Government Procurement of Indigenous Innovation Products’, and
the MOF Circular on Issuing ‘Measures on Contract Administration for Government Procurement of
Indigenous Innovation Products’. During the 2011 JCCT meeting, China announced that the State
Council had issued a measure requiring provincial, municipal, and autonomous regional governments to
eliminate any catalogues or other measures linking innovation policies to government procurement
In 2012, the United States continued to call attention to the trade and investment-restrictive aspects of
China’s indigenous innovation and technology and intellectual property localization policies.
Increasingly, U.S. companies are describing business situations they confront in which the Chinese
government or government-affiliated entities are signaling or requiring that technology and intellectual
property be shared with Chinese parties in conjunction with the approval of investments, as well as the
grant of licenses, permits and other approvals. During the February 2012 visit of Vice President Xi
Jinping, the United States urged China not to press U.S. companies to involuntarily transfer intellectual
property and technology to Chinese entities. China agreed that technology transfer and technological
cooperation shall be decided by businesses independently and will not be used by the Chinese
government as a pre-condition for market access. At the May 2012 S&ED, China agreed to engage in
intensive, on-going discussion on these matters. China also agreed to treat and protect IPR owned or
developed in other countries the same as IPR owned or developed in China.
The United States also used the 2012 JCCT process to raise concerns with China about its innovation and
technology and intellectual property localization policies. As a general matter, China agreed that it will
correct any departmental or local measures that are inconsistent with its above-referenced commitment
that businesses alone shall be involved in decisions relating to technology transfer and technology
cooperation. The United States also raised concerns about a number of Chinese measures that may
require U.S. firms to transfer technology to China. For example, the United States expressed concern
about China’s draft 2012 catalogue of vehicles eligible for purchase for official use and its applicable
vehicle selection rules. They contain a number of problematic eligibility criteria, including a requirement
that automobile manufacturers invest at least 3 percent of operating revenue on research and development
in China and hold the right to modify, improve or transfer relevant intellectual property. Given that
foreign automobile manufacturers must establish joint ventures with Chinese partners, and are not
permitted to have controlling shares, in order to operate in China, these provisions could require foreign
automobile manufacturers to conduct or transfer research and development activities to China and share
the resulting technology with their Chinese partners. These provisions also appear to require foreign
automobile manufacturers to transfer the rights to existing core intellectual property to their Chinese
partners. The United States views such criteria as very troubling, given China’s commitments not to link
innovation policies to government procurement preferences, and not to condition government
procurement preferences on where intellectual property is owned or developed. During the December
2012 JCCT meeting, China committed to delay issuance of a final catalogue and to engage with the
United States on these concerns.
At the 2012 JCCT, the United States also raised concerns about China’s High and New Technology
Enterprise Certification Administration Measures. These measures provide a reduced tax rate for
enterprises only if they register their intellectual property in their major products in China or have an
exclusive intellectual property license.
Strategic Emerging Industries Policies
In 2010, China unveiled a new high-level government plan to rapidly spur innovation in seven high-tech
sectors. The Decision of the State Council on Accelerating the Cultivation and Development of Strategic
Emerging Industries established an early, broad framework for “developing and cultivating” innovation in
energy conservation, environmental protection, new generation information technology, biology, highend equipment manufacturing, new energy, new materials, and new energy-powered vehicles. During a
May 30, 2012, meeting of the State Council, Premier Wen Jiabao offered additional clarity on the scope
and goals for each strategic emerging industry (SEI) sector and emphasized both the importance of
“indigenous innovation” and international exchanges between Chinese and foreign enterprises.
The release of China’s national SEI policies coincided with China’s 12th Five-Year Plan process that
requires central government ministries and subcentral government offices to draft strategies and goals in a
wide variety of areas. The National 12th Five-Year Plan for the Development of Strategic Emerging
Industries defines SEI sectors, set priorities, and recommended future policy support. Consistent with
Premier Wen’s statement, the 12th Five Year Plan also advocates pursuing “indigenous innovation”
policies while “deepening international cooperation”, in part, by affirming that SEI development policies
“are equally applicable to qualified foreign-funded enterprises.”
In the second half of 2012, China issued three catalogues on SEI development. In July 2012, MIIT
distributed to subcentral Industry and Information Technology departments documents cataloguing the
development priorities for key technologies and products considered to be SEIs. The Notification of the
Ministry of Industry and Information Technology on Printing and Issuing Development Priorities of Key
Generic Technologies and Key Products in Strategic Emerging Industries identifies specific sub-sectors,
technologies, and specific products in each SEI sector. It also identifies major research and development
units and major companies, as well as government policies and funds designed to spur development in
each category. Only a small number of companies listed have any foreign investment, as the list heavily
favors Chinese-invested firms, particularly state-owned enterprises and national champions.
In September 2012, the NDRC released a draft Guiding Catalogue of Key Products and Services of the
Strategic and Newly Emerging Industries (NDRC Draft SEI Catalogue). This catalogue lists specific subsectors, technologies, and products that should be considered as SEIs, but omits specific details about
how the catalogue should be used. In November 2012, MIIT issued the Solicitation of Public Opinions
on the Classification Catalogue of Strategic Emerging Industries (MIIT SEI Classification Catalogue),
which also defined the scope of SEIs for each sub-sector and created a unique numerical identification
system. In the preamble to the catalogue, MIIT explains that this document will be used to statistically
track the development of China’s SEI industries, and suggests that it should be used by other Chinese
government departments to “issue targeted supporting fiscal and taxation policies”.
The U.S. Government has voiced strong concerns over the direction of some of China’s SEI policy
development, particularly regarding those measures which indicate discrimination against U.S. firms or
their products, would allow excessive government involvement in determining market winners and losers,
or could lead to injurious subsidized imports. This engagement has led to Chinese commitments at the
2011 and 2012 JCCT meetings. Specifically, China committed in 2011 to provide a “fair and level
playing field for all companies, including U.S. companies” in the development of China’s SEIs. In 2012,
China went further by committing to provide foreign enterprises with fair and equitable participation in
the development of SEIs, and announcing that policies supporting SEI development would be equally
applicable to qualified domestic and foreign enterprises. The U.S. Government is closely following the
development of China’s SEI and 12th Five Year Plans and policies throughout China and will continue to
raise concerns over measures that appear to run counter to China’s multilateral or bilateral commitments.
China has experienced dramatic growth in Internet usage. According to the China Internet Network
Information Center (CNNIC), the number of Internet users in China reached approximately 538 million as
of June 2012, representing an Internet penetration rate of 39.9 percent. The majority of these people
access the Internet through non-computer means, i.e., cell phones and tablets. The number of households
with broadband access is currently 170 million, an increase of 20 million from 2011. Mobile devices
have become the most commonly used form of access to the Internet in China, with 388 million people
using mobile devices in 2012, an increase of 32.7 million from 2011. The increase in the percentage of
Internet users that access the Internet via mobile devices increased from 69.3 percent in 2011 to 72.2
percent in 2012.
China is experiencing a rapid development in online businesses such as search engines, network
education, online advertisements, audio-video service, paid electronic mail, short message, online job
searches, Internet consulting, electronic trading, and online gaming. In June 2012, CNNIC reported that
the number of Chinese online retailers had reached 24,620, an increase of over 20 percent from 2011.
The size of China’s online retail market is estimated at $82 billion, an increase of 46.6 percent from 2011.
Chinese firms dominate the electronic commerce market within China, with holding a 47.6
percent market share in business-to-customer retail and holding a 94.5 percent market share
in customer-to-customer retail.
The Chinese government recognizes the potential of electronic commerce to promote exports and increase
competitiveness, and has made some progress toward establishing a viable commercial environment.
However, several Chinese ministries have jurisdiction over electronic commerce and impose a range of
burdensome restrictions on Internet use (e.g., registration requirements for web pages and arbitrary and
nontransparent content controls), stifling the free flow of information and the consumer privacy needed
for electronic commerce to flourish. Encryption is also regulated, as discussed more fully above (in the
“Online Services” section), and the frequent blocking of websites (including those of a commercial
nature) inhibits the predictability and reliability of using electronic networks as a medium of commerce.
A number of technical problems also inhibit the growth of electronic commerce in China. Rates charged
by government-approved Internet service providers (ISPs) make Internet access expensive for most
Chinese citizens. Slow connection speeds are another problem, although this is changing quickly as
broadband connections become more widely available. At the same time, Internet penetration is still
relatively low in China, and the urban penetration rate is six times higher than the rural penetration rate,
so there is still significant room for growth.
Other impediments to businesses and consumers conducting online transactions in China include the
paucity of credit card payment systems (exacerbated by a current monopoly provider of RMBdenominated services), consumer reluctance to trust online merchants, lack of secure online payment
systems, and inefficient delivery systems. China has also yet to develop a legal framework conducive to
the rapid growth of electronic commerce. Laws recognizing the validity of “electronic contracting” tools
and stressing the importance of online privacy and security have been proposed but not yet issued.
Despite these obstacles, however, a large and growing percentage of Chinese Internet users reportedly
have made online purchases. The number of electronic bank and online payment users grew 14.8 percent
and 12.3 percent respectively in the first half of 2012. By the end of June 2012, such users numbered 191
million and 187 million, respectively.
The number of electronic commerce retail sites grew in 2012. Many are taking on the above-mentioned
challenges themselves or finding ways around them. For example, the large platforms have invested in
fulfillment centers and logistics services to reduce delivery inconsistencies. Cash on delivery is still a
preferred method of payment, and mobile credit card swiping machines are being deployed for “swipe on
delivery” options. In addition, consumers are becoming more trusting of online payment systems like
Alipay, a Paypal clone owned by Alibaba. Recently, there has been an increase in sites that require
companies to have a registered retail business in China in order to post their products online. This has
helped create online “safe havens” that are trusted among shoppers. Alibaba has also launched an anticounterfeiting campaign to combat recent negative publicity on their C2C platform, Taobao.
For foreign electronic commerce companies, ISP licensing agreements also form a barrier to entry.
According to Chinese regulations, foreign firms must partner with Chinese companies to obtain an ISP
license and operate in the Chinese market.
In general, electronic commerce does not have a clear legal framework in China. Cross-border data flows
and data sovereignty are areas of particular concern. Given the partnership requirements for obtaining
ISP licenses, data that foreign firms collect about customers, including spending trends and personal data
such as credit card information, is not clearly controlled by the foreign firm. This increases the risk for
foreign firms to operate electronic commerce services in China.
Competition Policy Laws and Regulations
China has many laws and regulations that concentrate production in certain sectors into monopolies, nearmonopolies or authorized oligopolies. These measures are concentrated in capital intensive sectors, like
electricity and transportation, or in industries such as fixed-line telephony and postal services, in which
this approach may be used to ensure national coverage. Examples of such laws and regulations include
the Law on Electricity (1996), Civil Aviation Law (1995), Regulations on Telecommunication (2000),
Postal Law (1986), Railroad Law (1991) and Commercial Bank Law (amended in 2003), among others.
The enforcement of these laws and regulations is uneven because of the inherent difficulty in coordinating
their implementation nationwide, as well as inconsistent local and provincial enforcement which may be
exacerbated by local protectionism. More troubling are efforts by government authorities at all levels in
China to restrict competition to specific firms, often state-owned enterprises, through various forms of
regulation. Official statements frequently suggest that these efforts are tied primarily to employment
concerns. However, the ultimate beneficiaries of the resulting measures are often unclear. In addition,
local governments frequently enact rules that restrict interprovincial trade. Since the central government
has difficulty enforcing its own industrial policy measures at the local level, these local government rules
continue to restrict market access for certain imported products, raise production costs, and limit market
opportunities for foreign invested enterprises.
The Anti-monopoly Law took effect in August 2008 and established an anti-monopoly commission with
oversight and coordinating responsibilities. Several Chinese ministries and agencies are members of this
body. Three agencies share enforcement responsibilities: MOFCOM reviews mergers; NDRC reviews
monopoly activities, abuse of dominance, and abuse of administrative power involving pricing; and SAIC
reviews these same types of activities when they are not price-related.
After the Anti-monopoly Law was issued, MOFCOM, SAIC, NDRC and other Chinese government
ministries and agencies began to formulate implementing regulations, departmental rules and other
measures. Generally, these ministries and agencies have been willing to seek public comment on their
proposed measures. The United States has urged China to implement the Anti-monopoly Law in a manner
consistent with global best practices and with a focus on consumer welfare and the protection of the
competitive process. The United States has underscored the importance of avoiding consideration of
industrial policy or other non-competition objectives. The United States has also urged China to ensure
that implementing measures do not create disguised or unreasonable barriers to trade and do not provide
less favorable treatment to foreign goods and services or foreign investors and their investments.
It remains unclear how China will implement the Anti-monopoly Law with respect to state-owned
enterprises and government monopolies in industries deemed nationally important. Although an
ambiguous provision of the Anti-monopoly Law suggests such enterprises may be subject to a different
standard, the three Anti-monopoly Law enforcement agencies have publicly stated that the law applies to
state-owned enterprises, and have pursued enforcement actions against them. In addition, because trade
associations in China frequently appear to have strong government ties, the United States has encouraged
the Chinese agencies charged with enforcing the Anti-monopoly Law to work with Chinese regulatory
agencies with sectoral responsibilities to encourage trade associations to comply with the Anti-monopoly
Law. Furthermore, the inclusion of provisions on the abuse of administrative power in the Anti-monopoly
Law, which also appear in NDRC’s and SAIC’s implementing regulations, could be important
instruments for promoting the establishment and maintenance of increasingly competitive markets in
Since the Anti-monopoly Law went into effect, MOFCOM’s oversight of mergers has yielded the most
enforcement activity, largely due to the requirement to pre-notify merger transactions. Under the Antimonopoly Law, through late 2012 China has “unconditionally” approved 458 merger cases and
“conditionally” approved 15 through late 2012. Twelve of 15 cases approved with conditions have
involved offshore transactions between foreign parties, rather than transactions between Chinese
enterprises. The other three transactions involved foreign companies merging with Chinese enterprises.
MOFCOM blocked one acquisition, in which a foreign company tried to acquire a well-known Chinese
enterprise. As a step to improve the transparency of enforcement, MOFCOM issued a notice in
November 2012 disclosing information about the 458 merger cases it has unconditionally approved under
the Anti-monopoly Law. MOFCOM has committed to disclosing information on a quarterly basis going
Official Journal:
In its WTO accession agreement, China committed to establish or designate an official journal dedicated
to the publication of all laws, regulations and other measures pertaining to or affecting trade in goods,
services, TRIPS, or the control of foreign exchange. China also agreed to publish the journal regularly
and to make copies of all issues of the journal readily available to enterprises and individuals. Following
its accession to the WTO, however, China did not establish or designate an official journal. Rather, China
relied on multiple channels, including ministry websites, newspapers, and a variety of journals, to provide
information on trade-related measures. Following sustained U.S. engagement, the State Council issued a
notice in March 2006 directing all central, provincial, and local government entities to begin sending
copies of all trade-related measures to MOFCOM for immediate publication in the MOFCOM Gazette.
Adherence to the State Council’s notice appeared to be far from complete. Following additional U.S.
expressions of concern, at the December 2007 SED meeting, China reconfirmed its WTO commitment to
publish all final trade-related measures in a designated official journal before implementation. As a result
of US efforts, it appears that most government entities now regularly publish their trade-related measures
in this journal, although it is still not clear whether all types of trade-related measures are being published.
Public Comment:
In its WTO accession agreement, China committed to provide a reasonable period for public comment on
new or modified trade-related laws, regulations and other measures before implementing them, except in
certain enumerated instances. However, China has been slow to implement this commitment. Following
sustained U.S. engagement, the NPC’s Standing Committee instituted notice-and-comment procedures for
draft laws in April 2008. Two months later, in June 2008, China agreed to publish in advance for public
comment, subject to specified exceptions, all trade- and economic-related administrative regulations and
departmental rules proposed for adoption and provide a public comment period of not less than 30 days
from the date of publication. China further agreed to publish such measures for comment in a single
location: the Chinese Government Legislative Information Website of the State Council Legislative
Affairs Office (SCLAO). Since then, although the NPC has been regularly publishing draft laws for
public comment and the State Council has also been regularly publishing draft regulations for public
comment, China has had more difficulty implementing the agreement to publish trade- and economicrelated administrative regulations. Since June 2008, China has increased the number of proposed
departmental rules published for public comment on the State Council’s website, but a significant number
are still issued without first having been published for public comment on the State Council’s website.
While some ministries publish departmental rules on their own websites, they often allow less than 30
days for public comment, making it difficult for interested parties to submit timely and complete
In October 2010, the State Council issued the Opinions on Strengthening the Building of a Government
Ruling by Law, which directs ministries and agencies at the central and provincial levels of government to
solicit public comment when developing new rules and regulatory documents that directly affect citizens’
legal rights and obligations, subject to certain exceptions primarily related to the protection of state
secrets. However, this measure does not require government agencies to publish their measures in
advance for public comment for at least a 30 day public comment period on the Chinese Government
Legislative Information Website.
At the May 2011 S&ED meeting, China committed to issue a measure in 2011 implementing the
requirement to publish all proposed trade- and economic-related administrative regulations and
departmental rules on the State Council’s website for comment. In advance of the May 2012 S&ED
meetings, SCLAO issued two measures that appear to require all central government agencies to observe
China’s S&ED commitments. Since the issuance of those two SCLAO measures, the proportion of
administrative regulations and departmental rules published on the Chinese Government Legislative
Information Website or individual agency websites for at least a 30-day public comment period has
increased. However, a significant portion of administrative regulations and departmental rules are still
not published in accordance with China’s S&ED commitments. In addition, it appears that Chinese
agencies are not frequently soliciting public comment on draft regulatory documents that directly
implicate citizens’ rights and obligations.
Legal Framework
Laws and Regulations:
Laws and regulations in China often contain provisions that lack sufficient precision. While this approach
allows the Chinese authorities to apply laws and regulations flexibly, it also results in inconsistency and
confusion in application. Companies often have difficulty determining whether their activities contravene
a particular law or regulation.
Regulations are also promulgated by a host of different entities at the central, provincial, and local levels,
and it is not unusual for the resulting regulations to be at odds with one another. Even though finalized
regulations are now routinely published in China, they often leave room for discretionary application and
inconsistencies. Indeed, government bureaucracies have sometimes been accused of selectively applying
regulations. China has many strict rules that are often ignored in practice until a person or entity falls out
of official favor. Governmental authorities can wield their discretionary power on foreign or disfavored
investors or make special demands on them simply by threatening to crack down. In addition,
confidential accounts from foreign enterprises indicate that Chinese government officials, acting without
fear of legal challenge, at times require foreign enterprises to transfer technology if they want to secure
investments approvals, even though Chinese law does not – and cannot under China’s WTO
commitments – require technology transfer.
This lack of a clear and consistent framework of laws and regulations creates barriers and uncertainty. A
clear and consistent legal framework, coupled with adequate prior notice of proposed changes to laws and
regulations and an opportunity to comment on those changes and consistent adherence to and enforcement
of those laws and regulations, would greatly enhance business conditions, promote non-discrimination
between foreign and domestic firms, and reduce opportunities for corruption.
The U.S. Government has provided technical assistance, at the central, provincial, and local levels of
government in China, in an effort to promote improvements in China’s legislative and regulatory drafting
processes. In its Protocol of Accession to the WTO, China committed to establish tribunals for the review
of all administrative actions relating to the implementation of trade-related laws, regulations, judicial
decisions, and administrative rulings. These tribunals must be impartial and independent of the
government authorities entrusted with the administrative enforcement in question, and their review
procedures must include the right of appeal. To date, little information is publicly available regarding the
frequency or outcomes of reviews before these tribunals.
China also committed, at all levels of government, to apply, implement, and administer all of its laws,
regulations and other measures relating to trade in goods and services in a uniform and impartial manner
throughout China, including in special economic areas. In connection with this commitment, China
established an internal review mechanism, now overseen by MOFCOM’s Department of WTO Affairs, to
handle cases of non-uniform application of laws. The actual workings of this mechanism remain unclear,
Administrative Licensing:
In July 2004, China’s Administrative Licensing Law entered into effect. This law is designed to increase
transparency in the licensing process by establishing procedures relating to administrative licensing
applications, examinations, approvals and public hearings, including applicable timeframes. Since
entering into effect, this law has increased transparency in the licensing process, while reducing
procedural obstacles and strengthening the legal environment for domestic and foreign enterprises. China
has also continued to reform its administrative licensing system. For example, China has established
administrative licensing centers to facilitate the issuance of licenses, and many licensing authorities are
increasingly using the Internet to allow persons to apply for administrative licenses and track the progress
of their applications online. Since 2001, the State Council has released six decisions to eliminate or
amend various administrative licensing requirements, including a September 2012 State Council decision,
which calls for the standardization of the administrative examination and approval process. In addition,
under the auspices of the JCCT, the United States and China have agreed to work together in order to
facilitate commercial activity impacted by administrative licensing.
Nevertheless, significant problems remain with administrative licensing in China. U.S. industry reports
that, in practice, many Chinese government bodies at the central, provincial and municipal levels do not
comply with this law. U.S. industry also reports that vague criteria and possibilities for delay in the
licensing process provide licensing officials with tremendous discretion, thereby creating opportunities
for corruption, and sometimes lead to foreign enterprises and products being treated less favorably than
their domestic counterparts. For example, in the foreign investment context, in addition to restrictions
formally imposed via China’s foreign investment catalogue, industry contends that China can impose
additional constraints on investment through its foreign investment approval processes, where Chinese
government officials can use vaguely defined powers on an ad hoc basis to delay or restrict market entry.
In addition, according to confidential reports from foreign enterprises, Chinese government officials may
use informal means to require a foreign enterprise to conduct research and development in China, transfer
technology, satisfy performance requirements relating to exportation or the use of local content, or make
valuable, deal-specific commercial concessions if it wants its investment approved.
Commercial Dispute Resolution:
Both foreign and domestic companies often avoid seeking resolution of commercial disputes through the
Chinese courts, due to deep skepticism about the independence and professionalism of China’s court
system and the enforceability of court judgments and awards. There is a widespread perception that
judges, particularly outside big cities, are subject to influence by local political or business pressures.
Many judges are not trained in the law or lack higher education, although this problem decreases at the
higher levels of the judiciary.
At the same time, the Chinese government is moving to establish consistent and reliable mechanisms for
dispute resolution through the adoption of improved codes of ethics for judges and lawyers and increased
emphasis on the consistent and predictable application of laws. For example, Supreme Court rules
provide that foreign or Chinese enterprises and individuals may bring cases in the designated courts,
raising challenges under the Administrative Litigation Law to decisions made by China’s administrative
agencies relating to international trade matters. The rules also state that when there is more than one
reasonable interpretation of a law or regulation, the courts should choose an interpretation that is
consistent with the provisions of international agreements to which China has committed, such as the
WTO rules.
Despite initial enthusiasm, there is increasing skepticism of the China International Economic and Trade
Arbitration Commission (CIETAC) as a forum for the arbitration of trade disputes. Some foreign firms
have obtained satisfactory rulings from CIETAC, but other firms and legal professionals have raised
concerns about restrictions on the selection of arbitrators and inadequacies in procedural rules necessary
to ensure thorough, orderly and fair management of cases.
Finally, in cases where the judiciary or arbitration panels have issued judgments in favor of foreigninvested enterprises, enforcement of the judgments has often been difficult. Officials responsible for
enforcement are often beholden to local interests and unwilling to enforce court judgments against locally
powerful companies or individuals.
Labor Issues:
In recent years, China has sought to expand the scope of its national labor laws and regulations. Three
important labor laws are: the Labor Contract Law (LCL), which clarifies the rights and obligations of
workers and employers to promote better labor relations; the Labor Dispute Mediation and Arbitration
Law, which improves and streamlines the labor dispute resolution process; and the Employment
Promotion Law, which aims to stimulate employment opportunities. In 2012, the Standing Committee of
the National People’s Congress published draft amendments to the Labor Contract Law focusing on the
Law’s labor dispatch-related provisions.
On December 28, 2012, the Standing Committee of the National People’s Congress approved
amendments to the LCL. The amended LCL will go into effect on July 1, 2013. The amendments add
significant requirements that are designed to discourage the use of temporary/dispatched workers who by
law should, but in practice often do not, receive the same treatment as direct-hire employees. Until July
1, 2013, enterprises will be allowed to continue to use temporary/dispatched workers already under
contract prior to passage of the amendment. However, all enterprises, including foreign- invested
enterprises, must adjust their employment practices by July 1, 2013, or they will be subject to penalties
from RMB 5,000 to RMB 10,000 (approximately $800 to $1600) for each temporary/dispatched worker
employed in violation of the amended LCL. Under Chinese law, representative offices established by
foreign enterprises are not considered independent legal entities and are exempt from those particular
amendments. As representative offices are not allowed to hire Chinese employees directly, they must
continue to hire workers through qualified labor agencies as defined in the amendments. This is likely to
become more expensive, as provisions in the amended LCL increase the registered capital and other
requirements for companies to register as qualified labor agencies.
China does not adhere to certain internationally recognized labor standards, including the freedom of
association and the right to bargain collectively. Chinese law provides for the right to associate and form
a union, but does not allow workers to form or join an independent union of their own choosing. Unions
must affiliate with the official All-China Federation of Trade Unions (ACFTU), which is under the
direction of the Communist Party of China. Once a union chapter is established, the enterprise is required
to pay fees to the ACFTU, often through the local tax bureau, equaling 2 percent of total payroll,
regardless of the number of union members in the enterprise. The workers at these enterprises are
required to accept the ACFTU as their representative; they cannot instead select another union or decide
not to have any union representation.
In addition, China does not effectively enforce its labor laws and regulations concerning issues such as
minimum wages, hours of work, occupational safety and health, bans on child labor, forced prison labor,
and participation in social insurance programs. Many foreign invested companies have expressed concern
about their domestic competitors’ lack of compliance with labor and social welfare laws due to lax
enforcement, which allows the domestic firms to avoid the costs associated with compliance.
Skilled workers are in relatively short supply. Restrictions on labor mobility continue to distort labor
costs. China is gradually easing restrictions under the country’s household registration system, which has
traditionally limited the movement of workers within the country, in part due to the recognition that labor
mobility is essential to the continued growth of the economy.
China’s entry into the WTO, which mandated a significant reduction in tariffs and non-tariff barriers, was
expected to reduce incentives for smuggling-related corruption. While WTO membership has increased
China’s exposure to international best practices and resulted in some overall improvements in
transparency, corruption remains prevalent. Chinese officials admit that corruption is one of the most
serious problems the country faces and have stated that corruption poses a threat to the survival of the
Communist Party and the state. China’s leadership has called for an acceleration of the country’s
anticorruption drive, with a focus on closer monitoring of provincial-level officials. According to official
sources, the Communist Party of China’s anticorruption agencies have punished more than 660,000
officials found guilty of disciplinary violations over the past five years.
As required by the United Nations Convention Against Corruption, which China ratified in 2006, the
National People’s Congress amended China’s criminal law to criminalize the payment of bribes to
officials of foreign governments and international public organizations on February 25, 2011. The
amendment took effect on May 1, 2011. Although criminalizing foreign bribery represents an important
milestone in fighting international corruption, China has provided little information about how the law
will be interpreted and enforced. Accordingly, the United States will continue to monitor China's
anticorruption efforts and encourage China to vigorously enforce its anti-bribery laws. In addition, the
United States will continue to encourage China to join the OECD Working Group on Bribery and seek
accession to the Anti-Bribery Convention.
While the central government in recent years has pledged to begin awarding contracts solely on the basis
of commercial criteria, it is unclear how quickly, and to what extent, the Chinese government will be able
to follow through on this commitment. U.S. suppliers complain that the widespread existence of unfair
bidding practices in China puts them at a competitive disadvantage. Corruption nevertheless undermines
the long-term competitiveness of both foreign and domestic entities in the Chinese market.
Land Issues:
China’s constitution specifies that all land is owned in common by all the people. In practice, agricultural
collectives, under the control of local Communist Party chairmen, distribute collectively-owned
agricultural land to rural residents in the form of 30-year renewable contracts, while provincial and
municipal governments distribute state-owned urban land for residential and industrial use under a greater
diversity of terms depending on the type of land, its intended use, and the status of the land-use rights
“purchaser.” Governments and collectives can transfer or lease land-use rights to enterprises in return for
the payment of fees, or other forms of compensation, such as profit-sharing. However, the law does not
currently define standards for compensation when eminent domain supersedes land-use rights. This
situation creates considerable uncertainty when foreign investors are ordered to vacate premises in the
public interest. Moreover, the absence of public hearings on planned public projects can give affected
parties, including foreign investors, little advance warning. The government is aware of this problem,
however, and is revising the Land Administrative Law to correct it, but it remains unclear how extensive
or effective the revision will be.
A major problem for foreign investors is the array of regulations that govern their ability to acquire landuse rights, which are limited to 50 years for both industrial and commercial purposes in the case of
foreign investors. Local implementation of these regulations may vary from central government
standards, and prohibited practices may be tolerated in one area while the regulations are enforced in
another. Most wholly-owned foreign enterprises seek land-use rights to state-owned urban land as the
most reliable protection for their operations. Chinese-foreign joint ventures usually attempt to acquire
land-use rights through lease or contribution arrangements with local partners.
China’s National People’s Congress passed a Property Rights Law on March 16, 2007, which grants
equal legal status to private, state, and collectively-owned property, while explicitly affirming the
dominant role of public property in the economy. In addition, this law covers the “means of production,”
such as factories, but agricultural land remains a collective possession distributed in the form of 30-year
contracts. It is unclear at this time how the law will be implemented, particularly in light of the ongoing
revision of the Land Administration Law.
Given the scarcity of land resources in China, the price of land-use rights and land allocation are
important considerations from both a market access and competition standpoint and from the perspective
of their effect on production and trade. It is therefore of some concern to the United States that the
Chinese government continues to exercise a strong hand in land-use markets in China, with the objective,
in part, to ensure that land use-rights are allocated in accordance with a compulsory national land-use plan
aimed at boosting grain production, and state industrial development policies aimed at sustaining
urbanization and growth.
The U.S. goods trade deficit with Colombia was $8.2 billion in 2012, down $555 million from 2011. U.S.
goods exports in 2012 were $16.4 billion, up 14.5 percent from the previous year. Corresponding U.S.
imports from Colombia were $24.6 billion, up 6.6 percent. Colombia is currently the 22nd largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Colombia was $6.9 billion in 2011 (latest data
available), up from $6.4 billion in 2010. U.S. FDI in Colombia is primarily concentrated in the mining
and manufacturing sectors.
The United States-Colombia Trade Promotion Agreement
The United States-Colombia Trade Promotion Agreement (CTPA) entered into force on May 15, 2012.
The CTPA is a comprehensive free trade agreement, which immediately eliminated most tariffs on U.S.
exports, with all remaining tariffs to be phased out over defined time periods. Under the CTPA Colombia
also is according substantially improved market access for U.S. service suppliers. In addition the CTPA
includes important disciplines relating to: customs administration and trade facilitation, technical barriers
to trade, government procurement, investment, telecommunications, electronic commerce, intellectual
property rights, transparency, and labor and environmental protection.
On April 7, 2011, the U.S. and Colombian Governments announced a Colombian Action Plan Related to
Labor Rights in which the Colombian government committed to a series of measures over defined time
frames to improve the protection of internationally recognized labor rights, the prevention of violence
against labor leaders, and the prosecution of the perpetrators of such violence. The Santos Administration
is meeting these milestones under the Action Plan. Nevertheless, there are ongoing concerns regarding
labor rights in Colombia, and the U.S. Government continues to work closely with the government of
Colombia to ensure full implementation of the Action Plan.
About 80 percent of U.S. exports of consumer and industrial products to Colombia became duty free
immediately upon entry into force of the CTPA, with the remaining of those tariffs to be phased out
within 10 years of the Agreement’s entry into force. In March 2012, Colombia joined the WTO
Information Technology Agreement, under which Members eliminate tariffs on a most favored nation
(MFN) basis for a wide range of information technology products.
Colombia applies variable levies to imports of certain agricultural products pursuant to the Andean
Community’s price band system. However, when the CTPA entered into force, Colombia immediately
ceased to apply these variable levies to agricultural imports from the United States. Under the CTPA,
almost 70 percent of U.S. agricultural exports to Colombia (by value) became duty free upon entry into
force, including high quality beef, an assortment of poultry products, soybeans and soybean meal, cotton,
wheat, whey, and most horticultural and processed food products. The remaining duties on U.S.
agricultural exports will be phased out over defined time periods. U.S. agricultural exporters also benefit
from zero duty tariff rate quotas (TRQs) on corn, rice, poultry parts, dairy products, sorghum, dried beans,
beef, animal feeds, and soybean oil. The TRQs permit immediate duty-free access for specified quantities
of each of these products, with the duty-free amount expanding during its tariff phase-out period.
Nontariff Measures
The Colombian government had required that importers purchase local production of certain agricultural
products in order to import under TRQs. Under the CTPA, the Colombian government committed to
ensuring that U.S. access to the TRQs of the Agreement will not be conditioned on the purchase of
domestic products by the importers.
Under the CTPA, Colombia affirmed that it would not adopt or maintain prohibitions or restrictions on
trade in remanufactured goods (provided they have warranties similar to new goods) and that some
existing prohibitions on trade in used goods would not apply to remanufactured goods. This provides
significant new export and investment opportunities for firms involved in remanufactured products, such
as machinery, computers, cellular phones, and other devices. In accordance with Andean Community
Decision 337, Colombia does not permit the importation of used clothing.
Colombia assesses a consumption tax on distilled spirits with a system of specific rates per degree (half
percentage point) of alcohol strength (Law 788 of 2002, Chapter V, amended by Law 1393 of 2010).
Arbitrary breakpoints have the effect of applying a lower tax rate to spirits that tend to be produced
locally and therefore create a barrier for imported distilled spirits. Under the CTPA, Colombia committed
to eliminating the breakpoints for imports of U.S. distilled spirits by 2016.
Under the CTPA, Colombia grants national treatment to U.S. goods, services, and suppliers in
procurements covered by the Agreement. The CTPA also gives U.S. firms greater access to procurement
by Colombia’s ministries and departments, legislature, courts, and first tier sub-central entities, as well as
a number of Colombia’s government enterprises, including its oil company. In addition, Colombia will
not apply Law 816 of 2003 to CTPA-covered procurements, as that law mandates preferential treatment
for tenders that provide Colombian goods or services. U.S. companies are still required to have some
local representation in order to qualify for government procurement.
Colombia is not a signatory to the WTO Agreement on Government Procurement, but it has been an
observer to the WTO Committee on Government Procurement since 1996.
Colombia was listed on the Watch List in the 2012 Special 301 Report. During 2012, Colombia
continued to improve its efforts against intellectual property rights (IPR) violators through enforcement
action and improved coordination among IPR enforcement agencies and with rights holders. The
Colombian government gave its Copyright Office and its Patent and Trademark Office new authority to
handle IPR related cases, expediting the resolution of these cases. This builds on the Colombian
government’s concerted effort in recent years to combat IPR violations, including through conducting
raids to seize counterfeit and pirated products and deter the counterfeiting of pharmaceuticals. Colombia
continued to take steps in 2012 to address its patent backlog.
Despite these positive developments, there remains a need for further IPR improvements in Colombia,
particularly through additional training and resources for agencies involved in enforcing IPR. Actions are
still needed to reduce optical media piracy and combat piracy over the Internet, which is a growing
problem in Colombia.
On January 23, 2013 the Colombian Constitutional Court invalidated on procedural grounds the law
enacting many IPR related commitments under the CTPA. The Colombian government is reintroducing
the bill to the Congress using different procedures.
The CTPA grants U.S. service suppliers substantially improved market access across Colombia's entire
services regime, subject to a limited number of exceptions. Some restrictions, such as economic needs
tests and residency requirements, still remain in sectors such as accounting, tourism, legal services,
insurance, distribution services, advertising, and data processing.
Financial Services
Insurance companies must maintain a commercial presence to sell policies other than those for
international travel or reinsurance. Colombia prohibits the sale of maritime insurance by foreign
companies. Foreign banks must establish a subsidiary to operate in Colombia.
Under the CTPA, Colombia will phase in further liberalization in financial services, such as allowing
branching by banks and allowing the cross-border supply of international maritime shipping and
commercial aviation insurance by 2016. Additionally, mutual funds and pension funds will be allowed to
seek advice from portfolio managers in the United States.
The U.S. goods trade deficit with Costa Rica was $4.8 billion in 2012, up $788 million from 2011. U.S.
goods exports in 2012 were $7.2 billion, up 18.7 percent. Corresponding U.S. imports from Costa Rica
were $12.0 billion, up 19.0 percent. Costa Rica is currently the 37th largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Costa Rica was $1.5 billion in 2011 (latest data
available), roughly the same as in 2010. U.S. FDI in Costa Rica is primarily in the manufacturing sector.
Free Trade Agreement
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or
“Agreement”) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua
in 2006 and for the Dominican Republic in 2007. The CAFTA-DR entered into force for Costa Rica on
January 1, 2009. The CAFTA-DR significantly liberalizes trade in goods and services as well as includes
important disciplines relating to customs administration and trade facilitation, technical barriers to trade,
government procurement, investment, telecommunications, electronic commerce, intellectual property
rights, transparency, and labor and environmental protection.
The United States hosted a Free Trade Commission (FTC) meeting on January 23, 2012 in Miami. At
that meeting the CAFTA-DR countries recognized continued growth in trade and integration, and acted to
further strengthen CAFTA-DR institutions and initiatives.
In 2012, the Parties implemented changes to a number of the Agreement’s rules of origin for textile and
apparel goods to enhance the competitiveness of the region’s textiles sector. The changes to these rules of
origin were made pursuant to a Decision of the first FTC meeting in February 2011, and are aimed at
facilitating regional sourcing and encouraging greater integration of the textile and apparel supply chain
in the region. The new rules became effective on October 13, 2012, after the other CAFTA-DR countries
had completed their respective domestic procedures, and the U.S. Congress passed legislation
implementing the changes for the United States.
As a member of the Central American Common Market, Costa Rica applies a harmonized external tariff
on most items at a maximum of 15 percent with some exceptions.
Under the CAFTA-DR, however, 100 percent of U.S. consumer and industrial goods will enter Costa
Rica duty free by 2015. Nearly all textile and apparel goods that meet the Agreement’s rules of origin
now enter Costa Rica duty free and quota free, creating economic opportunities for U.S. and regional
fiber, yarn, fabric, and apparel manufacturing companies.
Under the CAFTA-DR, more than half of U.S. agricultural exports now enter Costa Rica duty free. Costa
Rica will eliminate its remaining tariffs on virtually all agricultural products by 2020 (2022 for chicken
leg quarters and 2025 for rice and 2028 for dairy products). For certain agricultural products, tariff-rate
quotas (TRQs) will permit some duty-free access for specified quantities during the tariff phase-out
period, with the duty-free amount expanding during that period. Costa Rica will liberalize trade in fresh
potatoes and onions through continual expansion of a TRQ, rather than by the reduction of the out-ofquota tariff.
Nontariff Measures
Under the CAFTA-DR, all CAFTA-DR countries, including Costa Rica, committed to improve
transparency and efficiency in administering customs procedures, including the CAFTA-DR rules of
origin. The CAFTA-DR countries also committed to ensuring greater procedural certainty and fairness in
the administration of these procedures, and agreed to share information to combat illegal trans-shipment
of goods.
Costa Rica implemented the Information Technology Customs Control (TICA) system in 2007 for
imports and in early 2009 for exports (other than exports from free trade zones). The TICA system has
significantly improved what had been a complex and bureaucratic import process, but it was reported to
have suffered system-wide breakdowns in 2012 as the volume of entries increased. Under the TICA
system, the Costa Rican customs authority has changed its focus from the verification of goods to the
verification of processes and data. Customs officials now have up to four years to review the accuracy of
import declarations, which allows customs to facilitate the free flow of goods while gathering necessary
Costa Rica has ratified the “Hague Convention Abolishing the Requirement for Legalization of Foreign
Public Documents” or “Apostille Convention,” to which the United States is also a party. With
implementation of this agreement on December 14, 2011, official documents originating in the United
States are subject to a single act of authentication, which is expected to facilitate paperwork for commerce
between the United States and Costa Rica.
The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures,
including advance notice of purchases and timely and effective bid review procedures, for procurement
covered by the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on procurements
of most Costa Rican government entities, including key ministries and state-owned enterprises, on the
same basis as Costa Rican suppliers. The anticorruption provisions in the Agreement require each
government to ensure under its domestic law that bribery in matters affecting trade and investment,
including in government procurement, is treated as a criminal offense or is subject to comparable
The government of Costa Rica’s “Digital Government” development group, currently a division of the
Costa Rican Electricity Institute, is well advanced in implementing an automated procurement system
dubbed “MerLink.” MerLink is streamlining procurement procedures and should significantly reduce the
risk of corruption or fraud in the procurement process. Even though the central government ministries
have not yet begun using MerLink, a growing number of local government entities (56 in a recent count)
are conducting procurement processes online. For example, in July 2012, MerLink representatives
announced an agreement to jointly procure car tires on behalf of four large agencies (the electricity
institute (ICE), the state insurance provider (INS), the tourism institute (ICT) and the Post Office) and
stated that while this is Merlink’s first joint procurement agreement, there is potential for similar joint
procurements in the future.
Some U.S. company representatives have commented that they find it difficult to compete with domestic
suppliers in Costa Rican government procurement because bids are often due within three weeks to six
weeks of the procurement announcement. U.S. companies interpret this as Costa Rica’s reluctance to
attract foreign bidders to its government procurement processes.
Costa Rica is not a signatory to the WTO Agreement on Government Procurement.
Tax holidays are available for investors in free trade zones, unless tax credits are available in an investor’s
home country for taxes paid in Costa Rica.
Under the CAFTA-DR, Costa Rica may not adopt new duty waivers or expand existing duty waivers that
are conditioned on the fulfillment of a performance requirement (e.g., the export of a given level or
percentage of goods). However, under the CAFTA-DR, Costa Rica was permitted to maintain such
measures through 2009, provided that it maintained the measures in accordance with its obligations under
the WTO Agreement on Subsidies and Countervailing Measures. The U.S. Government is working with
the government of Costa Rica in an effort to ensure compliance with its CAFTA-DR obligations.
Costa Rica was again listed on the Watch List in the 2012 Special 301 report. Key concerns include
Costa Rica’s need to place a higher priority on intellectual property rights (IPR) protection, to devote
more resources to IPR enforcement efforts and impose deterrent penalties. The current Costa Rican
Attorney General’s office has indicated an intention to pursue IPR crimes more forcefully than in the past.
The United States looks forward to seeing a corresponding improvement in IPR enforcement and will
continue to monitor Costa Rica’s implementation of its IPR obligations under the CAFTA-DR.
Costa Rica’s state-owned insurance provider, the National Insurance Institute (INS), no longer operates as
a monopoly. Ten private companies are operating in the market, including U.S. companies. The new
market entrants continue to face challenges in light of INS’ market power as a result of its former
monopoly position. In addition, the regulatory regime is not fully developed, which has resulted in delays
as new market entrants seek authorization to operate in the market. Specific concerns relate to deceptive
advertising by the former monopoly, a cumbersome and nontransparent product approval process, and the
potential extension of preexisting exclusivity contracts between INS and insurance retailers designated as
Since the 2009 entry into force of the CAFTA-DR in Costa Rica, Costa Rica has progressively opened
important segments of its telecommunications market, including private network services, Internet
services, and mobile wireless services, which are now formally open for competition as a matter of law or
regulation. However, while this market opening is a notable achievement, Costa Rica’s new wireless
service providers continue to face obstacles, including reluctance by some municipal governments to
approve cell tower construction necessary to support new providers. Furthermore, a company that had
been seeking to provide Internet services via satellite since Costa Rica implemented its obligations under
CAFTA-DR was subjected to a lengthy and onerous regulatory review and only very recently was able to
obtain the required license authorization from Costa Rica’s telecommunications regulator, the
Superintendencia de Telecomunicaciones, and the telecommunications ministry. Industry claims that
competition in Costa Rica’s mobile telephony market is hindered by a still under-developed regime to
ensure that operators are able to share certain microwave links that are needed to connect base stations to
towers throughout the country.
The regulatory environment can pose significant barriers to successful investment in Costa Rica. One
common problem is inconsistent government action, between institutions within the central government
or between the central government and municipal governments. Another concern for U.S. investors is the
frequent recourse to legal challenges before Costa Rica’s constitutional court to review whether
government authorities have acted illegally or to review the constitutionality of legislation or regulations.
Some U.S. investors believe that such challenges have been used at times to undermine their investments
or hinder the quick resolution of disputes. Consequently, some investors use the phrase “judicial
insecurity” to describe their predicament in Costa Rica, despite Costa Rica’s relatively robust legal
Some U.S. firms and citizens have found corruption in government, including in the judiciary, to be a
concern and a constraint to successful investment in Costa Rica. Administrative and judicial decisionmaking appear at times to be inconsistent, nontransparent, and very time consuming.
In July 2009, Costa Rica notified levels of agricultural domestic support to the WTO that in 2007 were
above its $15.9 million Total Aggregate Measurement of Support (TAMS) ceiling on trade-distorting
domestic support. Costa Rica’s subsequent notifications to the WTO for the years 2008 through 2011
listed domestic support expenditures at ever increasing levels, reaching $104.5 million in 2011. Between
2008 and 2011, Costa Rica’s price support for rice accounted for all of its notified TAMS, and rice
accounted for a majority of its notified TAMS prior to 2008. During this time period, Costa Rica’s
domestic production of rice has increased. U.S. rice exports to Costa Rica have dropped by over 50
percent in 2011 as compared to 2006. In November 2010, the government of Costa Rica attempted to
reform its rice support policy and reduced the support price. While positive, it was insufficient to bring
Costa Rica‘s support level down to its WTO ceiling, and was subsequently overturned by a Costa Rican
court. The government of Costa Rica has appealed the court’s decision. Given this situation, the United
States is considering all options for addressing this issue.
As the Costa Rican government has increased tax collection efforts in recent years, several U.S.
companies have found themselves facing what they consider to be novel interpretations of tax regulations
and principles as they apply to international trade. While a number of the current cases have been
resolved or appear to be on reasonable paths to resolution, they illustrate the increasing level of
bureaucratic challenges facing foreign business in dealing with Costa Rican tax authorities.
The U.S. goods trade surplus with the Dominican Republic was $2.7 billion in 2012, down $395 million
from 2011. U.S. goods exports in 2011 were $7.1 billion, down 3.0 percent from the previous year.
Corresponding U.S. imports from the Dominican Republic were $4.4 billion, up 4.2 percent. The
Dominican Republic is currently the 38th largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in the Dominican Republic was $1.7 billion in 2011
(latest data available), up from $1.3 billion in 2010. U.S. FDI in the Dominican Republic is primarily in
the manufacturing sector.
Free Trade Agreement
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or
“Agreement”) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua
in 2006 and for the Dominican Republic in 2007. The CAFTA-DR entered into force for Costa Rica on
January 1, 2009. The CAFTA-DR significantly liberalizes trade in goods and services as well as includes
important disciplines relating to customs administration and trade facilitation; technical barriers to trade;
government procurement; investment; telecommunications; electronic commerce; intellectual property
rights; transparency; and labor and environmental protection.
The United States hosted a Free Trade Commission (FTC) meeting on January 23, 2012 in Miami. At
that meeting the CAFTA-DR countries recognized continued growth in trade and integration, and acted to
further strengthen CAFTA-DR institutions and initiatives.
In 2012, the Parties implemented changes to a number of the Agreement’s rules of origin for textile and
apparel goods to enhance the competitiveness of the region’s textiles sector. The changes to these rules of
origin were made pursuant to a Decision of the first FTC meeting in February 2011, and are aimed at
facilitating regional sourcing and encouraging greater integration of the textile and apparel supply chain
in the region. The new rules became effective on October 13, 2012, after the other CAFTA-DR countries
had completed their respective domestic procedures, and the U.S. Congress passed legislation
implementing the changes for the United States.
As a member of the Central American Common Market, the Dominican Republic applies a harmonized
external tariff on most items at a maximum of 15 percent with some exceptions.
Under the CAFTA-DR, however, 100 percent of U.S. consumer and industrial goods will enter the
Dominican Republic duty free by 2015. Nearly all textile and apparel goods that meet the Agreement’s
rules of origin now enter the Dominican Republic duty free and quota free, creating economic
opportunities for U.S. and regional fiber, yarn, fabric, and apparel manufacturing companies.
More than half of U.S. agricultural exports currently enter the Dominican Republic duty free under the
CAFTA-DR. The Dominican Republic will eliminate its remaining tariffs on nearly all agricultural goods
by 2020 (2025 for chicken leg quarters, 2028 for some dairy products, and rice). For certain agricultural
products, tariff-rate quotas (TRQs) permit some duty-free access for specified quantities, with the dutyfree amount expanding during the tariff phase-out period. Under the CAFTA-DR, the TRQs are to be
made available for the entire calendar year, beginning on January 1 of each year. The Dominican
Republic has a record of failing to allow product subject to TRQs to enter on January 1, as required by the
Agreement, because it was not allocating the in-quota volumes in a timely manner, nor distributing the
import certificates which allow importers allocated a share of the TRQ volume to import the product.
In 2010 and 2011, the Dominican Republic did not open any of the TRQs on January 1, and many of
these TRQs were not available until March of each year. In 2012, the Dominican Republic allocated
TRQ volumes and distributed import certificates for most products before the end of January, but import
certificates for rice and beans were not distributed until late May or early June.
The new Dominican administration (which assumed office in August of 2012) made the improvement of
its TRQ administration a priority and made substantial and positive changes to its administration system.
For the 2013 TRQ volumes, the Dominican Republic opened and allocated TRQ volumes for all products
by January 10, 2013; a significant improvement. It also has eliminated the use of physical import
certificates and has moved to an electronic document system which had previously been a significant
barrier to timely market access. The U.S. Government will continue to engage on this issue with the
Dominican Republic and will monitor its performance with regard to the timely opening of the TRQs and
the timely distribution of all import certificates, to allow product to enter the Dominican Republic under
the TRQs on January 1 of each year.
Nontariff Measures
The Dominican Republic’s customs policies and procedures, and often lengthy clearance times for
merchandise, frequently provoke complaints by businesses. However, the Dominican Republic’s customs
procedures, transparency and responsiveness to complaints from businesses have, with a few exceptions,
improved steadily, as have processing times. The United States continues to raise concerns with respect
to the barriers outlined below, as well as other non-tariff measures as they arise, and the Dominican
Republic has made further progress in some areas.
The Dominican Ministry of Agriculture continues to use discretionary import permits. The United States
continues to raise concerns with this practice with Dominican authorities and is working to eliminate it.
The 17 percent tax on the first matricula (registration document) for all vehicles, which was set by the
government in 2006, remains in effect.
The government of the Dominican Republic recently began enforcing a 2006 law which requires
registration with the Ministry of Health for a wide variety of products, including cosmetic, hygiene,
cleaning products, as well as medical devices. The requirement to provide documentation from U.S.
sources that is acceptable to the Ministry for registration purposes has presented challenges and created
lengthy delays, as many of the products do not require that type of regulation by the U.S. Federal
Government. However, the United States has made significant progress during 2012 in resolving issues
of documentation and in streamlining the registration process, and it will continue to work with
Dominican authorities.
In early 2012, exporters of steel reinforcing bars (rebar) from the United States to the Dominican
Republic encountered a technical barrier to trade which was subsequently resolved. However, exporters
still are required to provide performance bonds and other financial guarantees covering civil liability in an
amount equal to the full value of each shipment. The United States continues to work with Dominican
authorities to resolve this issue.
Since late 2011, importers of U.S.-made used vehicles up to five years old, which are allowed access into
the Dominican Republic under the CAFTA-DR, have reported that the Dominican customs service has
routinely challenged the eligibility of these vehicles to be considered as originating in the United States
and thus their eligibility for the CAFTA-DR preferential tariff rate. Although a Vehicle Identification
Number (VIN) indicates both the country of origin as well as the specific factory of manufacture, the
Dominican government has denied CAFTA-DR preferences for U.S. used cars for reasons of “technical
difficulties in demonstrating compliance with the rules of origin.”
The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures,
including advance notice of purchases and timely and effective bid review procedures, for procurement
covered by the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on procurements
of most Dominican government entities, including key ministries and state-owned enterprises, on the
same basis as Dominican suppliers. The anticorruption provisions in the Agreement require each
government to ensure under its domestic law that bribery in matters affecting trade and investment,
including in government procurement, is treated as a criminal offense or is subject to comparable
penalties. Nevertheless, U.S. suppliers have complained that Dominican government procurement is not
conducted in a transparent manner and that corruption is widespread.
The Dominican Republic is not a signatory to the WTO Agreement on Government Procurement.
The Dominican Republic does not have export promotion schemes other than tariff exemptions for inputs
imported by firms in the free trade zones. Under the CAFTA-DR, the Dominican Republic may not adopt
new duty waivers or expand existing duty waivers that are conditioned on the fulfillment of a
performance requirement (e.g., the export of a given level or percentage of goods). However, under the
CAFTA-DR, the Dominican Republic was permitted to maintain such measures through 2009, provided
that it maintained the measures in accordance with its obligations under the WTO Agreement on
Subsidies and Countervailing Measures. Under 2011 Law 139, the Dominican Republic now levies a 2.5
percent tax on goods sold from free trade zones into the local market. The U.S. Government is working
with the Dominican Republic government in an effort to ensure it implements its CAFTA-DR obligations.
In 2012, the Dominican Republic remained on the Watch List in the Special 301 report. Key concerns
cited in the report included the widespread availability of pirated goods and excessive delays in the
issuance of patents.
Despite these concerns, progress has recently been made in a few areas. For example, the Dominican
Republic continued its efforts to implement its obligations under the CAFTA-DR with respect to
government use of licensed software and addressing television broadcast piracy. The Dominican
Republic has also acceded to the Trademark Law Treaty. The Dominican Republic also expanded in
2011 the use of a system to facilitate and expedite the Ministry of Public Health’s marketing approval
process for foods, medicinal products, cosmetics, and home and personal hygiene products. However,
U.S. producers continue to report lengthy administrative delays in the marketing approval process for
pharmaceutical products.
During 2013, the United States will continue to monitor the Dominican Republic’s implementation of its
intellectual property rights (IPR) obligations under the CAFTA-DR, particularly in trademarks, data
protection for pharmaceuticals and enhancing judges’ capacity to manage IPR issues. The United States
will continue to monitor the Dominican Republic’s implementation of its bilateral and multilateral
obligations to provide an effective system for protecting against the unfair commercial use and
unauthorized disclosure of undisclosed test or other data generated to obtain marketing approvals for
pharmaceutical and agrochemical products.
Some U.S. firms and citizens have expressed concerns that corruption in government, including in the
judiciary, continues to be a constraint to successful investment in the Dominican Republic.
Administrative and judicial decision making at times are perceived as inconsistent, nontransparent, and
overly time-consuming.
The U.S. goods trade deficit with Ecuador was $2.9 billion in 2012, down $639 million from 2011. U.S.
goods exports in 2012 were $6.6 billion, up 8.3 percent from the previous year. Corresponding U.S.
imports from Ecuador were $9.5 billion, down 1.4 percent. Ecuador is currently the 39th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Ecuador was $1.2 billion in 2011 (latest data
available), the same as 2010. U.S. FDI in Ecuador is led by the mining and manufacturing sectors.
The Organic Code for Production, Trade, and Investment (Production Code), which came into effect on
December 29, 2010, covers an array of issues, including import and export policies, customs procedures,
taxes, and investment and labor rules. Among other things, the Production Code provides incentives
intended to spur local and foreign investment and to promote export expansion and diversification.
The Production Code created a Committee on Foreign Trade (COMEX) to replace the former Trade and
Investment Council (COMEXI) as Ecuador’s interagency body in charge of trade policy formulation and
regulation. The Production Code identifies trade policy tools available to the government to address
certain objectives, including: guaranteeing “fundamental rights” contained within Ecuador’s 2008
Constitution, implementing treaties or international agreements, preserving the environment and
biodiversity, responding to unjustifiable and unilateral restrictions applied by other countries to
Ecuadorian exports, correcting balance of payments imbalances, preventing illicit trafficking of drugs,
avoiding shortages of essential products and controlling the prices of such products, securing supplies of
raw materials for domestic producers as part of a government industrial development plan, and protecting
nonrenewable natural resources and the national cultural and historic heritage. In addition, the Production
Code authorizes the use of trade remedies, including antidumping, countervailing duty, and safeguard
Since January 26, 2011, Ecuador has pursued a strategic policy of import substitution drawing on
mechanisms included in the Production Code. The products subject to selective import substitution
measures include: fertilizers, agrichemicals, pesticides and fungicides, soaps, detergents and cosmetics,
other chemicals, ceramic tiles and floors, textiles, clothing, footwear, leather, radios, television,
telephones, electronics, and electrical appliances. Ecuador applies a combination of tariff and nontariff
measures, such as non-automatic import licensing, to most of the sectors listed above. The country
introduced numerous new trade restrictions in 2012 (described below). The Production Code also
includes a provision for cutting the corporate tax rate by 1 percentage point per year until it reaches 22
percent in 2013, as well as three types of tax incentives to promote investment in domestic production
Ecuador’s import policies are increasingly restrictive and create an uncertain environment for traders in
many sectors. Ecuador is a member of the Andean Community (AC) customs union, which also includes
Bolivia, Colombia, and Peru. When Ecuador joined the WTO in January 1996, it bound most of its tariff
rates at 30 percent ad valorem or less, except for agricultural products covered by the Andean Price Band
System (APBS). Ecuador’s second Trade Policy Review (TPR) by the WTO was concluded in
November 2011. According to the WTO Secretariat’s TPR report, Ecuador’s tariff structure has become
more complex. Previously, Ecuador had generally applied a simple four-tiered tariff structure with levels
of 5 percent for most raw materials and capital goods, 10 percent or 15 percent for intermediate goods,
and 20 percent for most consumer goods. Ecuador also imposes a number of fees and charges on imports.
According to the information available to the WTO, Ecuador’s applied average most favored nation
(MFN) tariff rate was 10.1 percent in 2011. While its average applied MFN tariff rate for industrial
products declined from 10.6 percent in 2005 to 8.8 percent in 2011, for agricultural products it increased
from 16.7 percent to 18.3 percent. However, as Ecuador did not supply to the WTO the ad valorem
equivalents for its mixed tariffs and has implemented new trade restrictions since then, the actual average
applied MFN tariff rates might be higher than those noted above and, in some cases, might exceed
Ecuador’s bound tariff rates. The WTO Secretariat identified 19 tariffs at the 10-digit level that exceeded
Ecuador’s bound tariff rates by 5 to 15 percentage points in 2011.
In June and July of 2012, Ecuador enacted a number of trade-restrictive measures, which included an
increase in tariffs on a number of products, as well as import quotas that will expire at the end of 2014. A
deteriorating non-oil trade deficit of $2.9 billion during the first four months of 2012 appears to have
prompted these measures. Some government officials publicly stated that they hoped these measures
would reduce imports by $300 million.
Resolution 63, enacted on June 15, 2012, increased tariffs on products covered by 102 tariff lines,
including alcoholic beverages, washing machines, televisions, video and photographic equipment, art
utensils, paper and cardboard, hair styling equipment, and work safety equipment. In Resolution 63,
Ecuador also increased tariffs on tobacco and tobacco seeds, malt, and other cereals. Mixed tariffs (1
percent ad valorem plus a specific tariff of $0.25 per grade of alcohol/liter) were established for 20
alcoholic products, including malt beer, sparkling wine, “pisco” (grape brandy), vodka, and
tequila. According to U.S. distilled spirit industry sources, due to the new formulation and the prevailing
price of the majority of imported spirits, Ecuador’s assessed tariff rates now exceed in many instances
Ecuador’s WTO bound rates. Televisions, which fall within a single tariff line, were also assigned mixed
tariffs, increasing in proportion to the size of the television. Ecuador raised tariffs on an additional 81
tariff lines, with all but four lines increased to the country’s bound tariff rate under its WTO accession
Resolution 65, also enacted on June 15, 2012, established value ceilings and unit quotas for imports of
automobile complete knock-downs (CKDs). In addition, Resolution 65 established a sliding tariff scale
ranging between 4 percent and 40 percent, which decreases as more locally produced content is
incorporated in the vehicle. Resolution 65 also created a monitoring mechanism to verify increases in the
incorporation of local content. However, Ecuador has not yet published a methodology for measuring
local content levels. This resolution will remain in effect through December 2014.
Resolution 66, issued on June 11, 2012, established a $538 million limit for the importation of motor
vehicles classified under 16 tariff lines, including passenger cars and cargo trucks. The $538 million
quota would limit imports of vehicles under the 16 tariff lines affected, to 68 percent by value of the total
imported in 2010. The 38 importers among which the quota has been divided must comply with
established unit and dollar value limitations. Tariffs on vehicles, which are as high as 40 percent, also
remain in effect. On July 30, 2012, COMEX approved Resolution 77, which slightly eased the unit and
value restrictions on vehicle imports imposed by Resolution 66. Resolution 77 allowed importers to use
existing import licenses to continue to import vehicles through December 28, 2012, even if it resulted in
imports exceeding the importers’ quotas. This eased concerns somewhat because some importers were
already approaching their annual import quotas when the quotas were announced, which would have
required vehicles ordered before Resolution 66 was announced to be re-exported.
Resolution 67, adopted on June 15, 2012, limited imports under a single tariff line for cell phones to
$142.6 million, which represents 68 percent of Ecuador’s total value of these cell phones imports in
2011. Unit and dollar value limits were established for each of the 33 importers. Imports of cell phones
entering Ecuador before June 11, 2012 were counted toward the annual limits, as well as shipments
already in transit. In addition, cell phones will still be subject to a 15 percent ad valorem tariff.
On July 17, 2012, COMEX issued Resolutions 69 and 70, which tightened import restrictions established
in Resolutions 63 and 67. Resolution 69 reduced by 28 percent the total value of permissible imports by
CONECEL, Ecuador’s largest private mobile phone operator. Meanwhile, the public telecommunications
company, CNT, received a 145 percent increase in its import value entitlement, which grew from $4.9
million to $12 million. Unit quotas for CONECEL and CNT remained unchanged, suggesting that
Ecuador has structured the restrictions to permit CNT to import more expensive phone models and
improve its market share, which is only 1.6 percent.
Resolution 70 introduced a specific tariff of $39.97 for all televisions up to 20 inches, while retaining the
existing 5 percent ad valorem duty; it also increased to $73.11 the specific tariff for televisions between
20 and 32 inches.
On August 30, 2012, COMEX issued Resolution 82 to reduce tariffs on imported capital goods used for
government contracts. Resolution 82 aims to promote investments and support investors that have signed
contracts with the government. To qualify for the benefits, goods must be validated individually by
COMEX for end-use purposes and meet origin and technical requirements. If there are any similar
locally produced goods, the benefits do not apply. According to local newspapers, private sector
representatives criticized the resolution for only favoring public-private initiatives.
Agricultural Products
Ecuador applies variable import duties set pursuant to the APBS with respect to more than 150
agricultural products when they are imported from outside the AC. These products include wheat, rice,
sugar, barley, white and yellow corn, soybeans, soybean meal, African palm oil, soy oil, chicken meat,
pork meat, and powdered milk, as well as certain products derived from them. The APBS protects
domestic producers of covered products by providing for tariff increases when world prices fall and tariff
decreases when world prices rise.
When Ecuador became a WTO member, it agreed to phase out its participation in the APBS. To date, no
steps have been taken to phase out use of the APBS. The extent to which the APBS restricts trade varies
by product. For some U.S. exports, such as wheat, barley, malt barley, and their byproducts, the price
band total duty (ad valorem tariff plus variable levy) is often zero. However, price band total duties as
high as 85.5 percent and 45 percent have been applied to chicken parts and pork, respectively, restricting
those imports.
On October 11, 2010, Ecuador imposed a safeguard measure on imports of automotive windshields based
on a determination of serious injury to the national industry due to increased imports. The safeguard
measure will be applied for three years and consists of the application of a $12.72 specific tariff on top of
the current applied 15 percent ad valorem tariff; imports from Peru and Chile are exempted from the
Tariff-Rate Quotas
When Ecuador became a WTO Member it established tariff-rate quotas (TRQs) for a number of
agricultural imports. Products subject to TRQs include wheat, corn, sorghum, barley, barley malt,
soybean meal, powdered milk, and frozen turkeys. The Ecuadorian government’s process for TRQ
administration lacks transparency, and for some products, such as frozen chicken parts, a TRQ has not yet
been established.
Nontariff Measures
Importers must register with Ecuador’s National Customs Service (formerly the Ecuadorian Customs
Corporation) to obtain a registration number for all products. In August 2011, Ecuador instituted a nonautomatic import licensing program covering 42 tariff subheadings. The products affected are tires,
vehicles, mobile telephones, televisions/monitors, refrigerators/freezers, and semi-finished iron and steel
products. According to the Ecuadorian government, the licensing regime was put into place to monitor
compliance with so-called voluntary import agreements within these sectors.
Ecuador requires prior authorization from the Ministry of Agriculture, Livestock, Aquaculture, and
Fisheries (MAGAP) for imports of 37 agricultural products originating in countries outside the AC
(COMEXI Resolution 585 of 2010). Many of these products are also protected under the APBS (e.g.,
poultry, dairy, rice, palm oil). MAGAP officials argue that the authorization ensures that sanitary
standards and tax rules are followed, but entry has been denied in situations where these concerns do not
appear to apply.
Another administrative hurdle for importers of agricultural products is the MAGAP’s use of
“Consultative Committees” for import authorizations. These Committees, composed primarily of local
producers, often advise the MAGAP against granting import authorizations for products such as corn,
soybean meal, dairy products, and meats. Additionally, import authorizations usually are subject to crop
absorption programs, pursuant to which MAGAP requires that all local production be purchased at high
prices before authorizing imports.
In January 2008, Ecuador increased its special consumption tax (ICE) on a number of products, largely
luxury items. The ICE was increased mostly for imported products rather than those produced
domestically, such as perfumes, vehicles (tiered increases by vehicle price starting at $20,000), video
games, firearms, airplanes, helicopters, boats, and cable television service. In December 2011, a new tax
package increased the ICE ad valorem rate on spirits from 40 percent to 75 percent, and added a specific
tax, phased in over three years, of $6.20 for every liter-equivalent of alcohol. However, the legislation is
supposed to make assessment of the ICE for domestically produced and imported spirits more equitable
by establishing factory and pre-import duty prices as the new taxable bases, respectively. A special
consumption tax on cigarettes was set on November 24, 2011 at $0.08 per cigarette and is adjusted
biannually, depending on the consumer price index.
The December 2011 tax package also included an increase, effective immediately, of Ecuador’s capital
exit tax from 2 percent to 5 percent. Importers claim this indirect tax on imports substantially increases
the cost of purchasing abroad. Imports of raw materials, basic inputs, and capital goods are eligible for
offsetting tax credits, but the process has been criticized as convoluted.
Since 2007, Ecuador’s customs service has used a risk analysis system rather than Ecuador’s existing preshipment inspection regime for imports with f.o.b. values of more than $4,000. Under this system, low
risk importers benefit from fewer physical inspections and expedited release of their cargo. In August
2010, a policy was implemented requiring that for every shipment, importers must provide net weight
figures per product lot number, rather than prorating the weight of the container by product as was
previously allowed.
Foreign bidders must register and have a local legal representative in order to participate in government
procurement in Ecuador. Bidding on government procurement can be cumbersome and relatively
nontransparent. The lack of transparency creates opportunities for manipulation by procuring entities.
Since 2008, Ecuador’s public contracting law requires that priority be given to locally produced and
supplied products and services, although foreign suppliers can compete for the procurements. Based on
Article 25 of the public contracting law, INCOP (Public Contracting Institute) established that at least 40
percent of the value of a product must be locally produced to qualify for this preference. Bidders are
required to register and submit bids for government procurement through an online system
As a general rule, all public institutions are subject to the public contracting law. However, the same law
establishes exceptions, including special regimes established pursuant to norms set by the Ecuadorian
President (Article 2), international agreements for the purchase of goods and services (Article 43),
exploration and exploitation of hydrocarbons, emergency situations (Article 57), and national security
Ecuador is not a signatory to the WTO Agreement on Government Procurement.
Ecuador was listed on the Watch List in the 2012 Special 301 report. The report acknowledged
statements from Ecuador’s intellectual property rights (IPR) officials regarding the need to create a
culture of respect for IPR. However, the report also cited key remaining concerns, including: weak IPR
enforcement; lack of effective protection against unfair commercial use of undisclosed test or other data
generated to obtain marketing approval for pharmaceutical products; and lack of an effective system to
prevent the issuance of marketing approvals for unauthorized copies of patented pharmaceutical products.
Overall IPR enforcement in Ecuador remains seriously inadequate, resulting in high piracy levels in the
software, publishing, recording, and film industries. In addition, Ecuador has yet to put in place
specialized IPR courts, which were required under its 1998 IPR law.
On October 23, 2012, Ecuador enacted Resolution 006-2012-CD-IEPI, which substantially raised the fees
associated with registration of patents and new plant varieties. Under this resolution patent and plant
variety maintenance fees are assessed yearly, on an upward sliding scale. As enacted, the fees associated
with a patent for an invention or procedure are more than $140,000 over 20 years, while the fees
associated with protection of a plant variety are more than $175,000 over 20 years.
Ecuador has issued two compulsory licenses for patented drugs used in the treatment of HIV/AIDS. The
first was issued on April 14, 2010, for a patented drug manufactured by a U.S. company. The second was
issued on November 12, 2012, for a patented drug manufactured by a British company.
Credit Reference Services
On October 2, 2012, Ecuador’s National Assembly passed a credit bureau bill severely restricting the
operations of private credit bureaus. The bill creates a new state-owned entity with exclusive rights to
credit-related data. Private credit bureaus, while not prohibited outright from operating, are obliged under
the bill to give up their databases to the government and can no longer receive data directly from the
financial sector.
Ecuador’s investment climate remains marked by uncertainty, as the government’s economic policies
continue to evolve. While Ecuador is still relatively open to foreign investment in most sectors, new laws
and regulations limit private sector participation in sectors deemed “strategic,” most notably in extractive
industries. In addition, inconsistent application and interpretation of its investment laws negatively
impacts the transparency and stability of Ecuador’s investment regime. This legal complexity increases
the risks and costs of doing business in Ecuador.
Ecuador’s framework for investment protection is still unsettled. Ecuador’s withdrawal from the World
Bank’s International Centre for Settlement of Investment Disputes (ICSID) became effective January 7,
2010. In September 2009, the Ecuadorian government requested approval from the country’s National
Assembly to terminate 13 bilateral investment treaties (BITs), including its BIT with the United States,
arguing that they contained provisions that were unconstitutional. On November 24, 2010, Ecuador’s
Constitutional Court ruled that provisions within Ecuador’s BIT with the United States were
unconstitutional due to a conflict with Article 422 of the 2008 Constitution. In its ruling, the Court stated
that Article 422 of Ecuador’s Constitution prohibited the State from concluding treaties or international
instruments in which Ecuador would cede sovereign jurisdiction to international arbitration tribunals in
commercial disputes between the State and private investors and concluded that the BIT with the United
States constituted such an instrument. The Constitutional Court has delivered similar rulings on the other
BITs under review. Based on the Constitutional Court’s rulings, Ecuador’s National Assembly has so far
approved termination of five of the BITs, but did not approve termination of four others. It has not yet
acted on Ecuador’s BIT with the United States. To date, the Ecuadorian government has only officially
terminated its BIT with Finland. The Ecuadorian government has indicated it may be open to negotiating
international arbitration clauses within individual contracts, as provided for under the Production Code
and the Planning and Public Finance Code.
Certain sectors of Ecuador’s economy are reserved for the State, while equity caps apply in other sectors,
such as a 49 percent cap on foreign investment in domestic fishing operations and a 25 percent limit with
respect to broadcast stations. Petroleum exploration and development is reserved for the State, but
foreign investment can be conducted through “exceptional” contracts with the State. In the past, a
number of disputes have arisen related to these contracts, and to the laws regulating petroleum exploration
and development generally. In 2010, the Ecuadorian government enacted a hydrocarbons law that
requires all contracts in extractive industries to be in the form of service, or “for fee,” contracts, rather
than production sharing agreements. On November 23, 2010, the Ecuadorian government completed
negotiations with most resident foreign oil companies to transition from production sharing to service
contracts. Several companies declined to renegotiate their contracts and negotiated compensation for
operations turned over to the Ecuadorian government. The last U.S. oil and gas production company
operating in Ecuador departed in 2011 after negotiating a sale of its operations to the government. Some
U.S. companies that have operated in Ecuador, notably in the petroleum sector, have filed for
international arbitration resulting from investment disputes.
The U.S. goods trade surplus with Egypt was $2.5 billion in 2012, a decrease of $1.7 billion from 2011.
U.S. goods exports in 2012 were $5.5 billion, down 11.8 percent from the previous year. Corresponding
U.S. imports from Egypt were $3.0 billion, up 45.6 percent. Egypt is currently the 42nd largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Egypt was $14.6 billion in 2011 (latest data
available), up from $12.2 billion in 2010.
Over the past seven years, the government of Egypt has gradually liberalized its trade regime and
economic policies, although the reform process has been slow and uneven. Revolution and political
uncertainty gripped Egypt over the course of 2011 and in 2012, leaving unclear the future of Egyptian
approaches to tackling needed trade reforms. The government released an economic reform plan on
November 29, 2012, and has publicly committed to make investment promotion and trade facilitation a
top priority. However, continuing political instability has made it difficult for the government to focus on
long-term trade and investment policy issues. As a result, few actions have been taken to improve the
trade and investment climate. Challenges to opening Egypt’s markets remain, including a need to reduce
corruption, reform the cumbersome bureaucracy, and implement a fully transparent regulatory regime.
The Egyptian government has undertaken liberalizing reforms that have reduced the overall weighted
applied tariff average from 14.6 percent to 10.1 percent. Tariffs on the vast majority of goods entering
Egypt are below 15 percent. Vehicles, alcohol, tobacco, and selected cereals are the only items on which
tariffs are 40 percent or higher. Tariffs on some cereals are well over 1,000 percent. All clothing faces a
relatively high tariff of 30 percent.
The tariff on passenger cars with engines of less than 1,600 cubic centimeters (cc) is 40 percent, and the
tariff on cars with engines of more than 1,600cc is 135 percent. In addition, cars with engines over
2,000cc are subject to an additional escalating sales tax of up to 45 percent. The Egypt-EU Association
Agreement, which entered into force in 2004, will bring all auto tariffs faced by EU carmakers to zero by
2019, with certain vehicle classes duty-free by 2016.
Tariffs on a number of processed and high value food products, including poultry meat, range from 20
percent to 30 percent.
There is a 300 percent duty on alcoholic beverages for use in the tourism sector, including for hotels, plus
a 40 percent sales tax. The general tariff for alcoholic beverages ranges from 1,200 percent on beer to
1,800 percent on wine and to 3,000 percent on sparkling wine and spirits.
Foreign movies are subject to duties and import taxes amounting to 46 percent and are subject to sales
taxes and box offices taxes higher than those for domestic films.
Customs Procedures
In 2004, the Ministry of Finance committed to a comprehensive reform of Egypt’s customs administration
and is reorganizing the Customs Authority to meet international standards. Egypt began establishing
modern customs centers at major ports to test new procedures, such as risk management, and Egypt began
implementing new information technology systems to facilitate communications among ports and
airports. These systems were to become fully operational in 2009, but implementation has been delayed.
The Ministry of Finance in August 2008 finalized a draft of a new customs law to streamline procedures
and facilitate trade. The proposed legislation has yet to be submitted to parliament for consideration. Its
status at this point is unclear. The practice of consularization, which requires exporters to secure a stamp
from Egyptian Consulates on all documents for goods to be exported to Egypt – at a cost of $100 to $150
per document – remains in place and adds significant costs in money and time. To address these and
other issues, the United States and Egypt have opened negotiations on a trade facilitation protocol.
Import Bans and Barriers
On March 18, 2012, Egypt’s Minister of Agriculture and Land Reclamation (MALR) signed Decree 438
lifting the import ban on cotton from all origins that was originally imposed on October 25, 2011, by
Decree 1864. However, the March 2012 decree was abrogated by a ruling in the Administrative Courts.
As such, MALR allows the importation of cotton only for use in the country’s free trade zones for
processing and re-export.
The National Nutrition Institute or the Drug Planning and Policy Center of the Ministry of Health and
Population (MOHP) registers and approves all nutritional supplements, specialty foods, and dietary foods.
The definition of specialty foods is broad and includes processed foods with labels claiming that the food
is “high in” or “enriched with” vitamins or minerals. The government attempts to complete the approval
process in 6 weeks to 8 weeks, but some products face waiting periods of 4 months to 12 months for
approval. Importers must apply for a license for dietary products and renew the license every 1 year to 5
years depending on the product, at a cost of approximately $1,000 per renewal.
The MOHP must approve the importation of new, used, and refurbished medical equipment and supplies
to Egypt. This requirement does not differentiate between the most complex computer-based imaging
equipment and basic supplies. The MOHP approval process consists of a number of steps which can be
burdensome. Importers must submit a form requesting the MOHP’s approval to import, provide a safety
certificate issued by health authorities in the country of origin, and submit a certificate of approval from
the U.S. Food and Drug Administration or the European Bureau of Standards. The importer must also
present an original certificate from the manufacturer indicating the production year of the equipment and,
if applicable, certifying that the equipment is new. All medical equipment must be tested in the country
of origin and proven safe. The importer must prove it has a service center to provide after-sales support
for the imported medical equipment, including spare parts and technical maintenance.
A 1998 law regulating government procurement requires that technical factors, along with price, be
considered in awarding contracts. A preference is granted to Egyptian companies whose bids are within
15 percent of the price of other bids. In the 2004 Small and Medium Sized Enterprises (SMEs)
Development Law, Egyptian SMEs were given the right to supply 10 percent of the goods and services in
every government procurement contract.
Egyptian law grants potential suppliers certain rights, such as speedy return of their bid bonds and an
explanation of why a competing supplier was awarded a contract. However, concerns about a lack of
transparency remain. For example, the Prime Minister retains the authority to determine the terms,
conditions, and rules for procurement by specific entities.
Egypt is not a signatory to the WTO Agreement on Government Procurement.
Egypt remained on the Watch List in the 2012 Special 301 Report. Piracy and counterfeiting continue to
be serious problems, as does the speed and effectiveness of processing trademark applications.
Specifically, piracy of broadcast content via satellite television operations, lack of enforcement in major
cases involving counterfeit apparel and trademark violations, online piracy, entertainment software
piracy, and book piracy remain concerns. The United States remains concerned about the lack of clarity
in protections against unfair commercial use and unauthorized disclosure of undisclosed test or other data
generated to obtain marketing approvals for pharmaceutical products. Additionally, rights holders have
difficulty addressing patent infringement concerns expeditiously in connection with applications to
market pharmaceutical products.
Egypt restricts foreign equity in construction and transport services to 49 percent. Egypt also limits the
employment of non-nationals to 10 percent of an enterprise’s general workforce, although the Ministry of
Manpower and Migration can waive this limitation. In computer-related industries, Egypt requires that 60
percent of top level management be Egyptian within three years of the start-up date of the venture.
According to Egyptian labor law, foreigners cannot be employed as tourist guides.
No foreign bank seeking to establish a new bank in Egypt has been able to obtain a license in the past 20
years, and in November 2009, the Central Bank reaffirmed that no new banks would be given licenses.
However, foreign banks have been allowed to buy shares in existing banks.
Since banking reform began in 2004, the government has divested itself from many joint venture banks
and privatized the government-owned Bank of Alexandria in 2006. However, efforts to restructure the
remaining three state-owned banks have been mixed, and the Central Bank rejected privatization of the
three banks in 2009 on the grounds that market conditions were not right. The three remaining stateowned banks control at least 40 percent of the banking sector’s total assets. In 2010, in reaction to high
meat and poultry prices, the Central Bank relaxed a requirement of 100 percent foreign exchange cover
for Letters of Credit issued for the purchase of agricultural and food products, reducing the requirement to
50 percent. As of mid-March 2013, this practice continues.
The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance
and international telecommunication sectors in December 2005, but in large part due to the failure of the
National Telecommunications Regulatory Authority (NTRA) to offer additional licenses to compete in
these sectors, Telecom Egypt continues to hold a de facto monopoly. In October 2007, the NTRA offered
Egypt’s three wireless carriers, MobiNil, Vodafone and Etisalat, the option to acquire a license to offer
international gateway services, but only to their own customers.
Courier and Express Delivery Services
The Egyptian National Postal Organization (ENPO must grant special authorization to private courier and
express delivery service suppliers seeking to operate in Egypt). In addition, although express delivery
services constitute a separate, for-profit, premium delivery market, ENPO requires private express
operators to pay a “postal agency fee” of 10 percent of annual revenue on shipments under 20 kilograms.
In 2010, ENPO imposed an additional fee on private couriers and express delivery services of £E5 ($0.75)
on all shipments under five kilograms.
Significant impediments to investment exist in Egypt. Foreign direct investment accounted for less than
25 percent of all investment in Egypt prior to the revolution and has fallen drastically since. Following
the revolution, Egypt put into place capital transfer restrictions that prevent foreign companies from
transferring more than $100,000 per year out of Egypt without a valid commercial purpose, original
documentation, and approval by the Central Bank. Daily withdrawals for corporations are limited to
$30,000. In 2012, Egypt announced further capital controls that limit the amount of money that can be
transferred out of the country to $10,000 and instituted a new currency auction system that has led to a
gradual depreciation of the Egyptian Pound. Investors report that it can take several weeks for legitimate
transfers to be executed.
Labor rules prevent companies from hiring more than 10 percent non-Egyptians (25 percent in Free
Zones), and foreigners are not allowed to operate sole proprietorships or simple partnerships. Egypt’s
trade regulations prohibit foreigners from acting as importers for trading purposes and allow them to act
solely as commercial agents. A foreign company wishing to import for trading purposes must do so
through an Egyptian importer.
Although Egypt is a signatory to international arbitration agreements, Egyptian courts do not always
recognize foreign judgments. Resolution of any dispute is very slow, with the time to adjudicate a case to
completion averaging three to five years. The judicial system is also subject, in some cases, to political
Other obstacles to investment include excessive bureaucracy, a shortage of skilled labor, limited access to
credit, slow and cumbersome customs procedures, and non-tariff trade barriers.
Pharmaceutical Price Controls
On July 3, 2012, the MOHP issued Ministerial Decree No. 499/2012 to provide a new legal basis for the
pricing of branded and generic products in Egypt. The new pricing structure is mainly based on global
public price comparisons. In addition, the decree set profit margin caps at the distributor and retail levels.
This decree revoked Decree No. 373 of 2009, a cost-plus system. However, implementation plans have
been suspended as a result of resistance from both pharmaceutical producers and consumer interest
The U.S. goods trade surplus with El Salvador was $502 million in 2012, a decrease of $384 million from
2011. U.S. goods exports in 2012 were $3.1 billion, down 8.3 percent from the previous year.
Corresponding U.S. imports from El Salvador were $2.6 billion, up 4.2 percent. El Salvador is currently
the 53rd largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in El Salvador was $2.7 billion in 2011 (latest data
available), up from $2.6 billion in 2010.
Free Trade Agreement
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or
“Agreement”) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua
in 2006 and for the Dominican Republic in 2007. The CAFTA-DR entered into force for Costa Rica on
January 1, 2009. The CAFTA-DR significantly liberalizes trade in goods and services as well as includes
important disciplines relating to customs administration and trade facilitation; technical barriers to trade;
government procurement; investment; telecommunications; electronic commerce; intellectual property
rights; transparency; and labor and environmental protection.
The United States hosted a Free Trade Commission (FTC) meeting on January 23, 2012 in Miami. At
that meeting the CAFTA-DR countries recognized continued growth in trade and integration, and acted to
further strengthen CAFTA-DR institutions and initiatives.
In 2012, the Parties implemented changes to a number of the Agreement’s rules of origin for textile and
apparel goods to enhance the competitiveness of the region’s textiles sector. The changes to these rules of
origin were made pursuant to a Decision of the first FTC meeting in February 2011, and are aimed at
facilitating regional sourcing and encouraging greater integration of the textile and apparel supply chain
in the region. The new rules became effective on October 13, 2012, after the other CAFTA-DR countries
had completed their respective domestic procedures, and the U.S. Congress passed legislation
implementing the changes for the United States.
As a member of the Central American Common Market, El Salvador applies a harmonized external tariff
on most items at a maximum of 15 percent with some exceptions.
Under the CAFTA-DR, however, 100 percent of U.S. consumer and industrial goods will enter El
Salvador duty free by 2015. Nearly all textile and apparel goods that meet the Agreement’s rules of
origin now enter El Salvador duty free and quota free, creating economic opportunities for U.S. and
regional fiber, yarn, fabric, and apparel manufacturing companies.
Under the CAFTA-DR, more than half of U.S. agricultural exports now enter El Salvador duty free. El
Salvador will eliminate its remaining tariffs on nearly all agricultural products by 2020 (2023 for rice and
chicken leg quarters and 2025 for dairy products). For certain agricultural products, tariff-rate quotas
(TRQs) permit some duty-free access for specified quantities during the tariff phase-out period, with the
duty-free amount expanding during that period. El Salvador will liberalize trade in white corn through
continual expansion of a TRQ, rather than by the reduction of the out-of-quota tariff.
Nontariff Measures
Under the CAFTA-DR, all CAFTA-DR countries, including El Salvador, committed to improve
transparency and efficiency in administering customs procedures, including the CAFTA-DR rules of
origin. The CAFTA-DR countries also committed to ensuring greater procedural certainty and fairness in
the administration of these procedures, and agreed to share information to combat illegal trans-shipment
of goods. However, U.S. exporters and Salvadoran importers of U.S. products, particularly agricultural
goods, have expressed increasing concern about customs-related problems they are encountering in El
Salvador, specifically issues related to origin verification procedures. The United States is continuing to
engage with El Salvador on these issues. In addition, while El Salvador continues to make progress on
customs issues, the United States continues to work with El Salvador to address concerns related to
implementation of its CAFTA-DR obligations with respect to express shipments.
In 2009 and again in 2010, El Salvador amended its law regulating the production and sale of alcoholic
beverages. The amendments applied an 8 percent ad valorem tax on domestic and imported alcoholic
beverages, as well as a specific tax based on percentage of alcohol by volume. This tax structure applies
a lower rate per percentage of alcohol on alcoholic beverages that are typically produced locally or
imported from other Central American countries (e.g., aguardiente) than on alcoholic beverages that are
imported from non-Central American countries (e.g., whiskey and gin). The U.S. Government has raised
concerns about the amended law with the government of El Salvador and continues to work with the
government in an effort to address those concerns.
The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures,
including advance notice of purchases and timely and effective bid review procedures, for procurements
covered by the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on procurements
of most Salvadoran government entities, including key ministries and state-owned enterprises, on the
same basis as Salvadoran suppliers. The anticorruption provisions in the Agreement require each
government to ensure under its domestic law that bribery in matters affecting trade and investment,
including in government procurement, is treated as a criminal offense or is subject to comparable
In May 2011, the Legislative Assembly approved a series of reforms to the LACAP (Ley de
Adquisiciones y Contrataciones de la Administración Pública), which regulates government procurement.
These reforms included easing procurement procedures to expedite contracts valued at less than $35,856.
However, the U.S. Government is discussing with the government of El Salvador additional measures that
have passed since, including a June 2011 law which would allow the Ministry of Health to purchase
pharmaceuticals without going through an open tender, and a December 2012 decree that would require
local seeds be procured by the Ministry of Agriculture under the Presidential Agricultural Package
Giveaway Program.
El Salvador is not a signatory to the WTO Agreement on Government Procurement.
El Salvador has notified the WTO Committee on Subsidies and Countervailing Measures of the Export
Processing Zones and Marketing Act, an export subsidy program which must be phased out by the end of
Beginning on February 1, 2011, El Salvador eliminated the 6 percent tax rebate it had applied to exports
shipped outside Central America for goods that had undergone a transformation process adding at least 30
percent to the original value. To compensate for the elimination of the 6 percent rebate, in January 2011,
the Salvadoran government approved a new form of drawback, consisting of a refund of custom duties
paid on imported inputs and intermediate goods exclusively used in the production of products exported
outside of the Central American region.
Under the CAFTA-DR, El Salvador may not adopt new duty waivers or expand existing duty waivers that
are conditioned on the fulfillment of a performance requirement (e.g., the export of a given level or
percentage of goods).
To implement its CAFTA-DR intellectual property rights (IPR) obligations, El Salvador undertook
legislative reforms providing for stronger IPR protection and enforcement. Despite these efforts, the
piracy of optical media, both music and video, in El Salvador remains a concern. In addition, the business
software industry continues to report very high piracy rates for El Salvador. Optical media imported from
the United States into El Salvador are being used as duplication masters for unauthorized copies of
copyrighted works. The United States has expressed concern to the Salvadoran government about
inadequate enforcement of cable broadcast rights and the competitive disadvantage it places on legitimate
providers of this service. The United States will continue to monitor El Salvador’s implementation of its
IPR obligations under the CAFTA-DR.
Since June 2008, every international telephone call, regardless of origin, is charged a $0.04 per minute
tax, while domestic calls within El Salvador are not assessed this tax. A previous exemption for calls
from other Central American countries is no longer in effect.
There are few formal investment barriers in El Salvador. However, there are nontransparent and
duplicative regulations, and licensing and regulatory decision-making processes that appear to be
inconsistent and contradictory. Such barriers have affected sectors including energy, mining, and retail
Some U.S. firms and citizens have found corruption in government, including in the judiciary, to be a
significant concern and a constraint to successful investment in El Salvador. Administrative and judicial
decision-making appear at times to be inconsistent, nontransparent, and very time consuming.
Bureaucratic requirements have at times reportedly been excessive and unnecessarily complex. U.S.
firms have expressed concern about the “Medicines Act” passed by the Salvadoran Legislature in
February 2012, and the implementing regulations issued in December 2012, particularly regarding the
methodology to determine maximum sales price of pharmaceuticals to be sold in El Salvador and the lack
of transparency in the process.
The U.S. goods trade surplus with Ethiopia was $1.1 billion in 2012, an increase of $558 million from
2011. U.S. goods exports in 2012 were $1.3 billion, up 86.4 percent from the previous year.
Corresponding U.S. imports from Ethiopia were $183 million, up 26.7 percent. Ethiopia is currently the
74th largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Ethiopia was $8 million in 2011 (latest data
available), up from $6 million in 2010.
Ethiopia is not a Member of the World Trade Organization (WTO), but is actively acceding to the WTO.
Ethiopia held a third working party meeting in March 2012 and submitted to the WTO its proposed tariff
rates for imports of goods in February 2012. Ethiopia has made progress in drafting new legislation and
implementing capacity building measures relevant to WTO accession with the help of technical assistance
from a number of donors, including the U.S. Government.
Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA), but does not
participate in COMESA’s free trade area.
According to the WTO, Ethiopia’s average applied tariff rate was 17.3 percent in 2011. Revenue
generation appears to be the primary justification for Ethiopia’s tariffs; however, high tariffs are applied
to protect certain local industries, including textiles and leather. Goods imported from COMESA
members are granted a 10 percent tariff preference. Ad valorem duties range from 0 percent to 35
percent, with a simple average of 16.8 percent. There is a 10 percent surtax on selected imported goods,
with the proceeds designated for distribution of subsidized wheat in urban areas.
Nontariff Barriers
A cereals (wheat, corn, barley and teff) export ban imposed in 2009 due to supply shortages remains in
effect. An export ban imposed on cotton in November 2010 was lifted in April 2012. An export ban on
raw and semi-processed hides and skins, which was intended to shore up domestic supply and strengthen
the export of value added products, took effect at the end of 2011. An importer must apply for an import
permit and obtain a letter of credit for the total value of the imports before an order can be placed. Even
then, import permits are not always granted.
Foreign Exchange Controls
Ethiopia’s central bank administers a strict foreign currency control regime and the local currency (Birr)
is not freely convertible. While larger firms, state-owned enterprises, and enterprises owned by the ruling
party do not typically face major problems obtaining foreign exchange, less well connected importers,
particularly smaller, new-to-market firms, face delays in arranging trade-related payments. The limited
supply of foreign exchange from Ethiopia’s banks has recently affected U.S. companies’ ability to import
essential inputs and industrial capital goods on a timely basis.
A high proportion of Ethiopian import transactions are conducted through government procurement,
reflecting the heavy involvement of the government in the overall economy. Tender announcements are
usually made public. Bureaucratic procedures and delays in the decision-making process sometimes
impede foreign participation in procurements. U.S. firms have complained about the abrupt cancellation
of some procurements, a perception of favoritism toward Chinese suppliers, a frequent requirement that
would-be suppliers appear in person to collect solicitation packages, and a general lack of transparency in
the procurement system. Business associations complain that state-owned and ruling party-owned
enterprises have enjoyed de facto advantages over private firms in government procurement. Several
U.S. firms have complained of pressure to offer supplier financing or other low-cost financing in
conjunction with tenders. Several significant, large contracts have been signed in recent years between
government enterprises and Asian companies outside of the government procurement process.
As Ethiopia is not yet a member of the WTO, it is not a signatory to the WTO Agreement on Government
The Ethiopian Intellectual Property Office (EIPO) is responsible for the administration of patents,
trademarks, and copyrights, and has competence in intellectual property policy. EIPO focuses mainly on
protecting and enforcing Ethiopian intellectual property rights (IPR), and has taken virtually no action to
confiscate or impede the sale of pirated foreign works in Ethiopia. Ethiopia is a member of the World
Intellectual Property Organization, and a signatory to the WIPO treaty; however, it has not ratified most
of the major IPR treaties including the Madrid Protocol and Rome Convention. A November 2012
Memorandum of Understanding between Microsoft and the EIPO establishes a program to train
journalists, private sector distributors, and government procurement agents on IPR infringement and
licensing issues.
Trademark infringement of major international brands appears to be widespread in Ethiopia.
The state-owned Ethio Telecom maintains a monopoly on wire and wireless telecommunications and
Internet service, and is closed to private investment, although the company’s management was outsourced
to France Telecom (Orange) in December 2010. The Value Added Service Directive No. 2/2005 allows
private companies to provide Internet service through the government’s infrastructure, but implementing
regulations have yet to be promulgated. The Ministry of Information and Communication Technology
allows companies and organizations whose operations are Internet-dependent or are located in remote
areas of the country to use Very Small Aperture Terminals (VSATs), but does not allow the general
public to use VSATs.
Official and unofficial barriers to foreign investment persist. Investment in telecommunications services
and defense industries is permitted only in partnership with the Ethiopian government. The banking,
insurance, and micro-credit industries are restricted to domestic investors. Other areas of investment
reserved exclusively for Ethiopian nationals include broadcasting, domestic air transport services using
aircraft with a seating capacity of over 20 passengers, and forwarding/shipping agency services. Foreign
investors are also barred from investing in a wide range of retail and wholesale enterprises (e.g., printing,
restaurants, beauty shops, and virtually all multi-brand retail or wholesale stores).
The government is privatizing a number of state-owned enterprises. Most, but not all, of the tenders
issued by the Privatization and Public Enterprises Supervising Agency are open to foreign participation.
Some investors bidding on these properties have alleged a lack of transparency in the process. Investors
in formerly state-owned businesses subject to privatizations reportedly have encountered problems that
include impediments to transferring title, delays in evaluating tenders, and issues with tax arrears.
All land in Ethiopia belongs to the state; there is no private land ownership. Land may be leased from
local and regional authorities for up to 99 years. A land-lease regulation passed in late 2011 places limits
on the duration of construction projects, allows for revaluation of leases at a government-set benchmark
rate, places previously owned land (“old possessions”) under leasehold, and restricts transfer of leasehold
rights. Compensation is paid for real property seized upon the termination of a lease, but is not paid for
the land on which the property is built.
Parastatal and Party-affiliated Companies
Ethiopian and foreign investors alike complain about patronage networks and de facto preferences shown
to businesses owned by the government or associates of the ruling party, including preferential access to
bank credit, foreign exchange, land, and procurement contracts, and favorable import duties.
Companies that operate businesses in Ethiopia assert that its judicial system remains inadequately staffed
and inexperienced, particularly with respect to commercial disputes. The Commercial Code dates back to
1960. While property and contractual rights are recognized, and there are commercial and bankruptcy
laws, judges often lack understanding of commercial matters, and scheduling of cases often suffers from
extended delays. Contract enforcement remains weak. There is no guarantee that the award of an
international arbitral tribunal will be fully accepted and implemented by Ethiopian authorities.
The U.S. goods trade deficit with the European Union was $115.7 billion in 2012, up $15.8 billion from
2011. U.S. goods exports in 2012 were $265.1 billion, down 1.2 percent from the previous year.
Corresponding U.S. imports from the European Union were $380.8 billion, up 3.4 percent. European
Union countries, together, would rank as the second largest export market for the United States in 2012.
U.S. exports of private commercial services (i.e., excluding military and government) to the European
Union were $188.8 billion in 2011 (latest data available), and U.S. imports were $136.8 billion. Sales of
services in the European Union by majority U.S.-owned affiliates were $499.0 billion in 2010 (latest data
available), while sales of services in the United States by majority European Union-owned firms were
$382.2 billion.
The stock of U.S. foreign direct investment (FDI) in the European Union was $2.1 trillion in 2011 (latest
data available), up from $1.9 trillion in 2010. U.S. FDI in the European Union is primarily concentrated
in the nonbank holding companies, finance/insurance, and manufacturing sectors.
The United States and the 27 Member States of the European Union (EU) share the largest economic
relationship in the world. The enormous volume of trade and investment is a key pillar of prosperity both
in the United States and Europe.
Despite the broadly successful character of the U.S.-EU trade and investment relationship, U.S. exporters
and investors face chronic barriers to entering, maintaining, or expanding their presence in certain sectors
of the EU market. Some of the most significant barriers, which have persisted despite repeated efforts at
resolution through bilateral consultations or WTO dispute settlement procedures, have been highlighted in
this report for many years. Many are highlighted again in this year’s report.
An important recent development was the announcement by President Obama on February 12, 2013 that
the Administration intends to initiate domestic procedures to launch negotiations with the EU on a
comprehensive trade and investment agreement. This followed more than a year of work by the U.S.-EU
High Level Working Group on Jobs and Growth, headed by U.S. Trade Representative Ron Kirk and EU
Commissioner for Trade Karel De Gucht. The Working Group concluded that a comprehensive U.S.-EU
agreement that addresses a broad range of bilateral trade and investment issues, including regulatory
issues, and contributes to the development of global rules would provide significant mutual benefit to
both economies.
WTO Information Technology Agreement
In September 2010, the WTO Dispute Settlement Body (DSB) adopted the final report of the panel
considering the U.S. claim that the EU violated its tariff commitments under the WTO Information
Technology Agreement (ITA) by imposing duties as high as 14 percent on flat panel computer monitors,
multifunction printers, and certain cable, satellite, and other set-top boxes. For all three products at issue,
the panel concluded that the EU tariffs were inconsistent with its obligations. The United States and the
EU agreed to a period of nine months and nine days for the EU to comply with the recommendations and
rulings of the DSB, ending on June 30, 2011. While the EU took some steps to bring itself into
compliance, the United States remains concerned that, notwithstanding the measures the EU has adopted
to date, one or more Member State customs authorities may continue to apply duties to the products at
issue. The United States is closely monitoring Member State customs decisions in this regard. With EU
compliance, the United States expects that U.S. producers of high technology products will continue to be
able to export those products to Europe duty free, as required under the ITA.
Pharmaceutical Products
The U.S. pharmaceutical industry has expressed concerns regarding some EU and Member State policies
affecting market access for pharmaceutical products, including nontransparent procedures and a lack of
meaningful stakeholder input into policies related to pricing and reimbursement, including therapeutic
reference pricing and other price controls. The United States is following with interest EU deliberations
on steps to increase the availability of pharmaceutical product information to consumers as a means of
promoting consumer awareness and access to medicines, and is also following the current discussions on
the review of the EU Transparency Directive. The United States continues to engage with the EU and
individual Member States on these matters. In recent years, the U.S. pharmaceutical industry has raised
concerns about pharmaceutical market access and government pricing and reimbursement systems in
Austria, Belgium, the Czech Republic, Finland, France, Germany, Hungary, Lithuania, the Netherlands,
Poland, Portugal, Romania, Spain, and the United Kingdom. Additional detail on some of these
countries’ measures follows.
Member State Measures:
Austria: In 2011, the government of Austria, public health insurers, and the pharmaceutical industry
agreed to a “Frame Contract for Reimbursement of Pharmaceuticals.” U.S. companies have voiced
concern that, despite the new contract, they are forced to accept significant price reductions to compete
with generic pharmaceuticals. In addition, U.S. companies have expressed concern that the
reimbursement structure for biosimilars (biologic pharmaceuticals that are similar, but not equivalent to
original biologic pharmaceuticals that received regulatory approval) is too low to allow them to enter or
remain in the Austrian market.
Belgium: U.S. pharmaceutical companies have expressed concern about the lack of adequate
transparency in the development and implementation of government cost-containment measures in
Belgium. The United States has encouraged the government of Belgium to ensure that policies affecting
the pharmaceutical industry are developed and implemented in a transparent manner, and that industry
has opportunities to engage with the relevant authorities to address their concerns and to ensure the
continuing development of their already significant investment in the Belgian market.
In 2012, the government proposed to implement an International Price Referencing System for on-patent
medicines. The Ministry of Social Affairs, Public Health and Social Integration modified the proposal, in
coordination with the U.S. Government and industry, to ensure that pharmaceutical companies would not
be treated differently with respect to budgetary cuts than any other group within the medical sector. The
Belgian government agreed not to increase the sales tax on pharmaceuticals and to speed up the approval
process for new medicines.
Czech Republic: U.S. pharmaceutical companies previously expressed concern about the Czech
Republic’s system for determining pricing and reimbursement levels for pharmaceutical products, as well
as new legislation that went into effect in December 2011 requiring electronic auctions on
pharmaceuticals and medical devices and equipment. The government has not fully implemented this
legislation, however, and it is expected that only pharmaceuticals based on a few specified molecules will
initially be included, should the auctions be carried out in spring 2013. The United States has encouraged
the Czech government to ensure that its current pricing and reimbursement system does not unfairly limit
the access of innovative pharmaceutical products to the Czech market.
Finland: U.S. innovative pharmaceutical companies report that the Finnish Pharmaceutical Pricing Board
has significantly delayed reimbursement for new drugs by the Finnish national health care system. U.S.
pharmaceutical companies have reported that it can take two years to four years for a new drug to become
eligible for reimbursement, and only after repeated applications. Such delays have a significant impact on
consumer purchasing of new drugs in Finland.
The Finnish Pharmaceutical Pricing Board is also pressuring U.S. pharmaceutical companies to lower the
prices of their innovative medicines in line with generic drugs of the same therapeutic class. This is
concerning, particularly because a generic drug may treat the same disease or symptoms as the innovative
drug in the same therapeutic class, but such drugs may be distinct at the molecular level. The Pricing
Board has, at times, threatened to stop reimbursement for innovative drugs if the U.S. companies do not
drop their prices.
France: France’s “Sunshine Act” reform bill, introduced in December 2011, provides stricter disclosure
and drug monitoring rules and also created the National Agency for Health Products Safety. This new
regulatory authority can conduct post-authorization studies in cases of reported adverse reactions to a
drug. It also reviews all advertising of pharmaceuticals. To prevent conflicts of interest, the law further
requires manufacturers to make agreements with healthcare authorities public. The pharmaceutical
industry largely supports the reform, with the exception of two provisions: a new industry tax to finance
provision of continuing medical information for doctors and a two-year ban on visits by industry sales
representatives to individual doctors.
Hungary: Pharmaceutical manufacturers have expressed concern about Hungary’s volume and pricing
restrictions, high sector-specific taxes, and delays in reimbursement approvals. The United States has
encouraged the Hungarian government to review its pricing and reimbursement system to ensure that
affected stakeholders have adequate opportunities to engage with relevant authorities to address their
concerns. In August 2012, the government introduced new tax obligations for pharmaceutical companies
marketing innovative products, and several pharmaceutical manufacturers raised concerns.
Italy: U.S. innovative companies have expressed concern about Italy’s recent cost-containment and other
measures that negatively impact the Italian pharmaceutical market. Pharmaceutical companies are
required to pay back the Italian government when government spending on pharmaceuticals exceeds the
budgeted amount. Furthermore, availability of innovative drugs approved by the European Medicine
Agency is significantly delayed by the fragmented healthcare administration system. Concerns also exist
regarding the ability of pharmaceutical companies to fully exercise their patent rights for the complete
patent term. The United States has encouraged the Italian government to open a dialogue with U.S.
industry to address these issues. In October 2012, the Italian government approved a law providing for
more expeditious marketing approval for innovative drugs. The new law also states that generic
medicines can be included in the approved reimbursable drug list only after the patent expiration of the
original innovative medicine. However, concern remains regarding the price reimbursement
renegotiation system.
Lithuania: The United States continues to engage with the government of Lithuania regarding
pharmaceutical market access issues. The Health Ministry began several reform efforts in 2011, inviting
representatives of the pharmaceutical industry to discuss various matters, including the addition of certain
drugs to the government’s reimbursement list and the procurement of additional innovative drugs.
Discussions with pharmaceutical industry representatives are ongoing.
Poland: U.S. pharmaceutical companies continue to report that there is a lack of adequate transparency
and meaningful engagement with industry in the development and implementation of cost-containment
measures affecting pharmaceutical reimbursement and pricing policies in Poland. The terms of
reimbursement agreements have sometimes been modified unilaterally by the government with little
advance warning to companies.
According to U.S. pharmaceutical companies, the new law governing reimbursement by the national
health system, which entered into force in January 2012, applies therapeutic reference pricing, a
methodology which pools both patented, off-patent pharmaceutical, and generic products into just 300 socalled “limit” groups based on therapeutic categories. By assuming that all products used to treat the
same condition are interchangeable, this practice erodes the incentives to invest in the development of
innovative medicines and may undermine the availability of such medicines.
Companies also report that they have found it difficult to obtain information from the Ministry of Health
or to arrange meetings with its officials. The United States has encouraged the government of Poland to
ensure that policies affecting the pharmaceutical industry are developed and implemented in a transparent
and consistent manner and that U.S. firms are given opportunities to engage with relevant government
ministries on issues of concern.
Portugal: The U.S. pharmaceutical industry reports that there continues to be a lack of transparency in
the development and implementation of government cost-containment measures. Portuguese Law No.
52/2011, in effect since January 2012, requires that pharmaceutical patent holders submit cases, including
evidence, to arbitration within 30 days of notice of intent by a generic drug manufacturer to distribute the
generic product. Industry complains that the new mandatory arbitration process is costly and slow,
pointing out that not a single case has been resolved by the body as of October 2012. Moreover, the law
does not provide for injunctive relief, instead only requires patent violators to reimburse patent holders for
any resulting losses.
Romania: Innovative pharmaceutical products face several significant challenges in Romania due to the
government’s failure to update the lists of compensated pharmaceuticals that are eligible for
reimbursement under the national health system (the reimbursement lists). This severely undermines the
ability of U.S. pharmaceutical companies to introduce newer drugs in Romania, because the National
Health Insurance House will not reimburse those companies for drugs absent from the reimbursement list.
The Ministry of Health has not updated the reimbursement list since 2008. Although 80 drugs based on
new molecules have been approved by the Ministry of Health for sale in Romania between 2008 and
2012, the government has not approved their inclusion on the reimbursement list. In contrast, generic
drugs have benefited from accelerated, quasi-automatic inclusion on the reimbursement lists. As a result
of these practices, research-based pharmaceutical companies are unable to effectively recoup their
significant investment in safety and efficacy testing data during the period of that data’s protection in
Romania. International pharmaceutical companies have repeatedly requested the Romanian government
to update the reimbursement lists. The U.S. Embassy in Bucharest has raised the issue several times in
the last two years in letters and meetings with government officials. Despite public and private
statements to the Embassy and diplomatic community that the government is considering updates to the
reimbursement list, there has been little indication to date that a revised list will be issued in the near
future. U.S. pharmaceutical company representatives estimate the value of potential increased sales of
innovative drugs, through imports or local production, as between $25 million and $100 million.
Spain: U.S. pharmaceutical companies remain concerned that Spain’s pricing and reimbursement system
is unpredictable and lacks transparency. U.S. companies reported that Spanish government reforms
enacted during 2010, 2011, and 2012 impacted the value of their patents and created a disincentive to
innovation and new investment. The reforms, aimed at reducing the national health system budget,
require, in general, that the prescription of medicine must be by active ingredient, rather than by brand,
and that pharmacies must dispense the lowest cost drugs available. For drugs that lack generic
alternatives, the price will be reduced by 15 percent after a period of 10 years on the market. Following
discussions facilitated by the U.S. Embassy in Madrid, U.S. companies reached an agreement with the
Spanish government in May 2011. In response to those industry concerns, Spain agreed that the 15
percent price reduction will not apply to products whose patents are in force in all the EU member states.
The Spanish government approved a comprehensive health care reform package on April 20, 2012, which
further reduced industry revenues by requiring prescription of generic drugs, even if innovative drugs are
the same price, and lowering the reference prices on certain drugs. The reforms also subjected patented
drugs with no generic competitors to reference pricing after 10 years of obtaining the first marketing
authorization in the EU. The United States worked with the Spanish government refining the scope of the
reform package to ensure continued incentives for innovation in Spain.
The United States is concerned that nontransparent EU policies may restrict the import into the EU of
enriched uranium, the material from which nuclear power reactor fuel is fabricated. Since 1994, the EU
has maintained quantitative restrictions on imports of enriched uranium in accordance with the terms of
the Corfu Declaration, a joint European Council and European Commission policy statement that has
never been made public or notified to the WTO. The Corfu Declaration appears to limit the acquisition of
non-EU sources of supply of enriched uranium. The United States has raised concerns about the
nontransparent nature of the Corfu Declaration and its application.
In December 2009, the United States and the EU initialed an agreement designed to lead to a settlement
of the longstanding dispute over the EU’s discriminatory bananas trading regime. In the agreement, the
EU agreed not to reintroduce measures that discriminate among foreign bananas distributors and to
maintain a nondiscriminatory, tariff-only regime for the importation of bananas. The U.S.-EU agreement
complements a parallel agreement, the Geneva Agreement on Trade in Bananas (GATB), between the EU
and several Latin American banana-supplying countries, which provides for staged EU tariff cuts to bring
the EU into compliance with its WTO obligations. The United States and the Latin American countries
signed their respective agreements with the EU in June 2010.
The agreements marked the beginning of a process that, when completed, will culminate with the settling
of all of the various banana disputes and claims against the EU in the WTO. The GATB entered into
force on May 1, 2012, and certification by the WTO of the EU’s new tariffs on bananas was completed on
October 27, 2012. On November 8, 2012, the EU and the Latin American signatories to the GATB
announced that they had settled their disputes and claims related to bananas. On January 24, 2013, the
U.S.-EU bananas agreement entered into force; the final step called for in the U.S.-EU agreement is
settlement of the United States’ bananas dispute with the EU, provided certain conditions are met.
Husked Rice Agreement
The United States has ongoing concerns regarding the operation of the U.S.-EU husked rice agreement,
which has been in effect since 2005. Under the terms of this bilateral agreement, negotiated as a result of
the EU’s decision to modify the tariff concessions agreed to in the Uruguay Round, the applied tariff for
husked rice imports from the United States is determined by the total quantity of husked rice (excluding
Basmati) imported by the EU, and is adjusted every six months. Discussions on this subject with the
European Commission (the Commission) have focused on the annual increase in the import reference
volume and the longer-term operation of the tariff adjustment mechanism set out in the agreement. The
United States has sought a significant increase in the import reference quantity in the husked rice
agreement. The longer term U.S. objective is to obtain consistent market access for U.S. brown rice at a
tariff well below the WTO-bound tariff of €65 per ton.
Meursing Table Tariff Codes
Many processed food products, such as confectionary products, baked goods, and miscellaneous food
preparations, are subject to a special tariff code system in the EU. Under this system, often referred to as
the Meursing table, the EU charges a tariff on each imported product based on the product’s content of
milk protein, milk fat, starch, and sugar. As a result, products that the United States and other countries
might consider equivalent for tariff classification purposes sometimes receive different rates of duty in the
EU depending on the particular mix of ingredients in each product. The difficulty of calculating
Meursing duties imposes an unnecessary administrative burden on, and creates uncertainty for, exporters,
especially those seeking to ship new products to the EU.
Subsidies for Fruit
The EU Common Market Organization (CMO) for fruit and vegetables came into effect on January 1,
2008. Implementing rules, covering fresh and processed products, are designed to encourage the
development of producer organizations (POs) as the main vehicle for crisis management and market
promotion. The CMO makes payments to producer organizations for dozens of products, including
peaches, citrus fruits, and olives. In 2013, after the end of a five-year transitional period, EU support for
this sector will be fully decoupled from production decisions. However, hidden subsidies remain an
ongoing concern for U.S. producers. The decoupled Single Farm Payments are funded by the European
Commission and paid to the Member States, channeled through POs. The United States continues to
monitor and review EU assistance in this sector, evaluating potential trade-distorting effects.
EU Enlargement
In December 2006, the United States entered into negotiations with the EU, within the framework of the
GATT 1994 provisions relating to the expansion of customs unions, regarding compensation for certain
tariff increases related to Romania and Bulgaria’s EU accession on January 1, 2007. Upon accession to
the EU, Romania and Bulgaria were required to change their tariff schedules to conform to the EU’s
common external tariff schedule, which resulted in increased tariffs on the importation of certain
products, mainly agricultural products. Under GATT Articles XXIV:6 and XXVIII, the United States is
entitled to compensation from the EU to offset these tariff increases. In late 2011, the United States
concluded negotiation of a bilateral compensation agreement with the EU covering several agricultural
products, and the two sides signed the agreement in 2012. The agreement establishes or increases EU
tariff-rate quotas allocated to the United States for several agricultural products. The United States and
the EU will bring the agreement into force in 2013, once final internal approval processes on each side are
In 2012, the European Commission continued implementation of its 2011 intellectual property rights
(IPR) strategy that includes initiatives on enforcement and copyright, as well as a renewed effort to adopt
an EU-wide patent regime. Although patent filing costs have decreased in the EU, patent filing and
maintenance fees in the EU and its Member States remain significantly higher than in other countries,
including the United States. The IPR strategy also included launching a study into extending
geographical indication (GI) protection for products other than agricultural products and food stuffs,
which are currently eligible for GI protection in the EU.
The United States continues to have serious concerns with the EU’s system for the protection of GIs,
including with respect to its negative impact on the protection of trademark and market access for U.S.
products that use generic names. The EU adopted its current GI regulation for food products, Council
Regulation (EC) 510/06, in response to WTO DSB findings in a case brought by the United States (and a
related case brought by Australia) that the EU GI system impermissibly discriminated against non-EU
products and persons. The DSB also agreed with the United States that the EU could not create broad
exceptions to trademark rights guaranteed by the TRIPS Agreement. The United States continues to have
some concerns about this regulation, and intends to monitor carefully both its implementation and current
initiatives to modify it. These concerns extend equally to Council Regulation (EC) 479/08, which relates
to wines, and to Commission Regulation (EC) 607/09, which relates, inter alia, to GIs and traditional
terms of wine sector products, the implementation of which the United States is also carefully monitoring.
With respect to copyright protection, the European Commission decided in December 2012 to initiate a
two-part copyright program. Under the first part of that program, the Commission will launch a
stakeholder dialogue to address key copyright issues in the EU. The Commission will take stock of that
dialogue in December 2013. The second part of the program will involve completing market studies,
impact assessments, and legal drafting work with a view to a decision in 2014 whether to table legislative
reform proposals. The United States welcomes the inclusion of U.S. stakeholders in the Commission-led
dialogue and urges that any outcomes of this program fully reflect the value of copyright industries to the
EU, transatlantic, and global economies and continue to promote strong copyright protection and
enforcement internally and internationally.
On enforcement, actions within the EU on the Anti-Counterfeiting Trade Agreement (ACTA) remain a
priority concern for the United States, particularly following the European Parliament’s vote to reject the
Agreement in July 2012, and the Commission’s decision in December 2012 to withdraw its request to the
European Court of Justice to review the Agreement’s consistency with EU law. These actions stand in
contrast to the active participation of the Commission and the Member States in the ACTA negotiations,
which concluded in November 2010, and which culminated in the EU and 22 of its Member States
signing the ACTA on January 26, 2012.
Member State Measures
The United States continues to have concerns about IPR protection and enforcement in several Member
States. The United States actively engages with the relevant authorities in these countries and will
continue to monitor the adequacy and effectiveness of IPR protection and enforcement, including through
the annual Special 301 review process.
Austria: U.S. copyright holders report that while legal protections are strong in principle, procedural
roadblocks prevent copyright holders from blocking online access to pirated works and prevent effective
Bulgaria: U.S. industry reports continued IPR concerns, particularly with respect to piracy over the
Internet, a poor track record on prosecutions, delays and conflicts of interest in enforcing patent
protection, and difficulties obtaining information from Internet service providers (ISPs) in Bulgaria to
combat piracy over the Internet. Several companies have reported difficulty when seeking recourse for
patent and trademark infringement at the Bulgarian Patent Office. Bulgaria has an established process for
administrative rulings and appeals in cases of patent and trademark infringement, but the decisions are not
well justified and often appear arbitrary.
U.S. exporters of distilled spirits are negatively impacted by trademark violations and limited
enforcement against locally-produced counterfeit products.
Regarding the use of legitimate business software, Microsoft concluded a software licensing agreement
with the government of Bulgaria and the Bulgarian Armed Forces in 2012.
Czech Republic: The Czech Republic continues to make progress in increasing enforcement in the
approximately 50 open air markets that line the Czech Republic’s borders with Germany and Austria.
Piracy over the Internet, however, has increased in the Czech Republic. Industry is also concerned that
the IPR penalties that have been imposed are not sufficient to deter violations.
Finland: Finland was included in the Watch List in the 2012 Special 301 Report. The key concern cited
in the report was the lack of product patent protection for certain pharmaceutical products and a
regulatory framework that denied adequate protection for some process patents filed before 1995, and
those that were pending in 1996. Affected products include many of the top-selling U.S. pharmaceutical
products currently on the Finnish market.
Greece: Greece was included on the Watch List in the 2012 Special 301 report. The United States
acknowledges some improvements in IPR protection and enforcement in Greece, including actions taken
against piracy over the Internet. However, inadequate IPR protection continues to pose barriers to U.S.
exports and investment. Key issues cited in the 2012 Special 301 report include widespread copyright
piracy and weak and inconsistent IPR enforcement.
Italy: Italy remained on the Watch List in the 2012 Special 301 Report, primarily due to ongoing
concerns about piracy over the Internet. USTR conducted an Out-of-Cycle Review (OCR) of Italy that
was inconclusive due to lingering concerns about piracy over the Internet and the lack of progress that the
Italian Communications Regulatory Authority (AGCOM) had made with respect to the adoption of draft
regulations to combat piracy over the Internet. Additional concerns cited in the 2012 report included a
Data Protection Agency opinion on the monitoring of peer-to-peer networks, the lack of an expeditious
legal mechanism for rights holders to address piracy on the Internet, and a lack of deterrent sentences. In
early 2012, AGCOM devoted considerable time and attention to preparing regulations to address online
piracy, which included provisions for a notice-and-take-down system. However, the previous
commission never finalized the regulations, which were pending in front of a newly appointed board at
the time of writing of this report.
Latvia: Recent amendments to Latvia’s intellectual property criminal statutes have simplified certain
aspects of infringement cases and may result in more successful prosecutions of IPR violations. Police
and customs officials continue to gain experience and understanding of intellectual property matters.
Police and prosecutors actively pursue IPR cases, but are hampered by a lack of resources and severe
backlogs in police forensics labs. The Latvian judicial process still poses significant challenges, including
lengthy proceedings, high evidentiary burdens, and a failure to publicize judgments. Latvia hosts a
number of file-sharing websites, and software piracy rates remain high.
Malta: Although industry reports that Malta’s civil regime regulating copyright is generally adequate, the
sufficiency of Malta’s criminal law with respect to IPR is mixed. While the relevant provisions of the
Maltese Criminal Code are generally satisfactory in the context of trademarks and designs, the Criminal
Code provisions governing other IPR have been largely overlooked over the past two decades. For
example, the criminal sanctions provisions do not provide adequate deterrence.
Poland: Thanks to Poland’s more stringent IPR enforcement, physical piracy (e.g., optical discs) is no
longer the problem it once was. Online piracy of movies, music, and software, however, continues to be
widespread, despite progress in enforcement. Rights holders continue to express concern that penalties
for digital IPR infringement are not at levels sufficient to deter violations. In an effort to address these
concerns, the government has put in place a national IPR strategy, entitled “Program for the Protection of
Copyright and Related Rights 2011-2013,” which aims to adopt EU IPR protection strategies.
In January 2012, the Polish government organized a series of stakeholder workshops on copyright law
and related issues. The government is now in the process of updating legislation on the delivery of
services by electronic means, and is also reviewing the possibility of updating Poland’s 1994 copyright
law. The government meets with rights holder groups and ISPs to increase cooperation in combating
Internet piracy, and the government’s interagency IPR working group met in January 2013.
Portugal: Portugal regularly conducts inspections for illegal goods at street fairs, markets, and festivals.
However, it does not have adequate mechanisms to deter piracy over the Internet. Court cases involving
IPR often take years to resolve, and rarely result in convictions. Furthermore, courts rarely order an
injunction against the activity in question while a case is pending.
Romania: Romania remained on the Watch List in the 2012 Special 301 Report. Concern about
counterfeit physical goods, infringing optical discs, and street piracy continued to decline, while
increasing levels of piracy over the Internet, especially peer-to-peer downloading, remain a top concern.
However, enforcement efforts have not adequately addressed the Internet piracy problem. The United
States is concerned by an apparent decrease in the overall commitment to IPR enforcement in Romania,
reflected in reduced cooperation among enforcement authorities, decreased cooperation of police and
prosecutors with rights holders, and a decline in the number of enforcement actions. In 2010, changes to
the Penal Code provided for IPR cases to be adjudicated in lower-level courts, whose judges and
prosecutors have substantially less IPR expertise. Deficiencies in IPR protection and enforcement,
including overall judicial inefficiency and a failure to impose deterrent sentences, have posed barriers to
U.S. exports and investment.
Spain: Spain was removed from the Watch List in the 2012 Special 301 Report in recognition of efforts
with respect to IPR protection and enforcement, including the December 2011 adoption of regulations
implementing provisions of the Sustainable Economy Law (commonly known as the “Ley Sinde”), a law
to combat copyright piracy over the Internet. However, the copyright industry continues to be
disappointed by the Spanish government’s pace of implementation of the Ley Sinde and to be concerned
with the 2006 Prosecutor General’s Circular that appears to decriminalize illegal peer-to-peer file sharing
of infringing materials, further perpetuating the ongoing perception by the public and judges that
unauthorized Internet downloads are not an illicit activity.
The Ministry of Culture’s 2012-2015 Strategic Plan sets objectives and strategies to guide Spain’s
cultural policy over the next four years including strengthening the legal framework for the protection of
rights derived from intellectual property. In 2013, the United States will continue to carefully monitor the
implementation of the Ley Sinde provisions, as well as the reform of Spain’s IP, criminal, and civil
procedure laws. Despite enforcement efforts, piracy remains a significant problem.
Sweden: Sweden continues to grapple with widespread piracy on the Internet, but government
enforcement efforts have begun to show positive results. Following the entry into force in April 2009 of
legislation implementing the EU Enforcement Directive, several major pirate websites left Sweden.
Nonetheless, Sweden still hosts some large on-line pirate sites -- several of which are listed in USTR’s
Notorious Piracy Markets report. Legal sales over the Internet have increased in recent years, in part
because of better legal alternatives and Swedish enforcement efforts.
EU Member States’ WTO commitments covering telecommunications services and EU legislation has
encouraged liberalization and competition in the telecommunications sectors in EU Member States since
the late 1990s. All EU Member States made WTO commitments to provide market access and national
treatment for voice telephony and data services. The EU’s 2002 Common Regulatory Framework for
Electronic Communications Networks and Services (Framework Directive) imposed additional
liberalization and harmonization requirements on Member States. Implementation of these requirements
has been uneven across Member States, however, and significant problems remain in many markets,
including with the provisioning and pricing of unbundled local loops, line-sharing, co-location, and the
provisioning of leased lines.
In 2009, the Commission amended EU telecommunications legislation, including the Framework
Directive, with a third telecoms package with the aim of harmonizing Europe’s telecommunications
markets. Perhaps the most significant change was the creation of the Body of European Regulators for
Electronic Communications (BEREC). Increased Member State coordination, a larger role for the
Commission, and the creation of BEREC were intended to help ensure fair competition and more
consistency in the regulation of telecommunications markets within the EU. The Member States were
supposed to transpose the new rules into the national laws by May 2011, but most have moved forward
with much delay and with various discrepancies in interpretation. The Commission has begun
infringement procedures against delinquent Member States.
The Digital Agenda Commissioner has announced that she will present new rules on net neutrality and
network investments in early 2013. The new rules on network investment will seek to create a consistent,
investment-friendly application of nondiscrimination and price control remedies to broadband networks in
all Member States.
EU institutions are also discussing proposals on data protection, which could restrict international data
flows, and are reviewing the Data Retention Directive. In addition, the Commission has launched a
European Radio Spectrum Policy Program to improve radio spectrum management in Europe.
Member State Measures:
Austria: Austria has implemented all relevant EU directives. Legal reforms effective as of October 2010
anchored the independence of Austria’s telecommunications regulators.
The incumbent
telecommunications provider, Telekom Austria, offers fixed-line networks, mobile telephony, and
Internet access, including broadband, and is the market leader in all of these areas. The Austrian mobile
market is highly competitive, in contrast to the more concentrated fixed-line market, and continues to
expand, and retail rates for mobile communications continue to decline. If EU competition regulators
approve a planned merger, the number of wireless operators in Austria will decrease to three. The
broadband Internet market (fixed and mobile) is highly dynamic and growing, and while the incumbent’s
market share is still around 50 percent, currently 35 providers offer retail services.
France: In 2012, France finished enacting the provisions of the 2009 EU Telecommunications
Directives. Free Mobile, the country's fourth mobile operator, entered the market in January 2012,
forcing prices down. Competition for the fixed market remains strong. France Telecom continues to
dominate the sector, notwithstanding its various efforts to partner with other operators to avoid
duplication in fiber optic installation.
Germany: Despite increased competition in some sectors of Germany’s telecommunications market,
Deutsche Telekom (DT) retains a dominant position in a number of key market segments, including local
loop and broadband connections. DT’s competitors continue to call for more effective regulation of the
competitive environment. Nonetheless, since the passage of the Telecommunications Act in 2003, DT’s
share has decreased to below 60 percent in the fixed-line market and to below 45 percent in the broadband
Greece: Greece has incorporated the 2009 EU telecommunications package into national legislation.
The 2009 EU telecommunications package includes European Directives 2009/136/EC and 2009/140/EC.
Both Directives are included in Law 4070 that was passed on October 4, 2012.
Italy: Telecom Italia (TI), the former state-owned monopoly operator, is the largest telecommunications
provider in Italy. Domestic political pressure has prevented foreign operators (e.g., AT&T in 2007) from
gaining a controlling interest in TI. However, as of November 2012, Telecom Italia is considering a
proposed significant investment by an Egyptian. TI owns most of Italy’s fixed-line telecommunications
infrastructure, and competitors have complained about high access costs and allegedly unfair practices
aimed at retaining TI customers. TI’s market share, however, is decreasing, with its share of the fixedline market declining to approximately 66 percent in the second quarter of 2012 (down from 67.3 percent
in the second quarter of 2011). Similarly, TI’s share of the Italian retail broadband market was 52.4
percent in the second quarter of 2012 (compared to almost 54 percent in the second quarter of 2011). TI’s
market share for mobile subscribers was 34.9 percent in the second quarter of 2012 (an increase of 0.6
percent over the second quarter of 2011). Although TI has expressed interest in upgrading its broadband
infrastructure, it has also voiced concern that the main beneficiaries of TI broadband investment would be
businesses selling goods and services online, in particular, large U.S. companies. At the end of
November 2012, Telecom Italia was also considering whether to separate its fixed-line assets into a new
company and sell a stake to the state-owned agency Cassa Depositi e Prestiti (CDP) in order to free
economic resources and to speed up the rollout of a national broadband network.
Television Broadcasting and Audiovisual Services
The 2007 EU Directive on Audiovisual Media Services (AVMS) amended and extended the scope of the
Television without Frontiers Directive (which already covered traditional broadcasting, whether delivered
by terrestrial, cable, or satellite means) to also cover audiovisual media services provided on-demand,
including via the Internet. EU Member State content quotas for broadcasting remain in place. Ondemand services are subject to somewhat less restrictive provisions than traditional broadcasting under
the AVMS Directive, which does not set any strict content quota, but still requires Member States to
ensure that on-demand services encourage production of, and access to, EU works. This could be
interpreted to refer to the financial contribution made by such services to the production and rights
acquisition of EU works or to the prominence of EU works in the catalogues of video on-demand
services. EU Member States had to implement the AVMS Directive into their national law by December
19, 2009. In its first report on the application of the Directive from May 2012, the Commission
announced that 25 Member States have notified complete implementation into their national
legislation. Poland and Belgium, however, still need to adapt their legislation, and the former is currently
subject to an infringement procedure for failing to fully implement the Directive.
Member State Measures:
Several EU Member States maintain measures that hinder the free flow of some programming or film
exhibitions. A summary of some of the more significant restrictive national practices follows.
France: France continues to apply the EU Broadcast Directive in a restrictive manner. France’s
implementing legislation, which was approved by the European Commission in 1992, requires that 60
percent of programming be EU and 40 percent French language. These requirements exceed those of the
Broadcast Directive. Moreover, these quotas apply to both the regular and prime time programming slots,
and the definition of prime time differs from network to network. The prime time restrictions pose a
significant barrier to U.S. programs in the French market. Internet, cable, and satellite networks are
permitted to broadcast as little as 50 percent EU content (the AVMS Directive minimum) and 30 percent
to 35 percent French-language product, but, in exchange, channels and services are required to increase
their investment in the production of French-language product. In addition, radio broadcast quotas that
have been in effect since 1996 specify that 40 percent of songs on almost all French private and public
radio stations must be in French.
Beyond broadcasting quotas, cinemas must reserve five weeks per quarter for the exhibition of French
feature films. This requirement is reduced to four weeks per quarter for theaters that include a French
short subject film during six weeks of the preceding quarter. Operators of multiplexes may not screen any
one film with more than two prints, or through staggered and interlocking projection techniques, in such a
way as to account for more than 30 percent of the multiplex’s weekly shows. Theatrically released
feature films are not allowed to be advertised on television.
Italy: Broadcasting Law DL 44, which implements EU regulations, reserves 50 percent of the
programming time (excluding sports, news, game shows, and advertisements) for EU works. Ten percent
of transmissions (and 20 percent for state broadcaster RAI) must be reserved for EU works produced
during the preceding five years. Within this quota, an undefined percentage of time must be reserved for
Italian movies.
Poland: Broadcasters in Poland must devote at least 33 percent of their broadcasting time each quarter to
programming that was originally produced in the Polish language.
Spain: For every three days that a film from a non-EU country is screened, in its original language or
dubbed into one of Spain’s languages, one EU film must be shown. This ratio is reduced to four to one if
the cinema screens a film in an official language of Spain and keeps showing the film in that language
throughout the day. In addition, broadcasters and providers of other audiovisual media services must
annually invest 5 percent of their revenues in the production of EU and Spanish films and audiovisual
programs. In 2010, the government revised the audiovisual law and imposed restrictions on non-EU
ownership (limited to no more than 25 percent share) and leasing of AV licenses, which have negatively
impacted U.S. investors.
Legal Services
Austria, Cyprus, Greece, Hungary, Lithuania, Malta, and Slovakia require EU nationality for full
admission to the bar, which is necessary for the practice of EU and Member State law. Belgium and
Finland require EU nationality for legal representation services.
Member State Measures:
Belgium: U.S. nationals may practice foreign law in Belgium only if they are associated with qualified
members of the Belgian bar. The Belgian Judicial Code provides that only Belgian or EU lawyers can be
fully admitted to the bar. An exception exists for foreign non-EU lawyers who meet certain requirements.
Bulgaria: The July 2010 amendments to the Bulgarian Bar Act allow law firms registered in the EU to
practice in Bulgaria under their original name after they register with the local bar association. Foreign
lawyers registered in another EU Member State are also allowed to practice law or register a local office
in partnership with other foreign or local lawyers. However, at least one of the partners has to be
registered both in Bulgaria and in another EU Member State if the local partnership is to use an
internationally recognized name.
Czech Republic: U.S.-educated lawyers may register with the Czech bar and take an equivalency exam,
but they are limited to practicing home country (U.S.) law and international law. In contrast to EU-based
law firms, U.S. law firms cannot establish Czech branches to practice law (i.e., operate directly through
their home legal entities). Attorneys from U.S. law firms admitted as foreign lawyers, together with
Czech lawyers, may establish local partnerships.
Finland: Citizens of countries outside the European Economic Area (EEA) can practice domestic and
international law and represent clients in court, but they are not entitled to the title of Asianajaja (Attorney
at Law). Only a Finn or an EEA citizen who meets certain requirements may be accepted as an
Asianajaja. In addition to conferring prestige, the Asianajaja designation helps in the solicitation of
clients, because Asianajaja may be held accountable for their actions by the Board of the Bar Association
and by the Chancellor of Justice, while other lawyers and legal advisers are not subject to such oversight.
Hungary: U.S. lawyers may provide legal services only under a “cooperation agreement” in partnership
with a Hungarian legal firm and can only provide information to their clients on U.S. law or on
international law.
Portugal: Portuguese law requires that practicing lawyers be members of the Portuguese Bar
Association. The Portuguese Bar Association requires that members graduate from a Portuguese or
Brazilian law school and that foreign lawyers be citizens of the EU or a country with a reciprocal
agreement permitting foreign lawyers to be bar-certified. U.S. citizens with a law degree may apply as
legal trainees if the law degree is recognized by a Portuguese law school and if the U.S. citizen has a valid
Portuguese residence authorization. The successful completion of legal internship and the mandatory Bar
Association exams enable the U.S. citizen to practice law in Portugal.
Accounting and Auditing Services
Member State Measures:
Portugal: Portuguese law requires that practicing accountants and auditors be accredited by one of two
Portuguese accounting associations, which require legal residency. Portuguese language ability and
citizenship of a country with a reciprocal agreement or EU citizenship are prerequisites for membership.
Energy Services
Member State Measures:
Ireland: Industry reports that bureaucratic delays and other obstacles that benefit vested local interests
and state-owned enterprises have impeded new entrants in the energy sector, consequently raising the
costs of doing business in Ireland. Significant U.S. investments in a waste-to-energy project and a
liquefied natural gas terminal proposal stand to be cancelled as a result of such delays.
EU Enlargement
Upon each of the three most recent rounds of EU enlargement, the EU has submitted notifications to
WTO Members concerning the modification of existing commitments under the GATS by the newly
acceded members of the EU. In accordance with GATS Article XXI, the EU was required to enter into
negotiations with any other WTO member that indicated that it was affected by the modification of
existing commitments. In connection with the largest of these rounds of enlargement, the expansion to 25
members in 2004, the United States and EU successfully negotiated a compensation package, which was
agreed on August 7, 2006. To date, however, the European Commission has failed to secure the approval
of all EU Member States, which is necessary to implement the agreement. USTR will continue to
monitor this process to ensure the agreement is implemented as soon as possible.
The EU accords national treatment to foreign investors in most sectors and, with few exceptions, EU law
requires that any company established under the laws of one Member State must receive national
treatment in all other Member States, regardless of the company’s ultimate ownership. As discussed
below, however, EU law does impose some restrictions on U.S. and other foreign investments and, in
many instances, individual Member State policies and practices have had a more significant impact on
U.S. investment than EU-level policies.
Prior to the adoption of the Lisbon Treaty in December 2009, the European Commission shared
competence with Member States on investment issues. Member States negotiated their own bilateral
investment treaties (BITs) and generally retained responsibility for their investment regimes, while the
EU negotiated investment-related market access provisions in EU economic agreements. Article 207 of
the Lisbon Treaty brings foreign direct investment (FDI) under the umbrella of Europe’s common
commercial policy, making it the exclusive competence of the EU. FDI is not defined in the Treaty,
however, leaving many practical implications of the Treaty for EU external investment policy unclear.
In July 2010, the Commission issued two communications aimed at defining a comprehensive EU
international investment policy and establishing transitional arrangements for investment agreements
between Member States and third countries. Under these communications, which were presented to the
European Parliament and EU Member State governments for endorsement under the co-decision process,
the Commission will “authorize” the more than 1,200 BITs concluded by Member States, including some
with the United States, to remain in force (though the Commission will evaluate their content to assess
their conformity with EU law and the EU’s common commercial policy). A regulation establishing
transitional arrangements for existing BITs between Member States and third countries, based on the
Commission’s July 2010 communications, was agreed between the Council and the Parliament in July
2012, and went into effect in January 2013.
Member State Measures:
Bulgaria: Weak corporate governance remains a problem in Bulgaria. Although legislative protection
for minority shareholders has been improved through insolvency rules in Bulgaria’s Commercial Code
and 2007 changes to its Law on Public Offering of Securities, enforcement of these statutory provisions is
Cyprus: Cypriot law imposes significant restrictions on the foreign ownership of real property. Non-EU
residents may only purchase a single piece of real estate (not to exceed three donums, or roughly one
acre) for private use (e.g., a holiday home). Exceptions can be made for projects requiring larger plots of
land, but are rarely granted. Under the Registration and Control of Contractors Laws of 2001 and 2004,
only citizens of EU Member States have the right to register as construction contractors in Cyprus, and
non-EU entities are not allowed to own a majority stake in a local construction company. Non-EU natural
persons or legal entities may bid on specific construction projects, but only after obtaining a special
license from the Cypriot Council of Ministers.
France: Pursuant to a November 2004 law that streamlined the French Monetary and Financial Code, the
State Council defined a number of sensitive sectors in which prior approval would be required before
foreign acquisition of a controlling equity stake is permitted. A December 2005 government decree
(Decree 2005-1739) lists the 11 business sectors in which the French government will monitor, and can
potentially restrict, foreign ownership through a system of “prior authorization.”
The government of France has expressed concern over the acquisition of “strategic” companies, whose
stock prices fell steeply in the wake of the financial crisis. Near the end of 2008, then-President Sarkozy
announced the establishment of a “strategic investment fund,” to assume stakes in companies with “key
technologies.” The fund would be run as a “strategic priority” by the Caisse des Depots et Consignations,
a state-sponsored financial institution and France’s largest institutional investor, under parliamentary
supervision. The government has also asked the Caisse des Depots et Consignations to work as a
domestic buffer against foreign takeovers by increasing its stake in French companies. The government
may also become directly involved in mergers and acquisitions, using its “golden share” in state-owned
firms to protect perceived national interests.
Greece: All purchases of land in border areas and on certain islands require approval from the Ministry
of Defense. The definition of “border area” is broader for non-EU purchasers of land, and obtaining
approval for purchase is more burdensome. Greek authorities consider local content and export
performance criteria when evaluating applications for tax and investment incentives, although such
criteria are not prerequisites for approving investments.
Italy: In July 2012, the government announced a new incentive scheme for photovoltaic solar energy
production that provides advantages for plants built with EU-made components. All made-in-the-EU
photovoltaic (PV) plants smaller than 12kW are automatically eligible for a premium over the normal
incentivized feed-in-tariff (FiT). PV plants that do not meet the requirements for direct access to the FiT
must enroll in a special register, and their ability to obtain the FiT is based on a ranking, the criteria for
which includes whether they use components produced in the EU. In the case of PV plants larger than
12kW, those built with made-in-EU components qualify for a higher ranking position and therefore have
a better opportunity of getting both the incentivized tariff and the premium mentioned above.
Lithuania: U.S. citizens and foreign investors report difficulties in obtaining and renewing residency
permits. In principle, Lithuanian embassies abroad are able to initiate the application process for
residency permits, but in practice, U.S. citizens only are able to begin the residency permit process upon
arrival in Lithuania. Decisions by the Migration Office regarding the issuance of residency permits can
take up to six months. Non-Lithuanians are generally not able to buy agricultural or forestry land. As
part of its EU accession agreement, the Lithuanian government was required to eliminate this restriction
by 2011. However, that year the government successfully negotiated with the EU to postpone the
removal of the restriction until 2014.
Romania: Uncertainty and a lack of predictability in legal and regulatory systems pose a continuing
impediment to foreign investment in Romania. Tax laws change frequently and many companies
experience long delays in receiving VAT refunds to which they are legally entitled. Deadlines stipulated
by law for the processing and payment of refunds are often not respected. Companies have reported
frequent instances in which the government has issued legal decrees or regulations affecting the business
climate without following required transparency and public consultation procedures. Tort cases often
require lengthy, expensive procedures and judicial rulings are reportedly often inconsistent.
The EU is a signatory to the WTO Agreement on Government Procurement (GPA).
U.S. suppliers participate in EU government procurement, but the lack of EU statistics makes it difficult
to assess the level of U.S. and non-EU participation.
In 2004, the EU adopted a revised Utilities Directive (2004/17), covering purchases in the water,
transportation, energy, and postal services sectors. This directive requires open, competitive bidding
procedures, but discriminates against bids with less than 50 percent EU content that are not covered by an
international or reciprocal bilateral agreement. The EU content requirement applies to foreign suppliers
of goods and services in the following sectors: water (production, transport, and distribution of drinking
water); energy (gas and heat); urban transport (urban railway, automated systems, tramway, bus, trolley
bus, and cable); and postal services.
In 2011 and 2012, the European Commission published four legislative proposals in the area of public
procurement. One of these proposals, to regulate access of third-country goods and services to the EU’s
internal market in public procurement (relative to the access provided to EU goods and services in thirdcountry public procurement markets), is being debated in the European Parliament and in the EU Member
States as of the time of drafting of this report. In addition, if this proposal is approved, the abovementioned provisions in the Utilities Directive would be dealt with under the Regulation on Foreign
Access to the EU public procurement market, and become subject to proposed negotiations on reciprocal
access. U.S. access to the EU’s non-GPA covered procurement would also be dealt with under this new
Member State Measures:
Austria: U.S. firms continue to report a strong EU bias in government contract awards. U.S. industry
asserts that invitations for bids for the Austrian government’s vehicle fleet are tailored for German
competitors. Additionally, offset requirements can reach up to 200 percent of the value of the contract for
major defense purchases. The ceiling for contracts to be awarded without public tenders is set relatively
high at €100,000 ($130,000). Although Austria’s power utilities are majority government-owned, under a
European Commission ruling (2008/585/EC), they are exempted from having to issue public tenders for
power generation projects.
Bulgaria: The public procurement process in Bulgaria is not always transparent. There are persistent
complaints that some tenders are so narrowly defined that they appear tailored to a specific company.
U.S. companies also complain that they face difficulties having their certification documents accepted to
qualify as bidders on public procurement projects.
Czech Republic: In 2012, the Czech government adopted a major public procurement reform bill which
addresses some transparency and corruption concerns. The legislation, which came into effect in April
2012, lowers the threshold for the application of procurement rules to one million CZK ($55,000). It also
requires more than one bidder for all procurements and publication of tender specifications. The law also
requires bidders to disclose more of their ownership structure in the bidding process. However, it
maintains loopholes that could permit bidders to subcontract to anonymously-held companies. The
Ministry of Justice and the Ministry of Finance are now working on related legislation requiring full
identification of ownership for all recipients of public tenders. The Ministry of Regional Development is
developing guidelines to make the process clearer for bidders and for state institutions that issue tenders.
France: The French government continues to maintain shares in several major defense contractors
(EADS 0.06 percent, Safran 30.20 percent, and Thalès 27.00 percent as of November 2012). It is
generally difficult for non-EU firms to participate in French defense procurement and, even when the
competition is among EU suppliers, French companies are often selected as prime contractors.
Greece: Greece imposes onerous qualification requirements on companies seeking to bid on public
procurement tenders. Companies must submit documentation from competent authorities indicating that
they have paid taxes, have not been in bankruptcy, and have paid in full their social security obligations
for their employees. All managing directors and board members of companies that want to participate in
procurements must submit certifications from competent authorities that they have not engaged in fraud,
money laundering, criminal activity, or similar activities. It is difficult for U.S. firms to comply with
these requirements, because there are no competent authorities in the United States that issue these types
of certifications.
The U.S. Embassy in Athens and the Greek Ministry of Development reached an agreement in late 2008
that would allow U.S. companies to submit sworn, notarized, and translated statements from corporate
officers, along with an official statement from the U.S. Embassy in Athens stating that no U.S. federal
authority issues the documents otherwise required under Greek procurement law. Despite this agreement,
there remains considerable confusion among Greek authorities as to how U.S. firms may comply with
these requirements.
Additionally, U.S. industry has complained that procurements in Greece are not always transparent and
that some tenders, such as for medical equipment to be installed in hospitals, contain technical
specifications that favor specific Greek suppliers. The U.S. Government is continuing to engage with the
Greek government on this issue. Greece also continues to require offsets as a condition for the awarding
of defense contracts.
The Ministry of Development announced a new electronic procurement platform for public sector tenders
in February 2013. The National System of Electronic Public Contracts (ESIDIS) began operating a pilot
program ( on February 4 that will become available to all public sector
agencies by April and to all local government authorities by May. According to the Greek government,
the system, once fully operational, is intended to improve transparency by allowing citizens and suppliers
to check on tenders.
Hungary: Inadequate transparency in public procurement continues to be a significant problem in
Hungary. Citing governing parties’ disinterest, Hungarian non-governmental organizations have
abandoned efforts to reach an agreement on the reform of campaign finance laws, which could have
helped to reduce politically motivated procurement decisions and make public procurement more
transparent and competitive. In January 2012, a new, shorter, and more flexible Public Procurement Act
came into force, although some experts consider the new law too vague, and as a result, ineffective.
State-owned companies or those close to the government still appear to have an advantage over private
players in public tenders.
Italy: Italy’s public procurement practice is often criticized for a lack of transparency, which has created
obstacles for some U.S. firms bidding on public procurement. Laws implemented in the mid-1990s
reduced corruption, but industry asserts that it still exists, especially at the local level. Italian press has
reported on alleged corruption involving the abuse of emergency procurement laws. In 2012, the Italian
parliament approved an anticorruption bill which, among other things, introduces greater transparency
and more stringent procedures in the public procurement process. To increase transparency, the Italian
government has also started publishing online information regarding the use of public funds including
data on procurement.
Lithuania: The public procurement process in Lithuania is not always transparent. There are persistent
complaints that some tenders are so narrowly defined that they appear tailored to a specific company.
The government has made procurement reform a top priority and is starting to improve transparency by
implementing online public procurement of its central purchasing body, the central project management
agency. Now, over 70 percent of public procurement occurs online. Since 2003, the Lithuanian
government has often required offset agreements as a condition for the award of contracts for
procurement of military equipment.
Portugal: U.S. firms report that the Portuguese government tends to favor EU firms, even when bids
from U.S. firms are technically superior or lower in price. U.S. firms also report that they are more
successful when bidding as part of consortia or as part of joint ventures with Portuguese or other EU
firms. U.S. based firms may bid on public tenders covered by the GPA, while EU subsidiaries of U.S.
firms may bid on all public procurement contracts covered by EU directives.
Romania: Romania requires offsets as a condition for the awarding of defense contracts. Romania
revised its public procurement law in 2010, particularly with regard to procedures for handling challenges
to contract awards. While an award must still be temporarily suspended if a losing bidder challenges it,
the revised law allows procuring entities to conclude the contract within 11 days after a decision by the
National Complaint Council or a court upholding the initial award, even if the challenger chooses to
appeal that decision. Should the Complaint Council find the challenge ungrounded, the procuring entity
can withhold a percentage of the plaintiff’s bid participation fee as a penalty.
Slovenia: U.S. firms continue to express concern that the public procurement process in Slovenia is nontransparent. Other complaints include short time frames for bid preparation, lack of clarity in tendering
documentation, and opacity in the bid evaluation process. One specific complaint involves the quasijudicial National Revision Commission (NRC), which reviews all disputed public procurement cases.
The NRC has extraordinary powers to review, amend, and cancel tenders, and its decisions are not subject
to judicial appeal. There also are concerns that the NRC favors EU, and especially Slovenian, firms under
its ambiguous “national interest” standard, regardless of cost or doubts about a firm’s ability to deliver
and service its products.
United Kingdom: The United Kingdom (UK) requires offsets in its defense procurement, but has no set
percentage for them. Bidders are free to determine their own level of “industrial participation,” as well as
with whom to do business. The UK defense market is, to an increasing extent, defined by the terms of the
2005 Defense Industrial Strategy (DIS), which highlights specific sectors and capabilities that the
government believes are necessary to retain in the UK. In these areas, procurement will generally be
based on partnerships between the Ministry of Defense and selected companies. The DIS does not
preclude partnerships with non-UK companies, and U.S. companies with UK operations may be invited
by the Ministry of Defense to form partnerships in key programs. Outside of those areas of partnership
highlighted in the DIS, defense procurement is to a large extent an open and competitive process.
The UK has implemented the EU Defence and Security Procurement Directive through the Defence and
Security Public Contracts Regulations 2011. One key provision of the Regulations is a prohibition of
industrial participation or offsets. Although the UK’s source selection process appears open and
competitive, there appears to be a perception among U.S. defense industries that the UK Ministry of
Defence prefers national and EU equipment solutions over superior U.S. offerings.
The U.S.-UK Defense Trade and Cooperation Treaty took effect in April 2012 and is designed to ease the
burdens associated with obtaining permission to export military technologies between the U.S. and
UK. A key aspect of the treaty is to create an approved community of known and trusted corporate
entities that have a streamlined export license approval process. Since implementation, the list of these
vendors has grown substantially and this is seen as a significant reduction of trade barriers between the
United States and the UK.
Government Support for Airbus
Over many years, the governments of France, Germany, Spain, and the United Kingdom have provided
subsidies to their Airbus-affiliated companies to aid in the development, production, and marketing of
Airbus’s large civil aircraft. These governments have financed between 33 percent and 100 percent of the
development costs of all Airbus aircraft models (launch aid) and have provided other forms of support,
including equity infusions, debt forgiveness, debt rollovers, and marketing assistance, in addition to
political and economic pressure on purchasing governments. The EU’s aeronautics research programs are
driven significantly by a policy intended to enhance the international competitiveness of the EU civil
aeronautics industry. EU governments have spent hundreds of millions of euros to create infrastructure
for Airbus programs, including €751 million spent by the City of Hamburg to drain the wetlands that
Airbus is currently using as an assembly site for the A380 “superjumbo” aircraft. French authorities also
spent €182 million to create the AeroConstellation site, which contains additional facilities for the A380.
The Airbus A380, the beneficiary of more than $5 billion in subsidies, is the most heavily subsidized
aircraft in history. Some EU governments have also made legally binding commitments of launch aid for
the new Airbus A350 aircraft, even though Airbus has barely begun to repay the financing it has received
for the A380.
Airbus SAS, the successor to the original Airbus consortium, is owned by the European Aeronautic,
Defense, and Space Company (EADS), which is now the second largest aerospace company in the world.
Accounting for more than half of worldwide deliveries of new large civil aircraft over the last few years,
Airbus is a mature company that should face the same commercial risks as its global competitors.
In October 2004, following unsuccessful U.S.-initiated efforts to negotiate a new U.S.-EU agreement that
would end subsidies for the development and production of large civil aircraft, the United States exercised
its right to terminate the 1992 U.S.-EU Bilateral Agreement on Large Civil Aircraft. The United States
also commenced WTO consultations, which failed to resolve the U.S. concerns. A renewed effort to
negotiate a solution ended without success in April 2005.
On May 31, 2005, the United States requested establishment of a WTO panel to address its concern that
EU subsidies were inconsistent with the WTO Agreement on Subsidies and Countervailing Measures.
The WTO established the panel on July 20, 2005. In 2010, the dispute settlement panel found in favor of
the United States on the central claims, and the Appellate Body upheld the finding of WTO inconsistency
in 2011. On December 1, 2011, the EU submitted a notification to the WTO asserting that it had taken
appropriate steps to bring its measures into conformity with its WTO obligations. On December 9, 2011,
the United States requested consultations with the EU to address its concern that the EU had failed to
bring its Airbus subsidies into conformity with WTO rules.
During this period, the ongoing WTO dispute did not cut the flow of money to Airbus. In 2009, EADS’s
total European government (UK, France, Germany, Spain) refundable advances outstanding amounted to
€5.3 billion, of which €3.6 billion was for the A380, €1.2 billion for long-range wide body aircraft, and
€0.2 billion for Eurocopter.
In September 2009, the UK government announced it would lend plane maker Airbus £340 million ($540
million) in launch aid to develop its new wide-body aircraft, the A350XWB. The loan for the A350
XWB model comes partly from the UK government’s £750 million ($1.2 billion) Strategic Investment
Fund. The launch aid is intended to safeguard 1,200 jobs at Airbus’s plants in Filton, near Bristol, and
Broughton in north Wales. It also secures Britain’s share of the work on the Airbus aircraft and a further
5,000 jobs at Airbus suppliers. Airbus’s sites in the UK specialize in wing manufacturing, but also make
landing gear and fuel integration systems.
Government Support for Airbus Suppliers
Member State Measures:
Belgium: The federal government of Belgium, in coordination with Belgium’s three regional
governments, subsidizes Belgian manufacturers that supply parts to Airbus. In the fall of 2006, the EU
Commissioner for Competition concluded that Belgium’s €195 million support program exceeded the
allowable level of support under EU regulations. The Belgian federal government in June 2007
subsequently reduced its support fund to €150 million, but simultaneously, the Flemish Regional
government set up a €50 million start-up fund for the aviation sector in Flanders. It is unclear how much
assistance already paid to the companies for the A350 program, if any, has been reimbursed. The Belgian
commitment to the A380 superjumbo was €195 million, not all of which was disbursed. Belgium claims
that its A380 support was structured in accordance with the 1992 bilateral agreement and covers
nonrecurring costs.
In the spring of 2009, the Commission once again notified the Belgian government that its 2008-2013
program of federal aid to the aeronautical sector was illegal. However, in May 2010, after being provided
with supplemental information from the government, the Commission ruled that the program, for €178
million, was compatible with article 87(3)c of the EC Treaty. Industrial research or experimental
development projects linked to the A350 and A380 were cited as examples of projects that could benefit
from the program.
France: In addition to the launch aid that the French government provided for the development of the
A380 and A350 aircraft, France provides assistance in the form of reimbursable advances for the
development by French manufacturers of products such as planes, aircraft engines, helicopters, and
onboard equipment. French appropriations for new programs included €148 million in support of
research and development in 2011. In 2012, such support decreased to €120 million. The 2011
government budget included €230 million in reimbursable advances for the civil aviation. In 2011, the
government financed the military airplane A400 with redeemable advances. To have sufficient
redeemable advances available for the A400 the government financed the A350 with €450 million from a
government fund "Grand Emprunt" now called "Investment for the future." The government’s 2012
budget included €148 million in reimbursable advances, and €143 million was in the budget for 2013.
In July 2008, Airbus, the parastatal Caisse des Dépôts et Consignations, and the Safran Group announced
the launch of the AEROFUND II equity fund, capitalized with €75 million destined for the French
aeronautical sector. The equity fund’s objective is to support the development of the small- and mediumsized subcontractors that supply the aeronautical sector. In March 2009, the state’s Strategic Investment
Fund (FSI) and AEROFUNDs I and II purchased a nearly 20 percent stake in Daher, a French company,
for €80 million, to help that private aerospace group accelerate its development and seize strategic
opportunities. Since its creation in 2008, AEROFUND II has made investments in about ten companies,
including helping to finance Mecachrome’s purchase of Mecahers, and Prosnic’s acquisition of Industron.
The Fund also helped finance the sale of Esterel Technologies to the U.S. group Ansys in 2012. In 2013,
its unit ACE Management will work on the creation of a third AEROFUND. On April 14, 2010, the
European Commission authorized France to grant reimbursable advances totaling €35.14 million to
Daher-Socata and Sogerma for two research and development projects for the future Airbus A350XWB.
In addition, the FSI allocated €1.5 billion for the development of environmentally safe planes and €500
million for aerospace, through a combination of development support, reimbursable advances, and direct
equity investments. In 2007, OSEO (the state-backed company that provides financial support to
innovative small and medium sized enterprises) signed a contract with the French Civil Aviation
Authority for European aerospace project development to finance up to 40 percent of spending. In 2010,
OSEO announced €80 million in reimbursable advances over two years for French small- and mediumsized enterprise sub-contractors and suppliers of large aerospace firms. Zodiac Aerospace received €230
million in reimbursable advances during the August 2008 to August 2009 period. In 2009, Latécoère
received €50.4 million in reimbursable advances. In 2011, Figeac Aero received €10 million and Slicom
received €1 million. The government pledged €60 million in aid in 2012 to assist the company Sky
Aircraft to continue development of a light passenger aircraft.
Government Support for Aircraft Engines
Member State Measures:
United Kingdom: In February 2001, the UK government announced its intention to provide up to £250
million to Rolls-Royce to support development of the Trent 600 and 900, two additional engine models
for large civil aircraft. The UK government characterized this engine development aid as an “investment”
that would provide a “real rate of return” from future sales of the engines. The European Commission
announced its approval of a £250 million “reimbursable advance” without opening a formal investigation
into whether the advance constituted illegal state aid under EU law. According to a Commission
statement, the “advance will be reimbursed by Rolls-Royce to the UK government in case of success of
the program, based on a levy on engine deliveries and maintenance and support activity.” Detailed terms
of the approved launch aid were not made public. To date, none of the launch aid for the Trent 600 and
900 models has been repaid.
Propulsion is another area considered important to the future of the UK aerospace industry, and the
Department for Business, Innovation, and Skills (BIS) has extended support to Rolls-Royce for the
development of environmentally friendly engine technologies. This funding is directed through
established research funding channels, though the government has provided occasional direct support to
Rolls-Royce over the past five years.
France: In 2005, the French government-owned engine manufacturer, Snecma SA, merged with Sagem,
a technology and communications firm, to form the Safran Group. The government supported the Safran
SaM146 propulsive engine program, a turbofan engine produced by the PowerJet joint venture between
Snecma of France and NPO Saturn of Russia, with a reimbursable advance of €140 million. In 2009,
Safran received new reimbursable advances of €69 million.
Other Civil Aircraft
In July 2008, Bombardier Aerospace announced an investment of £519.4 million in Northern Ireland to
support the design and manufacture of the wings for its 110 to 130 seat CSeries family of aircraft. In an
agreement with BIS, the Northern Ireland Executive has offered assistance to the investment of £155
million. This includes a maximum of £130 million (Northern Ireland’s contribution of £78 million of
repayable Launch Investment assistance for the CSeries and up to £25 million Selective Financial
Notwithstanding the existence of customs laws that govern all EU Member States, the EU does not
administer its laws through a single customs administration. Rather, there is a separate agency
responsible for the administration of EU customs law in each of the EU’s 27 Member States. No EU
institutions or procedures ensure that EU rules on classification, valuation, origin, and customs procedures
are applied uniformly throughout the 27 Member States of the EU. Moreover, no EU rules require the
customs agency in one Member State to follow the decisions of the customs agency in another Member
State with respect to materially identical issues.
On some questions, where the customs agencies in different Member States administer EU law
differently, the matter may be referred to the Customs Code Committee (Committee). The Committee is
an entity established by the Community Customs Code to assist the European Commission. The
Committee consists of representatives of the Member States and is chaired by a representative of the
Commission. While, in theory, the Committee exists to help reconcile differences among Member State
practices and thereby help to achieve uniformity of administration, in practice its success in this regard
has been limited.
Not only are the Committee and other EU-level institutions ineffective tools for achieving the uniform
administration and application of EU customs law, the EU also lacks tribunals or procedures for the
prompt review and EU-wide correction of administrative actions relating to customs matters. Instead,
review is provided separately by each Member State’s tribunals, and rules regarding these reviews can
vary from Member State to Member State. Thus, a trader encountering non-uniform administration of EU
customs law in multiple Member States must bring a separate appeal in each Member State whose agency
rendered an adverse decision.
Ultimately, a question of interpretation of EU law may be referred to the European Court of Justice (ECJ).
The judgments of the ECJ have effect throughout the EU. However, referral of questions to the ECJ
generally is discretionary, and ECJ proceedings can take years. Thus, obtaining corrections with EUwide effect for administrative actions relating to customs matters is a cumbersome and frequently timeconsuming process.
The United States has raised each of the preceding concerns with the EU in various fora, including the
WTO Dispute Settlement Body. The concerns have taken on new prominence in light of the expansion of
the EU and the focus of the WTO on trade facilitation. In the WTO trade facilitation negotiations, WTO
Members are considering proposals that would clarify the requirement of GATT 1994 Article X that all
WTO Members, including WTO Members that are customs unions, uniformly apply and give effect to a
Member’s customs laws, regulations, judicial decisions, and administrative rulings. EU officials claim
that the Modernized Community Customs Code (MCCC), which formally entered into force in 2008, will
streamline customs procedures and will apply uniformly throughout the customs territory of the EU.
Implementation of the MCCC is expected to be completed by 2013. The United States will monitor its
implementation closely, focusing on its impact on uniform administration of EU customs law.
U.S. businesses and the U.S. Government continue to monitor potential problems related to data privacy
regulation and legal liability for companies doing business over the Internet in the EU.
The EU Data Protection Directive (1995/46) allows the transmission of EU data to third countries only if
those countries are deemed by the European Commission (Commission) to provide an adequate level of
protection by reason of their domestic law or their international commitments (Article 25(6)). The
Commission has thus far recognized Switzerland, Canada, Argentina, Guernsey, the Isle of Man, Jersey,
the Faroe Islands, Andorra, New Zealand, Uruguay and Israel as providing an adequate level of
protection. The United States does not yet benefit from a blanket adequacy finding, but the Commission
has recognized a series of specific and limited programs and agreements as providing adequacy. The
most all-encompassing of these is the U.S.-EU Safe Harbor Framework, but others include the U.S.-EU
Agreement on the Transfer of Air Passenger Name Records to the U.S. Bureau of Customs and Border
The Safe Harbor Framework provides U.S. companies with a simple, streamlined means of complying
with the EU rules. It is the result of an agreement that allows U.S. companies that commit to a series of
data protection principles (based on the EU Data Protection Directive) and that publicly state their
commitment by “self-certifying” on a dedicated website ( to continue
to receive personal data from the EU. Signing up to the Safe Harbor Framework is voluntary, but the
rules are binding on signatories. A failure to fulfill commitments under the Safe Harbor Framework is
punishable either as an unfair or deceptive practice under Section Five of the U.S. Federal Trade
Commission Act or, for air carriers and ticket agents, under a concurrent U.S. Department of
Transportation statute.
Outside of the programs and agreements that explicitly enjoy an adequacy finding, U.S. companies can
receive or transfer employee and customer information from the EU only under one of the exceptions to
the EU Data Protection Directive’s adequacy requirements, if they develop binding corporate rules to
allow global intra-company transfers and gain EU data protection authorities’ approval of them, which
fewer than 50 companies have done at this time. These requirements can be burdensome for many U.S.
industries that rely on data exchange between the United States and the EU.
In recent years, a number of U.S. companies have faced obstacles to winning contracts with EU
governments and private sector customers because of public fears in the EU that any personal data held
by these companies may be collected by U.S. law enforcement agencies. Since mid-2011, EU media
reports have suggested that U.S. laws, such as the Patriot Act, offer the U.S. Government carte blanche to
obtain private data of EU citizens when stored by U.S. cloud computing service providers. The United
States is seeking to correct misconceptions about U.S. law and practice and to engage with EU
stakeholders on how personal data is protected in the United States.
The United States actively supports the Safe Harbor Framework and encourages EU institutions and
Member States to continue to use the flexibility offered by the EU Data Protection Directive to avoid
unnecessary interruptions in data flows to the United States. Furthermore, the United States expects the
EU and Member States to fulfill their commitment to inform the United States if they become aware of
any actions that may interrupt data flows to the United States.
The European Commission is currently reviewing the EU Data Protection Directive as part of a broader
review of the EU legislative framework for data protection, encompassing both commercial and
judicial/law enforcement uses of data. In January 2012, the Commission issued its legislative proposals,
initiating a potentially lengthy process of consultation and negotiation with EU Member States and the
European Parliament. Given the importance of this issue to the business models of many U.S. companies,
the United States is closely monitoring the development of this revised framework legislation to ensure
that it does not adversely impact transatlantic trade and investment.
Member State Measures:
France: Since 2011, sales of electronic books (e-books) by foreign merchants fall under a French law that
sets a fixed price that French retailers may charge on a particular hard copy book. Since taking office in
May 2012, the Hollande administration has undertaken a review of digital economic policy that may
result in moves to levy additional taxes on certain online companies. The government, which has the
backing of a consortium of domestic media and telecommunications companies in this effort, is seeking
new funding for France’s IT infrastructure and cultural industries. In early 2013, the French government
is expected to unveil a comprehensive digital economy strategy – known as the Lescure Report -- that will
include recommendations in this area, as well as proposals that would update regulations on copyright
protection and data privacy.
The U.S. goods trade surplus with Ghana was $1.0 billion in 2012, an increase of $600 million from
2011. U.S. goods exports in 2012 were $1.3 billion, up 9.4 percent from the previous year. Corresponding
U.S. imports from Ghana were $291 million, down 62.6 percent. Ghana is currently the 73rd largest
export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Ghana was $2.3 billion in 2011 (latest data
available), up from $2.1 billion in 2010.
Ghana is a member of the World Trade Organization (WTO) and the Economic Community of West
African States (ECOWAS). According to the WTO, Ghana’s average most favored nation (MFN) applied
tariff rate in 2010 was 12.8 percent. For agricultural goods, the average applied tariff is 17.4 percent, and
for non-agricultural products it is 12.3 percent. Along with other ECOWAS countries, Ghana adopted a
common external tariff (CET) with five bands. The 5 tariff bands are: zero duty on social goods (e.g.,
medicine, publications); 5 percent duty on imported raw materials; 10 percent duty on intermediate
goods; 20 percent duty on finished goods; and 35 percent duty will be charged on goods in certain sectors
that the government seeks to protect, such as poultry and rice. Ghana currently maintains 190 exceptions
to the CET, and the highest applied tariff is 20 percent.
Ghana has bound all agricultural tariffs in the WTO at an average of 97.2 percent, more than five times
the average level of its MFN applied rates on agricultural goods. On industrial goods, almost all of
Ghana’s tariffs are unbound at the WTO, such that Ghana could raise tariffs to any rate at any time
without violating WTO commitments, contributing to uncertainty for traders.
Nontariff Measures
Importers are confronted by a variety of fees and charges in addition to tariffs. Ghana levies a 12.5
percent value-added tax (VAT) plus a 2.5 percent National Health Insurance levy on the duty-inclusive
value of all imports as well as on locally produced goods, with a few selected exemptions. In addition,
Ghana imposes a 0.5 percent ECOWAS surcharge on all goods originating in non-ECOWAS countries
and charges 0.4 percent of the free on board (FOB) value of goods (including VAT) for the use of the
automated clearing system, the Ghana Community Network. Under the Export Development and
Agricultural Investment Fund (EDAIF) Act, Ghana imposes a 0.5 percent duty on all non-petroleum
products imported in commercial quantities. Ghana also applies a 1 percent processing fee on all duty
free imports.
Imports are subject to an inspection fee of 1 percent of cost, insurance, and freight (CIF) of the goods.
Importers have reported that the flat fee is not based on the cost of the services rendered. Destination
inspection companies (DICs) are licensed by the Ghanaian government, and inspection by the DICs
accounts for the longest delays in import clearance.
An examination fee of 1 percent is applied to imported vehicles. Imported used vehicles that are more
than 10 years old incur an additional tax ranging from 2.5 percent to 50 percent of the CIF value. The
Customs Division of the Ghana Revenue Authority maintains a price list that is used to determine the
value of imported used vehicles for tax purposes. There are complaints that this system is not transparent
because the price list used for valuation is not publicly available.
Between May and October each year, there is a temporary ban on the importation of fish, except on
imports of canned fish, to protect local fishermen during their peak season.
Certificates are required for imports of food, cosmetics, and agricultural and pharmaceutical goods.
Permits are required for poultry and poultry product imports. At the time the permit is issued, a nonstandardized quantity limit is imposed.
All communications equipment imports require a clearance letter from the National Communications
Authority. Securing a clearance letter prior to importation can help avoid delays at the port of entry.
Large public procurements are conducted with open tendering and allow the participation of nondomestic firms. A draft guideline that applies to current tenders gives a margin of preference of 7.5
percent to 20 percent to domestic suppliers of goods and services in international competitive bidding.
Notwithstanding the public procurement law, companies report that locally funded contracts lack full
transparency. Supplier or foreign government subsidized financing arrangements appear in some cases to
be a crucial factor in the award of government procurements. Allegations of corruption in the tender
process are fairly common.
Ghana is not a signatory to the WTO Agreement on Government Procurement.
Since December 2003, Ghana’s Parliament has enacted six laws designed to implement Ghana’s
obligations under the WTO TRIPS Agreement. The new laws pertain to copyright, trademarks, patents,
layout-designs (topographies) of integrated circuits, geographical indications, and industrial designs.
Ghana is a signatory to the Berne Convention for the Protection of Literary and Artistic Works, the Paris
Convention for the Protection of Industrial Property, the Patent Cooperation Treaty, the World
Intellectual Property Organization (WIPO) Copyright Treaty, and the African Regional Industrial
Property Organization. In 2012 Ghana ratified the WIPO Performances and Phonograms Treaty which
entered into force on February 16, 2013.
In recent years, owners of intellectual property rights have filed very few trademark, patent, or copyright
infringement cases in local courts. Companies that do initiate cases report prolonged waits for resolution,
a possible factor in discouraging other companies from filing cases.
There is virtually no government-initiated enforcement. However, the Copyright Office, which is under
the Attorney General’s Office, periodically initiates raids on markets for pirated works. The Customs
Service has collaborated with concerned companies to inspect import shipments.
On December 31, 2009, Ghana enacted legislation requiring a minimum rate of $0.19 per minute for
terminating international calls into Ghana, significantly increasing the cost of terminating international
calls into the country from approximately $0.07 per minute for fixed networks and $0.13 per minute for
mobile networks. All local and international calls are subject to a tax of $0.06 per minute.
Ghana’s investment code excludes foreign investors from participating in four economic sectors: petty
trading; the operation of taxi and car rental services with fleets of fewer than 10 vehicles; lotteries
(excluding soccer pools); and the operation of beauty salons and barber shops.
Foreign investors are required by law to have local partners in the insurance and extractive industries. In
the insurance sector, Ghana limits foreign ownership to 60 percent, except for auxiliary insurance
services. There is compulsory local participation in the extractive sector. By law, the government of
Ghana acquires an automatic 10 percent of all interests in mining, oil, and gas ventures. The 2006
Minerals and Mining Law also allows the government of Ghana to negotiate any other form of
Foreign investors in Ghana must contend with a highly regulated economy, a politicized business
community, and lack of transparency in certain government operations. Entrenched local interests can
derail or delay new entrants. The political leanings of the Ghanaian partners of foreign investors are often
subject to government scrutiny. Corruption also remains a concern. The government does not implement
anticorruption laws effectively, and some officials engage in corrupt practices. For example, some
judicial officials accept bribes to expedite or postpone cases or to “lose” records. Certain government
local content and local participation initiatives and measures are also raising concerns. Measures in the
oil and gas industry could soon be re-introduced to the new Parliament. Such measures would require a
minimum 5 percent Ghanaian ownership in any company receiving a petroleum license and at least 10
percent ownership for companies that provide petroleum services and would also prescribe levels of
Ghanaian employment in the industry.
In September 2012, the newly established Petroleum Commission significantly increased fees for oil and
gas service providers. Industry representatives consider the fees to be too high. Depending on a
company’s annual revenues, registration fees and annual renewal fees for foreign companies range from
$70,000 to $150,000 compared to fees for local companies of between $5,000 and $30,000. Prior to the
establishment of the Petroleum Commission, the registration fee was $2,000 and the annual license
renewal fee was $200.
Foreign investment projects must be registered with the Ghana Investment Promotion Center. While the
registration process is intended to be completed within no more than five business days, the process often
takes significantly longer. Foreign investments are also subject to the following minimum capital
requirements: $10,000 for joint ventures with a Ghanaian partner; $50,000 for enterprises wholly-owned
by a non-Ghanaian; and $300,000 for trading companies (firms that buy or sell finished goods) either
wholly or partly owned by non-Ghanaians entities. Trading companies are also required to employ at
least 10 Ghanaian nationals.
Foreign investors have experienced difficulties and delays in securing required work visas for their nonGhanaian employees. The process for generating required work permits can be unpredictable and take
several months from application to delivery. Foreign investors’ access to land can also be challenging.
Non-Ghanaians are only permitted to access land on a long-term leasehold basis, and Ghana’s complex
land tenure system makes establishing clear title on real estate difficult.
Port inefficiencies increase import and export costs. During the last quarter of 2002, Ghana’s Customs
Service phased in an automated customs declaration system to facilitate customs clearance. Although the
new system has reduced the number of days for clearing goods through the ports, inefficiencies remain
because complementary services from Ghanaian government agencies, banks, destination inspection
companies, and security services have not been effective. Such inefficiencies are a significant
contributing factor to the absence of a direct shipping route to Ghana, which in turn has a significant
adverse impact on U.S. exports.
The U.S. goods trade surplus with Guatemala was $1.4 billion in 2012, a decrease of $71 million from
2011. U.S. goods exports in 2012 were $5.9 billion, down 3.8 percent from the previous year.
Corresponding U.S. imports from Guatemala were $4.6 billion, down 3.4 percent. Guatemala is currently
the 40th largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Guatemala was $1.1 billion in 2011 (latest data
available), slightly higher than in 2010.
Free Trade Agreement
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or
“Agreement”) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua
in 2006 and for the Dominican Republic in 2007. The CAFTA-DR entered into force for Costa Rica on
January 1, 2009. The CAFTA-DR significantly liberalizes trade in goods and services as well as includes
important disciplines relating to customs administration and trade facilitation; technical barriers to trade;
government procurement; investment; telecommunications; electronic commerce; intellectual property
rights; transparency; and labor and environmental protection.
The United States hosted a Free Trade Commission (FTC) meeting on January 23, 2012 in Miami. At
that meeting the CAFTA-DR countries recognized continued growth in trade and integration, and acted to
further strengthen CAFTA-DR institutions and initiatives.
In 2012, the Parties implemented changes to a number of the Agreement’s rules of origin for textile and
apparel goods to enhance the competitiveness of the region’s textiles sector. The changes to these rules of
origin were made pursuant to a Decision of the first FTC meeting in February 2011, and are aimed at
facilitating regional sourcing and encouraging greater integration of the textile and apparel supply chain
in the region. The new rules became effective on October 13, 2012, after the other CAFTA-DR countries
had completed their respective domestic procedures, and the U.S. Congress passed legislation
implementing the changes for the United States.
As a member of the Central American Common Market, Guatemala applies a harmonized external tariff
on most items at a maximum of 15 percent with some exceptions.
Under the CAFTA-DR, however, 100 percent of U.S. consumer and industrial goods will enter
Guatemala duty free by 2015. Nearly all textile and apparel goods that meet the Agreement’s rules of
origin now enter Guatemala duty free and quota free, promoting new opportunities for U.S. and regional
fiber, yarn, fabric, and apparel manufacturing companies.
Under the CAFTA-DR, more than half of U.S. agricultural exports now enter Guatemala duty free.
Guatemala will eliminate its remaining tariffs on virtually all agricultural products by 2020 (2023 for rice
and chicken leg quarters and 2025 for dairy products). For certain products, tariff-rate quotas (TRQs)
permit some duty-free access for specified quantities during the tariff phase-out period, with the duty-free
amount expanding during that period. Guatemala will liberalize trade in white corn through continual
expansion of a TRQ, rather than by the reduction of the out-of-quota tariff.
Nontariff Measures
Under the CAFTA-DR, all CAFTA-DR countries, including Guatemala, committed to improve
transparency and efficiency in administering customs procedures, including the CAFTA-DR rules of
origin. The CAFTA-DR countries also committed to ensuring greater procedural certainty and fairness in
the administration of these procedures, and agreed to share information to combat illegal trans-shipment
of goods.
Guatemala’s denial of claims for preferential treatment for U.S. products under the CAFTA-DR continues
to be a source of difficulty in exporting to Guatemala. U.S. companies have raised concerns that the
Guatemalan Customs Administration (part of the Superintendence of Tax Administration, or SAT) has
not provided adequate advance notice regarding administrative changes in documentation requirements
for imported shipments, such as information needed for certifications of origin. The United States raised
this issue with the Customs Administration and received assurances that future changes would be
communicated in advance and be available on the tax and customs website:
Despite prior assurances, these changes are being implemented on a retroactive basis, without advance
notification. In 2010, Guatemala also began reviewing some imports from prior years and assessing
duties and penalties for certifications of origin that were deemed to have been improperly completed or
were found to have clerical or technical errors or mistakes. In October 2011, the CAFTA-DR FTC took a
decision agreeing on the “Common Guidelines for the Interpretation, Application and Administration of
Chapter Four of the Dominican Republic-Central America-United States Free Trade Agreement,” which
affirmed that an importer, exporter, or producer, in a CAFTA-DR country shall be given a reasonable
period of time to submit corrected certifications of origin. The government of Guatemala had assured the
United States that these “Common Guidelines” would help resolve this particular type of problem.
Nonetheless, in 2011 and 2012, there continued to be an increase in the initiation by the Guatemalan
Customs Administration of audits of claims for preference under the CAFTA-DR for merchandise that
entered in prior years. Such audits have resulted in the denial of preferential treatment under the CAFTADR, as well as in collection of the back duties assessed and a 12 percent VAT for up to the three previous
years, and a fine of up to double the rate of the tariff. Such penalties have reportedly been imposed in
cases in which the claims for the preferential treatment under the CAFTA-DR were not deliberately
incorrect. For example, stakeholders report that Guatemalan customs authorities are challenging declared
tariff classifications, as to which there should not be any confusion, and trying to reclassify products as
products subject to a higher tariff. These practices raise concerns that the Customs Administration
appears to be denying U.S. products the preferential treatment under the CAFTA-DR and instead
imposing tariffs and other retroactive charges as a means of increasing revenue to meet overall yearly
revenue targets. The United States will continue to raise these concerns with Guatemala.
In early 2012, the Guatemalan government also approved a new law that modified customs procedures.
Importers of U.S. products and business chambers that represent U.S. companies have raised concerns
with the new customs law which have created problems and delays for the importation of goods. Due to
complaints about the law, the Guatemalan Congress is considering revisiting the customs law. The
United States will continue to monitor the progress of the new customs law to address any possible trade
The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures,
including advance notice of purchases as well as timely and effective bid review procedures, for
procurement covered by the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on
procurements of most Guatemalan government entities, including government ministries and sub-central
and state-owned entities, on the same basis as Guatemalan suppliers. The anticorruption provisions of the
Agreement require each government to ensure under its domestic law that bribery in matters affecting
trade and investment, including in government procurement, is treated as a criminal offense or is subject
to comparable penalties.
In 2009, the Guatemalan Congress approved reforms to the Government Procurement Law, which
simplified bidding procedures, eliminated the fee previously charged to suppliers for bidding documents,
and provided an additional opportunity for suppliers to raise objections to the bidding process. Foreign
suppliers must submit their bids through locally registered representatives, a process that can place
foreign bidders at a competitive disadvantage.
Some U.S. companies have complained that the procurement process is not transparent, especially when
the government makes a direct purchase and when a CAFTA-DR covered entity does not provide the
required 40 days from the notice of procurement for interested parties to prepare and submit bids. There
has been an increased tendency by some government entities to undertake major procurements via
unusual special purpose mechanisms, such as on an emergency basis, enabling the procuring entity to
make a direct purchase from a pre-selected supplier and avoid competitive bidding and the public tender
process. The government has canceled some direct purchases after receiving complaints from interested
bidders. The United States will continue to engage with the government of Guatemala to promote fair
and transparent procurement procedures consistent with the CAFTA-DR provisions. This practice raises
questions regarding Guatemala’s government procurement obligations under CAFTA-DR.
Guatemala is not a signatory to the WTO Agreement on Government Procurement.
Under the CAFTA-DR, Guatemala may not adopt new duty waivers or expand existing duty waivers that
are conditioned on the fulfillment of a performance requirement (e.g., the export of a given level or
percentage of goods). However, under the CAFTA-DR, Guatemala was permitted to maintain such
measures through December 31, 2009, provided that it maintained the measures in accordance with its
obligations under the WTO Agreement on Subsidies and Countervailing Measures. The U.S.
Government is working with the Guatemalan government in an effort to ensure compliance with its
CAFTA-DR obligations.
Guatemala provides tax exemptions to investors in free trade zones and maintains duty drawback
programs aimed mainly at garment manufacturing and assembly operations or “maquiladoras” (firms that
are permitted to operate outside a free trade zone and still receive tax and duty benefits). The “Law for
the Promotion and Development of Export Activities and Drawback” provides tax and duty benefits to
companies that import over half of their production inputs/components and export their completed
products. Investors are granted a 10-year exemption from both income taxes and the Solidarity Tax,
which is Guatemala’s temporary alternative minimum tax. Additionally, companies are granted an
exemption from payment of tariffs and value-added taxes on imported machinery, and a one-year
suspension (extendable to a second year) of the same tariffs and taxes on imports of production inputs and
packing material. Taxes are waived when the goods are re-exported.
Guatemala remained on the Watch List in the 2012 Special 301 Report. The United States recognized
that Guatemala continued to make progress in 2011 by passing legislation to create penalties for the
production and distribution of counterfeit medications. The report also recognized Guatemala’s efforts to
increase enforcement actions, highlighting the continued efforts of the intellectual property rights (IPR)
prosecutor and the increase in seizures and corresponding convictions of IPR violators. However,
inadequate allocation of resources for the IPR prosecutor’s office was noted as an area of concern. The
report highlighted the need for continued efforts to ensure that proper resources are available for its
enforcement activities, to achieve improved coordination among enforcement agencies, and to continue
its enforcement efforts against manufacturers of pirated and counterfeit goods.
The United States will continue to monitor Guatemala’s implementation of its IPR obligations under the
Foreign enterprises may provide licensed professional services in Guatemala only through a contract or
other relationship with an enterprise established in Guatemala.
Some U.S. companies operating in Guatemala have complained that complex and unclear laws and
regulations continue to constitute practical barriers to investment. Resolution of business and investment
disputes through Guatemala’s judicial system is also extremely time-consuming, and civil cases can take
many years to resolve. Justice system institutions can be prone to third-party influence which interferes
with the due process of law and disadvantages U.S. companies on legal business dispute cases.
Two U.S. companies operating in Guatemala filed claims under the Investment Chapter of the CAFTADR against the government of Guatemala with the Centre for the Settlement of Investment Disputes
(ICSID) in 2007 and 2010. The ICSID arbitration issued its ruling on the first case in June 2012 and
stated that the government had infringed the minimum standard of treatment under Article 10.5 of the
CAFTA-DR. The ICSID required the government of Guatemala to pay more than $11.3 million to the
company. The second case remains pending before the ICSID.
Delays and uncertainty in obtaining licenses from relevant Guatemalan authorities for exploration and
operation in extractive industries has the effect of inhibiting current and potential investments from U.S.
The United States continues to engage with Guatemala to ensure fair and transparent treatment for U.S.
companies in commercial and investment-related cases, consistent with CAFTA-DR provisions.
Some U.S. firms and citizens have found corruption in the government, including in the judiciary, to be a
significant concern and a constraint to successful investment and access to government procurement
tenders in Guatemala. Administrative and judicial decision-making appear at times to be inconsistent,
nontransparent, and very time-consuming.
The U.S. goods trade surplus with Honduras was $1.1 billion in 2012, down $559 million from 2011.
U.S. goods exports in 2012 were $5.7 billion, down 6.7 percent from the previous year. Corresponding
U.S. imports from Honduras were $4.6 billion, up 3.3 percent. Honduras is currently the 41st largest
export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Honduras was $930 million in 2011 (latest data
available), down from $999 million in 2010.
Free Trade Agreement
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or
“Agreement”) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua
in 2006 and for the Dominican Republic in 2007. The CAFTA-DR entered into force for Costa Rica on
January 1, 2009. The CAFTA-DR significantly liberalizes trade in goods and services as well as includes
important disciplines relating to customs administration and trade facilitation, technical barriers to trade,
government procurement, investment, telecommunications, electronic commerce, intellectual property
rights, transparency, and labor and environmental protection.
The United States hosted a Free Trade Commission (FTC) meeting on January 23, 2012 in Miami. At
that meeting the CAFTA-DR countries recognized continued growth in trade and integration, and acted to
further strengthen CAFTA-DR institutions and initiatives.
In 2012, the Parties implemented changes to a number of the Agreement’s rules of origin for textile and
apparel goods to enhance the competitiveness of the region’s textiles sector. The changes to these rules of
origin were made pursuant to a Decision of the first FTC meeting in February 2011, and are aimed at
facilitating regional sourcing and encouraging greater integration of the textile and apparel supply chain
in the region. The new rules became effective on October 13, 2012, after the other CAFTA-DR countries
had completed their respective domestic procedures, and the U.S. Congress passed legislation
implementing the changes for the United States.
As a member of the Central American Common Market, Honduras applies a harmonized external tariff on
most items at a maximum of 15 percent with some exceptions.
Under the CAFTA-DR, however, 100 percent of U.S. consumer and industrial goods will enter Honduras
duty free by 2015. Nearly all textile and apparel goods that meet the Agreement’s rules of origin became
duty free and quota free immediately, thus creating new opportunities for U.S. fiber, yarn, fabric, and
apparel manufacturers.
Under the CAFTA-DR, more than half of U.S. agricultural exports now enter Honduras duty free.
Honduras will eliminate its remaining tariffs on virtually all agricultural products by 2020 (2023 for rice
and chicken leg quarters and 2025 for dairy products). For certain products, tariff-rate quotas (TRQs) will
permit some immediate duty-free access for specified quantities during the tariff phase out period, with
the duty-free amount expanding during that period. Honduras will liberalize trade in white corn through
continual expansion of a TRQ, rather than by the reduction of the out-of-quota tariff.
Nontariff Measures
Under the CAFTA-DR, all CAFTA-DR countries, including Honduras, committed to improve
transparency and efficiency in administering customs procedures, including the CAFTA-DR’s rules of
origin. Honduras passed a law in August 2011 establishing a new inter-institutional Presidential
Commission for the Modernization of Customs Services (COPREMSA in Spanish) with the intent to
improve the transparency and efficiency of customs procedures. All CAFTA-DR countries, including
Honduras, also committed to ensuring greater procedural certainty and fairness in the administration of
these procedures, and all CAFTA-DR countries agreed to share with each other information to combat
illegal trans-shipment.
The Dirección Ejecutiva de Ingresos (DEI), the Honduran customs and tax authority, has taken over
responsibility for verification of origin certifications from the Ministry of Industry and Trade. The DEI
verifies that origin certifications from producers, exporters, or importers comply with the requirements of
the CAFTA-DR and other international agreements.
The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures,
including advance notice of purchases and timely and effective bid review procedures, for procurement
covered by the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on procurements
of most Honduran government entities, including key ministries and state-owned enterprises, on the same
basis as Honduran suppliers. The anticorruption provisions in the CAFTA-DR require each government
to ensure under its domestic law that bribery in matters affecting trade and investment, including in
government procurement, is treated as a criminal offense or is subject to comparable penalties. Since the
CAFTA-DR came into effect, Honduran government agencies have routinely declared “emergencies” to
circumvent competitive bidding procedures for public procurements, including for large infrastructure
projects. Implementation of the CAFTA-DR eliminated the requirement that U.S. firms must act through
a local agent (with at least 51 percent Honduran ownership) to participate in public tenders. A positive
development was the decision of the Honduran Public-Private Partnership Commission, responsible for
designing and implementing public infrastructure tenders, to announce in 2012 that it would offer the
construction of a new commercial airport as an international bid covered under CAFTA-DR rather than
sole source the construction to an existing concessionaire.
Honduras is not a signatory to the WTO Agreement on Government Procurement.
Honduras currently employs the following export incentive programs: Free Trade Zone of Puerto Cortes
(ZOLI), Export Processing Zones (ZIP), and Temporary Import Regime (RIT).
Honduras provides tax exemptions to firms in free trade zones. Under the CAFTA-DR, Honduras may
not adopt new duty waivers or expand existing duty waivers that are conditioned on the fulfillment of a
performance requirement (e.g., the export of a given level or percentage of goods). However, Honduras
may maintain such duty waiver measures for such time as it is an Annex VII country for the purposes of
the WTO Agreement on Subsidies and Countervailing Measures. The U.S. Government is working with
the Honduran government in an effort to ensure compliance with its CAFTA-DR obligations.
In 2010, Honduras reestablished its intellectual property rights (IPR) prosecutor’s office as an
independent entity within the Public Ministry, reversing a 2009 decision to merge it into the common
crimes office. While the IPR prosecutor’s office has achieved successes in seizing counterfeit goods, the
United States remains concerned about the prospects for effective IPR enforcement in Honduras given
that its IPR enforcement office lacks necessary personnel and resources to wage a truly effective
campaign. In 2012, the United States engaged extensively with Honduras as it was redrafting its
trademark law. The United States will continue to monitor Honduras’ implementation of its IPR
obligations under the CAFTA-DR.
Hondutel, the government-owned incumbent telecommunications operator, officially lost its monopoly on
fixed-line telephony services on December 25, 2005. The government of Honduras is currently engaged
in a tender offering to private investors of 49 percent of Empresa Hondureña de Telefonia Movil
(Ehmovitel), a new mobile services subsidiary of Hondutel. Although there are regulations in place that
allow the government to grant licenses, permits, and concessions for different telecommunications
services in Honduras, competitive services continue to be provided through sub-operator agreements
signed between Hondutel and private companies.
Honduran law places certain restrictions on foreign ownership of land within 40 kilometers of the
coastlines and national boundaries. However, recognizing that the constitutional prohibition of foreign
property ownership in Honduras was a barrier to the development of tourism and the economic potential
of Honduras’ coastal and island areas, foreigners are allowed to purchase properties in designated tourism
zones established by the Ministry of Tourism in order to construct permanent or vacation homes.
Inadequate land title procedures have led to numerous investment disputes involving U.S. nationals who
are landowners in Honduras. Resolving disputes in court can be very time consuming. There have been
claims of widespread corruption in land sales and property registry, and in the dispute resolution process,
including claims against attorneys, real estate companies, judges, and local officials. The property
registration system is highly unreliable, which represents a major impediment to investment. In addition,
the lack of implementing regulations can lead to long delays in the awarding of titles in certain regions. A
law passed in April 2008 authorized the government to award certain agricultural lands that have been
under dispute for more than two years to squatters with only nominal compensation to legal titleholders.
A number of properties owned by U.S. citizens are potentially subject to confiscation under this law.
Although widespread concerns remain regarding the protection of land rights, in 2012 the primary
supplier of a U.S. company successfully negotiated with the National Land Institute (INA) to avoid the
expropriation of its land. However, this type of resolution typically requires involvement by the highest
level government officials and rarely occurs through the normal judicial or legislative procedures.
Some U.S. firms and citizens have reported corruption in government, including in the judiciary, to be a
significant concern and a constraint to successful investment in Honduras. These reports suggest that
corruption is pervasive in government procurement, issuance of government permits, real estate
transactions (particularly land title transfers), performance requirements, and the regulatory system. The
telecommunications, health, and energy sectors appear to be particularly problematic. In response to
concerns expressed by investors and the donor community, the government is currently implementing the
first four year (2011-2014) transparency and anticorruption plan to address transparency in government
processes, including in contracting, hiring, permitting, and procurement. In addition, the government is
working to improve transparency and good governance at the municipal level and within federal
ministries and has succeeded, for example, in reducing the time it takes to award environmental licenses.
U.S. industry has expressed concern that some investors in Honduras have at times been subject to
practices that might be considered anticompetitive. In 2006, the Honduran Congress enacted a
competition law, establishing an antitrust enforcement commission, the Commission for the Defense and
Promotion of Competition, to combat such conduct. The Commission commenced operations in 2007,
and it has been active in investigating complaints and has fined Honduran firms for price collusion. In
November 2010, after a two-year investigation, the Commission fined two cement companies lempiras 87
million (approximately USD $4.6 million) and six sugar companies a total of 62 million (approximately
USD $3.1 million) for the violation of competition law applying collusive prices. From January 2009 to
December 2010, the Commission initiated investigations into the six complaints that were filed. In
November 2011, the Commission had resolved all outstanding cases. In 2012, the Commission began
reviewing two new cases and those investigations, as of March 2013, remain open.
Some U.S. firms operating in Honduras have expressed concern about a December 2011 Ministry of
Transport decree issued without notice and opportunity to comment that set rates for trucking services
within Honduras. The companies are particularly concerned about the precedent of government
intervention in private contracts as well as the impact on Honduras’ international competitiveness. A
lawsuit was filed by several in the international shipping industry to challenge the decree.
The U.S. goods trade surplus with Hong Kong was $32.0 billion in 2012, a decrease of $8 million from
2011. U.S. goods exports in 2012 were $37.5 billion, up 2.8 percent from the previous year.
Corresponding U.S. imports from Hong Kong were $5.4 billion, up 23.6 percent from 2011. Hong Kong
is currently the 10th largest export market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Hong Kong were
$6.1 billion in 2011 (latest data available), and U.S. imports were $6.9 billion. Sales of services in Hong
Kong by majority U.S.-owned affiliates were $30.7 billion in 2010 (latest data available), while sales of
services in the United States by majority Hong Kong-owned firms were $3.3 billion.
The stock of U.S. foreign direct investment (FDI) in Hong Kong was $52.5 billion in 2011 (latest data
available), up from $48.2 billion in 2010. U.S. FDI in Hong Kong is primarily concentrated in non-bank
holding companies, wholesale trade, and finance/insurance sectors.
Hong Kong is a special administrative region (SAR) of the People’s Republic of China; however, for
trade, customs, and immigration purposes, Hong Kong is an independent administrative entity with its
own tariffs, trade laws, and regulations, and is a separate Member of the WTO and APEC. The Hong
Kong government pursues a market-oriented approach to commerce. Hong Kong is a duty-free port, with
few barriers to trade in goods and services and few restrictions on foreign capital flows and investment.
The Legislative Council passed Hong Kong’s first comprehensive competition law in June 2012, after six
years of public consultation and study. Broadly speaking, the new Competition Ordinance (Ordinance)
addresses collusion arrangements and market power abuses that prevent, restrict, or distort competition.
The Ordinance includes additional prohibitions on certain mergers and acquisitions in the
telecommunications field that could substantially lessen competition in Hong Kong. The maximum
penalties under the Ordinance are 10 percent of the company’s turnover obtained in Hong Kong for each
year of violation, up to a maximum of three years, and disqualification from direct or indirect
involvement in the management of a company for up to five years. The law exempts 575 of Hong Kong’s
581 statutory bodies from its coverage.
Hong Kong provides robust intellectual property rights (IPR) protection and enforcement. Hong Kong
has strong laws in place, a dedicated and effective enforcement capacity, a judicial system that supports
enforcement efforts with deterrent fines and prison sentences, and youth education programs that
discourage IPR-infringing activities. Hong Kong remains vulnerable, however, to some forms of IPR
infringement, such as online copyright piracy facilitated by the rapid growth of unauthorized file sharing
over peer-to-peer networks and end-user business software piracy.
Although the Hong Kong Customs and Excise Department (HKCED) routinely seizes IPR infringing
products arriving from Mainland China and elsewhere, stakeholders report that counterfeit
pharmaceuticals, luxury goods, and other infringing products continue to enter Hong Kong, destined for
both the local market and places outside Hong Kong. During the period between May and September
2012, HKCED carried out a special operation targeting the sale of counterfeit and infringing goods on
Internet auction sites. Customs officers arrested 32 people and seized 27 computers and 3,500 counterfeit
and infringing goods, including handbags, clothing, and pirated optical discs.
The United States is concerned that, in June 2012, the HKG unexpectedly shelved a bill to amend the
1997 Copyright Ordinance, after lengthy debate at the Legislative Council. The proposed amendments
were drafted in 2010, and introduced to the Legislative Council in June 2011, after industry groups failed
to reach agreement on a voluntary framework to address online infringement. At the time, the
government said it was shelving the bill to concentrate on passing urgent social and livelihood-related
bills before the legislative session ended in July. The United States is continuing to monitor the situation
as the government has not indicated whether it will reintroduce the amendments or begin a new round of
public consultation.
In February 2011, Hong Kong initiated a dialogue to elicit views from the public on whether to create an
original patent grant system in Hong Kong to replace the re-registration system based on patents granted
in the United Kingdom, the EU, and Mainland China. Public consultations concluded in December 2011
and the government of Hong Kong is currently considering proposals.
The U.S. goods trade deficit with India was $18.2 billion in 2012, up $3.5 billion from 2011. U.S. goods
exports in 2012 were $22.3 billion, up 3.9 percent from the previous year. Corresponding U.S. imports
from India were $40.5 billion, up 12.1 percent. India is currently the 18th largest export market for U.S.
U.S. exports of private commercial services (i.e., excluding military and government) to India were $11.0
billion in 2011 (latest data available), and U.S. imports were $16.9 billion. Sales of services in India by
majority U.S.-owned affiliates were $14.2 billion in 2010 (latest data available), while sales of services in
the United States by majority India-owned firms were $7.3 billion.
The stock of U.S. foreign direct investment (FDI) in India was $24.7 billion in 2011 (latest data
available), down from $24.8 billion in 2010. U.S. FDI in India is largely in the professional, scientific,
and technical services, finance/insurance services, and the information services sectors.
While the United States has actively sought bilateral and multilateral opportunities to open India’s
market, U.S. exporters continue to encounter tariff and nontariff barriers that impede imports of U.S.
products, despite the government of India’s ongoing economic reform efforts. The U.S. Trade
Representative and India’s Minister of Commerce and Industry chair the United States-India Trade Policy
Forum, to discuss the full range of bilateral trade and investment issues outlined in this chapter. Other
bilateral dialogues, such as the Information Communication Technology Working Group and the
Commercial Dialogue, also work to increase U.S. exports by highlighting areas and sectors of bilateral
commercial opportunity and resolving practical issues that affect doing business in India.
Tariffs and other Charges on Imports
The structure of India’s customs tariff and fees system is complex and characterized by a lack of
transparency in determining net effective rates of customs tariffs, excise duties, and other duties and
charges. The tariff structure of general application is composed of a basic customs duty, an “additional
duty” (also commonly referred to as a “countervailing duty”), a “special additional duty,” and an
education assessment (“cess”).
The additional duty, which is applied to all imports except for wine, spirits, or other alcoholic beverages,
is applied on top of the basic customs duty, and is intended to correspond to the excise duties imposed on
similar domestic products. The special additional duty is a 4 percent ad valorem duty that applies to all
imports, including alcoholic beverages, except those exempted from the duty pursuant to an official
customs notification. The special additional duty is calculated on top of the basic customs duty and the
additional duty. In addition, there is a 3 percent education cess (surcharge) applicable on the total of the
basic customs duty and additional duty (not on the customs value of the imported product) on most
imports, except those exempted from the cess pursuant to an official customs notification. A landing fee
of 1 percent is included in the valuation of all imported products unless exempted through separate
While India publishes applied tariff and other customs duty rates applicable to imports, there is no single
official publication publically available that includes all relevant information on tariffs, fees, and tax rates
on imports. In addition to being announced with the annual budget, India’s customs rates are modified on
an ad hoc basis through notifications in the Gazette of India and contain numerous exemptions that vary
according to product, user, or specific export promotion program, rendering the system complex to
administer and more open to administrative discretion. However, in April 2010, as part of its
computerization and electronic services drive, India initiated a web-based Indian Customs Electronic
Commerce/Electronic Data Interchange Gateway, known as ICEGATE ( It provides
options, among other things, for calculating duty rates, electronic filing of entry documents (import goods
declarations) and shipping bills (export goods declarations), electronic payment, and online verification of
import and export licenses.
India’s tariff regime is also characterized by pronounced disparities between bound rates (i.e., the rates
that under WTO rules generally cannot be exceeded) and the most favored nation (MFN) applied rates
charged at the border. According to the WTO, India’s average bound tariff rate was 46.4 percent, while
its simple MFN average applied tariff for 2010 was 12 percent. Given this large disparity between bound
and applied rates, U.S. exporters face tremendous uncertainty because India has considerable flexibility to
change tariff rates at any time. While India has bound all agricultural tariff lines in the WTO, over 30
percent of India’s non-agricultural tariffs remain unbound, i.e., there is no WTO ceiling on the rate.
Despite its goal of moving toward Association of Southeast Asian Nations (ASEAN) tariff rates
(approximately 5 percent on average), India has not systemically reduced the basic customs duty in the
past five years. India also maintains very high tariff peaks on a number of goods, including flowers (60
percent), natural rubber (70 percent), automobiles and motorcycles (75 percent for new products, 100
percent for used products), raisins and coffee (100 percent), alcoholic beverages (150 percent), and
textiles (some ad valorem equivalent rates exceed 300 percent). Rather than liberalizing its import tariffs,
India instead operates a number of complicated duty drawback, duty exemption, and duty remission
schemes for imports. Eligibility to participate in these schemes is usually subject to a number of
conditions, including an export obligation.
Many of India’s bound tariff rates on agricultural products are among the highest in the world, ranging
from 100 percent to 300 percent, with an average bound tariff of 118.3 percent. While many Indian
applied tariff rates are lower (averaging 33.2 percent on agricultural goods since 2010), they still present a
significant barrier to trade in agricultural goods and processed foods (e.g., potatoes, apples, grapes,
canned peaches, chocolate, cookies, and frozen French fries and other prepared foods used in quickservice restaurants). The large gap between bound and applied tariffs in the agriculture sector allows
India to use tariff policy to adjust the level of protection in the market frequently, creating uncertainty for
traders. For example, in April 2008, in an effort to curb inflation, India reduced applied duties on crude
edible oils and corn to zero, refined oils to 7.5 percent, and butter to 30 percent. However, in November
2008, India raised crude soybean oil duties back to 20 percent, only to reduce them again to zero in March
2009. Most recently, in January 2013, India issued a customs notification announcing a doubling of the
tariff on imports of crude edible oils.
In July 2007, after the United States initiated WTO dispute settlement procedures to challenge the
additional duty on alcoholic beverages, India, facing pressures from both the U.S. and the E.U., issued a
customs notification exempting alcoholic beverages from the additional duty. Under the prior customs
notification, imports of alcoholic beverages were subject to rates of additional duty ranging from 20
percent to 150 percent ad valorem, and in some cases higher specific duties. Simultaneously, India raised
the basic customs duty on wine from 100 percent to 150 percent. The basic customs duty on distilled
spirits remains at 150 percent. When India exempted alcoholic beverages from the additional duty, it
announced it was doing so in lieu of applying state-level excise duties on wine and spirits. India
eventually won the WTO case in 2008 and since then, there have been no changes on tariff rates for either
wines or spirits. These state-level taxes can result in imported wine and spirits being taxed at a
significantly higher rate than like domestic products.
Imports also are subject to state-level value-added or sales taxes and the Central Sales Tax as well as
various local taxes and charges. Since 2007, India allows importers to apply for a refund of the special
additional duty paid on imports subsequently sold within India and for which the importer has paid statelevel value-added taxes. Importers report that the refund procedures are cumbersome and time
consuming. The central government has taken steps and continues to work with state governments to
adopt a national goods and services tax (GST) that would replace most indirect taxes, including various
charges on imports. Implementation of a national GST, however, will first require amending the Indian
Import Licenses
India maintains a “negative list” of imported products subject to various forms of nontariff regulation.
The negative list is currently divided into three categories: banned or prohibited items (e.g., tallow, fat,
and oils of animal origin); restricted items that require an import license (e.g., livestock products and
certain chemicals); and “canalized” items (e.g., some pharmaceuticals) importable only by government
trading monopolies and subject to cabinet approval regarding timing and quantity. India, however, often
fails to observe customary transparency requirements, such as publication of this information in the
Official Gazette or notification to WTO committees, which can, in practice, act as a barrier to trade.
For purposes of entry requirements, India has distinguished between goods that are new, on the one hand,
and those that are secondhand, remanufactured, refurbished, or reconditioned, on the other hand. This
distinction has resulted in barriers to trade in goods that are secondhand, remanufactured, refurbished, or
reconditioned. India allows imports of secondhand capital goods by the end users without requiring an
import license, provided the goods have a residual life of five years. India’s official Foreign Trade Policy
treats remanufactured goods the same as secondhand products, without recognizing that remanufactured
goods have typically been restored to original working condition and meet the technical and/or safety
specifications applied to products made from virgin materials. Refurbished computer spare parts can only
be imported if an Indian chartered engineer certifies that the equipment retains at least 80 percent of its
residual life, while refurbished computer parts from domestic sources are not subject to this requirement.
India began requiring import licenses for all remanufactured goods in 2006. As with licensing
requirements on other products, U.S. industry representatives report that this requirement has been
onerous, for example, in light of excessive details required in the application, quantity limitations set on
specific part numbers, and the uncertainty created by the long delay between application and grant of the
India subjects imported boric acid to stringent requirements, including arbitrary quantity limitations and
conditions applicable only to imports used as insecticide. Traders (i.e., wholesalers) of boric acid for noninsecticidal use remain unable to import boric acid for resale because they are not end users of the product
and cannot obtain no-objection certificates (NOCs) from the relevant Indian government ministries and
departments or import permits from the Ministry of Agriculture. NOCs are required before applying for
import permits from the Ministry of Agriculture’s Central Insecticides Board & Registration Committee.
Meanwhile, local refiners continue to be able to produce and sell non-insecticidal boric acid with only the
requirement to maintain records showing they are not selling to insecticidal end users.
Customs Procedures
U.S. exporters have raised concerns regarding India’s application of customs valuation criteria to import
transactions. India’s valuation procedures allow India’s customs officials to reject the declared
transaction value of an import when a sale is deemed to involve a lower price compared to the ordinary
competitive price. U.S. exporters have reported that India’s customs valuation methodologies do not
reflect actual transaction values and raise the cost of exporting to India beyond applied tariff rates. U.S.
companies have also faced extensive investigations related to their use of certain valuation methodologies
when importing computer equipment. Companies have reported being subjected to excessive searches
and seizures.
Furthermore, as explained above, India does not assess the basic customs duty, additional duty, and
special additional duty separately on the customs value of a given imported product. Rather, India
assesses each of these duties cumulatively; that is, the additional duty is assessed on the sum of the actual
(or transaction) value and the basic customs duty, while the special additional duty is assessed on the sum
of the actual (or transaction) value, the basic customs duty, and the additional duty. This can result in
importers paying higher duties than they should be liable for on the basis of the actual value of their
imported product.
India’s customs officials generally require extensive documentation, inhibiting the free flow of trade and
leading to frequent and lengthy processing delays. In large part this is a consequence of India’s complex
tariff structure and multiple exemptions, which may vary according to product, user, or intended use.
While difficulties persist, India has shown improvement in this area through the automation of trade
procedures and other initiatives, as with the ICEGATE ( portal discussed above.
Motor vehicles may be imported through only three specific ports and only from the country of
India lacks an overarching government procurement policy, and as a result, its government procurement
practices and procedures vary at the state and central levels and by ministry. Government procurement in
India is also not transparent. Foreign firms are disadvantaged when competing for Indian government
contracts due to the preference afforded to Indian state-owned enterprises and the prevalence of such
enterprises. Similarly, pursuant to the 2006 Micro, Small and Medium Enterprise (MSME) Act, India
requires that 21 specific goods and services (e.g., pickles/chutneys, bread, wood furniture, wax candles,
safety matches, and fireworks) be purchased from MSMEs. India provides similar preferences to
government-registered “small scale industry units” for certain products. India’s defense “offsets”
program requires companies to invest 30 percent or more of the value of contracts above 3 billion rupees
(approximately $56 million) in Indian produced parts, equipment, or services. It is not uncommon for the
Defense Ministry to request significant changes to previously accepted offset proposals.
As part of the Indian government’s efforts to improve procurement practices, the Planning Commission
and the Ministry of Finance circulated separate draft procurement bills for comment. Each draft
contained certain provisions that appear to deviate from international best practices as set out in the
revised WTO Government Procurement Agreement approved in December 2011. In May 2012, the
government introduced a Public Procurement Bill in Parliament that seeks to harmonize India’s various
procurement instructions, guidelines, and recommendations into one law and to regulate the award of
government contracts above $100,000. This bill remains in Parliament and includes provisions of
concern to the United States.
The November 2011 National Manufacturing Policy (NMP) calls for greater local content requirements in
government procurement in certain sectors (e.g., information and communications technology (ICT) and
clean energy). Consistent with this approach, India issued the Preferential Market Access (PMA)
notification in February 2012, which requires government entities to meet their needs for ICT equipment
in part by purchasing domestically manufactured products. The government adopted a first set of
implementing measures under the PMA in late 2012 and early 2013 that identified specific
telecommunications and computer equipment as products subject to this requirement. (See below under
“Other Barriers” for a discussion on the application of the PMA to private firms.)
India is not a signatory to the WTO Government Procurement Agreement, but became an observer to the
WTO Committee on Government Procurement in February 2010.
India maintains several export subsidy programs, including exemptions from taxes for certain exportoriented enterprises and exporters in Special Economic Zones and duty drawback programs that appear to
allow for drawback in excess of duties levied on imported inputs. India also provides pre-shipment and
post-shipment financing to exporters at a preferential rate. India’s textile industry enjoys subsidies
through various modernization schemes, such as the Technology Upgradation Fund Scheme and the
Scheme for Integrated Textile Parks. The Duty Exemption Passbook Scheme for cotton and yarn,
reinstated by India in 2011, enables exporters to earn credits that they can sell to importers, who can apply
for duty-free import status for certain products. Numerous other sectors (e.g., paper, rubber, toys, leather
goods, and wood products) receive various forms of subsidies, including exemptions from customs duties
and internal taxes, which are tied to export performance.
After several consecutive years of not submitting a subsidies notification, India recently submitted two
notifications covering the 2003-2009 time period to the WTO Committee on Subsidies and
Countervailing Measures (SCM Committee), both of which notify only one central government program
of preferential tax incentives related to Free Trade Zones, Special Economic Zones, and Export
Processing Zones. These notifications were substantially incomplete, as they failed to notify several wellknown Indian subsidies, including export subsidy programs. Because of India’s failure to notify its
subsidy programs in a timely manner, USTR “counter-notified” 50 Indian subsidy programs to the WTO
Subsidies Committee in October 2011 under Article 25.10 of the SCM Agreement.
The United States submitted a formal request to the SCM Committee in February 2010 requesting a
calculation of the export competitiveness of Indian textile and apparel products. The resulting
calculation, published in March 2010, indicated that, with respect to textile and apparel products, India
had met the definition of “export competitiveness” set out in Article 27.6 of the SCM Agreement. As a
result, India must phase out export subsidies for those products over a period of eight years, in accordance
with the SCM Agreement. Since the calculation, India has announced some reductions in duty drawback
rates for textile products and the intention to eliminate certain subsidy programs. However, India not only
continues to offer subsidies to the textiles and apparel sector in order to promote exports, but it has also
extended or expanded such programs and even implemented new export subsidy programs that benefit the
textiles and apparel sector. As a result, the Indian textiles sector remains a beneficiary of many export
promotion measures (e.g., Export-Oriented Units, Special Economic Zones, Export Promotion Capital
Goods, Focus Product and Focus Market Schemes) that provide, among other things, exemptions from
customs duties and internal taxes based on export performance.
There is a special initiative for agricultural exports in India’s Foreign Trade Policy 2009-2014, including
a scheme called Vishesh Krishi Gram Upaj Yojana (VKGUY – “Special Agriculture Produce Scheme”),
aimed at boosting exports of fruits, vegetables, flowers, some forest products, and related value-added
products. Under the plan, exports of these items qualify for a duty-free credit that is equivalent to 5
percent of their free-on-board export value. The credit is freely transferable and can be used to import a
variety of inputs and capital goods. To mitigate the impact of the global economic slowdown on exports,
the government has made several additional agricultural products eligible under VKGUY, such as
soybean meal, marine products, and tea.
In March 2013, India moved to release wheat from government public stockholding reserves for export at
prices below the cost of production and acquisition. India, the world’s second-biggest wheat producer,
began allowing private traders to export up to 5 million tons of wheat from government warehouses but
set a floor price of 14,800 rupees (approximately $274) per ton plus taxes. This was 2,890 rupees
(approximately $53.51) per ton less than the government of India’s cost of buying wheat from domestic
farmers including charges for local levies, transportation and storage
India remained on the Priority Watch List in the 2012 Special 301 Report because of concerns regarding
weak protection and enforcement of intellectual property rights (IPR). Recent patent-related actions have
only heightened these concerns. These include the March 2012 decision of the Controller General of
Patents, Designs and Trademarks to effectively require an innovator to manufacture in India in order to
avoid being forced to license an invention to third parties, and provisions in India’s National
Manufacturing Policy that seek to curtail patent rights to facilitate technology transfer in the clean energy
sector. India also continues to lack effective protection against unfair commercial use of undisclosed test
and other data generated to obtain marketing approval for pharmaceutical and agrochemical products.
Stronger protection and enforcement is also needed for trademarks and copyrights, including addressing
the failure of India’s 2012 Copyright Law amendments to effectively implement the WIPO Internet
Treaties and protect against unlawful circumvention of technological protection measures.
The Indian government has a strong ownership presence in major services industries such as banking and
insurance, while private firms play a preponderant to exclusive role in some of the fastest growing areas
of the services sector, such as information technology and business consulting. Foreign investment in
major services sectors, including financial services, telecommunications, and retail, is subject to equity
limitations, while foreign participation in legal services is prohibited entirely.
Foreign investment in the insurance sector is limited to 26 percent of paid-up capital. The Ministry of
Finance introduced the Insurance Laws (Amendment) Bill in Parliament in late 2008 to allow foreign
equity participation of up to 49 percent and also allow entry of foreign re-insurers. The Parliament’s
Standing Committee on Finance recommended against increasing the 26 percent foreign equity cap. In
September 2012, the Indian Cabinet re-affirmed its commitment to the existing bill that would allow a 49
percent foreign equity ceiling in the insurance sector, and thus, that bill remains for consideration before
As lawmakers continue to consider increasing foreign investment in the insurance sector, many existing
investors are approaching 10 years of doing business in India. Under current regulations, at the 10 year
mark, any partner in an insurance enterprise is required to divest its equity stake down to 26 percent.
Given the 26 percent equity cap for foreign investors, this requirement effectively applies only to Indian
partners, as a result of which many existing joint ventures may be required to locate new Indian partners
or otherwise modify their ownership structure. Although the Insurance Regulatory and Development
Authority has said that it will seek to clarify its plans regarding these regulations, foreign investors
continue to operate in an environment of extreme uncertainty.
Although India allows privately held banks to operate in the country, the banking system is dominated by
government-owned banks and direct investment by foreign banks is subject to restrictions. State-owned
banks account for roughly 76 percent of the advances portfolio and 84 percent of all bank branches in the
Indian banking system. According to 2011-2012 data, there were 40 foreign banks with 323 branch
offices operating in India under approval from the Reserve Bank of India (RBI), including four U.S.
banks with a total of 51 branches. Among the seven new foreign banks that opened branches during
fiscal year 2011-2012, none were from the United States. Under India’s branch authorization policy,
foreign banks are required to submit their internal branch expansion plans on an annual basis, but their
ability to expand is severely limited by nontransparent quotas on branch office expansion. Only one
license to open an additional bank branch has been issued to a U.S. bank since March 2009, despite
several banks having applied.
In the past, foreign banks have not opened wholly-owned subsidiaries because of RBI-imposed caps on
ownership. Foreign banks are not authorized to own more than 5 percent of on-balance sheet assets of an
Indian private bank without approval by the RBI, while individual investors, including foreign investors,
cannot own more than 10 percent of any private bank. Total foreign ownership of any private bank from
all sources (foreign direct investment, foreign institutional investors, and non-resident Indians) cannot
exceed 74 percent. In addition, voting rights for shareholders in private banks are capped at 10 percent.
Following passage of certain amendments to the Banking Regulation Act at the end of 2012, allowed
Indian business conglomerates and non-bank financial institutions to establish new private sector banks.
However, the RBI restricted foreign shareholding to 49 percent for the first five years, after which the
limit would be as per the extant FDI policy, i.e., 74 percent.
Audiovisual Services
Although India has removed most barriers to the importation of motion pictures, U.S. companies continue
to experience difficulty importing film and video publicity materials and are unable to license
merchandise in connection with movies due to royalty remittance restrictions. India also charges a
service tax on the importation of films, music, and gaming software based on the value of the intellectual
property rights, rather than just a customs duty on the value of the carrier medium.
U.S. companies continue to face difficulties with India’s “Downlink Policy.” Under this policy,
international content providers that downlink programming from a satellite into India must establish a
registered office in India or designate a local agent. U.S. companies have reported that this policy is
overly burdensome and can result in having a taxable presence in India. India also requires that foreign
investors have a net worth of Rs. 5 crores (approximately $1 million) in order to be allowed to downlink
an initial content channel, and an additional Rs. 2.5 crores (approximately $500,000) of net worth for
downlinking each additional channel. While 100 percent foreign ownership is permitted for
entertainment and general interest channels, foreign investment in news and current affairs channels uplinking from India is limited to 26 percent.
Foreign accounting firms face obstacles to entering the Indian accounting services sector. Foreign
accounting firms may only practice in India if their home country provides reciprocity to Indian firms.
Only firms established as a partnership may provide financial auditing services, and foreign-licensed
accountants may not be equity partners in an Indian accounting firm.
The Companies Bill 2011, which contains provisions governing the operations of accounting firms, was
passed in 2012 by the Lok Sabha (lower house of Parliament) and is expected to be cleared by the Rajya
Sabha (upper house) in 2013. Opinions are divided over provisions requiring the rotation of auditors
every five years. Additionally, foreign accounting firms are concerned about provisions that seek to
increase third party liability in ways that would depart from the practices employed by most G20
countries. The Companies Bill 2011 is expected to be brought before Parliament in 2013.
Legal Services
The Bar Council of India (BCI) is the governing body for the legal profession in India. Membership in
the BCI is mandatory to practice law in India, but is limited to Indian citizens. Foreign law firms are not
allowed to open offices in India.
Indian lawyers have filed suit in the Bombay and Madras High Courts against a group of foreign law
firms, challenging the ability of foreign attorneys to provide any type of legal services in India, including
advising on matters of foreign (i.e., non-Indian) or international law under ambiguous provisions of the
1961 Advocates Act. The Bombay High Court issued a judgment in December 2009, finding that nonlitigation advisory services provided by foreign lawyers fell within the purview of the current Advocates
Act, and were therefore restricted to Indian lawyers. However, the judgment also noted that the issue of
foreign firms being able to practice law in India was under consideration by the government, and directed
the government to “take [an] appropriate decision on this issue as expeditiously as possible.” In the
separate case before the Madras High Court, the court ruled on February 21, 2012 that the Advocates Act
did not prevent foreign lawyers from advising clients on foreign law and international legal issues (e.g., in
connection with international arbitrations) on a “temporary” basis. The BCI has appealed the Madras
High Court judgment to the Indian Supreme Court.
Foreign investment in wireless and fixed telecommunications providers in India is limited to 74 percent,
and U.S. companies have noted that India’s initial licensing fee (approximately $500,000 per service or
$2.7 million for an all India Universal License) for telecommunications providers serves as a barrier to
market entry for smaller market players. The government has yet to announce the guidelines for
receiving applications for, and awarding, licenses. In September 2012, India revised the foreign
investment limits in cable networks and “direct-to-home” (DTH) broadcasting to allow up to 49 percent
foreign direct investment without prior approval either of the government or the Reserve Bank of India
and up to 74 percent with prior government approval (if networks invest in technical upgrades that
support digitization and addressability).
The government of India continues to hold equity in three telecommunications firms: a 26 percent interest
in the international carrier, VSNL; a 56 percent stake in MTNL, which primarily serves Delhi and
Mumbai; and 100 percent ownership of BSNL, which provides domestic services throughout the rest of
India. These ownership stakes have caused private carriers to express concern about the fairness of
India’s general telecommunications policies. For example, valuable wireless spectrum was allocated and
set aside for MTNL and BSNL instead of being allocated through competitive bidding. Although BSNL
and MTNL did not pay a preferential price for their spectrum, they received their spectrum well ahead of
privately owned firms.
India amended telecommunications service licenses in May 2011 with a view to addressing security
concerns posed by telecommunications equipment. These amendments, however, contain provisions of
concern to the United States, including: (1) a requirement for telecommunications equipment vendors to
test all imported information and communications technology equipment in labs in India; (2) a
requirement to allow the telecommunications service provider and government agencies to inspect a
vendor’s manufacturing facilities and supply chain, and to perform security checks for the duration of the
contract to supply the equipment to the telecommunications service provider; and (3) the imposition of
strict liability and possible “blacklisting” of a vendor for taking “inadequate” precautionary security
measures, without the right to appeal and other due process guarantees.
U.S. satellite operators have long raised concerns about the closed and protected satellite services market
in India. Even though current Indian regulations do not preclude the use of foreign satellites, India’s
uplinking guidelines provide that “proposals envisaging use of Indian satellites will be accorded
preferential treatment.” In addition, foreign satellite capacity must in practice be provided through the
Indian Space Research Organization (ISRO), effectively requiring foreign operators to sell capacity to a
direct competitor. U.S. companies have noted that this requirement creates additional costs, allows ISRO
to negotiate contract terms with the goal of moving the service to one of its satellites once capacity is
available, and puts ISRO in a position of being able to determine the market growth rate. Although the
Telecom Regulatory Authority of India (TRAI) has in the past recommended that India adopt an “open
skies” policy and allow competition in the satellite services market, no measures have been adopted to
date to implement TRAI’s recommendations for further liberalization.
Distribution Services
In November 2011, India raised the cap on FDI in single-brand retail from 51 percent to 100 percent,
subject to case-by-case government approval and contingent, among other things, on a requirement to
source 30 percent of products from Indian small and medium sized enterprises. The government revised
this policy in September 2012 to permit the local sourcing to be met by purchases from any Indian firm.
Also in September 2012, the Indian government approved a policy permitting up to 51 percent FDI in the
multi-brand retail sector, but left to each Indian state the final decision on whether to authorize such FDI
in its territory. In addition, where such FDI will be allowed, the policy imposes conditions on entry,
including the following: investment of at least approximately $100 million, of which at least 50 percent
must be in “back-end infrastructure” (e.g., processing, distribution, quality control, packaging, logistics,
storage, and warehouses) within three years of the initial investment; opening stores only in cities
identified in the 2011 census as having populations greater than one million residents; and sourcing at
least 30 percent of purchases from “Indian ‘small enterprises’ which have a total investment in plant [and]
machinery not exceeding [$1 million].”
The September 2012 retail policy announcements also explicitly prohibit FDI in single-brand and multibrand retail by means of electronic commerce.
India has periodically interpreted the activities of direct selling companies as violating the Prize Chits and
Money Circulation Schemes (Banning) Act of 1978, creating uncertainty for companies operating in this
market. This central government legislation contains no clear distinction between fraudulent activities
such as Ponzi schemes, on the one hand, and legitimate retail business operations through direct selling,
on the other hand. Enforcement of the Prize Chits Act is reserved to the states, which have adopted
implementing guidelines and/or taken enforcement actions on the basis of the ambiguous provisions of
the Act. Raids and seizures of property were undertaken in 2006 by an Indian state against a U.S. direct
selling company operating in India with Foreign Investment Promotion Board approval. The case
remains with the courts.
Industry groups have asked the Department of Industrial Policy and Promotion to issue guidance
establishing a definition of direct selling and clarifying ambiguities, including ambiguity related to
commissions earned in connection with the sale of products, but this is yet to happen. In 2012 the
Ministry of Finance issued draft guidelines designed to guide the preparation of state measures
implementing the Prize Chits Act. Rather than clarifying the distinction between fraudulent schemes and
legitimate business operations, however, the draft guidelines contain provisions making many standard
direct selling activities, including activities that go to the core of the direct selling business model,
inconsistent with the Prize Chits Act.
Postal and Express Delivery
In 2011, the Department of Posts announced a proposed bill to replace the 1898 Post Office Act and
invited public comment on a draft in 2012. This bill seeks, inter alia, to establish a new licensing and
registration scheme, potentially granting India Post regulatory authority over its private sector
competitors; to establish a governmental monopoly on express delivery of items weighing up to 50 grams
and on letters weighing up to 150 grams; and to require that private operators charge twice the Express
Mail Service rate in order to provide services falling within the monopoly. Many stakeholders, including
unions, raised concerns with these and other aspects of the bill and the draft National Postal Policy during
an October 2012 meeting called by the Department of Posts.
Foreign providers of higher education services interested in establishing a presence in India face a number
of barriers, including a requirement that representatives of Indian states sit on university governing
boards; quotas limiting enrollment; caps on tuition and fees; policies that create the potential for doubletaxation; and difficulties repatriating salaries and income from research. A Foreign Education Providers
Bill was expected to address some of these issues, but it has not yet been introduced in Parliament.
Equity Restrictions
India continues to regulate FDI by sector. The Department of Industrial Policy and Promotion (DIPP)
periodically revises FDI policies through consolidated press notes. The most recent revision of the
Consolidated FDI Policy was made effective from April 10, 2012, and the next revision is expected to be
released on March 29, 2013, though it is not uncommon for DIPP to issue amendments to the Policy
throughout the year.
Although India has allowed 100 percent FDI in the pharmaceutical sector for several years with no
requirement of government approval, in October 2011, the government adopted a requirement that foreign
acquisition of pharmaceutical firms be approved by the Competition Commission of India (CCI). In
deciding whether to approve acquisitions, the CCI is charged with “balancing” the need to attract FDI
with public health concerns. This “balancing” requirement erroneously presumes that FDI in the
pharmaceutical sector is in tension with the government’s public health objectives. Because such review
is beyond the scope of the CCI’s existing authority, the Competition Commission of India Act must first
be amended. In December 2012, a high-level government meeting chaired by the Prime Minister
concluded that all FDI proposals in pharmaceutical sector would go to the Foreign Investment Promotion
Board for approval until that amendment.
India’s stringent and nontransparent regulations and procedures governing local shareholding inhibit
investment and increase risk to new market entrants. Even when legally permissible, attempts by nonIndians to acquire 100 percent ownership of locally traded companies often face regulatory hurdles that
render such ownership unobtainable. Price control regulations in some sectors, such as the
pharmaceutical sector, have further undermined the attraction to foreign investors of increasing their
equity holdings in India.
In July 2010, India issued guidelines for the Jawaharlal Nehru National Solar Mission (JNNSM),
requiring that eligible solar project developers source certain materials from domestic manufacturers in
order to receive preferential power rates. In the first part of Phase I of the JNNSM, all projects based on
solar photovoltaic (PV) technology were required to source crystalline silicon modules from
manufacturers in India, while solar thermal projects were required to meet a 30 percent local content
threshold. These local content requirements were expanded significantly in August 2011, such that solar
PV cells as well as modules used in JNNSM projects must be manufactured in India. These restrictions
have effectively blocked imports of U.S. equipment based on crystalline silicon technology for use in
JNNSM projects, affecting a large segment of U.S. solar manufacturers. In December 2012, India issued
a draft policy document for Phase II of the JNNSM, proposing to extend the existing local content
requirements to cover thin film modules in addition to crystalline silicon technology. The United States
initiated a WTO dispute challenging the JNNSM local content requirements in February 2013.
India’s PMA notification not only requires government entities to purchase domestically manufactured
products (discussed above under “Government Procurement”), but anticipates applying similar domestic
purchase mandates to private firms for purchases of “electronic products which have security
implications.” Neither the PMA nor subsequent government measures articulate precisely how domestic
manufacture per se would improve India’s security. Furthermore, initial draft lists of these products
appear to cover an expansive range of electronic products, suggesting that industrial policy rather than
security interests is the primary motivation for imposing such requirements.
In a similar vein, in 2011, the TRAI issued a policy proposal styled as “Recommendations on Telecom
Equipment Manufacturing Policy.” The proposal called for a number of actions to encourage domestic
manufacturing in the telecom sector, including requiring government entities and certain private firms to
purchase domestically manufactured telecom equipment; requiring government entities and certain
private firms to purchase telecom equipment developed using Indian-origin intellectual property; offering
subsidies for private firms that purchase a certain percentage of domestically manufactured telecom
equipment; and requiring that imported telecom equipment be tested and certified only by a conformity
assessment body located in India. Like the PMA, TRAI’s policy recommendations will likely do little to
foster domestic manufacturing, but instead produce perverse consequences of discouraging investment,
weakening ICT infrastructure, and increasing costs to Indian consumers and firms seeking to do business
in India. TRAI’s proposal appears to remain under consideration by the government of India.
India has steadily increased export duties on iron ore and its derivatives. In June 2008, India enacted
export tariffs of 15 percent on all grades of iron ore and its concentrates, but revised the tax to 5 percent in
December 2008. In December 2009, India raised this export tax rate to 10 percent, leaving the export
duty on iron ore fines at 5 percent. India then increased the export tax on iron ore lumps to 15 percent in
April 2010. In February 2011, India increased the export duty on both iron ore lumps and fines to 20
percent, and increased that export duty to 30 percent in January 2012. In February 2012 India changed
the export duty on chromium ore from 3,000 rupees (approximately $56) per ton to 30 percent ad
valorem, an increase at current chromium ore price levels. In recent years certain Indian states and
stakeholders have increasingly pressed the central government to ban exports of iron ore. Such export
duties and bans affect international markets for raw materials used in steel production. India also requires
that exports of high grade iron ore (greater than 64 percent iron content) pass through state trading
enterprises, with the state-owned Minerals and Metals Trading Company acting as a clearinghouse. It
appears that the Indian government is using these measures to improve supply and lower prices of inputs
used by India’s rapidly growing steel industry. With 7 percent growth in steel production during 20112012, India became the fifth largest steel manufacturing economy in the world.
India implemented export restrictions and bans on cotton and yarn during 2010 and 2011. These
restrictions contributed to significant volatility on world cotton markets and appear designed to provide
India’s textile and apparel producers with a cheaper supply of cotton during a period of record high world
cotton prices. Following intensive U.S. engagement and changing conditions in the world cotton market,
India now permits the export of cotton and yarn subject only to registration with the government.
The Indian Minerals and Metals Trading Corporation engages in significant countertrade, although the
State Trading Corporation also handles a small amount of countertrade. Countertrade is a form of trade in
which imports and exports are linked in individual transactions. Private companies also are encouraged to
use countertrade. Global tenders usually include a clause stating that, all other factors being equal,
preference will be given to companies willing to agree to countertrade.
In the agriculture sector, India has established tariff-rate quotas for corn and dairy products. Access to the
tariff-rate quotas is complicated by end-user requirements that often lead to low fill rates.
The U.S. goods trade deficit with Indonesia was $10.0 billion in 2012, down $1.7 billion from 2011. U.S.
goods exports in 2012 were $8.0 billion, up 8.1 percent from the previous year. Corresponding U.S.
imports from Indonesia were $18.0 billion, down 5.8 percent. Indonesia is currently the 34th largest
export market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Indonesia were
$1.7 billion in 2011 (latest data available), and U.S. imports were $437 million. Sales of services in
Indonesia by majority U.S.-owned affiliates were $2.7 billion in 2010 (latest data available), while sales
of services in the United States by majority Indonesia-owned firms were $87 million.
The stock of U.S. foreign direct investment (FDI) in Indonesia was $11.6 billion in 2011 (latest data
available), up from $10.6 billion in 2010. U.S. FDI in Indonesia is primarily concentrated in the mining
In recent years, Indonesia has enacted numerous regulations on imports that have increased the burden for
U.S. exporters. Besides tariffs, import licensing procedures and permit requirements, product labeling
requirements, pre-shipment inspection requirements, local content and domestic manufacturing
requirements, and quantitative import restrictions impede U.S. exports. Numerous other measures have
been adopted or are being considered in the context of draft legislation, including a new food law and a
new trade law. The Indonesian government has increasingly adopted such measures as it pursues selfsufficiency objectives. These measures are also being adopted as Indonesia reduces tariffs as part of
implementing preferential trade agreements with countries such as China, Australia, Japan, South Korea,
New Zealand, and India. The United States will continue to press Indonesia to resolve U.S. concerns
regarding these measures.
In 2012, Indonesia’s average most favored nation (MFN) applied tariff was 7.7 percent. Indonesia
periodically changes its applied rates. In December 2011, the Ministry of Finance increased applied
import duties for designated grain and oilseed products from 0 percent to 5 percent. In August 2012, the
Ministry of Finance temporarily reduced import duties on soybeans from 5 percent to 0 percent through
the end of 2012 to counter rising international soybean prices. In 2009, 2010, and 2011, Indonesia
increased its applied tariff rates for a range of imported goods that compete with locally manufactured
products, including electronic products, electrical and non-electrical milling machines, chemicals,
cosmetics, medicines, iron wire and wire nails, and a range of agricultural products including milk
products, animal or vegetable oils, fruit juices, coffee, and tea.
Indonesia’s simple average bound tariff of 37 percent is much higher than its average applied tariff. Most
Indonesian tariffs are bound at 40 percent, although bound tariff levels exceed 40 percent or remain
unbound on automobiles, iron, steel, and some chemical products. In the agricultural sector, tariffs on
more than 1,300 products have bindings at or above 40 percent. Tariffs on fresh potatoes, for instance,
are bound at 50 percent, although the applied rate is 20 percent. The high bound tariff rates, combined
with unexpected changes in applied rates, create uncertainty for foreign companies seeking to enter the
Indonesian market.
U.S. motorcycle exports remain severely restricted by the combined effect of a 60 percent tariff, a luxury
tax of 75 percent, a 10 percent value-added tax, and the prohibition of motorcycle traffic on Indonesia’s
highways. In 2010, Indonesia converted its applied tariff on imported distilled spirits from 150 percent
ad valorem to 125,000 rupiah (approximately $15) per liter.
Indonesia has extensive preferential trade relationships with other countries. Under the ASEAN Free
Trade Agreement, duties on imports from ASEAN countries generally range from 0 percent to 5 percent,
except for products specified on exclusion lists. Indonesia also provides preferential market access to
Australia, China, Japan, Korea, India, Pakistan, and New Zealand under regional ASEAN agreements and
to Japan under a bilateral agreement. In accordance with the ASEAN-China FTA, in August 2012
Indonesia increased the number of goods from China receiving duty-free access to 10,012 tariff lines.
Indonesia is currently negotiating bilateral agreements with Iran, India, Australia, New Zealand, and
European Free Trade Association, studying potential FTAs with Chile, Turkey, South Korea, Tunisia,
Mexico, South Africa, and Egypt.
Indonesia imposes a progressive export tax on cocoa and palm oil exports. The cocoa export tax rate
ranges from a minimum of 5 percent to a maximum of 15 percent and is calculated based on a monthly
average of export prices. The minimum palm oil tax rate is 1.5 percent, and the maximum rate is 25
percent. The Indonesian government is also considering imposing export taxes on other products,
including coconut, base metals, and coal.
Import Licensing
Exporters to Indonesia must comply with numerous and overlapping import licensing requirements that
impede access to Indonesia’s market. In 2009, the Indonesian government implemented a sweeping
regulation imposing non-automatic import licensing procedures on a broad range of products, including
electronics, household appliances, textiles and footwear, toys, and food and beverage products. The
measure, known as Decree 56, was extended by Ministry of Trade Regulation 57/M-DAG/PER/12/2010
in December 2010, and again in December 2012 through Ministry of Trade Regulation 83/MDAG/PER/12/2012. Regulation 83/2012 will remain in effect until December 31, 2015. The original
extension expanded the scope of licensing restrictions to additional products, including cosmetics. The
amended decree also retains a requirement for pre-shipment verification by designated companies (known
in Indonesia as “surveyors”) at the importers’ expense and a restriction that limits the entry of imports to
designated ports and airports. Indonesia has informally limited application of the decree to “final
consumer goods.” The Indonesian government also appears to be exempting select registered importers
from certain requirements of this decree. Still, the approval process to qualify as a registered importer is
opaque, ill-defined, and potentially discriminatory. The United States continues to seek the measure’s
Ministry of Trade Regulation No. 45/M-DAG/PER/9/2009, as amended and clarified by Regulation
No.17/M-DAG/PER/3/2010, introduced a requirement that companies can only import goods for further
distribution or for their own manufacturing, but not for both. Under these regulations, companies are
permitted only one kind of license, and those that need both kinds of licenses need to separate into
manufacturing and trading businesses. Effective January 1, 2011 through Regulation No.
39/MDAG/PER/10/2010, Indonesia introduced a new type of importer license, dubbed a PI License,
which permits companies to import certain finished products not used in the production process provided
such imports also support the development of the company’s business in Indonesia.
However, in early 2012, the Supreme Court annulled Regulation No. 39. In response, the Ministry of
Trade issued Decree 27/MDAG/PER/5/2012 in May 2012 and amended it with Decree
59/MDAG/PER/9/2012 in September 2012. Under the new 2012 decrees, companies that operate under
an import license for their own manufacturing are allowed to import finished products provided they are
market test products or complementary goods. However, the new regulations again limit companies to
only one kind of license. The decrees also require companies to demonstrate a “special relationship” with
the foreign company. The “special relationship” must be authenticated by the Indonesian Embassy
located in the country in which the foreign company is located. Only then may the companies import
products from more than one section of the HS tariff code. The Ministry of Trade delayed full
implementation of Decree 59 until March 31, 2013; until then both the old system and the new system
will co-exist.
Import Licensing for Agricultural Products
Import licensing requirements also apply to horticultural products. In September 2012, Indonesia adopted
two ministerial regulations on the importation of horticultural products. While the two regulations were
separately issued by the Ministry of Trade and the Ministry of Agriculture respectively, both were
numbered 60/2012. Both the Ministry of Agriculture’s Regulation 60 (replacing Regulation No 3/2012)
and Ministry of Trade’s Regulation 60 (amending Regulation No 30/2012) regulate the importation of
horticultural products into Indonesia. All horticultural products shipped after September 28, 2012 must
comply with these two regulations. Ministry of Agriculture’s Regulation 60 requires Indonesian
importers to obtain an Import Recommendation of Horticulture Products (RIPH) as a prerequisite for
applying for an Import Permit Letter (SPI) from the Ministry of Trade. One RIPH application is valid for
one HS code, one country of origin, one port of entry, one port of loading, and one supplier. The Ministry
of Agriculture has discretion on whether to issue an RIPH and makes decisions based on an evaluation of
multiple considerations, including its assessment of national demand analysis. After securing an RIPH
from the Ministry of Agriculture, Ministry of Trade Regulation 60 requires the importer to obtain an SPI
from the Ministry of Trade before horticulture products can be imported into Indonesia. In addition, the
horticultural products to be imported must be verified by Indonesian surveyors and/or their authorized
agents in the country of origin and Bahasa Indonesia labels must be attached to the packaging before the
products enter the Indonesian customs area.
Before applying for a RIPH, an Indonesian importer must be recognized by the Ministry of Trade as a
Registered Importer (IT) and/or a Producer Importer (IP). Before applying to the Ministry of Trade for
recognition as an IT or IP, importers must first apply for and receive an API-U (Importer Identification
Number – General) or API-P (Importer Identification Number – Producer), and must also prove they meet
certain criteria. For example, IT importers (which import for retail) must prove they own “appropriate”
cold storage facilities.
Indonesia imposes a similar non-automatic import licensing regime for animals and animal products
imports. An importer must first receive an Import Approval Recommendation from the Ministry of
Agriculture to import animals and animal products. The importer then must seek an import license from
the Ministry of Trade, who grants the licenses based on domestic production and supply considerations.
These licensing regimes for horticulture and animal and animal products have significant trade restrictive
effects on imports and the United States has repeatedly raised its concerns with Indonesia in discussions
in Jakarta, Washington, Bali, and Geneva. Indonesia failed to address these concerns. As a result in
January 2013, the United States requested consultations with Indonesia under the WTO dispute settlement
procedures challenging the regimes consistency with obligations under the WTO. After the consultations
failed to resolve the concerns, the United States requested the establishment of a WTO dispute settlement
panel in March 2013.
Additional opaque, complex, and prohibitive product-specific import licensing and registration
requirements apply to other agricultural products, including animal and animal products, sugar, and dairy.
Other Import Licensing Requirements
Indonesia maintains other additional non-automatic licensing requirements on textiles, clothing, and other
“made-up goods” such as curtains and blankets, which limit market access for a wide range of products.
Only approved local producers are authorized to import products, and these products are permitted for use
only as inputs in domestic production, not for resale or transfer. Approval must be obtained for both the
quantity and timing of imports. The United States continues to press Indonesia to eliminate these
New import restrictions on cell phones, laptop computers, and tablets impose burdensome licensing
requirements and may prevent U.S. hardware companies from becoming importers of record. Ministry of
Trade Regulation 82 and Ministry of Industry Regulation 108 went into effect in January 2013, shortly
after their release in late 2012. Under Regulation 82, importers of cell phones, laptop computers, and
tablets can no longer sell directly to retailers or consumers, must have at least three years of experience,
and must use at least three distributors to qualify for a Ministry of Trade importer license. Under
Regulation 108, importers must provide product identification numbers for each imported item in order to
receive a Ministry of Industry importer license. Companies are unable to provide identification numbers
months in advance and, as such, may need to apply for both licenses on a per shipment basis.
Pharmaceutical Market Access
The United States continues to have serious concerns about barriers to Indonesia’s market for
pharmaceutical products. Ministry of Health Decree No. 1010/MENKES/PER/XI/2008 requires foreign
pharmaceutical companies either to manufacture locally or to entrust another company that is already
registered as a manufacturer in Indonesia to obtain drug approvals on its behalf. Under this policy,
foreign companies can be barred from the Indonesian market even if they are market leaders in globally
recognized good manufacturing and distribution practices and provide high quality pharmaceutical
products to Indonesian patients. Among its requirements, Decree 1010 requires local manufacturing in
Indonesia of all pharmaceutical products that are five years past patent expiration. It also contains a
technology transfer requirement. A subsequent regulation, Regulation 1799 and BPOM’s (Indonesian
Food and Drug Regulatory Agency) updated regulation on drug registration, provided additional
information about the application of the local manufacturing requirements and lays out several exceptions
to local manufacturing and technology transfer requirements. In September 2012, Indonesia issued
Presidential Regulation 76/2012 granting compulsory licensing for nine HIV/AIDS and Hepatitis B
treatment drugs. The United States will continue to monitor the implementation of these regulations.
A bill on halal certification, currently under discussion in Indonesian Parliament, would require
mandatory halal certification of pharmaceuticals as well as other products. Such a policy could have
significant adverse consequences on U.S. and other foreign companies as well as Indonesian patients.
Quantitative Restrictions
Indonesia maintains quantitative restrictions, particularly on imports of agricultural products such as beef,
where annual import quantities are determined by Indonesian agencies in nontransparent processes. The
U.S. Government has raised its strong concerns regarding these quantitative restriction issues and will
continue to press the Indonesian government to address them.
The Ministry of Agriculture sets the quantities of animals and animal products that may be imported into
Indonesia, both in the aggregate and by each importer. The Ministry of Trade issues permits for the
import and export of these products after receiving a recommendation approval from the Directorate
General of Livestock and Animal Health Service of the Ministry of Agriculture per Ministry of Trade
regulation No. 24/M-DAG/PER/9/2011 and Ministry of Agriculture regulation No.
50/PERMENTAN/OT.140/ 9/2011 dated September 7, 2011. Both regulations were put into effect on
October 1, 2011. These regulations now effectively ban the importation of any chicken product, as well
as turkey and duck parts. Importers are required to have a registered importer of animal and animal
products number from Ministry of Trade before they are allowed to import animals and animal-based
food products.
Ministry of Agriculture Regulation 60 also establishes a mechanism that provides Indonesia with the
discretion to apply quantitative restrictions on imports of fresh and processed fruits and vegetables.
According to the regulation, the quantity of imports that Indonesia will allow will be based on estimates
of domestic production, availability of similar products domestically, and domestic demand, as well as
harvest and production periods. The United States included these effective quota measures in its January
2013 WTO consultation request to Indonesia, as well as in its request for the establishment of a WTO
dispute settlement panel in March 2013.
Indonesia also recently imposed an “unofficial” restriction on the importation of corn. Unofficially, only
feed millers can import corn as of December 2012. They must apply for an import permit from the
Ministry of Agriculture. The import permit will specify the volume of corn that can be imported. The
volume will be set based on the levels of domestic feed production. A similar unofficial restriction is also
being imposed on the imports of alfalfa from the United States.
Indonesia bans salt imports during the harvest season. It requires salt importers to be registered and to
purchase domestic supplies as well as imports. Indonesia also maintains a seasonal ban on imports of
sugar, in addition to limiting the annual quantity of sugar imports based on domestic production and
consumption forecasts.
Indonesia applies quantitative limits on the importation of wines and distilled spirits. Companies seeking
to import these products must apply to be designated as registered importers authorized to import
alcoholic beverages with an annual company-specific quota set by the Ministry of Trade.
Mining firms operating in Indonesia may not export unprocessed ore unless they have the government’s
prior approval to do so via a contract of work or plans to build a smelter in Indonesia to process that ore.
A 2009 mining law requires companies to process ore locally before shipping it abroad. Although
scheduled to enter into force in 2014, Indonesia started implementing the law in 2012. Indonesia asserts
the earlier implementation was necessary to prevent what it described as accelerated exporting of raw
mineral ore to avoid the 2014 effective date. The policy is intended to support the expansion of valueadded activities, including the smelting industry. A Supreme Court ruling made public in January 2013,
which struck down the unprocessed ore export ban provisions of the Ministry of Energy and Mineral
Resources regulation, as well as a Ministry promise to continue with the ban, have further confused the
situation. Indonesia also effectively bans the export of steel scrap.
In late 2011, Indonesia banned exports of raw and semi-processed rattan. This ban is still in effect.
Product Registration
Beginning in late 2008 and continuing through 2011, Indonesia’s food and drug agency (BPOM) slowed
its process for reviewing applications for the registration of processed foods, beverages, and other
products, including health supplements. Although there are reports that BPOM has improved the
efficiency of its product registration system since 2011, concerns remain about changes BPOM proposed
to the registration requirements and submission process in 2012 that would further complicate the
Combined with onerous Bahasa language labeling requirements, the process for registering products has
become increasingly burdensome and costly to U.S. and other foreign exporters. The United States will
continue to monitor developments in this area.
Customs Barriers
U.S. firms continue to report that Indonesian Customs relies on a schedule of reference prices to assess
duties on some imports, rather than using actual transaction prices. Customs makes a valuation
assessment based on the perceived risk status of the importer and the average price of a same or similar
product imported during the previous 90 days.
In late 2010, Indonesian customs changed its methodology for assessing import duties on motion pictures,
from import duties “per meter” to a calculation based on royalties, significantly increasing duties payable.
Following a disruption in trade and as a result of bilateral consultations between the U.S. and Indonesian
Governments, the Ministry of Finance adopted a new specific tariff based on a “per minute” calculation
rather than royalties. The Finance Ministry also changed the application of its value-added tax on movie
imports. Overall, the incidence of duties and taxes under the current system continues to be higher than it
was in 2010, though trade has resumed.
In January 2012, the Ministry of Agriculture announced that, in order to comply with priorities set by the
Ministry of Trade, the port of Jakarta and several other major ports would be closed to horticulture
imports beginning in March 2012. More than 90 percent of Indonesian imports of U.S. fresh fruits and
vegetables (more than $200 million annually) move through the port of Jakarta, Tanjung Priok, and are
destined for the Jakarta market. Despite this announcement, since June 2012, U.S. horticulture exports
were able to continue using Tanjung Priok port as a result of the U.S. country recognition status,
approved by the Ministry of Agriculture. Australia, New Zealand, and Canada have also been allowed to
continue using Tanjung Priok. In January 2013, the Ministry of Agriculture renewed the U.S. country
recognition status.
Luxury Taxes
Luxury goods (defined as goods not considered necessities), imported or locally produced, may be subject
to a luxury tax of up to 200 percent, although the current range is 10 percent to 75 percent for goods listed
in the implementing regulations as subject to the luxury tax. The luxury tax on 4,000cc sedans and 4x4
Jeeps or vans is 75 percent, compared with the luxury tax on automobiles with engine capacities of
1500cc or less, which ranges from 10 percent to 30 percent. Passenger cars with engine displacement less
than 1500cc comprise 40 percent of the market, including a large group of vehicles predominantly
produced in Indonesia that are taxed at a rate of 10 percent. The luxury tax on motorcycles with a
cylinder capacity of 250cc up to 500cc is 60 percent.
Although Indonesia has eliminated its luxury tax on imported distilled spirits, the current excise tax
regime imposes higher excise taxes on imported spirits than on domestic spirits.
State Trading
In April 2008, the government of Indonesia granted the National Logistics Agency (BULOG) exclusive
authority to import standard unbroken rice. Indonesia cited “food security” (with the Indonesian
government separately detailing its aspirations for food self-sufficiency) and price management
considerations as the principle objectives of the authorization. BULOG is not allowed to import rice
before, during, or immediately after the main harvest period (January/February annually). This
requirement effectively prohibits any rice imports during the first quarter of the year. Private firms are
only allowed to import broken rice for processing and specialty rice varieties, such as basmati, jasmine,
and sushi rice for retail or food service. Importers of broken and specialty rice must obtain a special
importer identification number from the Ministry of Agriculture.
Indonesia grants special preferences to encourage domestic sourcing and to maximize the use of local
content in government procurement. It also instructs government departments, institutes, and
corporations to utilize domestic goods and services to the maximum extent feasible. Presidential
Regulation 54/2010 requires procuring entities to seek to maximize local content in procurement, use
foreign components only when necessary, and designate foreign contractors as sub-contractors to local
companies. Presidential Regulation 2/2009 stipulates that all state administrations should “optimize” the
use of domestic goods and services and give price preferences for domestic goods and providers.
Ministry of Industry Regulation 15/2011 provides for the creation of an Accelerated Use of Local Product
National Team to optimize local product use in goods or services procurement.
Indonesia’s 2012 Defense Law, passed in October, mandates priority for local materials and components
and requires defense users to use locally produced defense and security tools whenever available. In
addition, when procurement from a foreign defense supplier is made due to lack of availability from an
Indonesian domestic supplier, there is a requirement for countertrade, local content and/or offset
production. Initially this domestic value requirement is 35 percent of the total contract value and will
increase by 10 percent every year for the next 5 years, after which 85 percent of the value should be
accounted for by countertrade, local content or offset production. It is expected that the local
content/domestic offset requirement may be met in several forms such as coproduction, joint venture,
buyback, knowledge transfer, and training. U.S. defense firms have already been meeting existing
informal Indonesian government policy on the defense industry that 35 percent of the contract value be
sourced domestically.
In 2012, Indonesia became an observer to the WTO Committee on Government Procurement, but is not a
signatory to the WTO Agreement on Government Procurement.
Indonesia remained on the Priority Watch List in the 2012 Special 301 report. Key concerns in Indonesia
include continuing widespread copyright piracy and trademark counterfeiting, an inadequate number of
criminal prosecutions, and non-deterrent penalties for those who are convicted. U.S. industry reports that
one of its most significant frustrations remains the nontransparent and non-deterrent court system, which
also impedes the ability of rights holders to obtain information about cases directly affecting their
interests. Rates of physical counterfeiting and piracy, as well as online piracy, are extremely high (an
estimated 86 percent of business software was unlicensed in 2011) while piracy rates at malls and in the
retail sector are also high. Enforcement efforts were insufficient to keep pace with broad-based piracy
and counterfeiting in Indonesia. The Indonesian government also is in the process of amending
intellectual property laws, including with respect to industrial designs, trademarks, copyrights, and
Indonesia maintains significant and far-reaching trade and investment barriers in many key services
sectors. The United States will continue to press its concerns on these issues with Indonesia.
Legal Services
Only Indonesian citizens may be licensed as lawyers in Indonesia. Foreign lawyers may only work in
Indonesia as “legal consultants” upon approval of the Ministry of Justice and Human Rights. A foreign
law firm seeking to enter the market must establish a partnership with a local firm.
Express Delivery and Logistics Services
In September 2009, the Indonesian legislature passed a new law with restrictions on the provision of
postal services, broadly defined to include courier, express delivery, and other logistics services. The law
requires that postal service providers be majority-owned by Indonesians and that foreign providers limit
their activities to provincial capitals with international airports and seaports. The Ministry of
Communication and Information Technology has said that joint ventures will be able to service cities with
international airports and seaports, as well as supporting provincial capitals with international airports and
seaports, although the draft implementing regulations do not include this clarification. The current draft
is with the State Secretary’s office awaiting final signature by the President. Ministry of Communication
and Information Technology officials state that the Minister will issue further decrees to clarify
outstanding issues. The United States will continue to press Indonesia on this issue.
Health Services
Changes to the negative list of foreign investment restrictions in 2010 allow for 67 percent foreign
ownership of private specialist hospitals in all regions of Indonesia, in contrast to the previous regulation
which limited foreign investors to the cities of Medan and Surabaya. However, foreign ownership is
prohibited for health research centers, private maternity hospitals, and general or public hospitals.
Most foreign healthcare professionals may act only as consultants to Indonesian healthcare professionals.
Although the Doctors Practice Law 29/2004 and Minister of Health Regulation No. 512/2007 allow
foreign doctors to practice in Indonesia, a 2004 technical note by Indonesia's Investment Coordinating
Board (BKPM) banned foreign doctors from practicing in Indonesia, creating uncertainty in the market.
In practice, it is nearly impossible for foreign doctors to obtain a license due to strong opposition from the
Indonesian Doctors Association.
Financial Services
Nonbank financial service (NBFS) providers may do business in Indonesia as a joint venture or be partly
owned by foreigners. NBFS providers cannot operate in Indonesia as a branch of a foreign entity. A
single entity, either foreign or Indonesian, may own no more than 40 percent of an Indonesian bank.
Bank Indonesia may grant exceptions and allow for greater than 40 percent ownership of Indonesian
banks in certain cases. In the insurance sector, the 2007 Investment Law limits foreign equity to 80
percent for new investors.
Energy Services
Article 79 of Presidential Regulation No. 35/2004, which regulates contractor activities in the upstream
oil and gas sector, provides that contractors must “prioritize” the use of domestic services, technologies,
and engineering and design capabilities. Foreign energy and energy services companies have noted that
these local preference policies severely undermine their ability to make successful contract bids and make
decisions about sourcing and personnel that allow them to function efficiently and profitably in the
Indonesian market. Implementation of Indonesia’s local preference and local content policies in this
sector is also becoming more restrictive.
In 2011, Indonesia’s then upstream oil and gas regulator, BP MIGAS, tightened rules relating to how such
content is measured with respect to oil and gas projects. The tightened criteria, once fully implemented,
are meant to achieve an average of 91 percent local content by 2025, up from 61 percent in 2012. Under
the new rules, the goods and services of companies without majority-ownership Indonesian shareholding
can no longer qualify as “local” content. Foreign-owned energy services companies would have to divest
majority ownership in their Indonesian subsidiaries in order for their sales to qualify as “local” content in
a project. As a result, foreign energy service companies have been placed at a disadvantage vis-à-vis
majority Indonesian-owned companies, which can more easily meet local content requirements but are
often less able to meet the technical requirements of a project, often complicating and delaying project
tendering processes.
In November 2012, Indonesia’s Supreme Court issued a ruling to disband BP Migas, saying the upstream
regulator allowed foreign companies too much control over the nation's natural resources. This ruling has
created uncertainty in the Indonesian market as the government of Indonesia moves to comply with the
Supreme Court ruling. As a result of the Supreme Court ruling, Indonesia established an Interim
Working Unit for Upstream Oil and Gas Business Activities (SKSP Migas) in the Ministry of Energy and
Mineral Resources to take over the duties and functions of BP Migas. The regulator remains under
pressure from the Indonesian House of Representatives to maintain or increase the local content
requirements. The United States will monitor developments in this area.
Maritime Cabotage
Indonesia’s 2010 Law No. 17 on Shipping requires all vessels operating in Indonesian waters to be
Indonesian flagged. However, the Indonesian shipbuilding industry does not have the capacity to build
the variety of specialty ships its economy requires and is unlikely to have such capacity in the near to
medium term. Full implementation of the law would be particularly problematic for foreign investors in
Indonesia’s energy and telecommunications sector, which would no longer be permitted to bring in the
sophisticated rigs and specialized vessels needed to develop large upstream projects. In response to
concerns raised by the United States and others, the Ministry of Transportation issued Regulation No.
22/2011 allowing certain classes of non-transportation vessels to be eligible for a three-month renewable
waiver from the domestic flagged vessel requirements when there is no suitable Indonesian-flagged vessel
available. The three-month waivers are often not long enough to cover the duration of a project, adding to
investor uncertainty. Furthermore, the exceptions themselves are time limited and scheduled to phase out
starting in December 2012. The United States will continue to press Indonesia on this issue.
Audit and Accounting Services
Foreign public accounting firms must be affiliated with a local public accounting firm to conduct business
in Indonesia. A foreign accounting firm must use the name of its local affiliate in addition to the foreign
firm’s name in presentation and disclosures. Indonesia allows a maximum of 10 percent foreign national
staff for each level of management in the affiliated local accounting firm. Foreign accountants can
operate in the country if they have a license from the Ministry of Finance and are a member of the
Indonesian Institute of Certified Public Accountants. In affiliated accounting firms, the ratio of foreign
audit signing partners to local signing partners cannot exceed one to four.
A September 2009 Law on Film imposed a 60 percent local content requirement for local exhibitors and
included, the authority to implement unspecified import restrictions to achieve that quota, prohibitions
against the dubbing of foreign films, and prohibitions against foreign companies distributing or exhibiting
films. The law also restricted vertical integration across segments of the film industry, which could have
unintended consequences, reducing business efficiency and making the market a less attractive
destination for foreign investment. The law has not been fully implemented to date.
The temporary postponement of a 2008 regulation requiring all local and imported movies, both theatrical
prints and home video copies, to be replicated locally, with penalties on exhibitors for failing to do so,
was replaced by consecutive one-year suspensions issued by the Minister of Culture and Tourism. In
January 2013, Tourism and Creative Economy Minister Pangestu issued a decree suspending
implementation until January 1, 2014. The United States continues to advocate for the permanent
suspension and repeal of this regulation.
Construction, Architecture, and Engineering
Foreign construction firms are only allowed to be subcontractors or advisors to local firms in areas where
the Indonesian government believes that a local firm is unable to do the work. For government-financed
projects, foreign companies must form joint ventures with local firms.
Indonesia limits foreign investment in primary, secondary, and tertiary educational institutions through
special licenses. Foreign investment in non-formal education is limited to 49 percent. Law 12/2012 on
Higher Education, passed in July, liberalized the tertiary education sector and allowed foreign universities
to operate in Indonesia if they are accredited in their country of origin, collaborate with local universities,
are non-profit, support national interests, and prioritize the appointment of Indonesian citizens as faculty
and staff. In order for foreign nationals to provide educational services, they must be authorized by the
Ministry of Education and the Ministry of Manpower. Authorization is granted on a case-by-case basis
and only when there are no Indonesian instructors capable of filling the position.
Indonesia’s Ministry of Trade recently made two major regulatory changes in the franchising sector that
threaten to have a significant chilling impact on future operations of foreign franchisors. First, in August
2012, Indonesia promulgated Ministry Regulation No. 53/2012. That regulation establishes a local
content requirement obliging an Indonesian franchisee to domestically source 80 percent of its equipment
and inventory, unless a waiver is granted. While implementing rules remain vague, this sourcing
requirement could have a significant negative impact in the development of new franchising agreements
in Indonesia. This new requirement is not expected to be fully enforced against existing licensed
franchisees until 2017.
Second, in October 2012, the Ministry of Trade issued regulation 68/2012 restricting the number of
outlets that can be owned by a master franchisee to 150 before they must sub-franchise a portion of
additional units to another local sub-franchisee. This new rule could force some major U.S. and other
foreign firms to divest a large number of outlets. It remains unclear as to when enforcement of this
regulation will commence.
Indonesia’s investment climate continues to be characterized by legal uncertainty, economic nationalism,
and the disproportionate influence of local business interests. Government requirements often compel
foreign companies to do business with local partners and to purchase goods and services locally.
Indonesia’s 2007 Investment Law was intended to improve transparency and protections for foreign
investors including nondiscriminatory treatment, protection against expropriation, and recourse to
international arbitration in the event of a dispute with the government. At the same time, however, that
law significantly increased the number of sectors in which foreign investment is restricted and increased
foreign equity limitations in sectors of interest to U.S. investors.
These sectors include
telecommunications, pharmaceuticals, film and creative industries, and construction. While the ongoing
process of transferring investment-related decisions from the central level of government to provincial
and district level governments has helped to reduce some burdensome bureaucratic procedures, that
process has led to inconsistencies between national and regional or local laws.
Indonesia continues to review the 2007 Investment Law and its negative list of restricted sectors. In
2010, Presidential Regulation 36/2010 introduced changes to the negative list, including modest changes
to investment limits in individual sectors, such as construction, health care, film technical services, and
electricity generation. The revisions also increased restrictions in some sectors, such as postal services,
and closed other markets, such as the telecommunications tower sector, to foreign investment. The 2010
Presidential Regulation also addressed retroactive implementation of the list and called for continuous
review of those sectors closed to investment.
In 2010, the Indonesian legislature introduced a new horticulture law, which reduced permissible foreign
equity in horticulture-related business activities from 95 percent to 30 percent.
Energy and Mining
Over the past several years, other regulatory changes have been introduced to increase government
control, government income, and local content levels in the energy and mining sectors. The changes have
increased the cost of doing business in Indonesia’s energy and mining sectors. The regulatory changes
have also raised questions about the sanctity of contracts already in force with the Indonesian
Mandatory changes to contract terms remain a serious concern in the oil and gas sector. Government
Regulation 79, signed in December 2010, allows the Indonesian government to change the terms of some
existing production sharing contracts, eliminates the tax deductibility of certain expenses, changes the
terms and criteria for cost recovery, and places limits on allowable costs for goods, services, and salaries.
Indonesia’s 2009 Mining Law replaced a system based on contracts between a company and the central
government with a system based on mining licenses issued by – and subject to – local regencies. The law
and its implementing regulations impose onerous requirements on companies doing business in this
sector, including local content requirements, domestic demand requirements, and a requirement to process
raw materials in Indonesia prior to export. A requirement was introduced in 2012 that foreign license
holders must divest a 51 percent stake to Indonesian investors within 10 years after the start of
production. The law also reduces the maximum mine work area, diminishing a mining company’s ability
to fully recover any resource it discovers. Because the licenses are subject to future regulatory, permit,
and tax changes, they provide less certainty than the contract of work system. The Indonesian
government is forcing renegotiation of those contracts in order to increase government royalty rates,
increase local content requirements, require that smelters be built and operated in Indonesia, decrease the
size of mining areas, and make further changes that significantly alter the economic potential of these
Telecommunications providers face myriad investment restrictions. Foreign ownership of up to 65
percent is generally permitted for suppliers of value-added and mobile telecommunications services and
up to 49 percent for suppliers of fixed networks. Foreign ownership of up to 95 percent is allowed for
suppliers of certain data communication system services, and foreign firms have obtained licenses in this
sector. While these ownership limitations are higher than Indonesia’s current GATS commitments, the
ownership limitation on suppliers of fixed services represents a step backward from past practice, which
allowed up to 95 percent ownership.
A Ministry of Communication and Information Technology regulation issued in 2008 closed the
construction, management, and ownership of cell towers to foreign investment. Some foreign firms were
forced to exit the market. The President signed regulations in November 2012 to implement the
Electronic Transactions Law that may require telecommunications companies operating in Indonesia to
build data and disaster recovery centers inside Indonesia, although the specific language of the regulation
is vague on the scope of “service providers”. If strictly implemented, such a requirement would create a
significant hurdle to companies seeking to do business in Indonesia.
In addition, Indonesia has local content requirements that raise concerns. Ministry of Communication and
Information Technology Regulation 07/2009 Article 17 states that equipment used in wireless broadband
services should contain local content of at least 30 percent for subscriber stations and 40 percent for base
stations. It also states that all wireless equipment should contain 50 percent local content within 5 years.
Regulation 19/2011 Article 6 has the exact same provision. Decree 41/2009 required Indonesian
telecommunication operators to expend a minimum of 50 percent of their total capital expenditures for
network development on locally sourced components or services.
While the Indonesian government and the Corruption Eradication Commission continue to investigate
and prosecute high-profile corruption cases, many investors consider corruption a significant barrier to
pursuing business in Indonesia. Other barriers to trade and investment include poor government
coordination, the slow rate of land acquisition for infrastructure development projects, poor enforcement
of contracts, an uncertain regulatory and legal framework, and lack of transparency in the development of
laws and regulations. U.S. companies seeking legal relief in contract disputes have reported that they are
often forced to litigate spurious counterclaims.
The U.S. goods trade deficit with Israel was $7.9 billion in 2012, down $1.2 billion from 2011. U.S.
goods exports in 2012 were $14.3 billion, up 2.4 percent from the previous year. Corresponding U.S.
imports from Israel were $22.1 billion, down 3.9 percent. Israel is currently the 24th largest export
market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Israel were $3.9
billion in 2011 (latest data available), and U.S. imports were $4.9 billion. Sales of services in Israel by
majority U.S.-owned affiliates were $2.8 billion in 2010 (latest data available), while sales of services in
the United States by majority Israel-owned firms were $1.9 billion.
The stock of U.S. foreign direct investment (FDI) in Israel was $9.6 billion in 2011 (latest data available),
up from $9.3 billion in 2010. U.S. FDI in Israel is primarily concentrated in the manufacturing sector.
The United States-Israel Free Trade Agreement
Under the United States-Israel Free Trade Area Agreement (FTA), signed in 1985, the United States and
Israel agreed to implement phased tariff reductions culminating in the complete elimination of duties on
all products by January 1, 1995. While non-agricultural tariffs between the United States and Israel
have been eliminated as agreed, tariff and nontariff barriers continue to affect a significant number of key
U.S. agricultural product exports.
To address the differing views between the two countries over how the FTA applies to trade in
agricultural products, in 1996 the United States and Israel signed an Agreement on Trade in
Agricultural Products (ATAP), which established a program of gradual and steady market access
liberalization for food and agricultural products effective through December 31, 2001. Negotiation and
implementation of a successor ATAP was successfully completed in 2004. This agreement was
effective through December 31, 2008, and granted improved access for select U.S. agricultural
products. The ATAP agreement has been extended four times, most recently through December 31,
2013, to allow time for the negotiation of a successor agreement. The ATAP provides U.S. food and
agricultural products access to the Israeli market under one of three different categories: unlimited duty-free
access, duty-free tariff-rate quotas (TRQs), or preferential tariffs, which are set at least 10 percent below
Israel’s most favored nation rates.
U.S agricultural exports that do not enter duty-free under WTO, FTA, or ATAP provisions face
restrictions, such as a complicated TRQ system and high tariffs. These products include higher value
goods that are sensitive for the Israeli agricultural sector, such as dairy products, fresh fruits, fresh
vegetables, almonds, wine, and some processed foods. According to industry estimates, the elimination
of levies on processed foods, including a broad range of dairy products, could result in increased sales by
U.S. companies in the range of $30 million to $55 million. The removal of quotas and levies on dried
fruits could result in an increase in sales by U.S. exporters of up to $12 million. U.S. growers of apples,
pears, cherries, and stone fruits estimate that the elimination of Israeli trade barriers would lead to an
increase of $7 million to $26 million in export sales of these products. Industry estimates that free trade in
agriculture could result in U.S. almond exports increasing by as much as $12 million. Similarly, industry
estimates that removing these levies on food product inputs used in U.S.-based restaurant chains operating
in Israel could save these chains millions of dollars annually and allow for their expansion.
Further, the ability of U.S. exporters to use available TRQ in-quota quantities can be hampered by
problems with transparency and other issues with the administration of Israel’s TRQs. These issues
include a lack of data on quota fill-rates and license allocation issues, such as allocation of small noncommercially viable quota quantities, and administrative difficulties in obtaining licenses for in-quota
imports. Under the current ATAP, Israel committed to take steps to improve the administration of TRQs,
including engaging in regular bilateral consultations.
Customs Procedures
Some U.S. exporters have reported difficulty in claiming preferences for U.S. goods entering Israel under
the FTA, specifically related to the presentation of certificates of origin to Israeli customs authorities. In
2012, the U.S. Government engaged in discussions with Israel to clarify and resolve this issue.
Significant progress was made in 2012, and discussions will continue in 2013.
U.S. firms encounter difficulties in accessing the Israeli government procurement market. Governmentowned corporations make extensive use of selective tendering procedures. In addition, the lack of
transparency in the public procurement process discourages U.S. companies from participating in major
projects and disadvantages those companies when they choose to compete. A proposed regulation not yet
passed in the Knesset could impair transparency and access further by allowing an internal committee
within each Israeli government ministry to exempt up to four million shekels (approximately $1 million)
of procurement from public tenders. Enforcement of public procurement laws and regulations in Israel is
not consistent.
Israel also has offset requirements that it implements through international cooperation (IC) agreements.
Under IC agreements, foreign companies are required to offset government contracts by agreeing to
invest in local industry, co-develop or co-produce with local companies, subcontract to local companies,
or purchase from Israeli industry. Israel is a signatory to the WTO Agreement on Government
Procurement (GPA). Since January 1, 2009, the IC offset percentage for procurements covered by
Israel’s GPA obligations has been 20 percent of the value of the contract; for procurements excluded from
GPA coverage, including most military procurements, the offset is 35 percent.
U.S. suppliers suspect that the size and nature of their IC proposals can be a decisive factor in close tender
competitions, despite an Israeli court decision that prohibits the use of offset proposals in determining the
award of a contract. Because small and medium sized U.S. exporters are often reluctant to commit to
make purchases in Israel in order to comply with the IC requirements, their participation in Israeli tenders
is limited. In the revised GPA, Israel committed in 2012 to phase out its offsets on procurement covered
by the GPA.
In addition, the inclusion of unlimited liability clauses in many government tenders discourages U.S.
firms from competing. When faced with the possibility of significant legal costs for unforeseeable
problems resulting from a government contract, most U.S. firms are forced to insure against the risk,
which raises their overall bid price and reduces their competitiveness.
The United States-Israel Reciprocal Defense Procurement Memorandum of Understanding (MOU),
extended in 1997, is intended to facilitate defense cooperation in part by allowing companies from both
countries to compete on defense procurements in both countries on as equal a basis as possible, consistent
with national laws and regulations. However, U.S. suppliers have expressed concern about the lack of
transparency and apparent lack of justification for excluding U.S. suppliers from various Ministry of Defense
(MOD) tendering opportunities. The MOU, which has benefited Israeli defense industries by opening up
the U.S. procurement market to Israeli products, has not significantly opened the market for U.S.
suppliers interested in competing for MOD procurements funded by Israel.
The United States and Israel reached an understanding on February 18, 2010 concerning several
longstanding issues regarding Israel’s intellectual property rights (IPR) regime for pharmaceutical
products. These issues include improving data protection, the terms of patents for pharmaceutical
products, and provisions on the publication of patent applications in Israel. In 2012, Israel completed the
first phase of the agreement by submitting legislation specified in the agreement to the Knesset, where
two of the three pieces of legislation have been enacted. In September 2012, as a result of this action, the
United States moved Israel from the Special 301 Priority Watch list to the Watch list. The United States
is currently working with the Israeli government to ensure that the final piece of legislation is enacted in a
form consistent with the understanding. The United States is also concerned with Israel’s Copyright
legislation, lax enforcement over IP infringement, and interpretation of its commitments for data
protection on biologics.
Audiovisual and Communications Services
Only selected private Israeli broadcast television channels are allowed to carry advertising. These
channels received broadcast licenses and the advertising privilege in exchange for certain local
investment commitments. Israeli law largely prohibits other broadcast channels, both public and private,
from carrying advertisements. Foreign channels that air through the country’s cable and satellite
networks are permitted to carry a limited amount of advertising aimed at the domestic Israeli audience.
Currently, the regulations allow foreign channels no more than 25 percent of their total advertising time
to target the Israeli market.
Israel does not have an independent regulator for the telecommunications sector.
Investments in regulated sectors, including electronic commerce, telecommunications, banking,
insurance, and defense industries, require prior government approval in Israel.
Israel’s Electronic Signature Bill regulates signatures on electronic media. Loopholes in the law allow the
consumer to decline to pay for any merchandise for which he or she did not physically sign, which serves
as a disincentive to the establishment of online businesses. The Ministry of Justice maintains a register of
entities authorized to issue electronic certificates attesting to the signature of the sender of an electronic
message. The Registrar of Databases, which falls under the authority of the Ministry, requires that any
firm or individual holding a client database secure a license to do so.
The U.S. goods trade deficit with Japan was $76.3 billion in 2012, up $13.1 billion from 2011. U.S.
goods exports in 2012 were $70.0 billion, up 6.6 percent from the previous year. Corresponding U.S.
imports from Japan were $146.4 billion, up 13.5 percent. Japan is currently the 4th largest export market
for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Japan were $44.4
billion in 2011 (latest data available), and U.S. imports were $24.8 billion. Sales of services in Japan by
majority U.S.-owned affiliates were $69.8 billion in 2010 (latest data available), while sales of services in
the United States by majority Japan-owned firms were $96.0 billion.
The stock of U.S. foreign direct investment (FDI) in Japan was $116.5 billion in 2011 (latest data
available), up from $102.6 billion in 2010. U.S. FDI in Japan is mostly in the finance/insurance, and
manufacturing sectors.
The U.S. Government continues close engagement with the Japanese government to urge the removal of a
range of trade barriers. This engagement takes place through several means, including through the United
States-Japan Economic Harmonization Initiative. The U.S. Government will continue to address traderelated concerns through this as well as other fora.
Beef Import System
At the end of January 2013, the United States and Japan agreed on new terms and conditions which pave
the way for expanded exports of U.S. beef and beef products to Japan. Under these new terms, which
entered into effect on February 1, 2013, Japan now permits the import of beef from cattle less than 30
months of age, compared to the previous limit of 20 months, among other steps. It is estimated that these
important changes will result in hundreds of millions of dollars in exports of U.S. beef to Japan in coming
years. The two governments also agreed to regular and ad hoc consultations to review progress under the
agreement and address any issues that may arise. In an accompanying letter exchange, Japan also
confirmed its ongoing BSE risk assessment by the Food Safety Commission (FSC), which includes a
consideration of raising the age limit above 30 months for beef and beef product imports from the United
States, taking into account international standards. This issue is discussed in detail in USTR's 2013
Report on Sanitary and Phytosanitary Measures.
Rice Import System
Japan’s highly regulated and nontransparent importation and distribution system for imported rice limits
meaningful access to Japanese consumers. In 1999, Japan established a tariff-rate quota (TRQ) of
approximately 682,000 metric tons (milled basis) for imported rice. The Staple Food Department of the
Ministry of Agriculture, Forestry and Fisheries (MAFF) manages imports of rice within the TRQ through
periodic ordinary minimum access (OMA) tenders and through simultaneous buy-sell tenders. Imports of
U.S. rice under the OMA tenders are destined almost exclusively for government stocks. MAFF releases
these stocks exclusively for non-table rice uses in the industrial food processing or feed sector and for reFOREIGN TRADE BARRIERS
export as food aid. In calendar year 2012, U.S. rice exports to Japan were valued at $243 million,
representing approximately 355,000 metric tons of rice. Only a small fraction of this rice reaches
Japanese consumers identified as U.S. rice, despite industry research showing Japanese consumers would
buy U.S. high quality rice if it were more readily available. The United States looks to Japan to continue
meeting its WTO import volume commitments.
Wheat Import System
Japan requires wheat to be imported through MAFF’s Food Department, which then resells the wheat to
Japanese flour millers at prices substantially above import prices. These high prices discourage wheat
consumption by increasing the cost of wheat-based foods in Japan. In 2007, MAFF revised the wheat
import regime to allow more frequent adjustment to the resale price so that prices more closely reflect
international price movements, however, the U.S. Government remains concerned by Japan’s operation of
a state trading entity for wheat and its potential to distort trade.
Pork Import Regime
Japan is the largest export market for U.S. pork on both a volume and a value basis, importing 433,000
metric tons in 2012, worth $1.9 billion. The import tariff for pork is established by a gate price system
that applies a 4.3 percent ad valorem tariff when the import value is greater than or equal to the
administratively established reference price. When the value of imports falls below reference prices, the
importer pays an additional duty equal to the difference between the import value and the reference price.
Beef Safeguard
Japan instituted a beef safeguard to protect domestic producers in the event of an import surge. The
safeguard is triggered when the import volume of beef increases by more than 17 percent from the level
of the previous Japanese fiscal year on a cumulative quarterly basis. When triggered, beef tariffs would
rise to 50 percent from 38.5 percent for the rest of the Japanese fiscal year.
Fish and Seafood Products
U.S. fish and seafood exports to Japan were valued at $765 million in 2012, ranking Japan as the fourth
largest export destination with 14 percent of U.S. fish and seafood exports.
While Japan’s tariffs on seafood imports are generally low overall, tariffs on several products remain an
impediment to U.S. exports. Other market access issues also remain. For example, Japan maintains
import quotas on Alaska pollock, Pacific cod, Pacific whiting, mackerel, sardines, squid, and herring as
well as specific products such as pollock and cod roe and surimi. Although Japan reduced tariffs, import
quotas remain. Administration of the quota system has improved considerably, and Japan has eased
administrative burdens and increased import quota volumes. The U.S. Government looks to Japan to
continue to reduce obstacles to U.S. exports of fish and seafood.
High Tariffs on Beef, Citrus, Dairy, Processed Food, and Other Agricultural Products
Japan maintains high tariffs on a number of food products that are important exports for the United States,
including red meat, citrus, wine, dairy, and a variety of processed foods. Examples of double digit import
tariffs include 38.5 percent on beef, 32 percent on oranges during winter months (16 percent in the
summer), 40 percent on processed cheese, 29.8 percent on natural cheese, 22.4 percent on shredded
frozen mozzarella cheese, 20 percent on dehydrated potato flakes, 17 percent on apples, 10.5 percent on
frozen sweet corn, 20.4 percent on cookies, up to 17 percent on table grapes depending on the season of
the year, and 15 percent to 57.7 percent on wine depending on the tariff classification. These high tariffs
generally apply to food products that Japan produces domestically. Addressing tariffs on these and other
products continues to be a high priority for the U.S. Government.
Wood Products and Building Materials
Japan maintains tariffs on imports of certain manufactured wood products. The elimination of tariffs on
wood products remains a long-standing U.S. Government objective.
Japan continues to apply a TRQ on leather footwear that substantially limits imports into Japan’s market,
negatively impacting market access for U.S.-made and U.S.-branded footwear. The U.S. Government
continues to seek elimination of these quotas.
Customs Issues
The U.S. Government continues to urge Japan to take a variety of steps to improve customs processing
and to facilitate other expeditious and lower-cost solutions in the distribution sector. The U.S.
Government has encouraged Japan to raise the Customs Law de minimis ceiling from 10,000 yen to a
higher level. Strengthening Japan’s system for advanced rulings would also improve transparency and
predictability for U.S. exporters. The customs clearance process and clearance times could also be further
facilitated by, for example, allowing all users of Nippon Automated Cargo and Port Consolidated System
to select the Customs Office for making customs declarations. These processes could also be facilitated
by allowing clearance of quarantine items at a bonded warehouse rather than the first entry airport for
express air shipments and by allowing post export declaration for certain shipments.
Japan Post
The U.S. Government remains neutral as to whether Japan Post should be privatized. However, as
modifications to the postal financial institutions and network subsidiary could have serious ramifications
for competition in Japan’s financial market, the U.S. Government continues to monitor carefully the
Japanese government’s postal reform efforts and to call on the Japanese government to ensure that all
necessary measures are taken to achieve a level playing field between the Japan Post companies and
private sector participants in Japan’s banking, insurance, and express delivery markets.
Amendments to the Postal Privatization Law passed in April 2012 further heightened long-standing level
playing field concerns. Among other things, the revisions extended exemptions that the Japan Post
companies have from the Insurance Business Law and Banking Law, lessened requirements that Japan
Post companies must meet before they are allowed to expand their scope of business, and mandated a
merger of the Japan Post mail delivery and network operations companies, amplifying cross subsidization
In the area of express carrier services, the U.S. Government remains concerned by unequal conditions of
competition between Japan Post Company and international express delivery providers. The U.S.
Government urges Japan to enhance fair competition, including by ensuring that Japan Post Company is
subject to customs clearance procedures and costs for competitive services similar to those of other
international express delivery service suppliers, and by preventing subsidization of Japan Post Company’s
international express service with revenue from monopoly postal services.
(For discussion of Japan Post and postal insurance, see “Insurance” under the Services Barriers
The U.S. Government also continues to urge the Japanese government to ensure that the postal reform
process, including implementation of revisions to the Postal Privatization Law, is fully transparent,
including by providing full and meaningful use of public comment procedures and opportunities for
interested parties to express views to government officials and advisory bodies before decisions are made.
Timely and accurate disclosure of financial statements and related notes is a key element in the postal
reform process, as is the continued public release of meeting agendas, meeting minutes, and other relevant
Japan’s private insurance market is the second largest in the world, after that of the United States, with
direct net premiums of approximately 37,925 billion yen (approximately $462.5 billion) in Japanese fiscal
year 2011. In addition to the offerings of Japanese and foreign private insurers, insurance cooperatives
(kyosai) and Japan Post Insurance, a wholly government-owned entity of the Japan Post Group, also
provide substantial amounts of insurance to Japanese consumers. Given the size and importance of
Japan’s private insurance market as well as the scope of the obstacles that remain, the U.S. Government
continues to place a high priority on ensuring that the Japanese government’s regulatory framework
fosters an open and competitive insurance market.
Postal Insurance: Japan’s postal life insurance system remains a dominant force in Japan’s insurance
market. At the end of Japanese fiscal year 2011, there were approximately 44.3 million postal life and
postal annuity insurance policies in force. In comparison, 138 million life and annuity policies were in
force with all other life insurance companies combined. The U.S. Government has long-standing
concerns about the postal insurance company’s negative impact on competition in Japan’s insurance
market and continues to monitor the implementation of reforms closely. A critical objective, from the
U.S. Government’s perspective, is to establish equivalent conditions of competition between the Japan
Post companies and the private sector, consistent with Japan’s WTO obligations. It is also important for
Japan to ensure full transparency in the implementation of laws and regulations related to Japan Post
Group companies.
The U.S. Government continues to urge Japan to take a number of steps to address these concerns. For
example, Japan should ensure equal supervisory treatment between Japan Post Group’s financial
institutions and private sector companies. Also, the Japan Post Company should provide private
companies access to its network comparable to that given to Japan Post entities, and select and distribute
financial products of private providers through its network transparently and without discrimination. In
addition, Japan should implement measures to prevent cross-subsidization among the Japan Post
businesses and related entities, such as ensuring the Japan Post companies’ strict compliance with the
Insurance Business Law’s arm’s length rule and requiring adequate financial disclosures to demonstrate
that cross-subsidization is in fact not occurring.
The U.S. Government continues to urge Japan not to allow the Japan Post Group to expand the scope of
operations for its financial services companies before a level playing field is established. The current
restraints on the scope of these operations -- including the cap on the amount of insurance coverage and
limits to the types of financial activities and products Japan Post entities could offer -- have helped to
limit the extent to which the uneven playing field harms private insurance companies. In addition, before
final decisions are made, it is vital that Japan’s process for approving new products be transparent and
open to all parties, including active solicitation and consideration of private sector views, along with
careful analysis and full consideration of actual competitive conditions in the market.
The U.S. Government has expressed deep concerns regarding these issues and continues to closely
monitor the Japanese government processing of applications submitted in September 2012 by Japan Post
Insurance and Japan Post Bank to offer a modified education endowment insurance product and new
housing loan services. In November 2012, after receiving a positive recommendation from the
independent Postal Services Privatization Commission (PSPC), the Japanese government granted
provisional approval to Japan Post Insurance regarding the educational endowment insurance product
with eight conditions that must be met before receiving final approval. In December 2012, the PSPC
recommended that the Japanese government also grant conditional approval to allow Japan Post Bank to
offer housing loans, but final action by the Japanese government is still pending.
Local Incorporation of Foreign Insurance Operations: In August 2012, Japan's Financial Services
Agency (FSA) released its "Annual Supervisory Policy for Insurance Companies, etc. for Program Year
2012" (the Policy), which suggests that it may be appropriate to require branches of foreign insurance
companies to incorporate into local subsidiaries. The U.S. Government urges the government of Japan to
continue allowing foreign insurance providers choice of juridical form in accessing the Japanese markets
and to afford U.S. insurance providers meaningful opportunities to provide their input on any actions that
would affect the provision of insurance.
Kyosai: Insurance businesses run by cooperatives, or kyosai, hold a substantial share of insurance
business in Japan. Some kyosai are regulated by their respective agencies of jurisdiction (e.g. the Ministry
of Agriculture, Forestry and Fisheries or the Ministry of Health, Labor and Welfare) instead of by the
FSA, which regulates all private sector insurance companies. These separate regulatory schemes create a
nontransparent regulatory environment and afford kyosai critical business, regulatory, and other
advantages over their private sector competitors. The U.S. Government urges that kyosai be subject to the
same regulatory standards and oversight as their private sector counterparts, including being brought
under the supervision of the FSA, to ensure a level playing field.
The U.S. Government also remains concerned about the reversal of progress toward giving FSA
supervisory authority over kyosai that have insurance operations that are neither regulated by the FSA nor
by any other government agency. The 2005 Insurance Business Law revisions would have achieved this
by requiring these unregulated kyosai to come under FSA supervision. However, the Japanese
government has delayed--and in some cases provided exemptions to--implementation.
Policyholder Protection Corporations: The Life and Non-life Policyholder Protection Corporations
(PPCs) are mandatory policyholder protection systems created to provide capital and management support
to insolvent insurers. The current system relies on pre-funding of the PPC by its members and a
government “fiscal commitment” in the event that industry funding is insufficient, instead of adopting a
system where an insolvency would result in members contributing funds to the PPC as needed (postfunding). In March 2012, the Japanese government extended the existing system of government prefunding of the PPC for an additional five years, until March 2017. The U.S. Government continues to
urge Japan to consider more fundamental changes in the PPC systems, including through full and
meaningful deliberations with interested parties, before renewing these measures again.
Bank Sales of Insurance: In December 2007, the Japanese government fully liberalized the range of
insurance products eligible for sale through banks. As a follow-up, the U.S. Government asked Japan to
review market conduct rules, including the limits on sales of designated products and treatment of
customer data, to ensure they do not limit the effectiveness of bank sales of insurance or impede
consumer convenience and choice. The FSA committed to conduct a review of market conduct rules
three years after liberalizing the bank sales channel. It published a report in July 2011 announcing minor
revisions to the market conduct rules along with the results of the monitoring process. The revisions,
effective April 2012, were relatively limited in their commercial impact, as the easing of the restrictions
on the sale of insurance products was narrow in scope. The U.S. Government is concerned that the
Japanese government has yet to commit to conduct another review and calls on Japan to conduct a factbased and transparent review of the bank sales channel in the near term. The next review should include
meaningful opportunities for input from interested stakeholders and take into account global best
practices to further enhance policyholder protection and improve consumer choice.
Other Financial Services
While improvements have been made in Japan’s financial services sector, such as the FSA’s continued
commitment to its Better Markets Initiative, the U.S. Government continues to urge reforms in the areas
of online financial services, defined contribution pensions, credit bureaus, and sharing of customer
information. More improvement in this sector is needed, particularly with respect to transparent practices
such as enhancing the effectiveness of the no-action letter and related systems, providing written
interpretations of Japan’s financial laws, and soliciting input from all interested parties on concerns and
potential improvements related to the inspection process.
The U.S. Government continues to urge Japan to ensure fair market opportunities for emerging
technologies and business models, ensure a regulatory framework appropriate for addressing converged
and Internet-enabled services, and strengthen competitive safeguards on dominant carriers. The U.S.
Government also continues to urge Japan to improve transparency in rulemaking and ensure the
impartiality of its regulatory decision making. In January 2012, Japan agreed with the United States on a
set of common trade principles for information and communications technology (ICT) services, a positive
step toward addressing many of these issues.
Fixed-line Interconnection: In March 2012, Japan’s Ministry of Internal Affairs and Communications
(MIC) approved both Nippon Telegraph and Telephone (NTT) East and NTT West’s interconnection
rates based on the Long Run Incremental Cost Method for Japanese fiscal year 2012. In March 2012,
MIC also authorized Japanese fiscal year 2012 interconnection fees for the “Next Generation Network”
(NGN), including Ethernet data transmission, operated by NTT East and NTT West. These
interconnection rates still remain high by international standards.
Dominant Carrier Regulation: NTT continues to dominate Japan’s fixed line market through its control
over almost all “last-mile” connections. As Japan’s broadband users transition from digital subscriber
line (DSL) (where competition, ensured through regulation, was robust) to optical fiber, competitors have
raised concerns that the more lightly regulated fiber-based services will allow NTT to expand its
dominant position through control of the fiber-to-the-home (FTTH) market, where it holds a market share
of about 73.9 percent as of September 2012.
NTT’s authority to bundle its fixed-line services with NTT DOCOMO’s mobile service is another cause
of concern, as it appears to undermine the rationale for structurally separating the companies. In light of
Japan’s ongoing review of the overall legal structure of NTT, the U.S. Government has urged Japan to
remain committed to ensuring competition in the telecommunications market, which affects all players
participating in markets for converged services.
Universal Service Program: Current cross-subsidization of NTT West by NTT East using interconnection
revenue (ostensibly to address NTT West’s higher network costs resulting from the higher number of
rural subscribers) appears redundant given the existence of the universal service fund. The U.S.
Government has urged the abolition of this cross-subsidy. A Ministry of Internal Affairs and
Communications (MIC) panel reviewed the universal service system as part of MIC’s New Broadband
Superhighway plan. Under the present universal service system, NTT East and NTT West are required to
maintain subscribers’ copper lines. Nonetheless, the panel recognized a need to avoid letting this
requirement become an impediment to the development of fiber optic lines. In December 2011, the panel
recommended that the universal service system allow fiber optic Internet Protocol telephony, which is
equivalent in voice quality, reliability, and other factors to subscribers’ existing wireline telephony.
Mobile Termination: Like most countries, Japan uses the “Calling Party Pays” system, imposing the
entire cost of termination on the calling party (enabling mobile subscribers to benefit from free incoming
calls). Mobile interconnection rates still remain high by international standards and particularly compared
to fixed-line rates in Japan. However, following new guidelines from MIC on calculating interconnection
rates, NTT DOCOMO, the dominant incumbent mobile carrier, announced in February 2010 that it would
lower its termination rates by over 10 percent, continuing incremental rate reductions implemented over
the past 10 years. In January 2012, NTT DOCOMO announced a decision to cut interconnection fees for
calls to other wireless service operators by up to 21.8 percent, retroactive to April 2011. MIC is
encouraging all wireless carriers to follow the new guidelines. In contrast to NTT DOCOMO, however,
other mobile operators’ termination rates remain high, and mediation efforts to reduce these rates have not
been successful. With new entrants in the mobile sector, the U.S. Government has continued to monitor
developments and to urge MIC to consider the advantages of moving to a “bill-and-keep” system that is
more economically efficient and where interconnection payments are not exchanged between carriers.
New Mobile Wireless Licenses: Starting in 2005, MIC began opening the market to new mobile providers
beyond the three main incumbents by assigning blocks of spectrum to a limited number of new wireless
entrants. In September 2010, MIC awarded only one license for mobile multimedia broadcasting
services, even though the subject spectrum band was able to support two operators. In March 2012,
Softbank was awarded 900MHz frequencies, and in June 2012, NTT DOCOMO, KDDI, and eAccess (a
carrier that is now in the process of being acquired by Softbank) were awarded 700MHz spectrum. While
Softbank plans to launch its 900MHz networks in 2012, the 700MHz frequencies will not be utilized until
2015. The factors MIC used to determine how to evaluate applications raised questions about whether
MIC achieved its stated goal of awarding these licenses based on objective criteria. Given the scarcity of
spectrum and high demand for new technologies, the U.S. Government continues to urge MIC to consider
alternative mechanisms, including auctions to assign commercial spectrum in a timely, transparent,
objective, and nondiscriminatory manner that adheres to principles of technology neutrality, particularly
for spectrum that became available as a result of broadcasters’ switch to digital television in July 2011. In
December 2011, MIC announced its intent to introduce a system by 2015 that allows for auctions as an
option to assign commercial spectrum, a positive development that the U.S. Government is monitoring.
In March 2012, the Japanese government submitted legislation that would amend the Radio Law to
authorize MIC to use auctions to assign spectrum, although the Diet did not act on the legislation. In
February 2013, the government, under a new administration, decided it would not submit the legislation
to the current session of the Diet.
Information Technologies
In January 2012, the Japanese government took a positive step by concluding with the U.S. Government a
set of common trade principles for ICT services. These principles cover a range of topics, including
regulatory transparency, open access to networks and applications, free flow of information across
borders, nondiscriminatory treatment of digital products, and foreign investment in ICT services.
However, the U.S. Government continues to urge the Japanese government to address concerns related to
cloud computing, health information technology, privacy, and information technology (IT) and electronic
commerce policymaking.
Cloud Computing: Cloud computing, which depends on trans-border data flows, has the potential to
increase efficiency and reduce costs in the public and private sectors. The U.S. Government, therefore,
has urged Japan to adopt the principle of nondiscrimination between data services offered inside and
outside of Japan. The U.S. Government also has urged the Japanese government to ensure full
transparency and consult foreign and domestic industry as rules on data centers and cloud computing are
formulated and implemented.
Health IT: Government policies that fail to encourage interoperability, technology neutrality, and
international harmonization, in addition to providing insufficient reimbursement incentives, inhibit the
expansion of Japan’s health IT services sector, an important market for U.S. companies. The U.S.
Government has urged Japan to improve the quality and efficiency of healthcare by rapidly implementing
health IT that is based on international standards, promotes technology neutrality and interoperability, and
allows patients greater access to their own health records. In September 2012, U.S. and Japanese
government health IT experts met in Tokyo to initiate a dialogue to address health IT issues of mutual
Privacy: Separate and inconsistent privacy guidelines among Japanese ministries have created an
unnecessarily burdensome regulatory environment with regard to the storage and general treatment of
personally identifiable information in Japan. The U.S. Government has urged Japan to introduce greater
uniformity in the enforcement of the Privacy Act across the central government through policy
standardization and consistent implementation of guidelines. The U.S. Government also has urged the
Japanese government to reexamine the provisions and application of the Privacy Act, so as to foster
appropriate sharing of data, to ensure full transparency, and to consult widely as privacy guidelines for
online advertising are developed.
IT and Electronic Commerce Policymaking: Insufficient transparency in Japan’s policymaking process
for IT and electronic commerce has stifled innovation and competitiveness in Japan and constrained U.S.
company access. The U.S. Government has urged Japan to improve its policymaking process by seeking
and considering industry input at all stages of policymaking. This will help foster development of
programs that promote technology neutrality, facilitate private sector participation in governmentappointed advisory groups, and provide companies with adequate time to offer public comments and
adjust to rule changes.
Consumption Tax on Online Content from Abroad: In 2012, the Ministry of Finance (MOF) announced
that it intends to begin levying a consumption (value-added) tax on music and books distributed online
from overseas to consumers in Japan. Such products offered by firms with a physical presence in Japan
are already subject to a consumption tax. MOF proposes to introduce a mandatory registration system for
foreign firms, modeled on that used in the European Union. On March 1, MOF submitted to the Diet a
tax reform bill, but it did not include any provisions to levy the consumption tax on music and books
distributed online from overseas, and MOF has indicated it is still considering an effective framework of
imposing the tax on online content from overseas. The U.S. Government is continuing to monitor
Legal Services
Japan imposes restrictions on the ability of foreign lawyers to provide international legal services in Japan
in an efficient manner. The U.S. Government continues to urge Japan to further liberalize the legal
services market. Legislation was submitted to the Diet in March 2012 that would allow foreign lawyers
to form Japanese professional corporations that are permitted to establish branch offices within Japan. It
did not pass, however, and it remains unclear whether it will be reintroduced in the Diet. In addition to
this legislation, another important step would be to allow foreign lawyers to establish multiple branch
offices in Japan, whether or not they have established a professional corporation. The U.S. Government
also urges Japan to take other important measures, including ensuring that no legal or Bar Association
impediments exist to Japanese lawyers becoming members of international legal partnerships and
accelerating the registration process for new foreign legal consultants.
Educational Services
The U.S. Government continues to urge the Japanese government to work with foreign universities to find
a nationwide solution that grants tax benefits comparable to Japanese schools and allows them to continue
to provide their unique contributions to Japan’s educational environment.
Japan generally provides strong intellectual property rights (IPR) protection and enforcement. However,
the U.S. Government continues to urge Japan to improve IPR protection and enforcement in specific areas
through bilateral consultations and cooperation, as well as in multilateral and regional fora.
Japan’s signing of the Anti-Counterfeiting Trade Agreement (ACTA) in October 2011 and ratification of
ACTA in September 2012 were positive steps. The ACTA establishes an international framework that
will assist parties in their efforts to effectively combat the infringement of IPR, in particular the
proliferation of counterfeiting and piracy, which undermines legitimate trade and the sustainable
development of the world economy.
The U.S. Government also has urged Japan to continue to reduce piracy rates, including adopting methods
to protect against piracy in the digital environment. Police and prosecutors lack ex officio authority to
prosecute IPR crimes on their own initiative, without a rights holder’s complaint. The U.S. Government
has also pressed for improvements to Japan’s Internet Service Provider liability law to provide adequate
protection for rights holder’s works on the Internet.
Japan took steps to revise its Customs Law and Unfair Competition Law in 2011 and its Copyright Law
in 2012, which extended protection for technological protection measures among other provisions.
However, the U.S. Government recommends that Japan further strengthen its laws to provide effective
criminal and civil remedies against the unauthorized circumvention of technological protection measures
used by rights holders to protect their works and against the trafficking in tools used to circumvent them.
In other areas, although Japan provides a 70-year term of protection for cinematographic works, it only
provides a 50-year term for all other works protected by copyright and related rights. The U.S.
Government continues to urge Japan to extend the term of protection for all subject matter of copyright
and related rights in line with emerging international trends. Amendments to the Copyright Law came
into effect in 2010 which, among other things, clarified that the statutory private use exception does not
apply in cases where a downloaded musical work or a motion picture is knowingly obtained from an
infringing source. Additional amendments in 2012 provided for criminal penalties in such cases. The
U.S. Government welcomes these steps, but continues to urge the Japanese government to expand this
limitation on the private use exception to cover all works protected by copyright and related rights.
In addition, the U.S. Government continues to monitor developments related to Japan’s announcement in
October 2011 of plans to introduce a sui generis system for the protection of geographical indications
(GIs) within five years. The U.S. Government urges Japan to ensure that certain core principles are
upheld involving the scope of GI protection and GI registration safeguard procedures, including
protecting the prior rights of owners of existing trademarks, safeguarding the use of generic terms, and
ensuring objection and cancellation procedures, as it considers changes to its existing system for
protecting GIs.
Japan is a signatory to the WTO Agreement on Government Procurement (GPA). For procurement of
construction services by sub-central entities and government enterprises covered under the GPA, Japan
applies a threshold of 15 million SDRs (approximately $23.98 million), which is three times the threshold
applied by the United States.
Construction, Architecture, and Engineering
U.S. companies annually obtain far less than 1 percent of projects awarded in Japan’s massive public
works market, estimated at $242 billion in 2012. Two bilateral public works agreements are in effect: the
1988 United States-Japan Major Projects Arrangements (MPA, updated in 1991) and the 1994 United
States-Japan Public Works Agreement, which includes the Action Plan on Reform of the Bidding and
Contracting Procedures for Public Works (Action Plan). The MPA includes a list of 42 projects in which
international participation is encouraged. Under the Action Plan, Japan must use open and competitive
procedures for procurements valued at or above the thresholds established in the GPA. The U.S.
Government raises public works issues in the Expert-Level Meetings on Public Works under the United
States-Japan Trade Forum.
Problematic practices continue to limit the participation of U.S. design/consulting and construction firms
in Japan’s public works sector, including bid rigging (dango), under which companies consult and
prearrange a bid winner. (For more, see “Broadening Measures to Combat Bid Rigging” under the
Anticompetitive Practices section.) The U.S. Government continues to press Japan to take more effective
action to address this pervasive problem. The U.S. Government continues to monitor Japan’s public
works sector.
Specifically, the U.S. Government is paying special attention to certain major projects covered by the
public works agreements that are of particular interest to U.S. companies. These include major
expressway projects; major public buildings, railroad and railroad station procurements, urban
development and redevelopment projects; planned port facilities expansion projects; major Private
Finance Initiative (PFI) projects; and the MPA projects still to be undertaken or completed. The U.S.
Government is also monitoring developments related to environmental remediation, “green” building,
design, and procurement.
Procurement of Information Technology
Lack of transparency, excessive reliance on sole-source contracting, and restrictions on intellectual
property ownership, among other factors, hinder the participation of U.S. companies in Japanese
government IT procurement. The U.S. Government therefore has urged Japan to introduce greater
competition, transparency, and fairness in government procurement of IT through steps such as
implementation of national government-wide policies that reflect international technology trends and
standards and that follow principles of technology neutrality and interoperability. In August 2012, Japan
appointed its first central government Chief Information Officer. The U.S. Government encourages Japan
to use the new CIO’s position to reform government procurement of IT in the ways described above. In
addition, the U.S. Government is urging that Japanese government procurement of cloud computing
services be neutral with respect to the technology used by cloud service providers.
Despite being the world’s third largest economy, Japan continues to have the lowest inward foreign direct
investment (FDI) as a proportion of total output of any major OECD country. According to OECD
statistics, FDI stock at the end of 2010 was only 3.7 percent of Gross Domestic Product (GDP) in Japan,
compared to 28.8 percent on average for all OECD members. Inward foreign merger and acquisition
(M&A) activity, which accounts for up to 80 percent of FDI in other OECD countries, also lags in Japan.
While the Japanese government has previously recognized the importance of FDI to revitalizing the
country’s economy, its performance in implementing domestic regulatory reforms to encourage a
sustained increase in FDI has been uneven. In June 2012, an inter-ministerial conference established a
target of doubling Japan’s FDI stock (2011 baseline) by 2020, and this target was incorporated into a
national growth strategy endorsed by the Cabinet in July 2012, although it is unclear whether Japan’s
current government will adopt and continue to promote this target.
While progress toward this new target will be measured in part by the numbers of transactions and
monetary values of mergers and acquisitions (M&A), the Japanese government has done little to
explicitly encourage inward investment through M&A as a policy priority. Even before the financial
crisis of 2008 and 2009, questions existed regarding the adequacy of measures taken to promote a level of
cross-border M&A necessary to achieve the government’s target. After peaking at 309 in 2007, numbers
of annual M&A transactions declined to 145 in 2011. A variety of factors make cross-border M&A
difficult in Japan, including attitudes toward outside investors, inadequate corporate governance
mechanisms that protect entrenched management over the interest of shareholders, cross-shareholdings,
aspects of Japan’s commercial law regime (see section titled “Commercial Law”), and a relative lack of
financial transparency and disclosure.
Japan has taken significant positive steps in recent years to bolster its competition regime, including
increasing fines and penalties, extending the statute of limitations, and strengthening aspects of the Japan
Fair Trade Commission’s (JFTC) enforcement mechanisms and tools. At the same time, concern persists
that the present system for enforcing the Antimonopoly Act (AMA) may not afford sufficient due process
protections. Additional measures to combat anticompetitive behavior and provide for basic due process
protections would improve the business environment and ensure that enforcement procedures are fair and
Improving Anti-Monopoly Compliance and Deterrence
The AMA provides for both administrative and criminal sanctions against cartels. Criminal prosecutions,
which should have the strongest deterrent effect against anticompetitive behavior, have been few, and
penalties against convicted company officials have been weak. The U.S. Government has continually
urged Japan to take steps to maximize the effectiveness of enforcement against serious violations of the
AMA. The Japanese government has taken certain steps to address these concerns, particularly through
AMA amendments enacted in June 2009, most of which came into effect in January 2010. These
amendments increased administrative penalty (surcharge) rates for enterprises that played a leading role
in cartel activities by 50 percent, extended the statute of limitations to five years, increased maximum
prison sentences for criminal cartel and bid-rigging violations to five years, and improved the leniency
program to encourage reporting of unlawful cartels. The 2009 AMA amendments also provide for
mandatory surcharges on enterprises that engage in exclusionary private monopolization, abuse of
superior bargaining position, and repeat violations of certain “unfair trade practices.” The JFTC issued
guidelines on exclusionary private monopolization in October 2009 after considering public comments.
The JFTC’s ability to enforce the AMA effectively continues to be hindered by an insufficient number of
employees with post-graduate economics training, a factor that undermines the JFTC’s ability to engage
in the economic analysis necessary to properly evaluate non-cartel behavior. The U.S. Government
continues to urge the JFTC to improve its economic analysis capabilities.
Improving Fairness and Transparency of JFTC Procedures
Japan introduced a system in January 2006 that empowered the JFTC to make determinations of AMA
violations without a prior formal administrative hearing. Respondents are only afforded the right to seek
administrative review of the JFTC decision after the decision is put into place. Although the JFTC allows
companies subject to a proposed cease-and-desist or surcharge payment order to review the evidence
relied upon by JFTC staff and to submit evidence and make arguments in their defense prior to issuance
of a final order, questions have arisen as to whether the current system provides sufficient due process
protections. In December 2009, the Japanese government announced its intention to eliminate the ex post
hearing system and to allow appeals of JFTC orders to go directly to the Tokyo District Court. Although
legislation for those purposes was submitted to the Diet, it has not yet been enacted. The U.S.
Government continues to raise concerns about procedural fairness questions related to the JFTC’s
investigative, pre-decisional, and appeals processes.
Broadening Measures to Combat Bid Rigging
Japanese officials have implemented a series of measures to address the problem of bid rigging. In recent
years, the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) strengthened administrative
sanctions against companies found by JFTC to have engaged in unlawful public bid rigging.
Administrative leniency programs have also been introduced to encourage companies and individuals to
report illegal acts. As of April 2009, MLIT and 13 other central government entities are administering an
administrative leniency program to complement the JFTC leniency program, which is designed to help
encourage individuals and companies to report anticompetitive acts. In addition, Japan has put in place a
series of measures aimed at ensuring a competitive bidding process for project contracts tendered at the
central and local government levels. The U.S. Government continues to raise concerns that further
measures are needed to prevent conflicts of interest in government procurement, improve efforts to
eliminate involvement in bid rigging by government officials, and expand administrative leniency
Transparency issues remain a top concern of U.S. companies operating in Japan’s market. The U.S.
Government has strongly urged Japan to adopt new measures to achieve a higher degree of transparency
in governmental regulatory and policymaking processes.
Advisory Groups: Although advisory councils and other government-commissioned study groups are
accorded a significant role in the development of regulations and policies in Japan, the process of forming
these groups can be opaque and nonmembers are too often not uniformly offered meaningful
opportunities to provide input into these groups’ deliberations. The U.S. Government continues to urge
Japan to ensure the transparency of advisory councils and other groups convened by the government by
adopting new requirements to ensure that ample and meaningful opportunities are provided for all
interested parties, as appropriate, to participate in, and directly provide input to, these councils and
Public Comment Procedure (PCP): Many U.S. companies remain concerned by inadequate
implementation of the PCP by Japanese ministries and agencies. Examples include cases where comment
periods appear unnecessarily short, as well as cases suggesting comments are not adequately considered
given the brief time between the end of the comment period and the issuance of a final rule or policy. The
U.S. Government has stressed the need for Japan to ensure that its existing PCP is being fully
implemented and to make additional revisions to further improve the system, such as doubling the public
comment period for rulemaking to 60 days.
Transparency in Regulation and Regulatory Enforcement: To ensure the private sector has sufficient
information about regulations and official interpretations of those regulations that require compliance, the
U.S. Government is urging Japan specifically to require its ministries and agencies to make public their
regulations and any statements of policy of generally applicable interpretation of those regulations.
Commercial Law
A 2006 reform of Japan’s commercial law permitted the use of certain modern merger techniques,
including domestic and cross-border (forward) triangular mergers (i.e., mergers structured so that a
Japanese company is acquired by a Japanese subsidiary of a foreign parent company, with the
shareholders of the target company receiving shares in the foreign parent company as compensation).
These provisions did not prove as effective as had been hoped in facilitating foreign investment into
Japan, which has been constrained by conditions for using tax-advantaged merger tools for inward-bound
investment to Japan, by securities law and capital market issues inherent in cross-border stock-for-stock
transactions, and by corporate governance systems that do not adequately reflect the interests of
shareholders, among other possible issues.
The U.S. Government continues to urge Japan to identify and eliminate impediments to cross-border
mergers and acquisitions, including the availability of reasonable and clear incentives for many such
transactions, and to take measures to ensure that shareholder interests are adequately protected when
Japanese companies adopt anti-takeover measures or engage in cross-shareholding arrangements. The
U.S. Government has also continued to urge Japan to improve further its commercial law and corporate
governance systems in order to promote efficient business practices and management accountability to
shareholders in accordance with international best practices. These changes could include facilitating and
encouraging active and appropriate proxy voting, setting minimum requirements for and ensuring the
independence of outside directors, augmenting the role of outside directors on corporate boards,
strengthening protection of minority shareholders by clarifying fiduciary duties of directors and
controlling shareholders, and encouraging the stock exchanges to adopt listing rules and guidelines that
will improve the corporate governance of listed companies and ensure that minority shareholders’
interests are protected.
In November 2012, the Tokyo Stock Exchange took the positive step of publishing its first handbook for
company directors on corporate governance. In addition, based on 2012 Legislative Council
recommendations, the Japanese government is considering measures that, if realized, could represent
some progress, including possible steps such as the establishment of a system for companies to create an
audit and supervisory committee, the tightening of the requirements governing outside directors, and the
establishment of the multiple derivative action system. If achieved, however, further progress would still
be needed to bring Japan into line with international best practices. One important step would be the
introduction of a requirement that companies appoint at least one outside director.
A variety of nontariff barriers have traditionally impeded access to Japan’s automotive market. Overall
sales of U.S. made vehicles and automotive parts in Japan remain low, which is a serious concern.
The U.S. Government has expressed concern with the overall lack of access to Japan’s automotive market
for U.S. automotive companies. Barriers include, but are not limited to, issues relating to standards and
certification, the lack of sufficient opportunities for stakeholder input in the development of standards and
regulations, barriers that hinder the development of distribution and service networks, and the lack of
equivalent opportunities for U.S. models imported under the preferential handling procedure (PHP)
certification program to benefit from temporary fiscal incentive programs. The U.S. Government urges
Japan to address the full range of barriers in Japan’s automotive market.
Medical Devices and Pharmaceuticals
Japan continues to be one of the most important markets for U.S. medical device and pharmaceutical
exports. According to the latest official figures from the Ministry of Health, Labour and Welfare’s
(MHLW’s) Annual Pharmaceutical Production Statistics, the Japanese market for medical devices and
materials in 2011 was just over $29.9 billion (up 3 percent from 2010 in yen terms). Japan’s total imports
of U.S. medical devices exceeded $6.4 billion in 2011. According to the American Medical Devices and
Diagnostics Manufacturers’ Association (AMDD), during the last 7-year period, 58 percent of “new
medical devices” approved in Japan were from its member companies. The pharmaceuticals market in
Japan was valued at $117.7 billion in 2011 (up 2 percent from 2010 in yen terms). Japan’s total imports
of U.S. pharmaceuticals totaled $6.5 billion in 2011.
Innovative U.S. medical devices frequently have been introduced elsewhere in the world years before
they are available in Japan (device lag) or are not introduced at all into Japan (device gap). The Japanese
government has recognized that the device lag and device gap prevent timely patient access to innovative
and life-saving products and has been steadily improving review times and processes in accordance with
the Five-Year Action Program for Speedy Review of Medical Devices implemented in December 2008.
In addition, the medical review process could be further improved through revision of the Pharmaceutical
Affairs Law (PAL). The proposed bill for amendment of the PAL includes the creation of a system that
considers the characteristics of medical devices separately from pharmaceuticals. The U.S. Government
continues to urge Japan to meet the Action Program goals and take additional steps as the Japanese
government moves forward with possible changes to the PAL. Japan’s reimbursement policies for
medical devices also hinder the introduction of innovative medical technology to the market. Of specific
concern has been Japan’s application of and changes to the “Foreign Average Price” rule. The U.S.
Government continues to urge Japan to implement predictable and stable reimbursement policies that
reward innovation and provide incentives for companies to invest in the research and development of
advanced healthcare products.
With regard to pharmaceuticals, the U.S. Government welcomes Japan’s implementation in 2010 (on a
trial basis) of a new premium system for the most innovative, research-intensive pharmaceuticals that
minimizes downward price revisions on new drugs for which there are no corresponding generics. The
new premium system has considerably improved the development of new drugs and unapproved
indications in Japan. In the biennial price revision of April 1, 2012, the Japanese government decided to
continue the new premium system trial for an additional two years starting from that date. Making this
new system permanent would help increase the predictability and attractiveness of the Japanese market,
reduce the drug lag, and promote long-term investment in Japanese life sciences discovery. The U.S.
Government continues to urge the Japanese government to make the new premium system permanent and
to refrain from implementing other aspects of its reimbursement policies that hinder the development and
introduction of innovative pharmaceuticals, such as Japan’s approach to re-pricing based on market
Although the level of transparency in Japan’s drug and medical device reimbursement decision making
processes has improved in recent years, including potential additional systemic changes, the U.S.
Government continues to urge Japan to build further on recent improvements to foster a more open and
predictable market.
Nutritional Supplements
Japan has taken steps to streamline import procedures and to open its 1,150 billion yen (approximately
$14.4 billion) nutritional supplements market, although many significant market access barriers remain.
Burdensome restrictions on health claims are a major concern. Only those products approved as Foods
for Specified Health Uses (FOSHU) or Foods with Nutrient Function Claims (FNFC) are allowed to have
health or structure/function claims. Producers of most nutritional supplements, however, are unable to
obtain FOSHU or FNFC approval due to FOSHU’s costly and time-consuming approval process and due
to the limited range of vitamins and minerals that qualify for FNFC. These processes apply to both
imported and domestic products. Other concerns include long lead times for food additive applications;
inability to use food ingredients and food additives, including organic solvents for processing ingredients
to be used in nutritional supplements; high import duties for nutritional supplements compared to duties
on pharmaceuticals containing the same ingredient(s); lack of transparency in new ingredient
classifications; and lack of transparency in the development of health food regulations. The U.S.
Government continues to discuss these issues with the Japanese government.
Cosmetics and Quasi-Drugs
Japan is the world’s second largest market for cosmetics and quasi-drugs after the United States. In 2011,
U.S. exports of cosmetics and personal care products to Japan were estimated at $373 million, second
only to France. Despite this market presence by U.S. products, regulatory barriers continue to limit
timely consumer access to safe and innovative products, generating unnecessary costs. Unlike the overthe-counter drug monograph system in the United States, Japan requires premarket approval for certain
products, such as a category called “medicated cosmetics” that are classified as quasi-drugs under the
Pharmaceutical Affairs Law. The approval process of the quasi-drugs includes requirements that are
burdensome, lack transparency, and do not appear to enhance product safety, quality, or efficacy. In
addition, restrictions on advertising claims for cosmetics and quasi-drugs prevent companies from
informing customers of product benefits so that consumers can make an informed choice. Enhanced
communication between both the U.S. and Japanese Governments and industries has led to some
improvements in the Japanese regulatory system. For example, in the summer of 2011, the Japanese
government agreed to allow a new advertising claim for “the appearance of reduced fine lines” for
cosmetics. The U.S. Government continues to urge Japan to address pending issues of concern.
Proprietary Ingredient Disclosure Requirement for Food and Dietary Supplements
As part of its product classification process for new-to-market food and dietary supplement products,
Japan mandates that all ingredients and food additives be listed by name along with content percentages,
and include a description of the manufacturing process. In addition to being burdensome, this process
risks the release of proprietary information to competitors.
Japan is among the largest foreign markets for U.S. civil aerospace products. The civil aerospace market
in Japan is generally open to foreign firms, and some Japanese firms have entered into long-term
relationships with U.S. aerospace firms. The U.S. Government continues to monitor Japan’s development
of indigenous aircraft.
Military procurement by the Ministry of Defense (MOD) accounts for approximately half of the domestic
production of aircraft and aircraft parts and continues to offer the largest source of demand in the aircraft
industry. Although U.S. firms have frequently won contracts to supply defense equipment to Japan, many
contracts for defense equipment are not open to foreign bids. MOD’s general preference is that defense
products and systems be developed and produced in Japan, and it will often opt for local development
and/or production, even when a foreign option exists that could fulfill the requirements more efficiently,
at a lower cost, and with better inoperability with Japan’s allies.
Although Japan has considered its main space launch vehicle programs as indigenous for many years,
U.S. firms continue to participate actively in those space systems. Japan is also developing a global
positioning system navigation satellite constellation known as the “quasi-zenith” system. At the
conclusion of the United States-Japan Consultative Committee meeting on June 21, 2011, the
Governments of the United States and Japan released a joint statement in which the two nations
recognized recent progress to deepen our bilateral space security partnership through the United StatesJapan Space Security Dialogue, and possible future cooperation in areas such as space situational
awareness, a satellite navigation system, space-based maritime domain awareness, and the utilization of
dual use sensors. In line with this statement, the U.S. Government is working to ensure U.S. companies
have full opportunities to participate in Japan’s satellite market.
Business Aviation
Japan has been taking steps to bolster business aviation operations through the liberalization of
regulations and investment in infrastructure, most notably at Tokyo’s Narita airport. The U.S.
Government will continue to work with the Japan Civil Aviation Bureau (JCAB) to promote greater
liberalization in the business aviation sector, including through APEC’s Transportation Working Group,
which aims to forge consensus among APEC economies on best practices in the economic treatment of
international business aviation operations.
Civil Aviation
Japan is the United States’ largest aviation partner in the Asia-Pacific region. Operations between the
United States and Tokyo’s Haneda Airport are limited. The U.S. Government continues to be interested
in a commercially meaningful expansion of access to Haneda for U.S. airlines.
Transport and Ports
The U.S. Government has had longstanding concerns about barriers to entry to, and the lack of
competitiveness in, Japanese ports. Long-term relationships, a lack of transparency, licensing
requirements, and other practices and requirements have greatly limited the ability of foreign shipping
companies to do business in Japan. On January 26, 2011, the U.S. Federal Maritime Commission (FMC)
issued an Order terminating a proceeding that it had opened in 1995 to investigate these practices. In its
2011 Order, the FMC stated that concerns about practices and requirements in Japan had not been
completely eliminated, and that it will remain watchful for unfavorable conditions in the U.S.-foreign
ocean-borne trade.
The U.S. goods trade surplus with Jordan was $556 million in 2012, up $163 million from 2011. U.S.
goods exports in 2012 were $1.7 billion, up 17.7 percent from the previous year. Corresponding U.S.
imports from Jordan were $1.2 billion, up 9.0 percent. Jordan is currently the 66th largest export market
for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Jordan was $145 million in 2011 (latest data
available), up from $99 million in 2010.
The United States-Jordan Free Trade Agreement
Under the terms of the United States-Jordan Free Trade Area Agreement (FTA), which entered into force
on December 17, 2001, the United States and Jordan completed the final phase of tariff reductions on
January 1, 2010. Jordan now imposes zero duties on nearly all U.S. products, with limited exceptions,
e.g. for alcoholic beverages.
Tariffs and Other Charges
Jordan is a member of the WTO and is in the process of reducing its tariffs as called for by its WTO
accession commitments. Currently, Jordan’s average applied MFN tariff is 10 percent, with a maximum
applied tariff rate of 30 percent in certain sectors. Most raw materials and intermediate goods used in
industry face zero duties.
Jordan’s General Sales Tax law allows the government to impose a “Special Tax” at the time of
importation or local production. For example, the government currently imposes a 17.5 percent tax on
automobiles and trucks.
Import licenses, or advance approvals for importation, are required for specific food and agricultural
goods. The Ministry of Agriculture and the Ministry of Health are the authorities charged with granting
these licenses and approvals.
Import Licenses
In addition to Jordan’s special licensing and approval requirements for the importation of certain
agricultural products, Jordan requires that importers of commercial goods be registered traders or
commercial entities. The Ministry of Industry and Trade occasionally issues directives requiring import
licenses for certain goods or categories of goods and products in newly emerging or protected sectors. On
October 6, 2010, the government of Jordan issued directives requiring a special import license prior to the
importation of telecommunications and security equipment for all trading partners, including the United
Jordan is an observer to the WTO Committee on Government Procurement. In 2002, it commenced the
process of acceding to the WTO Agreement on Government Procurement (GPA), with the submission of
its initial entry offer. Subsequently, it has submitted several revised offers, in response to requests by the
United States and other GPA Parties for improvements. Negotiations on Jordan’s accession continued in
Net profits generated from most export revenue will remain fully exempt from income tax except for net
profits from exports in the mining sector, exports governed by specific trade protocols, and foreign debt
repayment schemes, which are subject to income tax. Under WTO rules, the income tax exemption was
initially set to expire on January 1, 2008. At the request of Jordan, WTO Members extended the waiver
through December 2015, subject to an annual review.
In addition, 98 percent of foreign inputs used in the production of exports are exempt from customs
duties; all additional import fees are assessed on a reimbursable basis.
The Jordanian government continues to take steps to provide more comprehensive protection of
intellectual property rights (IPR). The special prosecutor for IPR is working to enforce existing laws
more effectively. However, enforcement in certain areas, such as digital media, remains weak. Jordanian
agencies responsible for IPR enforcement lack resources and capacity. Prosecution efforts should be
strengthened, particularly with respect to utilizing ex officio authority to bring charges in criminal cases.
Jordanian authorities have participated in enforcement-related training led by the United States.
Jordanian laws set limitations on foreign ownership in certain sectors, subject to exceptions where the
government deems appropriate. This exceptions policy is viewed as too selective by some potential U.S.
investors. The Jordanian government expects to conclude the process of adherence to the Organization of
Economic Cooperation and Development (OECD) Declaration on International Investment and
Multinational Enterprises in early 2013. In 2012, the United States and Jordan endorsed a set of
voluntary joint principles that is designed to facilitate investment.
In August 2012, an electronic transactions law to address issues such as electronic payments and
signatures was drafted and submitted to the Council of Ministers for approval. No tariffs are collected on
electronic transactions.
The U.S. goods trade deficit with Kazakhstan was $681 million in 2012, down $172 million from 2011.
U.S. goods exports in 2012 were $881 million, up 6.7 percent from the previous year. Corresponding
U.S. imports from Kazakhstan were $1.6 billion, down 7.0 percent. Kazakhstan is currently the 80th
largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Kazakhstan was $9.2 billion in 2011 (latest data
available), down from $9.4 billion in 2010.
WTO Accession
Kazakhstan intensified its work on negotiations for its accession to the WTO in 2012, advancing both
technical and substantive aspects of the negotiations. The accession package under negotiation consists
of: (1) schedules of goods and services market access commitments; (2) a Working Party report and
Protocol of Accession recording how Kazakhstan will implement WTO provisions; and (3) commitments
on domestic agricultural support and export subsidies.
The United States and Kazakhstan signed a WTO bilateral agreement on market access for goods on
November 22, 2010, and a market access agreement on services on September 21, 2011. Kazakhstan
concluded bilateral market access negotiations on goods and services with almost all WTO Members
participating in its Working Party during 2011, and the WTO Secretariat spent most of 2012
consolidating these agreements into draft schedules.
During 2012, Kazakhstan’s Working Party met four times, developing a revised draft Working Party
report to reflect the changes that have taken place in Kazakhstan’s trade regime and legal framework as a
result of its entry into a customs union (CU) with the Russian Federation and Belarus. Kazakhstan
provided revised legislation and relevant CU legal acts that implement WTO agreements in many of the
key areas affected by Kazakhstan's participation in the CU, e.g., customs practices, technical barriers to
trade, and import licensing. Other major issues that remain the subject of negotiations include:
Kazakhstan’s localization policies in procurement by state-owned and state-controlled enterprises; traderelated investment measures that Kazakhstan enforces in the oil, gas, and mining industries; Kazakhstan’s
agricultural policies (including domestic support, export subsidies, value-added taxes on imports, and
tariff-rate quotas (TRQs)); Kazakhstan’s commitments on SPS measures; and adjustments to
Kazakhstan’s tariff commitments in light of its membership in the CU.
Kazakhstan implemented a common external tariff (CET) with Belarus and the Russian Federation on
January 1, 2010. In early 2012, the Eurasian Economic Commission (EEC) replaced the CU Commission
as the supranational body charged with implementing external trade policy for CU members and with
coordinating economic integration among CU Parties with the goal of establishing a Eurasian Union by
2015. They adopted a harmonized customs code, which is implemented through national customs laws.
These countries are also in the process of forming a Common Economic Space, which is intended to be a
step toward further economic integration. Many agreements for the Common Economic Space are still
being negotiated. The first 17 came into force on January 1, 2012. Establishment of the CU also
introduced new customs control procedures for importers from non-EEC countries. Generally, industry
reports that the cost of importing has gone up due to an increase in fees for registration and import duties
on some products, as well as new licensing requirements for numerous goods. Industry has also cited
Kazakhstan’s transition to new CU policies and procedures as a source of additional delay and uncertainty
in the customs clearance process.
As a result of its membership in the CU, Kazakhstan increased the tariff rate on some 5,400 tariff lines,
and its average import tariff in 2010 increased from 6.7 percent to 9.2 percent. In July 2012, CU
countries adopted a new common external tariff (CET) that reflects Russia’s tariff commitments that
became effective when it became a WTO Member in August 2012. Under the new CET, approximately
90 percent of Kazakhstan’s applied tariff rates remained the same, while the applied rates for 1000 lines,
including food products, household electronics, carpets, apparel, chemical substances, iron ore, raw
materials, and lubricating oils decreased.
Under the CET, Kazakhstan has applied tariff rates of zero percent for approximately 12 percent of
individual tariff lines, including light aircraft with fewer than 50 passenger seats, high-speed railway
locomotives, spare parts for certain types of vehicles, aircraft engines, spare parts for aircraft, agricultural
equipment, food products such as tropical fruits, children’s food, coffee, cacao beans, and certain types of
metals. In addition, imported equipment and spare parts designated for priority investment projects under
the government’s industrialization program are exempted from customs duties.
According to CU regulations, Kazakhstan is allowed to apply tariffs that differ from the CET on 72 tariff
lines, but those tariffs must be harmonized with the CET rate by 2015. The 72 tariff lines cover
pharmaceuticals, medical equipment, and prefabricated buildings. In addition, a CU Party can increase
tariffs for up to six months on selected goods without the consent of the other CU Parties. In 2012,
Kazakhstan introduced protective tariffs on candy and cotton wool which will be applied through
September 2014.
In 2010, Kazakhstan established tariff-rate quotas on imports of poultry, beef, and pork, as part of its
obligations within the CU. In 2012, U.S. exporters became increasingly concerned about the tradelimiting effects of these quotas and the manner in which they are calculated and distributed. In December
2012, Kazakhstan established revised in-quota quantities for beef, pork, and poultry that fell short of the
level of U.S. traditional exports to that market.
Kazakhstan increased the number of goods subject to import or export licensing in connection with its
membership in the CU. Precious metals and stones, documents from national archives, and items of
cultural value are among the products now subject to export licensing. Any product incorporating
encryption technology, even if only for everyday commercial applications, is subject to import and export
licensing procedures. On the other hand, as a result of CU implementation of Russia’s WTO
commitments, Kazakhstan is in the process of eliminating some of its import licensing requirements for
alcoholic beverages and pharmaceuticals. Kazakhstan maintains a ban on the export of light distillates,
kerosene, and gasoline.
In terms of regional trade relations beyond the CU, Kazakhstan signed a Free Trade Zone treaty with
Commonwealth of Independent States countries in October 2011. The treaty came into force in
Kazakhstan on December 8, 2012.
Although Kazakhstani officials have attempted to reform customs agencies, industry asserts that customs
administration and procedural implementation remains a significant barrier to trade. In 2010, Kazakhstan
ratified the 1990 Istanbul Convention on temporary admission, which will help bring its procedures for
temporary admission of goods into conformity with international standards.
The lack of transparency and efficiency in government procurement remains a major challenge for local
and foreign companies. The government recognizes this, and is taking steps to streamline its procurement
process. Kazakhstan moved to an electronic procurement system on July 1, 2012. Resident and nonresident companies may participate in electronic tenders once they receive an electronic signature from
the Ministry of Transport and Communication. The system’s performance to date has been uneven.
The government’s strong support for increased use of local content adversely impacts U.S. suppliers and
is a subject of intense discussions in Kazakhstan’s WTO accession process. In 2009 and 2010,
Kazakhstan amended its Law on Government Procurement to increase the percentage of local content
required in government procurement and purchases not for government use by state-owned and statecontrolled enterprises, which applies to both domestic and foreign suppliers. A supplier must receive a
certificate from the Ministry of Industry and New Technologies that confirms the extent of the goods or
service’s local content. Starting January 1, 2014, companies from EEC countries will enjoy local content
treatment for the goods and services that they supply.
The National Welfare Fund and government-owned holding company, Samruk-Kazyna, accounts for at
least 16 percent of Kazakhstan’s GDP. Through share ownership, Samruk-Kazyna manages some of
Kazakhstan’s largest national companies, such as Kazakhstan TemirZholy (national railway),
KazMunaiGas (national oil and gas company), KEGOC (electricity transmission company), and their
subsidiaries. These enterprises are subject to the Samruk-Kaznya local content requirements. SamrukKaznya and the organizations in which the Fund owns, directly or indirectly, 50 percent or more of the
voting shares, conduct procurement of goods and services in accordance with the Rules of Procurement,
approved by the Board of Directors of the Fund on May 26, 2012. These Rules stipulate criteria for the
evaluation of bids and provide for price preferences for up to 20 percent for locally produced goods and
Kazakhstan is not a member of the WTO Government Procurement Code.
To facilitate its WTO accession and attract foreign investment, Kazakhstan is modernizing its legal
regime for protecting intellectual property rights (IPR). In the period 2009-2011, Kazakhstan adopted
several amendments to its IPR law, including the recognition of vendors that have the legal right to sell
certain print and digital media. This amendment allows licensed vendors to seek damages from
unauthorized dealers selling pirated versions of that media. Kazakhstan also amended its patent law to
clearly define types of patent infringements and establish accountability for patent infringers, as well as to
define the relationship between an employer and an employee with respect to an employee’s invention.
In January 2012, Kazakhstan adopted amendments to IPR laws targeting piracy over the Internet. Over
the course of 2012, local authorities enforced the new provisions and stopped the activity of several
websites identified as distributors of pirated content.
Kazakhstan has taken steps towards implementing international IPR standards. For example, the
government introduced amendments to its trademark legislation with a view to complying with the WTO
TRIPS Agreement. Kazakhstan has also ratified 16 of the 24 treaties endorsed by the World Intellectual
Property Organization (WIPO). In 2010, Kazakhstan joined the Madrid Agreement on the Repression of
False or Deceptive Indications of Source on Goods and the Agreement Concerning the International
Registration of Trademarks. It also ratified the Nairobi Treaty on the Protection of the Olympic Symbol.
In 2011, Kazakhstan ratified the WIPO Patent Law Treaty. In June 2011, Kazakhstan ratified the
Agreement of Common Economic Space on unified principles of regulation in the area of IPR protection.
In 2012, Kazakhstan ratified the Singapore Treaty on the Law of Trademarks and the Rome Convention
for the Protection of Performers, Producers of Phonograms, and Broadcasting Organizations.
Pursuant to statutes enacted in November 2005 that authorized stronger penalties, authorities have
conducted numerous raids against distributors of pirated products. The government’s efforts have helped
to expand the Kazakhstani market for licensed, non-infringing products. Customs controls need to be
applied more effectively against imported IPR-infringing goods. In addition, although civil courts have
been used effectively to stem IPR infringement, judges often lack technical expertise in the area of IPR,
which is a significant obstacle to further improvement in Kazakhstan’s IPR enforcement.
In terms of protection of intellectual property of innovative pharmaceuticals, Kazakhstan still lacks
effective means to protect pharmaceutical test and other data against unfair commercial use, as well as
disclosure. Kazakhstan, however, has stated its willingness to provide such protection as of the date of its
accession to the WTO.
Kazakhstani law restricts foreign ownership to 49 percent in telecommunications companies that provide
long distance and international telecommunication services and that operate fixed line communication
networks (cable, optical fiber, and radio relay). This restriction was addressed during bilateral
negotiations with Kazakhstan within the context of its WTO accession. Kazakhstan agreed that, after a
two and a half year transition period, it will remove this foreign ownership restriction for
telecommunications operators, except for the country’s main carrier KazakhTeleCom.
The law “On Communication” and Decree 1499 together require placing and registering Network Control
Centers for very small aperture antennas within the borders of Kazakhstan. The U.S. satellite industry has
expressed concerns regarding restrictions on the transport of video programming through foreign
satellites, and restrictions barring foreign firms from providing these services to the government. In its
WTO accession, Kazakhstan has agreed not to restrict services provided by foreign satellite operators to
companies that hold a license for telecommunication services.
Foreign banks and insurance companies are allowed to operate only through joint ventures with
Kazakhstani companies. However, Kazakhstan has agreed to eliminate the joint venture requirement and
to permit direct branching, following a transition period of 5 years after WTO accession. Kazakhstan’s
law also restricts foreign ownership in mass media companies, including news agencies, to 20 percent, a
limitation that will still remain in force after WTO accession.
Kazakhstan’s 2003 Law on Investments provides the legal basis for foreign investment in Kazakhstan.
Some U.S. investors have expressed concern about certain aspects of the law, including its investment
contract stability provision, the lack of clear provisions for access to international arbitration, and the
narrow definition of an investment dispute. In February 2012, the law was amended to extend the
deadline for the drafting and approval of “project documents” for companies in extractive industries.
These documents include performance indicators and assessments of the economic feasibility of the
project, which must take into the account potential Kazakhstani suppliers of goods and services, i.e., the
willingness of the investing firm to localize its procurements. The requirement to draft and approve
project documents was introduced in the June 2010 Law on Subsoil and Subsoil Use, but not all
extractive companies have managed to meet this requirement.
Approximately 70 percent of foreign direct investment in Kazakhstan is in the oil and gas sector. The
government remains eager to generate foreign investment in this sector, but expanding local content
requirements have created a more challenging environment for subsoil operations. Kazakhstani goods do
not always fully comply with international standards, and Kazakhstani service suppliers are not always
able to provide the technically complex services necessary to support projects in oil and gas sector.
Companies have thus found it difficult to comply with the government’s local content requirements and
they report that local administrators continue to take an increasingly inflexible approach to these
regulations. Government agencies led by the Ministry of Industry and New Technologies are currently
drafting an Action Plan on the Enhancement of Local Content in Procurements for Major Subsoil Users
and Strategic Mining and Petroleum Companies, which is scheduled for submission to the Presidential
Administration in the first quarter of 2013. The Action Plan will require local content to comprise 50
percent of front-end engineering and design (FEED) work; ban the export of geological information (core
samples, rocks, and reservoir fluids); and require the nomination of Ministry of Industry and New
Technologies representatives onto the boards of directors of key subsoil use projects. The Foreign
Investors Council has been given a draft of the Action Plan for comment.
On June 25, 2010, the government established the National Agency for Local Content Development to
increase local content alternatives to imports, monitor subsoil procurement procedures, and assist local
companies to provide competitive goods and services. The June 2010 Law on Subsoil and Subsoil Use
established strict local content requirements and harsh penalties for failure to meet them, including the
potential cancellation of contracts. Additionally, the Subsoil Law included a preemption clause that
guarantees Kazakhstan the right of first refusal when a party seeks to sell any part of its stake in a subsoil
project. The law allows the Government to amend or terminate existing subsoil contracts deemed to be of
“strategic significance.” In April 2012, the government issued a new decree that listed 361 hydrocarbon
fields and mineral deposits as having “strategic significance.”
The June 2010 Law on Subsoil and Subsoil Use also authorizes the government to amend contracts if it
determines that the actions of a subsoil user could lead to a substantial change in Kazakhstan’s economic
interests or could threaten Kazakhstan’s national security. The Law provides no guidance on how to
determine whether there is a “substantial change in economic interests” or whether there is a threat to
national security. While no contract has to date been annulled on either of these grounds, the Ministry of
Oil and Gas (MOG) can and does annul contracts when subsoil users fail to meet their contractual
obligations (e.g., no well drilled during exploration stage or violation of local content requirements). The
MOG annulled 28 subsoil contracts in 2010 for failure to meet contractual obligations, and in 2011 sent
subsoil users a total of 169 notifications on violations of contractual obligations (which can, but do not
necessarily, result in cancellation of contracts). In April 2012, the National Agency for Local Content
Development accused 38 mining companies of violating local content regulations, and threatened to
impose penalties, including unilateral termination of subsoil use contracts.
In 2010, the government reintroduced a duty on the export of crude oil that triggered a $1 billion dispute
with the consortium of international oil companies operating the Karachaganak condensate field. In 2011,
the government determined that export duties do not apply to Production Sharing Agreements, which
have tax stability clauses and thus settled the dispute.
On January 9, 2012, the President of Kazakhstan signed the Law on Natural Gas and Gas Supply to
regulate gas transportation, distribution, and pricing. The law also introduces a national gas operator
which is entitled to exercise the state’s preemptive right to buy gas from subsoil license holders at “cost
plus 10 percent.” The new law’s stated aims include ensuring Kazakhstan’s energy and environmental
security, guaranteeing uninterrupted gas supply to as many households as possible, increasing gas supply
and consumption, and expanding the utilization and consumption of associated gas within Kazakhstan.
International oil companies with preexisting subsoil contracts fear that the government will use the Gas
Law as an impetus to force companies to renegotiate terms related to existing associated gas
For all subsoil projects, 1 percent of the project budget must be earmarked for training programs and
workforce development, including overseas assignments with the lead operator. When seeking to appoint
certain specialists, international oil companies must consult a list of qualified Kazakhstani specialists
included in a database maintained by the Ministry of Industry and New Technologies. As a result of
amendments to the Expatriate Workforce Quota and Work Permit Rules, from January 1, 2012, only 30
percent of company executives and 10 percent of engineering and technical personnel may be foreign
nationals. These requirements impose significant burdens on foreign subsoil users. (Kazakhstan’s three
largest hydrocarbon projects – Tengiz, Karachaganak, and Kashagan – have been exempted from these
requirements until 2015).
In October 2012, the Procurator General’s Office proposed tightening control over the employment of
foreign nationals by revising the current procedures for issuing expatriate workforce quotas, granting
regional labor departments control over local content requirements in the workforce, and creating a
register of employers violating these requirements.
Kazakhstan also has a burdensome tax monitoring system, which companies report requires them to
maintain excessively large staffs to deal with the cumbersome rules and frequent inspections. The actions
of tax and various regulatory authorities, as well as actions to enforce environmental regulations, can be
Corruption at many levels of government is also seen as a barrier to trade and investment in Kazakhstan.
It reportedly affects nearly all aspects of doing business in Kazakhstan, including customs clearance,
registration, employment of locals and foreigners, payment of taxes, and the judicial system.
The U.S. goods trade surplus with Kenya was $191 million in 2012, up $110 million from 2011. U.S.
goods exports in 2012 were $581 million, up 25.5 percent from the previous year. Corresponding U.S.
imports from Kenya were $390 million, up 2.1 percent. Kenya is currently the 92nd largest export market
for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Kenya was $292 million in 2011 (latest data
available), up from $251 million in 2010.
Kenya is a member of the World Trade Organization (WTO), the Common Market for Eastern and
Southern Africa (COMESA), and the East African Community (EAC). As a result, the country has
undertaken substantial trade liberalization initiatives, including reduction of its most favored nation
(MFN) tariffs, removal of quantitative restrictions, improvement of the business environment, and trade
High ad valorem import tariffs and a value-added tax (VAT) inhibit trade, especially in the agricultural
sector. The government of Kenya (GOK) sometimes waves these tariffs when domestic agricultural
prices exceed acceptable levels, and in doing so oftentimes imposes restrictions to limit the number and
types of imports. According to the WTO, Kenya’s average applied tariff rate for all products was 12.5
percent in 2011.
Kenya applies the EAC Customs Union’s Common External Tariff (CET), which includes three tariff
bands: zero duty for raw materials and inputs; 10 percent for processed or manufactured inputs; and 25
percent for finished products. “Sensitive” products and commodities, comprising 58 tariff lines, have
applied ad valorem rates above 25 percent. This includes a 60 percent rate for most milk products, 50
percent for corn and corn flour, 75 percent for rice, 35 percent for wheat, and 60 percent for wheat
flour. For some products and commodities, the tariffs vary across the five EAC member states.
During the June 2012 AGOA Forum, U.S. Trade Representative Ron Kirk, the Secretary General of the
East African Community (EAC), and the Trade Ministers from each of the five EAC Partner States jointly
announced their intention to move forward on a new U.S.-EAC Trade and Investment Partnership which
will include a regional investment treaty, a trade facilitation agreement, continued trade capacity building
assistance, and a commercial dialogue. These and other activities will help to promote EAC regional
integration and economic growth, and expand and diversify U.S.-EAC trade and investment. They could
also serve as building blocks towards a more comprehensive trade agreement over the long term.
Nontariff Measures
Kenya justifies its existing import controls as necessary to address health, environmental, and security
concerns. All importers pay an import declaration fee set at 2.25 percent of the customs value of imports
and are required to furnish several documents. Importers must provide a Certificate of Conformity (CoC)
after export certification by pre-shipment inspection companies (SGS or Intertek International) contracted
by the GOK. After a CoC is issued, the Kenya Bureau of Standards issues the Import Standardization
Mark, a stick-on label to be affixed to each imported item. Other import documents include valid pro
forma invoices, Bill of Lading or Airway Bill, and a Packing List from the exporting firm.
Customs Procedures
Numerous bureaucratic procedures at the Port of Mombasa increase the cost of imported goods
significantly. Multiple agencies (i.e. customs, police, ports authority, and standards inspection agencies)
subject importers to excessive and inefficient inspection and clearance procedures. These procedures can
create opportunities for graft and unnecessary delays. For every 24-hour delay, trucking companies lose
an estimated $400, and shippers lose roughly $25,000.
The Kenya Revenue Authority’s (KRA) online customs clearance system was implemented in 2005 and
has contributed to improvements in overall efficiency and transparency. However, according to the
World Bank’s Doing Business 2013 report, it still takes an average of 26 days and costs $2,350 to import
a standardized container of cargo into Kenya.
In April 2011, the KRA introduced new rules that require cargo owners to file additional documents to
clear goods at the port. The change requires importers to provide the KRA with cargo manifests and a
bay plan from the port of origin to ensure full and accurate collection of required duties. Previously,
shippers presented the KRA with cargo manifests only, while the bay plan was provided to port
authorities. KRA officials said the change was meant to prevent customs revenue leakages and the
importation of illicit goods, including narcotics and weapons. Shippers have complained that the new
rules add to inefficiency at the port and raise overall costs.
U.S. firms have experienced little success in bidding on government projects in Kenya, despite technical
proficiency and reasonably priced bids. Foreign firms, some without track records, that have won
government contracts have typically partnered with well-connected Kenyan firms. Reportedly, corruption
often influences the outcome of public tenders.
With assistance from the World Bank and the U.S. Treasury Department, the GOK is attempting to
upgrade the legal framework and operating environment for public-private partnerships. Parliament is
expected to consider a new Public-Private Partnership Bill, though the timing is unclear.
In 2007, the GOK established a Public Procurement Oversight Authority (PPOA) to ensure compliance
with rules and regulations surrounding government procurement. The PPOA’s nine members are selected
by the Minister of Finance, subject to Parliamentary approval. The total value of public procurement
within Kenya’s central government is estimated at 10 percent of GDP.
The GOK designed the Public Procurement and Disposal Act to make procurement more transparent and
accountable, and establish penalties for violations of its provisions. The Act permits procurement
agencies to establish a list of pre-qualified firms annually. It also allows for exclusive preferences for
Kenyan citizens if the funding is 100 percent from the GOK or a state-related entity, and if the amounts
are below Ksh 50 million (approximately $540,000) for goods or services and Ksh 200 million
(approximately $2.1 million) for public works. It also sets margins of preference: 15 percent in
evaluation of bids for goods manufactured, mined, extracted, or grown in Kenya; 10 percent in cases
where locals have over 51 percent of shareholdings; 8 percent in cases where locals have shareholdings
below 51 percent but above 30 percent; and 6 percent in cases where locals have below 20 percent of
Additionally, the Act allows for restricted tendering under certain conditions such as when the complex or
specialized nature of the goods or services requires the pre-qualification of contractors. The Act may
impose restrictions if the time and costs required to examine and evaluate a large number of tenders
would be disproportionate to the value of the tender.
With the support of the World Bank and in collaboration with the Kenya Information and
Communications Technology Board, the PPOA is developing a web-based Market Price Index and an eProcurement system. Additional measures underway at the PPOA include implementation of an internal
procurement performance monitoring tool, improvements to the process for reviewing tendering
complaints, and development of general and sector-specific procurement manuals.
Parliament enacted the Supplies Management and Practitioners Act in 2007. This law addresses a
loophole left by the Public Procurement and Disposal Act by entrusting only a procurement professional
with the responsibility of procurement within any public entity. However, implementation of the Act has
been inconsistent.
Kenya is neither a party nor observer to the WTO Agreement on Government Procurement.
The GOK’s lax enforcement of intellectual property rights (IPR) continues to be a serious challenge for
U.S. firms. Pirated and counterfeit products in Kenya, mostly imported from Asia, present a major
impediment to U.S. business interests in the country. Imported pharmaceutical drugs, shoes, textiles,
office supplies, tubes and tires, batteries, shoe polish, soaps, and detergents are the most commonly
counterfeited items.
According to a survey released by the Kenya Association of Manufacturers (KAM) in April 2012, the
Kenyan economy is losing at least $433 million annually due to counterfeiting. The study estimated that
the GOK is losing approximately $72 million in potential tax revenue, and that some Kenyan companies
could be losing as much as 65 percent to 70 percent of their regional market share due to counterfeiting.
Kenya’s EPZs have served as a conduit for counterfeit and sub-standard goods. These products enter the
EPZ ostensibly as sub-assembly or raw materials, but are actually finished products. These counterfeit
and sub-standard goods also end up in the Kenyan marketplace without responsible parties paying the
necessary taxes. Counterfeit batteries have been particularly problematic.
Transit shipments destined for neighboring countries are also a significant source of counterfeit
goods. Intellectual property authorities are limited in their ability to seize transit goods and authorities
suspect that some of these goods are actually consumed in Kenya.
The Kenya Copyright Board (KCB) has the authority to inspect, seize, and detain suspect articles and to
prosecute offenses. The KCB continues to work jointly with U.S. rights holders in conducting raids, but
remains severely understaffed.
Parliament passed the Anti-Counterfeit Act in 2008. Long sought by the business community, the law
provided for the creation of an Anti-Counterfeit Agency (ACA), and strengthened the ability of Kenyan
law enforcement agencies to investigate and prosecute manufacturers and distributors of counterfeit and
pirated goods. The ACA became operational in June 2010; however, it is poorly funded and under-resourced.
Kenyan artists have formed organizations to raise IPR awareness and to lobby the government for better
enforcement. IPR enforcement against pirated Kenyan and foreign works, however, remains weak.
The Kenyan Association of Manufacturers continues its intensive efforts to increase government focus on
the counterfeit and piracy issues that impact virtually every legitimate manufacturer in Kenya. Working
with U.S. rights holders, local authorities have seized thousands of counterfeit products in recent years.
Political interference with the actions of the telecommunications regulator, the Communications
Commission of Kenya (CCK), in particular President Mwai Kibaki’s actions to override the CCK’s
decisions to lower the mobile termination rate, has raised concerns about the CKK’s independence and
effectiveness. The Kenyan legislature has under consideration the “Independent Communications
Commission of Kenya” bill, which would create a new regulatory body with seven commissioners and
would prohibit the commissioners from participating in matters where the commissioners or their family
members have an interest.
The government still holds a significant level of ownership in the sector. Although a private sector
company has a 60 percent equity stake in Telkom Kenya, the government retains 40 percent ownership.
Telkom Kenya was wholly state-owned until December 2007.
The Kenyan judicial system has made significant steps towards increasing efficiency and limiting
corruption. Nevertheless, a backlog of cases, including those that are investment-related, burdens the
system. Despite efforts to increase public confidence in the judiciary, corruption—both perceived and
real—reduces the system’s credibility. Companies cite these deficiencies as obstacles to investment
because they discourage lending and results in higher interest rates when financing is
provided. Following the promulgation of the new constitution in August 2010, the GOK appointed a new
Chief Justice who pledged to reform the judicial sector and restore public confidence, and a series of
actions has been taken to ease judicial congestion.
Foreign ownership of firms listed on the Nairobi Securities Exchange (NSE) is limited to 75 percent. The
Capital Markets Authority allows foreign investors to increase their investment with prior written
approval if the shares reserved for local investors are not fully subscribed. Kenya imposes foreign
ownership limitations in the telecommunications and insurance sectors of 70 percent and 66.7 percent,
The new constitution prohibits foreigners from holding a freehold land title anywhere in the country,
permitting only leasehold titles of up to 99 years. The cumbersome and opaque process required to
purchase land raises concerns about security of title, particularly given past abuses relating to the
distribution and redistribution of public land.
Kenya has been slow to open public infrastructure to competition because the government considers stateowned companies that control infrastructure as “strategic” enterprises. As a result, reform and partial
privatization of the telecommunications, power, and rail sectors have fallen behind schedule. A new
Public-Private Partnership (PPP) law failed to pass in 2008, but the Kenyan Parliament is expected to
again consider a similar bill. Meanwhile, the Finance Ministry is developing rules and regulations for
PPPs and has organized a Secretariat to help review and oversee proposed partnerships.
The effect of certain fees and security bonds is to discourage the employment of foreign labor. New
foreign investors with expatriate staff are required to submit plans for the gradual phasing out of nonKenyan employees.
Corruption remains a substantial trade barrier in Kenya. U.S. firms find it difficult to succeed against
competitors who are willing to ignore or engage in corruption, and a number of U.S. firms have exited
Kenya at least in part due to corruption issues. The government has not implemented anticorruption laws
effectively, and officials have often engaged in corrupt practices with impunity. While judicial reforms
are moving forward, bribes, extortion, and political considerations continue to influence the outcomes in
large numbers of civil cases. The 2011 Business Climate Index published by the East African Business
Council revealed a deteriorating business environment in the region, with over $10 million paid in bribes
to police and customs officials every year. According to the 2012 East Africa Bribery Index published by
Transparency International-Kenya, close to 84 percent of respondents rated Kenya as being corrupt or
extremely corrupt. In the International Finance Corporation’s most recent Assessment of the Investment
Climate in Kenya, 75 percent of firms surveyed said they have made informal payments to “get things
done.” The report estimated that corruption costs Kenyan firms roughly 4 percent of annual sales.
The 2011-2012 report issued by the World Economic Forum cited corruption, access to financing, and
inadequate infrastructure as the three most problematic factors for doing business in Kenya. The World
Bank’s Doing Business 2013 report cited bureaucratic complexity and a high overall cost of doing
business in Kenya.
The U.S. goods trade deficit with Korea was $16.6 billion in 2012, up $3.3 billion from 2011. U.S. goods
exports in 2012 were $42.3 billion, down 2.5 percent from the previous year. Corresponding U.S.
imports from Korea were $58.9 billion, up 3.9 percent. Korea is currently the 8th largest export market
for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Korea were
$16.6 billion in 2011 (latest data available), and U.S. imports were $8.4 billion. Sales of services in
Korea by majority U.S.-owned affiliates were $10.7 billion in 2010 (latest data available), while sales of
services in the United States by majority Korea-owned firms were $10.0 billion.
The stock of U.S. foreign direct investment (FDI) in Korea was $31.8 billion in 2011 (latest data
available), up from $27.0 billion in 2010. U.S. FDI in Korea is led by the manufacturing and
finance/insurance sectors.
United States-Korea Free Trade Agreement
On March 15, 2012, the United States-Korea Free Trade Agreement (KORUS) entered into force,
providing preferential access for U.S. businesses, farmers, ranchers, services providers, and workers to
what is the United States’ seventh largest trading partner, while helping to strengthen and expand ties
with an important strategic partner in Asia.
The agreement provides for the elimination of tariffs on over 95 percent of U.S. exports of industrial and
consumer goods within 5 years, and through a combination of tariff elimination and expansion of tariff
rate quotas, nearly two-thirds of U.S. agricultural exports became duty-free immediately. The agreement
levels the playing field and enhances market access for U.S. exporters, including those in the automotive
sector. In addition, KORUS provides meaningful market access commitments across virtually all major
services sectors, including improved access for telecommunications and express delivery services, and the
opening up of the Korean market for foreign legal consulting services. The agreement increases access to
the Korean financial services market and ensures greater transparency and fair treatment for U.S.
suppliers of insurance and other financial services. KORUS also addresses nontariff barriers in a wide
range of sectors and includes strong provisions on intellectual property rights, competition policy, labor,
environment, and regulatory transparency.
Tariffs and Taxes
Under KORUS, Korean tariffs on almost two-thirds of U.S. agricultural exports were eliminated upon
entry into force, including elimination of tariffs on wheat, corn, soybeans for crushing, whey for feed use,
hides and skins, cotton, cherries, pistachios, almonds, orange juice, grape juice, and wine. Other farm
products received some immediate duty-free access under new tariff-rate quotas (TRQs) including skim
and whole milk powder, whey for food use, cheese, dextrins and modified starches, barley, popcorn,
oranges, soybeans for food use, dehydrated and table potatoes, honey, and hay.
Korea applies annual “adjustment tariffs” or a variable tariff on some agricultural, fishery, and plywood
products. These adjustment tariffs do not exceed KORUS or WTO bound rates. To help offset the
increasing cost of food, in 2012 Korea announced voluntary duty-free MFN TRQs on a wide range of
agricultural commodities including whey for feed, manioc chips and pellets for feed, oil cakes for feed,
malting barley, live swine, frozen mackerel, powdered milk, frozen cream, processed milk and cream,
butter, cheese and curd, egg powder, wheat, vegetable oils, some sugars, lactose, chocolate confectionery,
cocoa preparation, potato flakes, soybeans, corn for feed and processing, and frozen pork and pork belly.
Under the KORUS, Korea will eliminate tariffs on over 95 percent of originating industrial and consumer
goods by 2017.
Following a 2008 bilateral agreement to fully re‐open Korea’s market to U.S. beef and beef products,
Korean beef importers and U.S. exporters have operated according to a voluntary, commercial
understanding that imports of U.S. beef and beef products will be from animals less than 30 months of
age, as a transitional measure, until Korean consumer confidence improves. In 2012, the U.S.
exported $582 million worth of beef (including variety meats) to Korea, making Korea the fourth-largest
export market for U.S. beef. The United States will continue to urge Korea to open its market fully to
U.S. beef and beef products based on science, the OIE guidelines, and the United States’ risk status. This
issue is discussed in greater detail in USTR’s 2013 Report on Sanitary and Phytosanitary Measures.
Korea negotiated a 10-year exception to “tariffication” of rice imports in return for establishing a
Minimum Market Access (MMA) quota that was set to expire at the end of 2004. Korea subsequently
negotiated a 10-year extension of the MMA arrangement in April 2005 with members of the World Trade
Organization. The extension called for Korea to increase its total rice imports over the succeeding 10
years, from 225,575 metric tons in 2005 to 408,700 metric tons in 2014. The arrangement included
country specific quota commitments to purchase minimum amounts of imports from China, Thailand,
Australia, and at least 50,076 metric tons annually from the United States until 2014.
Access to the Korean rice market for U.S. exports has improved significantly under this arrangement.
Under the 2012 MMA, the U.S. rice industry obtained 27 percent of Korea’s total MMA imports by
winning tenders for 100,901 metric tons of (milled) rice, valued at $78 million. Over 40,000 of the
100,901 metric tons will be marketed to consumers as table rice.
Korea is a signatory to the WTO Agreement on Government Procurement (GPA). Under KORUS, U.S.
suppliers now have the right to bid on the procurements of more than 50 Korean central government
entities, nine more than are covered under the GPA. The agreement also expands the scope of
procurements to which U.S. suppliers will have access by reducing by more than one-half the threshold
for eligible procurement contracts applied under the GPA, from at least $203,000 to at least $100,000.
The KORUS does not cover procurement by Korean sub-central and government enterprises; however,
such procurement is covered under the GPA. Under the GPA, for procurement of construction services,
Korea applies a threshold of over $23 million, which is three times the threshold applied by the United
Encryption Technology for Public Procurement of Networking Equipment
Korea requires network equipment incorporating encryption functionality to be certified by Korea’s
National Intelligence Service (NIS) in order to be procured by public sector agencies. NIS will only
certify encryption modules based on the Korean ARIA and SEED encryption algorithms, rather than the
internationally-standardized AES algorithm that is in widespread use worldwide. Some U.S. suppliers
have been unable to sell virtual private network and firewall systems to Korean public sector agencies due
to this restriction. The United States will continue to urge Korea to ensure that equipment based on
widely used international standards has full access to Korea’s public sector market.
Historically, the Korea Development Bank (KDB) has been one of the government’s main sources of
policy-directed lending to favored industries. Korea plans to privatize a wide range of state-owned
enterprises, including the KDB. As a first step, Korea adopted a holding company system in 2009 and
divided the Korean Development Bank (KDB) into two new companies: (1) the KDB, and (2) the Korea
Finance Corporation (KFC). While still government-owned, the KDB is to operate as a commercial bank
under this restructuring plan, and the KFC is to operate as a policy lending bank. The Korean government
plans to list the KDB on the Seoul stock exchange and overseas stock markets. The U.S. Government
will continue to monitor the lending policies of the KDB and other government-owned or affiliated
financial institutions.
Korean law generally provides for strong intellectual property rights (IPR) protections. In addition,
KORUS contains state-of-the-art protections for all types of intellectual property, requirements to join key
multilateral IPR agreements, and strong enforcement provisions. Korea is also a signatory to the AntiCounterfeiting Trade Agreement, which, when it enters into effect, will establish an international
framework to more effectively combat the infringement of IPR, in particular the proliferation of
counterfeiting and piracy.
The 2009 amendments to Korea’s Copyright Law included measures to deter copyright infringement via
file-sharing platforms on the Internet. In 2010, the Korean government imposed sanctions against serial
infringers under the “three strikes” law. In 2011, the Korean government passed a law requiring online
high-volume storage lockers (“webhards”) to register with the Korea Communications Commission to
address technical challenges related to online copyright enforcement; Korea also passed an amendment to
the Copyright Act closing a sound recording protection gap for works produced between July 1987 and
June 1994 that expanded copyright protection for these works from 20 years to 50 years, the same level of
protection afforded for all other works; and it amended the Patent Act and Trademark Act in 2011 to
reflect commitments under KORUS.
The United States recognizes the importance the Korean government places on IPR protection, a
development that has accompanied Korea’s shift toward becoming a significant creator of intellectual
property. However, some concerns remain over new forms of online piracy, corporate end-user software
piracy, unauthorized use of software in the public sector, book piracy in universities, and counterfeiting of
consumer products. In particular, there have been concerns that the Ministry of National Defense has
reportedly used substantial amounts of unlicensed software. The United States has urged the Korean
government to ensure that all government agencies fully comply with the Korean Presidential Decree
mandating that government agencies use only legitimate, fully licensed software.
Screen and Broadcast Quotas
Korea maintains a screen quota for films requiring that any movie screen show domestic films at least 73
days per year. Overall, foreign programs may not exceed 20 percent of terrestrial television or radio
broadcast time or 50 percent of cable or satellite broadcast time on a semi-annual basis. Within those
overall quotas, Korea maintains annual quotas that further limit broadcast time for foreign films to 75
percent of all films for terrestrial broadcasts and to 80 percent for cable and satellite broadcasts; foreign
animation to 55 percent of all animation content for terrestrial broadcast and 70 percent of all animation
content for cable and satellite broadcasts; and popular music to 40 percent of all music content. Another
quota, on a quarterly basis, limits content from any one country to 80 percent of the quota available to
foreign films, animation, or music. KORUS protects against increases in the amount of domestic content
required and ensures that new platforms, such as online video, are not subject to these legacy restrictions.
Restrictions on Voiceovers and Local Advertisements
The Korean Broadcasting Commission’s guidelines for implementation of the Broadcasting Act contain
restrictions on voiceovers (dubbing) and local advertising for foreign retransmission channels. These
prohibitions continue to be of concern to U.S. industry, as they limit the accessibility of such channels in
the Korean market.
Legal Services
Under KORUS, Korea has begun to open its legal services market. The first step, implemented in 2012,
created a legal status for foreign legal consultants and allowed foreign law firms to open offices in Korea.
The law allows foreign attorneys with a minimum of three years of work experience to provide consulting
services on the law of the jurisdiction in which they are licensed. The second stage, to be implemented by
2014, will allow cooperative agreements between foreign and domestic firms. The third stage, to be
implemented by 2017, will address the ability of foreign-licensed lawyers and firms to establish joint
ventures and hire Korean-licensed lawyers.
Insurance and Banking
Korea is the second largest insurance market in Asia and the seventh largest in the world. Korea’s laws
and regulations permit foreign financial service providers to establish subsidiaries or branches in Korea.
KORUS contains provisions to level the regulatory playing field for private insurers by requiring that
certain activities of government-sanctioned insurance cooperatives be subject to regulation by the Korean
Financial Services Commission, as are private insurers. Although Korea has until 2015 before it is
required to implement these provisions, Korea has already begun the process and revised the National
Agricultural Cooperative Federation (NACF) Act to create two holding companies: Nonghyup Economic
Holding Company and Nonghyup Financial Holding Company. The Nonghyup Financial Holding
Company includes two insurance subsidiaries, Nonghyup Life Insurance and Nonghyup Non-Life
Insurance, which have been subject to the Insurance Business Act, and thus subject to the same regulatory
regime as private insurers, since March 2012. While full implementation of relevant KORUS provisions
will address many such concerns, Korea Post, the National Agricultural Cooperative Federation (NACF),
and the National Federation of Fisheries Cooperatives are not yet regulated by the Korean Financial
Services Commission and therefore still operate under different rules that may advantage these entities.
USTR will closely monitor the implementation relevant laws and regulations to ensure that Korea
complies with KORUS financial services provisions.
Under KORUS, implementation of improvements in notice and comment periods and with respect to the
issuance of “administrative guidance” is enabling financial services suppliers to play a greater role in the
regulatory process and is addressing the historic lack of transparency in the adoption of financial
Korea’s strict data privacy rules require financial services providers to locate their servers physically in
Korea and limit the transfer of data outside Korea, thus hampering foreign suppliers’ ability to take
advantage of economies of scale in the region to perform data processing in their daily business activity.
Korea undertook commitments under both KORUS and the Korea-European Union Free Trade
Agreement to substantially reduce these restrictions and to revise its system to allow financial institutions
located in Korea to transfer data to affiliates outside Korea and to allow certain data processing and other
functions to be performed in affiliates outside Korea. The Korean government is required to make these
changes by March 15, 2014 to comply with KORUS, although any changes for U.S. suppliers will be
made by July 1, 2013, when Korea will implement virtually identical obligations under its FTA with the
European Union. The United States will monitor Korea’s reform process closely and engage actively
with Korea to ensure that these commitments are fully implemented.
Korea currently prohibits foreign satellite service providers from selling services (e.g., transmission
capacity) directly to end-users without going through a company established in Korea. Given the current
investment restrictions in place (see below) and the fact that establishing a local presence may not be
economically justified, this prohibition significantly restricts the ability of foreign satellite service
suppliers to compete in the Korean market.
Internet and Cloud Computing Services
Restrictions on storing customer information outside of Korea have posed barriers to the provision of
some Internet-based services, in particular online vending and payment processing. Under the Regulation
on Supervision of Credit-Specialized Financial Business, electronic commerce firms selling goods in
Korean Won are prohibited from storing Korean customers’ credit card numbers in company information
systems (U.S. electronic commerce firms continue to legally sell into the Korean market from abroad,
setting prices in dollars, but are being prevented from accepting Korean branded credit cards). As a
result, U.S. electronic commerce firms that are unwilling to develop Korea-specific payment systems
have been prevented from entering the Korean market. The United States has raised the issue with Korea
on multiple occasions, urging it to lift what appear to be unreasonable and unnecessary restrictions.
Prohibitions against storing high resolution imagery and related mapping data outside Korea – which
Korea justifies on security grounds – have led to a competitive disadvantage for international online map
services, since their locally-based competitors are able to provide several services (such as turn-by-turn
driving/walking instructions, live traffic updates, interior building maps) that international service
providers cannot. Since map data supplied by such competitors is visible outside of Korea, it is unclear
how a prohibition on foreign storage furthers security goals. This type of local storage requirement may
be considered a localization barrier to trade which disadvantages U.S. market access. The United States
is highly sensitive to Korea’s national security concerns and is working with Korea to explore possible
ways to update its mapping data-related system in a manner that reflects the globalized nature of the
The United States and U.S. industry have also raised concerns with a legislative proposal by the Korea
Communications Commission (KCC) to provide a jurisdictional basis for regulating cloud computing
services. Following engagement by the United States and extensive comments from U.S. and other
foreign industry groups, the KCC has announced its intention to significantly revise the draft to try to
address stakeholder concerns, and seek further stakeholder comments on the revision. The United States
will continue to monitor this issue closely.
Capital market reforms have eliminated or raised ceilings on aggregate foreign equity ownership,
individual foreign ownership, and foreign investment in the government, corporate, and special bond
markets. These reforms have also liberalized foreign purchases of short-term financial instruments issued
by corporate and financial institutions. Some U.S. investors have raised concerns, however, about a lack
of transparency in investment-related regulatory decisions, including by tax authorities, highlighting
concerns about possible discrimination.
Korea maintains a 49 percent limit on foreign shareholdings of facilities-based telecommunications
operators. This restriction will be lifted in March 2014 when, under KORUS, Korea will permit U.S.
companies to own up to 100 percent of a telecommunications operator in Korea. Foreign investment is
not permitted in terrestrial broadcast television operations, and the Korean government also restricts
foreign ownership of cable television-related system operators, network operators, and program providers
to 49 percent. In 2011, foreign equity restrictions on previously closed areas were relaxed to 20 percent
for program providers of channels that carry a range of programs and 10 percent for specialized news
channels. For satellite broadcasts, foreign participation is limited to 33 percent. Foreign satellite
retransmission channels are limited to 20 percent of the total number of operating channels. For multigenre or news-focused Internet multimedia content operators and signal transmission network business
operators, foreign investment is limited to 20 percent.
In addition to the investment restrictions in telecommunications and key services sectors described above,
Korea maintains other important restrictions on foreign investment. Specifically, Korea prohibits foreign
investment in rice and barley farming and imposes a 50 percent foreign equity limitation on meat
wholesaling. Moreover, Korea limits foreign investment in electric power generation, distribution, and
sales to 50 percent. It also restricts foreign investment in the areas of news agency services and
publishing and printing, where it has foreign equity limitations of 30 percent for enterprises publishing
newspapers and 50 percent for enterprises publishing other types of periodicals.
The Korean government also operates several Free Economic Zones (FEZs) and has provided a range of
investment incentives including tax breaks, tariff-free importation, relaxed labor rules (primarily
exemptions from workforce quotas for disabled and older workers, and mandatory paid leave), and
improved living conditions for expatriates in areas such as housing, education, and medical services. The
Korean government has promoted these zones as an important step in making Korea’s business
environment more open, liberal, and responsive to economic needs.
The Korea Fair Trade Commission (KFTC) has played an increasingly active role in enforcing Korea’s
competition law and in advocating for regulatory reform and corporate restructuring. The KFTC has a
broad mandate that includes promoting competition, strengthening consumers' rights, creating a
competitive environment for small and medium-sized enterprises, and restraining the concentration of
economic power. In addition to its authority to conduct investigations and to impose penalties, including
broad authority over corporate and financial restructuring and patent right abuses, the KFTC can levy
heavy administrative fines for violations or for failure to cooperate with investigators. In April 2012, the
KFTC began monitoring and publicizing the prices of select imports from the United States to ensure
pricing structures reflected the tariff reductions under KORUS. The United States has raised concerns
over this practice, noting that market mechanisms will lead to reductions in consumer prices in the wake
of tariff reductions under the FTA, but that individual pricing practices are subject to numerous factors.
Under an amendment to the Monopoly Regulation and Fair Trade Act passed in December 2011 to
implement provisions of the KORUS FTA, the KFTC has been given authority to enter into settlement
agreements with respondents as of March 15, 2012 (KORUS entry into force). In an attempt to curb
illegal abuse of investigative power, the KFTC also created an ombudsman to respond to problems
experienced by businesses during investigations. Furthermore, the examiner’s recommended sanction is
now provided in most cases to the respondent along with the examiner’s report. The KFTC also amended
regulations to increase its operational transparency, requiring examiners to inform claimants promptly of
its conclusions and the grounds for those conclusions.
Regulatory Reform and Transparency
Reflecting the strong concerns of U.S. stakeholders, KORUS includes a wide range of provisions across
all chapters to improve regulatory transparency in Korea. Implementing a key KORUS commitment,
Korea’s Administrative Procedures Act (APA) was revised in October 2012 to increase the public
comment period for draft regulations subject to the APA from a minimum of 20 days to a minimum of 40
days. In addition, Korea enacted other legal reforms pursuant to KORUS increasing notice and comment
periods related to pharmaceuticals, medical devices, as well as measures in other sectors. The United
States will monitor compliance with transparency-related KORUS commitments, including the obligation
to address significant, substantive comments received and to explain substantive revisions made in any
final regulation.
Motor Vehicles
Increased access to Korea’s automotive market for U.S. automakers remains a key priority for the U.S.
Government. Upon entry into force of KORUS on March 15, 2012, Korea immediately reduced the
tariff on passenger vehicles from 8 percent to 4 percent and eliminated the 10 percent tariff on
commercial vehicles. In addition, KORUS contains provisions designed to address nontariff barriers,
including Korean acceptance of U.S. automotive safety standards for motor vehicles built in the United
States and regulatory transparency provisions, which are contributing to leveling the playing field for U.S.
automobiles in the Korean market. U.S. exports of passenger cars and trucks to Korea in 2012 increased
by 50 percent compared to 2011, with the bulk of the increase occurring after the entry into force of
Korea enacted regulations for motor vehicle average fuel economy standards and greenhouse gas
emission standards in 2011. These regulations contain small-volume manufacture provisions that permit
standards 19 percent more lenient than the regular standard for the period from 2012 to 2015 for
manufacturers with sales of no more than 4,500 units in 2009. Korea also allows emissions credit sharing
between passenger cars and SUVs, credit carryover, and offset purchases.
In 2012, the Ministry of Environment proposed establishing an incentive/penalty (“bonus/malus”) system
based on automotive greenhouse gas emissions, under which a consumer of a new car would receive
either a subsidy or a surcharge to the price of the car, at the point of sale, depending on that car’s emission
profile. U.S. automakers have raised concerns with the proposed system. Although Korea has announced
its intention to implement this system in January 2015, the authorizing legislation has yet to be passed by
the National Assembly. Additionally, the Ministry of Environment must issue implementing regulations
in order to put such a system in place. The United States has urged the Korean government to consult
fully with the U.S. automobile industry and with the U.S. Government on its plans in this area. The
United States will engage with Korea to ensure that its automotive emissions policies are implemented
consistent with the KORUS.
A separate report issued in conjunction with the National Trade Estimate Report, the Report on Technical
Barriers to Trade, contains further information on Korean measures affecting U.S. automotive exports.
Although progress has been made over the past several years to resolve U.S. concerns over Korea’s noise
standard on motorcycles, several market access issues remain including a highway ban on motorcycles,
high tax levels, and the inability of motorcycle owners to obtain ownership titles and financing for a
motorcycle purchase that uses the motorcycle as collateral. A 2011 study on the safety of motorcycles on
highways commissioned by the Korean National Police highlighted inadequacies in Korea’s regulatory
and safety practices surrounding the licensing of motorcycle drivers and the proliferation of young,
untrained motorcycle riders driving dangerously on city streets. The United States maintains that heavy
motorcycles riding on highways do not pose the same safety concerns as do riders of smaller, lighter
motorcycles, and continues to urge Korea to eliminate the ban on riding large motorcycles on highways.
Pharmaceuticals and Medical Devices
Under KORUS, any new Korean regulations affecting general pricing and reimbursement of
pharmaceuticals and medical devices will be published in advance for notice and comment, and the
Korean government will be required to respond to public comments in writing and explain any
substantive revisions made to proposed regulations. KORUS also contains provisions designed to
appropriately recognize the value of patented pharmaceuticals and medical devices. The United States
continues to urge Korea to refrain from implementing reimbursement policies that not only discourage
companies from introducing advanced medical products to the Korean market, but that also serve as a
disincentive to innovation and investment in research and development.
In April 2012, Korea’s Ministry of Health and Welfare (MOHW) began implementing a new drug pricing
reduction plan that mandated significant price cuts on off-patent and generic drugs. The Ministry had
also announced plans to develop a new system for pricing innovative drugs. The United States has urged
Korea to seriously consider stakeholders’ concerns and ensure that pharmaceutical pricing is conducted in
a fair, transparent, and non-discriminatory manner that recognizes the value of innovation, as set forth in
KORUS. The United States will continue to monitor the situation closely in 2013.
U.S. companies have continued to express concern that a legacy of insufficient transparency in the
regulation of pricing and reimbursements has impeded efficient introduction of medical devices to the
Korean market. In February 2011, MOHW published a pricing plan for medical devices based on import
price (for imported products) or manufacturing cost (for domestic products) and began phasing in its
implementation in May. In October 2012, MOHW notified medical device companies of possible cuts
across five categories that would adversely affect over half of the U.S. medical device industry’s sales in
Korea, valued at approximately $90 million to $100 million. U.S. industry has raised concerns regarding
this new pricing plan, in particular the concern that an import price is not an accurate reflection of the
value of a product. Industry also raised concerns that MOHW does not appropriately recognize the value
of innovation. The United States has expressed its concern that the pricing of medical devices should be
determined in a fair, non-discriminatory, and transparent manner and urged MOHW to engage directly
with concerned stakeholders to address their concerns.
The U.S. goods trade deficit with Kuwait was $10.3 billion in 2012, up $5.3 billion from 2011. U.S.
goods exports in 2012 were $2.7 billion, down 1.6 percent from the previous year. Corresponding U.S.
imports from Kuwait were $13.0 billion, up 66.7 percent. Kuwait is currently the 54th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Kuwait was $117 million in 2011 (latest data
available), up from $83 million in 2010.
As a member of the Gulf Cooperation Council (GCC), Kuwait applies the GCC common external tariff of
5 percent, with a limited number of GCC-approved country-specific exceptions. Kuwait’s exceptions
include tobacco (100 percent), and some 417 other food and agriculture items that are exempt from
customs duties.
Import Prohibitions and Licenses
Kuwait prohibits the importation of alcohol and pork products. Used medical equipment and automobiles
over five years old generally cannot be imported. The importation of books, periodicals, or movies that
insult religion and public morals, and of any materials that promote political ideology, is prohibited.
Kuwait requires a special import license for firearms. All imported meat requires a health certificate
issued by the country of export and a halal food certificate issued by an approved Islamic center in that
The import clearance process in Kuwait has historically been time consuming, requiring extensive
paperwork and involving numerous redundancies. In 2010, the Ministry of Commerce and Industry
formed a committee to focus on trade facilitation and streamlining required paperwork. In September
2011, the committee submitted a proposal to the Cabinet Council to establish a one-stop shop that would
facilitate the issuance of commercial licenses. The National Assembly passed a new Commercial
Companies Law in February 2013 that implemented this proposal.
The public tenders law (Law Number 37 of 1964) regulates government procurement in Kuwait, and
requires that any procurement with a value greater than KWD 5,000 ($18,000) must be conducted through
the Central Tendering Committee. Kuwait’s government procurement policies require the purchase of
local products, where available, and provide a 10 percent price preference for local firms.
Kuwait is not a signatory to the WTO Agreement on Government Procurement.
Kuwait remained on the Watch List in the 2012 Special 301 Report. Although Kuwait continues to make
progress on enforcement against copyright piracy and trademark counterfeiting, there are areas of
intellectual property rights (IPR) protection and enforcement that continue to represent barriers to U.S.
exports and investment. Key issues include the lack of deterrent criminal penalties and excessive delays
in the enactment of key pieces of IPR-related legislation, which have been pending for years. As of
March 2013, a draft revised copyright law was under review within the legal committee of the Cabinet.
The United States provided comments on the most recent version of the law in February 2013 and
continues to encourage Kuwait to implement legislation consistent with its WTO obligations.
As the six Member States of the GCC explore further harmonization of their IPR regimes, the United
States will continue to engage with GCC institutions and the Member States and provide technical
cooperation on intellectual property policy and practice.
Kuwait continues to limit investment in the banking sector under the 2001 Direct Foreign Capital
Investment Law. Foreign banks operating in Kuwait may open only one branch, offer investment
banking services only, and are prohibited from competing in the retail banking sector. Furthermore,
foreign banks are subject to a maximum credit concentration equivalent of less than half the limit of the
largest local bank and are expressly prohibited from directing clients to borrow from external branches of
their bank or taking any other measures to facilitate such borrowing.
Major barriers to foreign investment in Kuwait include: regulations limiting participation of foreign
entities from investing in the petroleum and real estate sectors, long delays associated with starting new
enterprises, difficulty in finding a required local agent, and obstacles created by a business culture heavily
influenced by clan and family relationships. Foreign investment is not allowed in projects involving oil
and gas exploration and production. Kuwait does permit foreign firms to participate in some midstream
and downstream activities, but foreign investors in this sector have faced numerous challenges.
The Kuwait Foreign Investment Bureau, which currently operates under the Ministry of Commerce and
Industry, established the “Investor Service Center” in July 2012, which will act as a one-stop shop for
foreign investors to operate in Kuwait and coordinate with other government entities.
Offset Requirements
Kuwait’s National Offset Company (NOC) administers requirements that foreign companies awarded any
procurement tenders in Kuwait invest 35 percent of the contract amount in projects that add value to the
Kuwaiti economy. The NOC requires that these projects create jobs for Kuwaitis, train Kuwaitis or
transfer technology, but the NOC has not provided clear, consistent guidance on how companies can
fulfill the offset requirements, creating obstacles to implementation for some companies.
The U.S. goods trade surplus with Laos was $8 million in 2012, shifting from a deficit of $33 million in
2011. U.S. goods exports in 2012 were $33 million, up 27.5 percent from the previous year.
Corresponding U.S. imports from Laos were $25 million, down 57.5 percent. Laos is currently the 176th
largest export market for U.S. goods.
Laos ratified its accession to the World Trade Organization (WTO) on December 6, 2012, after being
accepted for membership by the WTO General Council in October. Laos became a full member of the
WTO on February 2, 2013.
Laos’ membership in the WTO and its preparations for the Association of Southeast Asian Nations
(ASEAN) Economic Community in 2015 have spurred trade liberalization, improvements to the business
environment, and trade facilitation.
The average bound tariff rate under Laos’ WTO commitments is 18.8 percent. The average applied tariff
rate is currently 14.9 percent. The average bound tariff rate will be 18.7 percent for industrial goods and
19.3 percent for agricultural products. As part of its services market opening commitments under the
WTO, Laos provided market access in 10 sectors, including business services, distribution, insurance and
banking, private education, courier and telecommunications, and private hospital services.
Under the terms of the United States-Laos Bilateral Trade Agreement, which entered into force in 2005,
the United States granted Normal Trade Relations treatment to products of Laos.
Nontariff Barriers
In 2012, Laos launched the Lao Trade Portal, an online resource that seeks to provide all trade-related
information from Lao government agencies on a single site:
According to the Trade Portal, all importers must register with the Ministry of Industry and Commerce
(MOIC), Department of Import/Export. Certain products, including motor vehicles, petroleum and gas,
timber products, cement, and steel, are subject to import licensing.
Customs Procedures
In 2012, Laos implemented a new automated customs declaration processing system, referred to as
“ASYCUDA,” at the country’s main customs entry point in Vientiane, to facilitate a shift away from
physical inspection of every import shipment. Nevertheless, most containers that enter Laos at a formal
border checkpoint are still inspected, and U.S. businesses complain of irregularities and corruption in the
clearance process. A large volume of goods enter Laos informally due to weak border controls.
According to the MOIC’s Diagnostic Trade Integration Survey 2012, customs clearance at border posts
outside the capital requires 5 to 10 signatures with total informal fees amounting to $50 per shipment.
Authorities have only recently begun to centralize customs operations, removing the ability of provincial
authorities to regulate customs on their own.
The Lao Customs Department has not yet fully implemented transaction value processes, although
administrative pricing and the use of reference prices are being phased out in accordance with its WTO
accession commitments.
Laos amended its tax law in 2012, eliminating the business turnover tax. The value-added tax (VAT) is
expected to fully replace the turnover tax after a transition. The standard VAT rate of 10 percent applies
to most domestic and imported goods and services, with some limited exemptions.
In order to meet commitments under the WTO’s Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS), Laos passed an amended intellectual property rights (IPR) law in late 2011 and
issued implementing regulations in September 2012, including on copyrights, trademarks, and patents. In
practice, Laos does not yet afford adequate levels of IPR protection due to a lack of government capacity,
coordination, and legal infrastructure. In addition, resource constraints have hampered the Lao
government’s ability to establish an effective system of civil litigation and criminal IPR enforcement to
implement its commitments. As a result, pirated entertainment content and counterfeit goods are easily
obtained in the Lao marketplace.
Laos has a challenging investment climate due to issues of corruption, an underdeveloped judicial system,
overlapping and contradictory regulations, and limited access to financial services. The Lao government
requires an annually renewable business license, receipt of which is contingent on a certification that all
taxes have been paid. However, taxes are often assessed in a nontransparent, arbitrary, and inconsistent
manner. The U.S. Government continues to urge the Lao government to address these issues.
Despite growing Internet usage, electronic commerce is just emerging in Laos. Online transactions are
limited and do not normally encompass commercial activity. The Lao National Assembly is expected to
pass a law on electronic transactions, covering both electronic commercial and government transactions,
in early 2013.
Corruption remains a major barrier to trade for U.S. businesses seeking to operate in or trade with Laos.
Informal payments to low level officials in order to expedite administrative procedures are common. In a
2009 enterprise survey, 88 percent of firms surveyed were expected to give gifts to public officials to
obtain an operating license.
In 2012, the Lao government passed the Law on Making Legislation to strengthen transparency by
requiring public notification and comment periods, as well as publication of all new laws in an official
The U.S. goods trade deficit with Malaysia was $13.1 billion in 2012, up $1.5 billion from 2011. U.S.
goods exports in 2012 were $12.9 billion, down 9.8 percent from the previous year. Corresponding U.S.
imports from Malaysia were $25.9 billion, up 0.6 percent. Malaysia is currently the 25th largest export
market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Malaysia were
$2.6 billion in 2011 (latest data available), and U.S. imports were $1.4 billion. Sales of services in
Malaysia by majority U.S.-owned affiliates were $6.8 billion in 2010 (latest data available), while sales of
services in the United States by majority Malaysia-owned firms were $255 million.
The stock of U.S. foreign direct investment (FDI) in Malaysia was $13.9 billion in 2011 (latest data
available), up from $12.0 billion in 2010. U.S. FDI in Malaysia is led by the manufacturing and mining
Trade Agreements
Malaysia is a participant in the Trans-Pacific Partnership (TPP) negotiations, through which the United
States and 10 other Asia-Pacific partners are seeking to establish a comprehensive, next-generation
regional agreement to liberalize trade and investment. This agreement will advance U.S. economic
interests with some of the fastest-growing economies in the world; expand U.S. exports, which are critical
to the creation and retention of jobs in the United States; and serve as a potential platform for economic
integration across the Asia-Pacific region. The TPP agreement will include ambitious commitments on
goods, services, and other traditional trade and investment matters. It will also include a range of new
and emerging issues to address trade concerns our businesses and workers face in the 21st century. In
addition to the United States and Malaysia, the TPP negotiating partners currently include Australia,
Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, and Vietnam.
Tariffs and Import Licenses
Almost all of Malaysia’s tariffs are imposed on an ad valorem basis, with a simple average applied tariff
rate of 6.5 percent in 2010. Duties for tariff lines where there is significant local production are often
higher. In general, the level of tariffs is lower on raw materials than for value-added and processed
goods. U.S. companies state that tariff reductions on such products as frozen uncooked poultry parts,
restaurant equipment, and food and confectionary products would allow them to increase exports and
investment into Malaysia.
Malaysia imposes extremely high specific tariff rates on roughly 80 products, mostly agricultural goods.
The simple average ad valorem equivalent across all products with a specific tariff is 392 percent. Nonalcoholic and alcoholic beverages, including wine, are subject to an effective tariff of up to 500 percent
when import duties and excise taxes are combined.
A large number of Malaysian tariff lines related to import-sensitive or strategic industries (principally in
the construction equipment, agricultural, mineral, and motor vehicle sectors) are subject to import
licensing requirements. Malaysia also maintains performance requirements that must be met to receive a
customs waiver for manufacturing operations in Foreign Trade Zones.
Tariff-Rate Quotas on Selected Agricultural Products
Malaysia maintains tariff-rate quota (TRQ) systems for 17 tariff lines, including live poultry, poultry
meat, milk and cream, pork, and round cabbage. These products incur in-quota duties of between 10
percent and 25 percent and out-of-quota duties as high as 168 percent.
Import Restrictions on Motor Vehicles
Malaysia applies substantial tariffs of up to 35 percent in the automobile sector, and its National Auto
Policy (NAP) includes nontariff measures that significantly raise the cost of imported vehicles, including
an import permit and a government-imposed pricing system, excise duties that disproportionately affect
imported vehicles, and special tax reductions for vehicles with components manufactured in Malaysia.
Malaysian auto policy distinguishes between “national” cars, (e.g., vehicles manufactured by domestic
producers Proton and Perodua) and “non-national” cars, which include vehicles assembled in Malaysia by
foreign companies. The NAP sets out a system of “approved permits,” which confer the right to import
and distribute cars and motorcycles. Currently, the cap on imported new and used vehicles is set at 10
percent of the domestic market. This system has been extended through 2020.
Other policies further limit the competitiveness of foreign auto imports. The value of imported
automobiles is established by the Malaysian government, with the set price published in the official
gazette. The officially set price serves as the basis for the assessment of import duties and excise taxes
imposed by Malaysia. The effect of this policy is to raise the price of imported vehicles so that it is
substantially higher than that of domestically produced autos. In addition, development of the large
motorcycle market has been affected by Malaysian traffic restrictions and noise standards.
In 2011, the Malaysian government began another review of the NAP. The government has not provided
any official details on the scope or timing of the review process. However the Minister of Trade has
repeatedly said that the focus in revising the NAP will be on promoting production of energy-efficient
Halal Certification Requirements
All domestic and imported meat (except pork) is required to be certified halal (produced in accordance
with Islamic practices) by Malaysian authorities. Inspection and approval of producers’ halal practices
and verification of compliance with Malaysian standards is required on a plant-by-plant basis prior to
import into Malaysia. Malaysian halal standards are stricter than the multilaterally-agreed Codex
Alimentarius halal standard.
For example, in 2011, the Malaysian government began requiring that slaughter plants maintain dedicated
halal facilities and ensure segregated transportation for halal and non-halal products. These new
requirements exceed the Codex guidelines, which allow for halal food to be processed, transported, or
stored using facilities which have previously been used for non-halal foods, provided that proper cleaning
procedures conforming to Islamic religious requirements have been observed.
In January 2012, the Malaysian Department of Standards implemented MS2424:2012 General Guidelines
on Halal Pharmaceuticals, a voluntary certification scheme. The guidelines enabled manufacturers of
pharmaceutical products to apply for halal certification beginning on October 15, 2012 and established
basic requirements for manufacturing and handling.
Pork Import Licenses
Pork may be imported into Malaysia only if Malaysia's Department of Veterinary Services (DVS) issues a
permit authorizing its importation. DVS only allows the importation of 10 cuts of pork meat. The
permits are granted on a case-by-case basis and are sometimes refused without explanation. In 2011,
DVS proposed to ban the importation of pork bellies and spare ribs into Malaysia. Malaysia subsequently
stated that it will impose a new quota system for pork bellies and spare ribs, but that until such time as
individual foreign plants are inspected and approved by DVS, these products cannot be imported.
Malaysia taxes exports of palm oil, rubber, steel scrap, and timber products in order to encourage
domestic processing. Malaysia is the second largest producer and exporter of palm oil and products made
from palm oil, and accounts for approximately 15 percent of world production and 30 percent of world
trade in vegetable oils. Malaysia uses export taxes of 10 percent to 30 percent ad valorem to discourage
the export of crude palm oil and to encourage development of the local refinery sector. Refined palm oil
and products made from palm oil are not subject to export taxes.
Malaysia has traditionally used procurement to support national public policy objectives. These
objectives include encouraging greater participation of bumiputera in the economy, transferring
technology to local industries, reducing the outflow of foreign exchange, creating opportunities for local
companies in the services sector, and enhancing Malaysia’s export capabilities. In domestic tenders,
preferences are provided to bumiputera suppliers and other domestic suppliers. In most procurement,
foreign companies must take on a local partner before their tenders will be considered. Procurement also
often goes through middlemen rather than being conducted directly by the government, or is negotiated
rather than tendered. Many state-owned enterprises in Malaysia also apply procurement policies that
favor bumiputera suppliers. International tenders generally are invited only where domestic goods and
services are not available. The U.S. Government continues to raise concerns about the procurement
process in Malaysia.
Malaysia is not a signatory to the WTO Agreement on Government Procurement, but became an observer
to the WTO Committee on Government Procurement on July 18, 2012.
Malaysia maintains several tax programs that appear to provide subsidies for exports. The NAP increases
the income tax exemption for high value-added exports of motor vehicles and parts (the level of income
tax exemption is based on the percentage increase in the domestic value-added of exports). Other
programs include: Single or Double Deduction for the Promotion of Exports; Tax Exemption on the
Value of Increased Exports; Market Development Grants; Tax Exemption for Malaysia International
Trading Companies and Free Industrial Zones.
Malaysia was removed from the Special 301 Watch List in 2012 following improvements in recent years
in protecting intellectual property rights (IPR). In December 2011, the Malaysian Parliament passed
amendments to the copyright law designed to, inter alia, bring the country into compliance with the
WIPO Copyright Treaty and the WIPO Performance and Phonogram Treaty, define Internet Service
Provider liabilities, and prohibit unauthorized camcording of motion pictures in theaters. In September
2012, Malaysia acceded to the WIPO Copyright Treaty and the WIPO Performance and Phonogram
In addition, the Ministry of Domestic Trade, Cooperatives, and Consumerism (MDTCC) took steps to
enhance Malaysia’s enforcement regime, including active cooperation with rights holders on matters
pertaining to IPR enforcement, ongoing training of prosecutors for specialized IPR courts, and the
reestablishment of a Special Anti-Piracy Taskforce. In recent years, the MDTCC has also instructed its
enforcement division to begin to take ex officio action, resulting in significant seizures of pirated
products. Furthermore, the Malaysian government has blocked access to several international pirate web
sites and continues to be willing to take action against local sites featuring pirated content.
The Ministry of Health issued directives in 2011 to provide regulatory data protection for pharmaceutical
products for a five-year term. However, data protection is only granted to products introduced first in
Despite Malaysia’s success in improving its effective protection of IPR, issues remain, including
relatively widespread availability of pirated and counterfeit products in Malaysia, high rates of piracy
over the Internet, and continued problems with book piracy. The United States continues to encourage
Malaysia to accede to the WIPO Budapest Treaty on the International Recognition of the Deposit of
Microorganisms for the Purposes of Patent Procedure.
Malaysia began allowing 100 percent foreign equity participation in application service providers in April
2012. However, liberalization of foreign equity ownership in telecommunications services for network
facilities providers and network service providers is yet to be implemented, with only 70 percent foreign
participation currently permitted. In certain instances, Malaysia has allowed greater equity participation,
but the manner in which such exceptions are administered is not clear. In the GATS, Malaysia made
limited commitments on most basic telecommunications services, capped foreign equity commitments at
30 percent, and only adopted parts of the WTO reference paper on regulatory commitments.
Distribution Services
Malaysia began allowing 100-percent foreign ownership of department and specialty stores in 2012.
However, foreign-owned larger retailers (“hypermarkets”) and locally incorporated direct selling
companies must still have 30-percent bumiputera equity. Malaysian government guidelines define a
“hypermarket” as a stand-alone self-service store with a sales floor area of 5,000 square meters or more
and selling a very wide variety of food and non-food consumer products. The guidelines also include
requirements that department stores, supermarkets, and hypermarkets must reserve at least 30 percent of
shelf space in their premises for goods and products manufactured by bumiputera-owned small and
medium size industries. These guidelines are currently under review by the Malaysian government. The
Malaysian government also issues “recommendations” for local content targets, which are in effect
Legal Services
Malaysia amended its Legal Professions Act in July 2012. The amendments, which have yet to come into
force, will allow foreign law firms to practice in Malaysia through an international partnership or
qualified foreign law firm license, and empower local firms to employ foreign lawyers subject to certain
conditions. However, the amendments will prohibit foreign lawyers from litigating except on an ad hoc
basis, and will restrict foreign lawyers from practicing real property law. The Attorney General’s
Chambers is working with the Malaysian Bar Council to develop implementing rules for the amended
law, but has not indicated when the amendments will come into force. Until the amended law is
implemented, foreign lawyers may not practice Malaysian law, nor may they affiliate with local firms or
use the name of an international firm.
Architectural Services
Architectural services are among the 18 services sub-sectors the Malaysian government pledged to
liberalize in 2012. However, the necessary legislation to allow foreign equity of 100 percent in
architectural firms has yet to be presented in Parliament. Currently, a foreign architectural firm may
operate in Malaysia only as a joint-venture participant in a specific project with the approval of the Board
of Architects. Malaysian architectural firms may not have foreign architectural firms as registered
partners. Foreign architects may not be licensed in Malaysia, but are allowed to be managers,
shareholders, or employees of Malaysian firms.
Engineering Services
The engineering sector is expected to be liberalized once pending amendments to relevant laws have been
completed. Until then, foreign engineers may be licensed by the Board of Engineers only for specific
projects and must be sponsored by the Malaysian company carrying out the project. Also, under current
law, a foreign engineering firm may establish a permanent commercial presence only if all directors and
shareholders are Malaysian.
Accounting and Taxation Services
As of January 2012, foreign accountants and auditors are allowed to wholly own a practice in Malaysia.
All accountants seeking to provide auditing and taxation services in Malaysia must register with the
Malaysian Institute of Accountants (MIA) before they may apply for a license from the Ministry of
Finance. Citizenship or permanent residency is required for registration with the MIA.
Audiovisual and Broadcasting
The Malaysian government maintains broadcast content quotas on both radio and television
programming. Eighty percent of television programming must originate from local production companies
owned by ethnic Malays and 60 percent of radio programming must be of local origin. Foreign
investment in terrestrial broadcast networks is prohibited and is limited to an equity share of 20 percent in
cable and satellite operations. As a condition for obtaining a license to operate, video rental
establishments are required to have local content comprise at least 30 percent of their inventories.
Financial Services
In December 2011, Malaysia released a new 10-year Financial Sector Blueprint that envisages further
opening of the financial sector to foreign banks, although it does not contain specific market-opening
commitments or timelines. The new Blueprint, which follows the previous 10-year Financial Services
Masterplan, does not significantly deviate from the existing approach of the central bank, Bank Negara
Malaysia (BNM), of granting foreign banks access to Malaysia on a case-by-case basis. Under the
Blueprint, issuance of new licenses will be guided by prudential criteria and a “best interests of Malaysia”
test. In determining the “best interests of Malaysia”, BNM considers the contribution of the investment in
promoting new high value-added economic activities, addressing demand for financial services where
there are gaps, enhancing trade and investment linkages, and providing high-skilled employment
opportunities. BNM has also stated that it wants to ensure that local banks control at least 50 percent of
total banking assets in Malaysia. Presently, foreign banks are not allowed to open ringgit correspondent
bank accounts with local banks, as this is deemed to be a conduit for “branching” by foreign banks. In
addition, BNM sets controls on both foreign and local financial products.
As part of a liberalization effort in 2009, foreign equity limits were increased from 49 percent to 70
percent for domestic Islamic banks, investment banks, insurance companies, and Islamic insurance
operators. Foreign equity above 70 percent is considered on a case-by-case basis for insurance companies
if the investment is determined to facilitate the consolidation and rationalization of the insurance
industry. Foreign equity of 70 percent is allowed for unit trust management companies providing retail
services and for stock broking companies. Foreign equity of 100 percent is allowed for fund management
companies providing wholesale services. Malaysia conditions, prohibits, or limits the offering of certain
financial services, including in the areas of asset management and reinsurance. BNM currently allows a
foreign bank to open four additional branches throughout Malaysia, subject to restrictions. BNM has
conditioned foreign banks’ ability to offer certain services on commitments to undertake back office
activities in Malaysia.
To encourage multinational corporations to establish their treasury management services in Malaysia, the
government announced in its 2012 budget an income tax exemption of 70 percent for five years, a
withholding tax exemption on interest payments on borrowings, and stamp duty exemption on loan and
service agreements. Malaysia has extended a concessionary tax rate of 10 percent on dividends of noncorporate institutional and individual investors in real estate investment trusts through December 2016. It
provides an income tax exemption of 100 percent for 10 years and stamp duty exemption on loan and
service agreements for Kuala Lumpur International Financial District status companies.
Foreign investment in certain sectors, including large retail stores, telecommunications, financial services,
professional services, petroleum and gas, and mining is subject to extensive restrictions. Such restrictions
may include prohibitions or limitations on foreign equity and requirements that foreign firms enter into
joint ventures with local partners. Foreigners seeking to acquire land must obtain prior approval from the
relevant state authorities for any acquisition of land for agricultural, residential, or commercial purposes.
State authorities may impose conditions, including thresholds for foreign ownership. For example, in the
state of Selangor, a company must have Malaysian interest of at least 49 percent to acquire agricultural
land, whereas the state of Johor prohibits any foreign ownership of agricultural land.
Following an announcement by Prime Minister Najib in February 2012, the Chief Secretary to the
Cabinet in April 2012 issued a circular instructing all ministries to post all draft laws and regulations on
the Internet for a public comment period of 30 days. However, implementation of this new requirement
remains uneven, and many ministries continue to consult selected stakeholders in an opaque, invitationonly manner.
The Malaysian government has identified fighting corruption as a high a priority in its Government
Transformation Program. The Malaysian Anti-Corruption Commission is authorized to conduct
investigations and prosecute cases with the approval of the Attorney General. Malaysia’s anticorruption
legislation makes bribery of foreign public officials a criminal offense.
The U.S. goods trade deficit with Mexico was $61.3 billion in 2012, down $3.2 billion from 2011. U.S.
goods exports in 2012 were $216.3 billion, up 9.1 percent from the previous year. Corresponding U.S.
imports from Mexico were $277.7 billion, up 5.6 percent. Mexico is currently the 2nd largest export
market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Mexico were
$25.2 billion in 2011 (latest data available), and U.S. imports were $13.7 billion. Sales of services in
Mexico by majority U.S.-owned affiliates were $34.4 billion in 2010 (latest data available), while sales of
services in the United States by majority Mexico-owned firms were $4.8 billion.
The stock of U.S. foreign direct investment (FDI) in Mexico was $91.4 billion in 2011 (latest data
available), up from $84.3 billion in 2010. U.S. FDI in Mexico is primarily concentrated in the
manufacturing, nonbank holding companies, and finance/insurance sectors.
Trade Agreements
The North American Free Trade Agreement (NAFTA), signed by the United States, Canada, and Mexico
(“the Parties”), entered into force on January 1, 1994. Under the NAFTA, the Parties progressively
eliminated tariffs and nontariff barriers to trade in goods among them, provided improved access for
services, established strong rules on investment, and strengthened protection of intellectual property
rights. After signing the NAFTA, the Parties concluded supplemental agreements on labor and the
environment, under which the Parties are obligated to effectively enforce their environmental and labor
laws, among other things. The agreements also provide frameworks for cooperation among the Parties on
a wide variety of labor and environmental issues.
In 2012, Canada and Mexico became participants in the Trans-Pacific Partnership (TPP) negotiations,
through which the United States and 10 other Asia-Pacific partners are seeking to establish a
comprehensive, next-generation regional agreement to liberalize trade and investment. This agreement
will advance U.S. economic interests with some of the fastest-growing economies in the world; expand
U.S. exports, which are critical to the creation and retention of jobs in the United States; and serve as a
potential platform for economic integration across the Asia-Pacific region. The TPP agreement will
include ambitious commitments on goods, services, and other traditional trade and investment matters. It
will also include a range of new and emerging issues to address trade concerns our businesses and
workers face in the 21st century. In addition to the United States, Canada and Mexico, the TPP
negotiating partners currently include Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore,
and Vietnam.
Tariffs and Market Access
Pursuant to the terms of the NAFTA, on January 1, 2003, Mexico eliminated tariffs on all remaining
industrial products and most agricultural products imported from the United States. On January 1, 2008,
Mexico eliminated its remaining tariffs and tariff-rate quotas on all U.S. agricultural exports. (See the
section on agriculture below for additional details on specific farm products.)
Mexico imposes a value-added tax (VAT) on sales of goods and services. Certain food products are
exempt from the VAT. U.S. producers have complained that, while Mexico imposes the VAT on imports
of U.S. nutritional supplements at the time of entry, it does not collect the VAT on sales of similar
domestic products at the point of sale.
Agricultural Products
The United States exported $20.1 billion in agricultural products to Mexico in 2012, compared to $19.5
billion in 2011. Mexico is the United States’ third largest agricultural export market.
On February 8, 2011, the Secretariat of Economy (SECON) announced an antidumping investigation on
U.S. fresh, chilled, or frozen chicken leg quarters (CLQ). SECON issued the final determination in the
investigation on July 31, 2012. Final antidumping duties ranging from 25 percent to 129 percent were
identified but not imposed. Rather, the Mexican Foreign Trade Commission (COCEX) determined that
additional duties might increase prices at a time when Mexico’s chicken industry was suffering an
outbreak of highly pathogenic avian influenza. On September 3, 2012, interested U.S. parties filed an
appeal of the final antidumping determination with the NAFTA Secretariat. Subsequently, on October 9,
2012, members of the Mexican poultry industry filed a notification with SECON asking it to rescind its
decision not to apply antidumping duties and to deem illegal its decision to use lower duties in its final
determination (from its preliminary determination). The U.S. Government continues to monitor the
Administrative Procedures and Customs Practices
Despite improvement in some areas, U.S. exporters continue to express concerns about Mexican customs
administrative procedures, including: insufficient prior notification of procedural changes; inconsistent
interpretation of regulatory requirements at different border posts; alleged under-invoicing of agricultural
products; and uneven enforcement of Mexican standards and labeling rules. Numerous U.S. companies
reported in 2012 that the Servicio de Administración Tributaria (SAT), Mexico’s tax authority, is
verifying NAFTA origin for the entry of products dating back to 2007. While verifications are permitted
under NAFTA, the breadth of these audits and the extent of the information being requested are
reportedly overly burdensome and require the submission of confidential business information with no
assurance that it will be protected from disclosure. In some cases, SAT reportedly has denied an
exporter’s claim for NAFTA preference, even after the submission of documentation demonstrating that
the products meet NAFTA’s rules of origin. The fines and penalties in such cases can be very high (in
excess of $10 million), and there are substantial costs associated with complying with the audit and even
greater legal costs for appealing the rulings. Following discussions with various stakeholders, SAT
committed to adopt new procedures to address industry complaints, but as yet has not announced a target
implementation date. The U.S. Government will continue to monitor the situation and urge the SAT at
the highest levels to implement the revised procedures as soon as possible.
Customs procedures for express packages continue to be burdensome, although Mexico has raised the de
minimis level (below which shipments are exempt from customs duties) from $1 to $50. Mexican
regulations still hold the courier 100 percent liable for the contents of shipments. U.S. exporters have
highlighted the benefits of harmonizing the hours of customs operation on the U.S. and Mexican sides of
the border, but they cite delays stemming from the lack of pre-clearance procedures, which the Mexican
government claims are not permitted under current law.
The Mexican government uses several “electronic government” Internet sites to increase the transparency
of government procurement processes and to provide guidelines for the conduct of government officials.
One such site, Compranet, provides an online interface for conducting government procurement at the
federal level. Procurement transparency standards still need to be harmonized at the Mexican state level,
however, to avoid corruption and to foster competition. There is a need for further regulatory and
technological improvements throughout the Mexican government, as well as a need to provide authorities
with more power to respond effectively to corruption and collusion.
In 2012, the Mexican Congress approved the Federal Anti-Corruption in Government Contracting
initiative, which imposes penalties against national or foreign individuals and legal entities for irregular
conduct (including bribes) during their direct or indirect participation in federal government procurement.
For individuals, fines range from 62,000 Mexican pesos (approximately $4,900) to 3 million Mexican
pesos (approximately $237,000) and a 3-month to 8-year ban from participation in federal contracting.
For corporations, the potential fines may be from 623,000 Mexican pesos to 124 million Mexican pesos
and a 3-month to 10-year ban from competing for federal contracts.
Mexico was listed on the Watch List in the 2012 Special 301 report. The report noted that pirated and
counterfeit goods remain widely available. Criminal enforcement of intellectual property rights (IPR)
suffers from weak coordination among federal, state, and municipal officials, limited resources for
prosecutions, and the need for deterrent level penalties. The United States continued to encourage
Mexico to provide its customs officials with ex-officio authority and to enact legislation to strengthen its
copyright regime, including by implementing Internet Treaties under the World Intellectual Property
Organization (WIPO) and by providing stronger protection against the unauthorized camcording of
motion pictures in theaters. The United States continues to work with Mexico to resolve IPR concerns
through bilateral, regional, and other means of engagement.
There were some positive developments in 2012. In June 2012, Mexico issued a regulation to provide
protection against the unauthorized disclosure of test or other data submitted during the marketing
approval process for pharmaceuticals. Mexico also improved certain administrative tools used to ensure
that companies that submit pharmaceuticals for marketing approval are the appropriate owner or licensee
of the patent for the product. Mexico also joined the Madrid Protocol, which provides a simple
streamlined process for rights holders to apply for trademark protection in Mexico and other member
Mexico was an active participant in the Anti-Counterfeiting Trade Agreement (ACTA) negotiations,
which were concluded in November 2010. Mexico signed the ACTA in July 2012, but has not yet
submitted the agreement to the Mexican Senate for ratification.
OECD surveys of Mexico have recommended improving mandatory access to the local loop, formally
regulating fixed-to-mobile termination charges, which have been significantly reduced with the threat of
regulation, and introducing mandatory roaming to enable smaller mobile companies to use the network of
Telcel, (Mexico’s largest mobile phone company) network at a regulated price. The OECD also suggests
that the industry regulator Cofetel (the Federal Telecommunications Commission) needs greater
independence both from leading companies in the sector and from its parent ministry, the Secretariat of
Communications and Transportation (SCT).
Enhancing competition in Mexico’s telecommunications sector continues to be a challenge. The Mexican
company America Movil, the parent company of wireless carrier Telcel and wireline carrier Telmex,
dominates both the fixed and mobile segments of the Mexican telecommunications market. A
combination of weak regulatory oversight and an inefficient court process has meant that disputes
involving this carrier with respect to the terms of competition in the market have lingered for years. A
decision by Mexico’s Supreme Court making it more difficult to stay regulatory decisions on
interconnection was a major step forward, however, and should result in smoother implementation of such
orders in the future.
Although Cofetel has attempted on numerous occasions to set lower long distance and mobile termination
rates, existing suppliers have used judicial proceedings to frustrate these efforts. SCT and Cofetel have
attempted to overcome these tactics by withholding approval for new services that Telmex seeks to
supply until Telmex consents to enhanced competition for existing services. In October 2012, Mexico’s
Supreme Court ruled that Cofetel has the power to impose interconnection rates in disputes between
operators. The case arose from Cofetel’s intervention in a dispute between Axtel and Telcel over
interconnection rates.
Cofeco (the Federal Competition Commission) has also sought to introduce greater competition in the
telecommunications market. It concluded a formal investigation into Telmex and Telcel market dominance
in 2010 by finding that these companies indeed have market dominance. This finding gives Cofeco
authority to impose more stringent requirements on the companies. As of 2012, Telcel had
approximately 70 percent of Mexico’s mobile subscribers, while Telmex accounted for approximately 80
percent of Mexico’s fixed line users. Telcel’s closest competitor is Movistar, which claims 20 percent of
mobile subscribers, while Axtel trails Telmex with only 6 percent of fixed line users. In May 2012,
Cofeco reached a settlement with Telcel, whereby Telcel made commitments intended to ensure that
it does not hinder future wireless competition. As part of that settlement, Telcel agreed to drop any
outstanding lawsuits against interconnection rulings, work with regulators to further reduce
interconnection rates after 2014, and stop giving its customers discounted rates on calls only to other
Telcel users, thereby disadvantaging other wireless providers.
Although there have been several recent legislative attempts to open the Mexican fixed line
telecommunications sector to increased foreign investment, which could increase opportunities for the
emergence of additional competitive providers, prospects for legislation are unclear. Currently, the
Foreign Investment Law limits foreign ownership in the wireline segment to 49 percent. The restriction
deprives new entrants of capital that a foreign entity could provide and hinders the development of the
Mexican telecommunications network.
Under Mexican law, foreign companies must form joint ventures with Mexican partners to obtain
authorizations (called “concessions” under Mexican law) to provide satellite-based services in Mexico.
Mexico requires mobile satellite service operators to construct gateway earth stations in Mexico,
ostensibly to satisfy security policies. Such local siting requirements serve as a localization barrier to
market entry for new competitors, since such requirements may make many services economically
In his inaugural address, Mexican President Enrique Peña Nieto specifically highlighted the need for
enhanced competition in the telecommunications sector and universal access to broadband Internet. On
December 2, 2012, the new Mexican administration reached agreement on a “Pact for Mexico” (“the
Pact”) with representatives of two other political parties. This document calls for greater competition in
all sectors of the economy, but with particular emphasis on telecommunications, transportation, financial
services, and energy. Specifically, the Pact seeks greater competition in telephony and data services, the
adoption of new laws to promote competition in telecommunications, the strengthening of Cofetel’s
autonomy, the strengthening of Cofeco’s power to break up monopolies, and the creation of a specialized
court for telecommunication issues. The Pact also reiterated the right to universal broadband access and
the need for a national digital agenda (see section on Anticompetitive Practices).
In Mexico, pay television, which is the primary outlet for foreign programmers, is subject to significantly
more stringent advertising restrictions than free-to-air broadcast television, which is supplied by domestic
operators. The two national broadcasters, Televisa and TV Azteca, control about 90 percent of the
national broadcast television market. In June 2012, after a decade in which pay TV programmers were
allocated up to 12 minutes per hour for advertising (without exceeding 144 minutes per day), and with no
official change in law or regulation, the Dirección General de Radio, Televisión y Cinematografía (RTC)
notified certain cable channels that the programmers were now limited to six minutes per hour of
advertising. On the other hand, free-to-air broadcasters may allot their permitted 259 minutes per day of
advertising with no hourly limits. Mexican authorities have indicated that they are working on new
regulations “to establish a clear legal framework” for pay TV advertising.
Mexico’s oil and gas sector remains largely closed to private investment, with the exception of the
liquefied natural gas sector, natural gas distribution, and the marketing of petroleum products. Only
Mexican nationals may own gas stations.
The Mexican constitution mandates state ownership of hydrocarbons. Mexico’s 2008 energy reform law
gave Pemex more independence and allowed the company to tender incentive-based contracts for
hydrocarbon exploration and production of mature fields. Pemex awarded three such contracts in 2011,
one contract in 2012, and has announced its intention to conduct further public tenders in 2013, such as in
Chicontepec, where six blocks will be up for bidding. Production-sharing or profit-sharing concessions
are still prohibited. Mexico’s new administration is considering reforms in the oil and gas sector
(including refining).
Other laws limit participation in certain sectors or activities (e.g., forestry) to Mexican nationals.
Investment restrictions prohibit foreign ownership of residential real estate within 50 kilometers of the
nation’s coasts and 100 kilometers of its land borders (although foreigners may acquire use of residential
property in these zones through trusts administered by Mexican banks). An interagency National Foreign
Investment Commission reviews foreign investment in Mexico’s restricted sectors, as well as investments
in unrestricted sectors in which foreign equity exceeds 49 percent and which have a value greater than
$165 million (adjusted annually based on Mexico’s nominal Gross Domestic Product).
Mexico revised its competition law in June 2006 to give Cofeco additional authority to regulate market
concentration and anticompetitive behavior in both the private and public sectors. Cofeco has
administrative enforcement powers, but no criminal enforcement powers. In April 2011, the Mexican
Congress passed a law that grants Cofeco more authority to promote competition through stronger
sanctions, surprise inspection visits, and temporary injunctions. The 2011 amendments also provide for
criminal sanctions enforceable by the public prosecutor.
The Pact for Mexico (see section on Telecommunications) calls for the strengthening of
Cofeco. Specifically, it calls for reforms to grant Cofeco more legal tools with which it can identify and
punish dominant market positions and empower it to break up monopolies. The reform will also create a
specialized court for antitrust issues. These measures will be submitted to the Mexican Congress in the
first half of 2013, with implementation planned for the second half of 2013 and 2014.
The U.S. goods trade surplus with Morocco was $1.3 billion in 2012, a decrease of $502 million from
2011. U.S. goods exports in 2011 were $2.3 billion, down 20.0 percent from the previous year.
Corresponding U.S. imports from Morocco were $933 million, down 6.3 percent. Morocco is currently
the 57th largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Morocco was $350 million in 2011 (latest data
available), down from $445 million in 2010.
The United States–Morocco Free Trade Agreement
The United States-Morocco Free Trade Agreement (FTA) entered into force on January 1, 2006. Duties
on 95 percent of bilateral trade in industrial and consumer goods were eliminated upon entry into force,
with duties on other such goods phased out in stages over the subsequent 10 years, i.e., by January 1,
2016. Some sensitive agricultural products have longer periods for duty elimination or are subject to
other provisions, such as tariff-rate quotas (TRQs). In addition to provisions which grant key U.S. export
sectors immediate duty-free access to the Moroccan market, the FTA includes commitments for increased
regulatory transparency and the protection of intellectual property rights. Through assistance programs,
the United States continues to provide Morocco targeted technical assistance supporting FTA compliance
and Moroccan regulatory reform.
Morocco has undertaken liberalizing reforms as a member of the WTO and as a party to several bilateral
free trade agreements. Under the United States-Morocco FTA, goods of key U.S. sectors, such as
information technology, machinery, construction equipment, chemicals, wheat, and textiles, enjoy either
duty-free or preferential duty treatment when entering Morocco.
In order further to facilitate the flow of trade, the United States and Morocco concluded negotiation of a
trade facilitation agreement in December 2012. The agreement includes new commitments reflecting
practices developed since the FTA was signed in 2004, such as the submission of information before
goods arrive and the electronic payments of duties, taxes and fees. The Parties expect to sign the
agreement in early 2013.
The FTA allows preferential access to Morocco for U.S. durum and common wheat exports through two
TRQs. The Moroccan government’s administration of these wheat TRQs, however, has led to difficulties
for U.S. producers attempting to benefit from the preferential access provided under the FTA. The U.S.
Government is continuing its efforts to improve access for U.S. wheat producers.
The FTA requires the use of fair and transparent procurement procedures, including advance notice of
purchases and timely and effective bid review procedures for covered procurement. Under the FTA, U.S.
suppliers are permitted to bid on procurements for most Moroccan central government entities, as well as
procurements for the vast majority of Moroccan regional and municipal governments, on the same basis
as Moroccan suppliers. However, the 45-day and 90-day timeframes given to foreign companies to
respond to government tenders are often too short, guidance for bidders issued by procuring entities is
often vague, and channels for distributing information are limited to local newspapers and circulars sent
to foreign embassies.
Morocco is not a signatory to the WTO Agreement on Government Procurement.
Although U.S. companies in principle enjoy the same treatment in Morocco’s insurance market as their
Moroccan counterparts, the policies and practices of Morocco’s insurance regulatory body have
effectively prevented U.S. insurance companies from introducing competing products. In practice, the
regulatory body is only likely to approve applications that bring new products or “added value” to the
sector. Applications must first be reviewed by a Consultative Committee composed principally of other
companies active in the sector. While this committee’s recommendations are not binding, the Ministry of
Economy and Finance generally has followed its advice when considering applications.
In 2012, the United State and Morocco endorsed two sets of voluntary joint principles that are designed to
facilitate trade in services and investment: Trade Principles for Information and Communication
Technology Services and Principles for International Investment.
Morocco has enacted legislation to enhance protection for trademarks, copyrights, patents, and
undisclosed pharmaceutical and agricultural chemical test data. This legislation includes provisions
concerning disputes regarding Internet domain names, strong anti-circumvention provisions to prohibit
tampering with technologies designed to protect copyrighted content, and specific protections for
temporary copies, which are critical in the digital environment. The Moroccan Copyright Office has
reported that Morocco’s capacity to detect and address Internet-based intellectual property rights (IPR)
violations is insufficient.
Morocco is a signatory to the Anti-Counterfeiting Trade Agreement (ACTA), which is awaiting
ratification by the Moroccan parliament. The ACTA establishes an international framework that will
assist parties in their efforts to effectively combat the infringement of IPR, in particular the proliferation
of counterfeiting and piracy, which undermines legitimate trade and the sustainable development of the
world economy.
The greatest obstacles to trade in Morocco are irregularities in government procedures, lack of
transparency in the operation of governmental and judicial bureaucracies, inefficient transport systems,
and corruption among junior-level officials. Morocco’s cumbersome tax and employment regimes,
property registration, and investor protections also impede business. Although the government is working
to liberalize the business environment and improve the efficiency of government operations related to
business, foreign corporations still complain that these negative factors can limit their access to the
Moroccan market.
U.S. companies report that the absence of a viable credit reporting agency in Morocco presents a serious
hurdle in vetting potential partners and thus constitutes a significant barrier to trade.
The U.S. goods trade deficit with New Zealand was $216 million in 2012, shifting from a surplus of $408
million in 2011. U.S. goods exports in 2012 were $3.2 billion, down 9.7 percent from the previous year.
Corresponding U.S. imports from New Zealand were $3.4 billion, up 8.7 percent. New Zealand is
currently the 52nd largest export market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to New Zealand
were $2.1 billion in 2011 (latest data available), and U.S. imports were $1.8 billion. Sales of services in
New Zealand by majority U.S.-owned affiliates were $2.7 billion in 2010, while sales of services in the
United States by majority New Zealand-owned firms were $270 million.
The stock of U.S. foreign direct investment (FDI) in New Zealand was $6.7 billion in 2011 (latest data
available), up from $6.2 billion in 2010. U.S. FDI in New Zealand is mostly in the manufacturing,
finance/insurance, and non-bank holding sectors.
Trade Agreements
New Zealand is a participant in the Trans-Pacific Partnership (TPP) negotiations, through which the
United States and 10 other Asia-Pacific partners are seeking to establish a comprehensive, nextgeneration regional agreement to liberalize trade and investment. This agreement will advance U.S.
economic interests with some of the fastest-growing economies in the world; expand U.S. exports, which
are critical to the creation and retention of jobs in the United States; and serve as a potential platform for
economic integration across the Asia-Pacific region. The TPP agreement will include ambitious
commitments on goods, services, and other traditional trade and investment matters. It will also include a
range of new and emerging issues to address trade concerns our businesses and workers face in the 21st
century. In addition to the United States and New Zealand, the TPP negotiating partners currently include
Australia, Brunei, Canada, Chile, Malaysia, Mexico, Peru, Singapore, and Vietnam.
Tariff rates in New Zealand are generally low as a result of several rounds of unilateral tariff cuts that
began in the mid-1980s. At 2.0 percent, New Zealand has one of the lowest average most favored nation
(MFN) applied tariff rates among industrialized countries. In 2011, the average applied MFN tariff rate
was 1.4 percent for agricultural products and 2.1 percent for industrial goods. In the WTO, New Zealand
has bound 47.5 percent of its tariff lines at zero duty. New Zealand applies zero duty on 64.7 percent of
its tariff lines. The New Zealand government has stated that tariff rates will be reviewed in 2013, but will
remain at their current levels until at least 2015.
On August 15, 2012, New Zealand announced its intention to join the WTO Government Procurement
Agreement, with the accession process expected to be completed within two years. New Zealand is
currently an observer to the WTO Committee on Government Procurement.
New Zealand generally provides for strong intellectual property rights protection and enforcement.
Recent developments include the introduction of the Patents Bill (to replace the Patents Act 1953). The
latest version of the draft bill contains improvements to New Zealand’s patent system. The United States
had concerns over certain elements, including language in an earlier draft that excluded computer
programs from patent eligibility, which departs from standards in other developed economies. The
revised bill addressed this concern, effectively including software within the patent regime, although New
Zealand reportedly is facing some pressure to retain the exclusion. It is unclear when the bill might be
enacted into law.
However, the revised bill lacks other provisions that would bring New Zealand’s patent law in line with
international best practices. For instance, the bill does not include provisions allowing for patent term
restoration, which would enable rights holders to recover the effective patent term lost due to delays in the
marketing approval process. The absence of such a provision makes it more difficult for innovators to
recoup their investments in developing products, such as medical products, that must complete a
marketing approval process before they can be sold.
In April 2011, the New Zealand Parliament passed the Copyright (Infringing File Sharing) Amendment
Bill, which established a mechanism for New Zealand to fight online piracy. The legislation created a
framework for a new regime designed to deter illegal file sharing. Although many rights holders were
initially optimistic about the legislation, they have since expressed concerns regarding implementing
regulations issued by the Ministry of Economic Development, which permit Internet service providers to
charge up to NZ$25 (approximately $21) per issuance of an infringement notice. The cost has deterred
some rights holders from using the system and is currently under review by the New Zealand government
following submissions by stakeholders.
The United States continues to encourage the New Zealand government to accede to and implement the
World Intellectual Property Organization (WIPO) Performance and Phonograms Treaty and the WIPO
Copyright Treaty. New Zealand was an active participant in the Anti-Counterfeiting Trade Agreement
(ACTA) negotiations, and signed the ACTA in October 2011. The ACTA establishes an international
framework that will assist parties in their efforts to effectively combat the infringement of intellectual
property rights, in particular the proliferation of counterfeiting and piracy, which undermines legitimate
trade and the sustainable development of the world economy.
Mobile termination rates (MTRs), a charge mobile network suppliers levy on other operators for
completing calls to the mobile network’s subscribers, have until recently been unregulated in New
Zealand. New Zealand’s dominant telecommunications companies, Vodafone and Telecom, have
historically maintained termination rates among the highest of all industrialized countries. The
incumbents appear to have used these rates to put new, smaller mobile entrants at a competitive
disadvantage. On a national basis, Vodafone and Telecom control 51 percent and 46 percent of the
market, respectively.
In May 2011, the New Zealand Commerce Commission issued a decision requiring cost-based rates for
MTRs, thereby increasing competition and reducing wholesale termination rates for mobile calls and text
messages. Pursuant to the decision, termination rates for text messages were immediately reduced, and
mobile call termination rates were reduced in early 2012, with additional rate reductions mandated by
2014, resulting in rates that are now very competitive by global standards.
Investment Screening
New Zealand screens any foreign investment that would result in the acquisition of 25 percent or more of
ownership in, or of a controlling interest in, “significant business assets” (defined as assets valued at more
than NZ$100 million (approximately $84 million)). In addition, it screens foreign investors or entities
that acquire 25 percent or more of a fishing quota, either directly or through the acquisition of a company
that already possesses a quota, as well as acquisitions of land defined as “sensitive” by the Overseas
Investment Act (OIA) 2005.
In September 2010, the New Zealand government announced new implementing rules under the OIA,
which provide New Zealand government ministers increased power to consider a wider range of issues
when evaluating overseas investment applications involving sensitive land (such as farmland greater than
five hectares, land adjoining the foreshore, or conservation land). Under the rules, two additional factors
are evaluated under a benefit test: an “economic interests” factor that allows ministers to consider whether
New Zealand’s economic interests are “safeguarded,” and a “mitigating” factor that enables ministers to
consider whether an overseas investment provides adequate opportunities for New Zealand oversight or
The Pharmaceutical Management Agency (PHARMAC), created in 1993, determines which medicines to
fund for use in community and public hospitals, negotiates prices with pharmaceutical companies, and
sets subsidy levels and reimbursement criteria. U.S. stakeholders have expressed strong concerns about
PHARMAC’s regulatory process, including the lack of transparency, timeliness, and predictability in the
funding process and unreasonable delays in reimbursing new products. These longstanding concerns
have been exacerbated as PHARMAC expands into areas of funding that were previously unregulated,
including medical devices. PHARMAC reportedly is working to improve transparency and increase
stakeholder involvement in its processes.
The U.S. goods trade deficit with Nicaragua was $1.6 billion in 2012, up $76 million from 2011. U.S.
goods exports in 2012 were $1.1 billion, up 6.6 percent from the previous year. Corresponding U.S.
imports from Nicaragua were $2.7 billion, up 5.6 percent. Nicaragua is currently the 76th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Nicaragua was $320 million in 2011 (latest data
available), up from $268 million in 2010.
Free Trade Agreement
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or
“Agreement”) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua
in 2006 and for the Dominican Republic in 2007. The CAFTA-DR entered into force for Costa Rica on
January 1, 2009. The CAFTA-DR significantly liberalizes trade in goods and services as well as includes
important disciplines relating to customs administration and trade facilitation; technical barriers to trade;
government procurement; investment; telecommunications; electronic commerce; intellectual property
rights; transparency; and labor and environmental protection.
The United States hosted a Free Trade Commission (FTC) meeting on January 23, 2012 in Miami. At
that meeting the CAFTA-DR countries recognized continued growth in trade and integration and acted to
further strengthen CAFTA-DR institutions and initiatives.
In 2012, the Parties implemented changes to a number of the Agreement’s rules of origin for textile and
apparel goods to enhance the competitiveness of the region’s textiles sector. The changes to these rules of
origin were made pursuant to a Decision of the first FTC meeting in February 2011 and are aimed at
facilitating regional sourcing and encouraging greater integration of the textile and apparel supply chain
in the region. The new rules became effective on October 13, 2012, after the other CAFTA-DR countries
had completed their respective domestic procedures, and the U.S. Congress passed legislation
implementing the changes for the United States.
As a member of the Central American Common Market, Nicaragua applies a harmonized external tariff
on most items at a maximum of 15 percent with some exceptions.
Approximately 95 percent of tariff lines are harmonized at this rate or lower. In response to rising prices,
in 2007, Nicaragua issued a series of decrees to unilaterally eliminate or reduce to 5 percent tariffs on
many basic foodstuffs and consumer goods. These decrees have been extended every six months and are
currently in effect through June 30, 2013.
Under the CAFTA-DR, 100 percent of U.S. consumer and industrial goods will enter Nicaragua duty free
by 2015. Nearly all textile and apparel goods that meet the Agreement’s rules of origin now enter
Nicaragua duty free and quota free, promoting new opportunities for U.S. and regional fiber, yarn, fabric,
and apparel manufacturing companies.
Under the CAFTA-DR, more than half of U.S. agricultural exports now enter Nicaragua duty free.
Nicaragua will eliminate its remaining tariffs on virtually all agricultural goods by 2020 (2023 for rice
and chicken leg quarters and 2025 for dairy products). For certain products, tariff-rate quotas (TRQs) will
permit some immediate duty-free access for specified quantities during the tariff phase out period, with
the duty-free amount expanding during that period. Nicaragua will liberalize trade in white corn through
continual expansion of a TRQ rather than the reduction of the out-of-quota tariff.
Nontariff Measures
Under the CAFTA-DR, all of the CAFTA-DR countries, including Nicaragua, committed to improve
transparency and efficiency in administering customs procedures, including the CAFTA-DR’s rules of
origin. The Nicaraguan government levies a 15 percent or less “selective consumption tax” on some
luxury items, with a few exceptions. The tax is not applied exclusively to imports; domestic goods are
taxed on the manufacturer’s price, while imports are taxed on the cost, insurance, and freight value.
Alcoholic beverages and tobacco products are taxed on the price billed to the retailer.
U.S. companies report that difficulties with the Nicaraguan Customs Administration are a significant
impediment to trade. Complaints concern bureaucratic delays, arbitrary valuation of goods, technical
difficulties, corruption, and politicization. U.S. exporters and importers of U.S. goods also complain that
customs authorities deliberately misclassify goods to boost tariff revenue, and detain goods and donations
in customs without legal justification.
The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures,
including advance notice of purchases and timely and effective bid review procedures, for procurement
covered by the Agreement. Under the CAFTA-DR, U.S. suppliers are permitted to bid on procurements
of most Nicaraguan government entities, including key ministries and state-owned enterprises, on the
same basis as Nicaraguan suppliers. The anticorruption provisions in the Agreement require each
government to ensure under its domestic law that bribery in matters affecting trade and investment,
including in government procurement, is treated as a criminal offense or is subject to comparable
Procurement by government entities not covered by the CAFTA-DR has historically been subject to
highly nontransparent and irregular practices. These entities include the National Electricity Company,
the National Assembly, the National Basic Foods Company, the Ministry of Tourism, the Supreme Court,
the Ministry of Energy and Mines, and some public universities. These entities have, among other things,
abused procedures for emergency tenders that allow the suspension of competitive bidding. In 2010, the
Nicaraguan National Assembly amended the 1999 Government Procurement Law, also known as Law
323, in order to close certain loopholes. The amendment eliminated exclusions to the established bidding
process that had allowed favoritism and unfair competition. However, there are still many allegations of
irregularities in the procurement process, in particular involving procuring entities splitting procurements
into smaller lots, an action which allows them to use a less competitive bidding process.
Nicaragua is not a signatory to the WTO Agreement on Government Procurement.
ALBANISA, the state-owned company that imports and distributes Venezuelan petroleum, provides
preferential financing to parties that agree to export their products to Venezuela.
All exporters receive tax benefit certificates equivalent to 1.5 percent of the free-on-board value of the
exported goods. Under the CAFTA-DR, Nicaragua may not adopt new duty waivers or expand existing
duty waivers that are conditioned on the fulfillment of a performance requirement (e.g., the export of a
given level or percentage of goods). However, Nicaragua may maintain such duty waiver measures for
such time as it is an Annex VII country for the purposes of the WTO Agreement on Subsidies and
Countervailing Measures. The U.S. Government continues to work with the Nicaraguan government in
an effort to ensure compliance with its CAFTA-DR obligations.
To implement its CAFTA-DR intellectual property rights (IPR) obligations, Nicaragua undertook
legislative reforms providing for stronger IPR protection and enforcement. Despite Nicaragua’s efforts,
the United States continues to be concerned about the piracy of optical media and trademark violations in
Nicaragua. The United States has expressed concern to the Nicaraguan government about inadequate IPR
enforcement, as well as a lack of transparency about its legislative and regulatory processes. The United
States will continue to monitor Nicaragua’s implementation of its IPR obligations under the CAFTA-DR.
Under the CAFTA-DR, Nicaragua committed to opening its telecommunications sector to U.S. investors
and services suppliers. The executive branch has proposed legislation that would strengthen the
enforcement capacity of the telecommunications regulator (TELCOR) and improve competitive
conditions in Nicaragua’s telecommunications market. The United States is monitoring this process, as
well as TELCOR’s efforts to implement new telecommunications regulations. In 2012, there are also
allegations that recent telecommunications concessions were not conducted in a transparent and
competitive manner and that the tender winners were pre-determined.
During the 1980s, the Nicaraguan government confiscated some 28,000 properties in Nicaragua. Since
1990, thousands of individuals have filed claims for the return of their property or to receive
compensation. Where granted, compensation is most commonly provided via low interest bonds issued
by the government. Since taking office in January 2007, the administration of President Ortega has
resolved nearly 300 U.S. citizen claims; as of March 2013 a total of 280 U.S. claims registered with the
U.S. Embassy remain outstanding. The United States continues to press the Nicaraguan government to
resolve these outstanding claims.
Some U.S. firms and citizens report corruption in government, including in the judiciary, to be a
significant concern and a constraint to successful investment in Nicaragua. Administrative and judicial
decision making appear at times to be inconsistent, nontransparent, and very time consuming. Courts
have frequently granted orders (called “amparos”) that enjoin official investigatory and enforcement
actions indefinitely. Such delays appear to protect individuals suspected of white collar crime.
With monetary support from Venezuela, the government has increased its role in the economy and private
companies face increasing competition from state-run corporations. Moreover, despite the legal
framework CAFTA-DR provides, property rights and intellectual property rights are especially difficult to
defend, and there appears to be no reliable means of resolving disputes. The legal system is regarded as
weak, cumbersome, corrupt, and subject to political pressure.
Investors regularly complain that regulatory authorities are negligent and slow to apply existing laws (or
are likely to continue to apply laws that should have been superseded by CAFTA-DR provisions), act
arbitrarily, and often favor one competitor over another. Investors cite arbitrariness in taxation and
customs procedures, as well as a failure to delegate decision-making authority to an appropriate level.
There is concern that the frequency and duration of tax audits of foreign investors could interfere with
normal business operations.
Law 364
U.S. companies and the U.S. Chamber of Commerce have concerns that Nicaraguan Law 364, enacted in
2000 and implemented in 2001, retroactively imposes liability on foreign companies that manufactured or
used the chemical pesticide 1,2-Dibromo-3-Chloropropane (DBCP) in Nicaragua. DBCP was banned in
the United States after the Environmental Protection Agency cancelled its certificate for use (with
exceptions) in 1979. U.S. companies have expressed concern that Law 364 and its application under
Nicaragua’s judicial system lack due process, transparency, and fundamental fairness. In particular, Law
364 allows for retroactive application of no-fault liability related to a specific product, waiver of the
statute of limitations, irrefutable presumption of causality, truncated judicial proceedings, the imposition
of a $100,000 nonrefundable bond per defendant as a condition for firms to mount a defense in court, and
escrow requirements of approximately $20 million earmarked for payment of awards and minimum
liabilities as liquidated damages (ranging from $25,000 to $100,000). Some plaintiffs seek to lay claim to
U.S. company assets in other countries. In 2009 and 2010, courts in California dismissed with prejudice
three Nicaraguan DBCP cases, citing plaintiff fraud. In another case a federal district court in Florida
denied recognition of a $97 million Nicaraguan judgment under Law 364, because the court found that
the “case did not arise out of proceedings that comported with the international concept of due process.”
The court also found “the presumption of causation in Special Law 364 contradicts known scientific fact.”
The district court judgment was affirmed by the 11th Circuit Court of Appeals in March 2011. In October
2011, a U.S. company announced the signing of a definitive settlement agreement, which with full
implementation will bring to an end all lawsuits brought against the company. The U.S. Government will
continue to work with other affected U.S. companies and the Nicaraguan government to facilitate
resolution of this issue.
The U.S. goods trade deficit with Nigeria was $14.0 billion in 2012, down $14.9 billion from 2011. U.S.
goods exports in 2012 were $5.1 billion, up 4.1 percent from the previous year. Corresponding U.S.
imports from Nigeria were $19.1 billion, down 43.5 percent. Nigeria is currently the 45th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Nigeria was $5.0 billion in 2011 (latest data
available), about the same as in 2010. U.S. FDI in Nigeria is concentrated in the mining sector.
Following the government of Nigeria’s August 2011 creation of the new Ministry of Trade and
Investment, an experts committee was inaugurated to develop recommendations for a new Nigeria trade
policy regime. This trade policy review, however, has yet to be submitted to the Nigerian President, and
there is resistance among some Nigerian constituencies – both in government and in the private sector –
to enacting and implementing any further trade policy reforms.
Nigeria is a member of the Economic Community of West African States (ECOWAS) and the World
Trade Organization.
Nigeria’s most recent tariff review occurred in September 2008, when the Nigerian government issued the
2008-2012 Common External Tariff (CET) Book, which harmonizes its tariffs with the ECOWAS
Common External Tariff (CET), under the ECOWAS Trade Liberalization Scheme. Nigeria had partially
implemented the ECOWAS CET since 2005. The 2008-2012 CET has five tariff bands: zero duty on
capital goods, machinery, and essential drugs not produced locally; 5 percent duty on imported raw
materials; 10 percent duty on intermediate goods; 20 percent duty on finished goods; and 35 percent duty
on goods in certain sectors that the government seeks to protect. According to the Nigerian government,
70 percent of existing tariffs have been aligned with the CET.
Adoption of the 2008-2012 CET is part of the Nigerian government’s economic reform agenda, aimed at
improving Nigeria’s trade and investment environment and harmonizing economic policies within
ECOWAS. According to the WTO, Nigeria’s average MFN applied tariff rate is 11.7 percent. The
average applied tariff is 15.5 percent for agricultural goods and 11.2 percent for non-agricultural products.
In 2012, Nigeria added a number of levies on selected agricultural imports that significantly raise
effective tariff rates. These include an increase in the effective duty on wheat grain imports from 5
percent to 20 percent, on wheat flour imports from 35 percent to 100 percent, on brown rice imports from
5 percent to 35 percent, and on milled rice imports from 30 percent to 80 percent. In addition, the
government has announced that, as of January 1, 2013, effective tariffs on imports of raw sugar will be
raised from 5 percent to 60 percent. Companies report that high tariffs, nontransparent valuation
procedures, frequent policy changes, and unclear interpretations by the Nigerian Customs Service (NCS)
make importing difficult and expensive, and often create bottlenecks for commercial activities. Nigeria’s
dependence on imported raw materials and finished goods aggravates this problem, affecting both foreign
and domestic manufacturers. Reportedly, many importers resort to undervaluing and smuggling to avoid
paying full tariffs.
Nontariff Measures
Nigeria uses nontariff measures to achieve “self-sufficiency” in certain commodities. In line with an
Agricultural Transformation Action Plan that seeks to increase domestic food production and
employment, the government plans to supplement its 2012 increase in wheat import tariffs with a policy
requiring flour millers to substitute up to 40 percent of wheat flour produced in the country with cassava
flour by 2015.
The government continues to ban certain imports, citing the need to protect local industries. The list of
prohibited imports currently includes: bird’s eggs; cocoa butter, powder, and cakes; pork; beef; live birds;
frozen poultry; refined vegetable oil and fats; cassava; bottled water; spaghetti; noodles; fruit juice in
retail packs; nonalcoholic beverages (excluding energy drinks); and bagged cement.
The government has announced plans to boost the development of domestic sugar cane production to
meet the raw sugar needs of existing and new domestic sugar refining companies. In January 2013, to
supplement the planned increase in effective tariffs on the import of raw sugar, the government banned
imports of refined sugar and offered a variety of tariff breaks on imports of sugar processing equipment
and tax holidays for investors in the sugar value chain.
Customs Administration
Nigerian port practices continue to present major obstacles to trade. Importers report erratic application
of customs regulations, lengthy clearance procedures, high berthing and unloading costs, and corruption.
These factors can sometimes contribute to product deterioration and result in significant losses for
importers of perishable goods. Disputes between Nigerian government agencies over the interpretation of
regulations often cause delays, and frequent changes in customs guidelines slow the movement of goods
through Nigerian ports. Nigeria uses a destination inspection policy for imports. Under this policy, all
imports are inspected on arrival into Nigeria. Such actions delay the clearing process and increase costs.
Although the Nigerian government recognizes that port delays significantly increase the cost of doing
business in Nigeria, a 48-hour cargo clearance policy at ports announced in 2010 has yet to be fully
implemented. Plans to automate all customs payments and modernize NCS operations similarly have yet
to be implemented. In October 2011, Minister of Finance Okonjo-Iweala announced additional plans to
facilitate goods clearance through Nigerian ports by reducing the number of government agencies in the
ports from 14 to 6. However, implementation of this new policy has reportedly been uneven, and there
has been no significant reported reduction in the time required to clear goods through the ports. Roads
entering and leaving ports are decaying and ports lack rail systems to transport freight into and out of
ports. The resulting congestion leads to ships queuing up to berth at cargo terminals and containers
waiting to be transported out of the ports.
The Nigerian government has made modest progress on its pledge to conduct an open and competitive
bidding process for government procurement. The Public Procurement Act of 2007 established the
Bureau of Public Procurement (BPP). The public procurement reforms seek to ensure that the
procurement process for public projects adheres to international standards for competitive bidding. The
BPP acts as a clearinghouse for government contracts and monitors the implementation of projects to
ensure compliance with contract terms and budgetary restrictions. Procurement above 50 million naira
(approximately $320,000) remains subject to review by the BPP. The 36 state governments have also
agreed to enact the Public Procurement Act in their respective states.
Foreign companies incorporated in Nigeria receive national treatment in government procurement,
government tenders are published in local newspapers, and a "tenders" journal is sold at local newspaper
outlets. U.S. companies have won government contracts in several sectors. Unfortunately, some of these
companies have had trouble getting paid, often as a result of delays in the national budgetary process.
The National Petroleum Investment and Management Services (NAPIMS) agency must approve all
procurement in the oil and gas sector with a value above $500,000. Slow approval processes can
significantly increase the time and resources required for a given project.
Nigeria is not a signatory to the WTO Agreement on Government Procurement.
Nigeria is a party to the World Intellectual Property Organization (WIPO) Convention, the Berne
Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of
Industrial Property, the Patent Cooperation Treaty, and the Patent Law Treaty. Nigeria has also signed
the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. Legislation intended
to implement WTO obligations under the Agreement on Trade-Related Aspects of Intellectual Property
Rights has been pending in the Nigerian National Assembly for several years.
The Nigerian government’s lack of institutional capacity to address intellectual property rights (IPR)
issues is a major barrier to enforcement. Relevant Nigerian government institutions suffer from low
morale, poor training, and limited resources. Piracy remains a problem despite Nigeria’s active
participation in the conventions cited above and the growing interest among Nigerians to protect their
IPR. Counterfeit automotive parts, pharmaceuticals, business and entertainment software, music and
video recordings, and other consumer goods are sold openly. Piracy of books and optical disc products is
also a problem. Business software piracy is also a concern. U.S. software firms estimate that nearly 80
percent of all computer software in Nigeria in 2011, worth a commercial value of over $250 million, was
pirated. Industry reports contend that intellectual property infringers from other countries appear
increasingly active in using Nigeria as a base for the production of pirated goods.
Patent and trademark enforcement remains weak and judicial procedures are slow and reportedly
compromised by corruption. However, the government has taken steps to improve enforcement. Efforts
to combat the sale of counterfeit pharmaceuticals, for example, have yielded some results. The United
States has provided training to government IP officials through various training programs offered by the
United States Patent and Trademark Office’s Global Intellectual Property Academy and the U.S
Department of Commerce Commercial Law Development Program under the Trade and Investment
Framework Agreement between the United States and Nigeria.
Nigeria’s broadcast regulations do not permit rebroadcast or excerpting of foreign programs unless the
station has an affiliate relationship with a foreign broadcaster. This regulation is generally complied with,
but some cable providers transmit foreign programs illegally. The National Broadcasting Commission
monitors the industry and is responsible for punishing infractions. Nigeria has strong film and music
industries, and the Nigerian Copyright Commission (NCC) works to strengthen copyright protection.
However, the NCC is not sufficiently funded. Furthermore, widespread pirating of foreign and domestic
videotapes discourages the entry of licensed distributors.
In 2010, Nigeria’s enacted a restrictive Oil and Gas Sector Local Content Act that requires that all
projects in Nigeria’s oil and gas sector use and give preference to Nigerian goods and services. The Act’s
coverage is broad; it includes any activity or transaction carried out in, or connected with, the oil and gas
industry, a sector that accounts for roughly 30 percent of Nigeria’s GDP. The Act’s local sourcing
mandate applies to an extensive list of goods and services supplied to the oil and gas industry, and has
been a particular concern of U.S. oil and gas service suppliers.
Restrictions also apply with respect to the movement of personnel. Nigeria imposes quotas on foreign
personnel based on the issued capital of firms. Such quotas remain especially strict in the oil and gas
sector and may apply to both production and services companies. Oil and gas companies must hire
Nigerian workers, unless they can demonstrate that particular positions require expertise not found in the
local workforce. Positions in finance and human resources are almost exclusively reserved for Nigerians.
Certain geosciences and management positions may be filled by foreign workers with the approval of the
NAPIMS agency. Each oil company must negotiate its foreign worker allotment with NAPIMS.
Significant delays in this process and in the approval of visas for foreign personnel present serious
challenges to the oil and gas industry in acquiring the necessary personnel for their operations. According
to industry representatives, the Local Content Act is adversely affecting a diverse range of companies,
including operators, contractors, subcontractors, and service providers.
A variety of barriers restrict potential U.S. investment in Nigeria. Investors must contend with insecurity,
complex tax procedures, confusing land ownership laws, arbitrary application of regulations, corruption,
and crime. International monitoring groups routinely rank Nigeria among the most corrupt countries in
the world. Companies report that contracts are often violated and that Nigeria’s system for settling
commercial disputes is weak and often biased. Frequent power outages, as well as poor road, port, rail,
and aviation transportation infrastructure pose a major challenge to doing business in Nigeria. Such
infrastructure deficits hinder Nigeria’s ability to compete in regional and international markets.
A Petroleum Industry Bill (PIB), currently under review by the National Assembly, would further and
significantly change the way Nigeria’s oil and gas sector is structured and regulated. Years of delays in
the passage of the PIB has created uncertainty in the investment community, which has delayed
significant investment in infrastructure needed to sustain and grow Nigeria’s oil and gas production.
The U.S. goods trade deficit with Norway was $3.0 billion in 2012, down $1.6 billion from 2011. U.S.
goods exports in 2012 were $3.5 billion, down 3.5 percent from the previous year. Corresponding U.S.
imports from Norway were $6.5 billion, down 21.2 percent. Norway is currently the 49th largest export
market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to Norway were
$3.1 billion in 2011 (latest data available), and U.S. imports were $1.9 billion. Sales of services in
Norway by majority U.S.-owned affiliates were $6.0 billion in 2010 (latest data available), while sales of
services in the United States by majority Norway-owned firms were $1.3 billion.
The stock of U.S. foreign direct investment (FDI) in Norway was $28.5 billion in 2011 (latest data
available), down from $28.8 billion in 2010. U.S. FDI in Norway is primarily concentrated in the mining
and manufacturing sectors.
Norway, along with Switzerland, Iceland and Liechtenstein, is a member of the European Free Trade
Association (EFTA). EFTA members, with the exception of Switzerland, participate in the European
Union (EU) single market through the European Economic Area (EEA) accord. Norway grants
preferential tariff rates to EEA members. As an EEA signatory, Norway assumes most of the rights and
obligations of EU member states, except in the agricultural and fishery sectors.
Norway has implemented, or is in the process of implementing, most EU trade policies and regulations.
Except for agricultural products and processed foods, Norway’s market is generally open. Norway has
continued to dismantle tariffs on industrial products on a unilateral basis. The average most favored
nation (MFN) tariff on nonagricultural products has fallen from 2.3 percent in 2000 to 0.5 percent in
2012. More than 95 percent of industrial tariff lines are currently duty free.
Although Norway maintains a liberal trade and investment regime with respect to industrial products, its
agricultural sector remains highly protected, and U.S. exporters of agricultural products face trade barriers
that are at least as high as those that they face in the EU.
Norway bound its tariffs for agricultural commodities in 1995 as part of its WTO commitments.
Tariffication of agricultural nontariff barriers as a result of the Uruguay Round led to the replacement of
several quotas with high ad valorem or specific tariffs on agricultural products. According to the WTO,
Norway’s simple average applied tariff in 2012 was 40.9 percent for agricultural goods and 0.5 percent
for non-agricultural goods. These averages often change annually as Norway’s applied rates vary greatly
from bound rates.
Although Norway is only 50 percent self-sufficient in agricultural production, it maintains tariff rates on
agricultural products as high as several hundred percent to ensure that domestic farmers as well as
producers in the food processing industry have little competition until all domestic production has been
consumed. Domestic agricultural shortages and price surges are offset by temporary tariff reductions.
However, a lack of predictability in tariff adjustments and insufficient advance notification of these
adjustments, generally only two days to five days before implementation, favor nearby European
suppliers and make imports from the United States, especially of fruits, vegetables, and other perishable
horticultural products, very difficult. For a number of processed food products, tariffs are applied based
on a product formula, requiring the Norwegian importer to provide a detailed disclosure of product
contents. Many exporters to the Norwegian market refuse to give all requested details and, as a result,
their products are subject to maximum tariffs.
Agricultural Products
Although agriculture accounts only for 0.5 percent of gross domestic product (GDP) (based on 2009
data), support provided by Norway to its agricultural producers as a percentage of total farm receipts is
among the highest in the world. Agricultural subsidies made up 60 percent of farmers’ income from 2009
to 2011, which was the highest level among OECD countries. Norway emphasizes the importance of
“non-trade concerns,” which include food security, environmental protection, rural employment, and the
maintenance of human settlement in sparsely populated areas, as justification for high domestic support
levels. One of Norway’s concerns in the WTO Doha Development Round has been the preservation of its
highly subsidized agricultural sector.
Norway also imposes problematic sanitary barriers on agricultural products, including prohibiting the
import of beef from animals treated with hormones, despite decades of scientific evidence demonstrating
that this practice poses no risks to health. In addition, Norway applies extremely restrictive policies to
genetically engineered crops. Norwegian legislation – which is not fully aligned with the relevant
European Union legislation under the EEA – requires that genetically engineered varieties meet criteria
that are not related to the protection of health, food safety or the environment.
Tariff-Rate Quotas
Although Norway has 232 tariff-rate quota (TRQ) commitments in its WTO tariff schedule, most of these
TRQs are not active, as current applied rates are either equal to or lower than the in-quota bound rate.
Norway has TRQs for 64 agricultural and horticultural products, and the Norwegian Agricultural
Authority holds online auctions for the allocation of quotas for 54 of these products. Norwegian
importers are primarily interested in TRQs for grains or niche products. However, participating in the
auctions is inexpensive, and importers that secure a quota allocation are not actually required to import
any products. The Agricultural Authority does not have a system to reallocate any unused quota.
Raw Material Price Compensation
Although the EEA does not generally apply to agricultural products, it includes provisions on raw
material price compensation that are meant to increase trade in processed food. Norway has a special
agreement with the EU within the EEA framework that results in the application of a preferential duty on
EU processed food products. The agreement covers a wide range of products, including bread and baked
goods, breakfast cereals, chocolate and sweets, ice cream, pasta, pizza, soups, and sauces. This
preferential access for EU suppliers disadvantages U.S. exporters of these processed foods.
Norway also maintains a price reduction regime that includes subsidies for using certain domesticallyproduced raw materials in processed foods. Products for which such subsidies are paid include chocolate,
sweets and ice cream (for milk and glucose), and pizza (for cheese and meat). The purpose of the system
is to help compensate the domestic food processing industry for the high costs of domestically-produced
raw materials.
Wines and Spirits
The wine and spirits retail market in Norway is controlled by the government monopoly Vinmonopolet.
Wine and spirits sales in ordinary retail stores are not allowed. Obtaining approvals to include wines and
other alcoholic beverages on Vinmonopolet’s retail list is cumbersome, leading to complaints from U.S.
wine exporters about the limited variety of U.S. wines available to Norwegian consumers.
Vinmonopolet’s six-month marketing and product plans for selecting and purchasing wines are so
detailed and narrow as to significantly constrain competitive supply. Products chosen for sale through
Vinmonopolet must meet annual minimum sales quotas or they are dropped from the basic list inventory.
Existing wine suppliers benefit from exposure in Vinmonopolet stores, a situation exacerbated by the
strict ban on advertising alcoholic beverages.
After constructive discussions between the United States and Norway on ways to raise awareness and
sales of quality U.S. wines in Norway, sales of U.S. red wines through Vinmonopolet grew by 56 percent
in 2009, 21 percent in 2010, 27 percent in 2011, and 7 percent in 2012. While U.S. red wines’ overall
market share has grown to 5.3 percent, U.S. white wines’ market share has dropped to 1 percent.
Challenges with Vinmonopolet’s subjective tender system, a relative lack of opportunities for new market
entrants, and as a result, relative low awareness of U.S. wines, remain.
Norway remained on the Watch List in the 2012 Special 301 Report. The key concern cited in the report
was the lack of product patent protection for certain pharmaceutical products. U.S. industry has
expressed concern that the regulatory framework in Norway regarding process patents that were filed
prior to 1992 and were pending in 1996 denies adequate patent protection for a number of pharmaceutical
products currently on the Norwegian market. U.S. stakeholders have also raised concerns about
Norway’s policy on pediatric extension and a proposal to allow biosimilar substitution.
U.S. industry also reports concerns regarding private use exceptions under Norway’s copyright laws. In
2011, the Norwegian government conducted a public hearing regarding proposed revised legislation that
would enhance copyright protection. A draft of that legislation is to be debated in Parliament in early
The United States and Norwegian authorities held constructive discussions in 2012 regarding several
intellectual property rights (IPR) matters, including: pharmaceuticals product patent protection; the need
to educate the public about IPR and to promote public awareness of IPR-infringing activity that occurs
over the Internet; the role of Internet service providers in combating piracy; and the need to dedicate the
necessary public resources to combat counterfeiting and piracy and to prosecute offenders.
Financial Services
For certain types of financial institutions, Norway requires that at least half the members of the board and
half the members of the corporate assembly be nationals and permanent residents of Norway or another
EEA country.
Norway generally welcomes foreign investment and grants national treatment to foreign investors, with
exceptions in the mining, fisheries, hydropower, maritime, and air transport sectors. Foreign companies
wishing to own or use various kinds of real property must seek prior approval from the government. In
the petroleum sector, Norway’s concession process continues to be operated on a discretionary basis, with
the government awarding licenses based on subjective factors other than competitive bidding. Direct
foreign ownership of hydropower resources is prohibited, except in rare instances when the government
may grant foreign investment limited to 20 percent equity.
The U.S. goods trade surplus with Oman was $393 million in 2012, shifting from a trade deficit of $775
million in 2011. U.S. goods exports in 2012 were $1.7 billion, up 21.8 percent from the previous year.
Corresponding U.S. imports from Oman were $1.4 billion, down 38.7 percent. Oman is currently the
64th largest export market for U.S. goods.
The United States-Oman Free Trade Agreement
Upon entry into force of the United States-Oman Free Trade Agreement (FTA) in January 2009, Oman
provided immediate duty-free access on virtually all industrial and consumer products, and will phase out
tariffs on the remaining handful of products by 2019. In addition, Oman provided immediate duty-free
access for U.S. agricultural products in 87 percent of its agricultural tariff lines. Oman will phase out
tariffs on the remaining agricultural products by 2019.
Import Licenses
Companies that import goods into Oman register with the Ministry of Commerce and Industry.
Importation of certain classes of goods, such as alcohol, livestock, poultry and their respective products,
as well as firearms, narcotics, and explosives, requires a special license. Media imports are subject to
review for potentially offensive content and possible censorship.
Some firms continue to report difficulties in receiving duty-free treatment under the FTA for goods that
enter Oman overland via the United Arab Emirates.
Procuring entities in Oman are required to conduct procurement covered by the FTA in a fair, transparent,
and nondiscriminatory manner.
Oman provides a 10 percent price preference to tenders that contain a high content of local goods or
services, including direct employment of Omani nationals. However, Oman may not apply such price
preferences to tenders offering goods and services from the United States in procurement covered by the
FTA. For most major tenders, Oman invites bids from international firms or firms pre-selected by project
consultants. Suppliers are requested to be present at the opening of tenders, and interested persons may
view the process on the Tender Board’s website. Some U.S. companies report that tenders’ costs can
sometimes increase dramatically when award decisions are delayed, sometimes for years, or the tendering
is reopened with modified specifications and, typically, short deadlines. In 2011, the Omani government
took steps to improve the tender process by changing the leadership at the Tender Board, launching State
Audit Institution investigations of previous questionable tenders, and enacting a new decree barring
relatives “to the second degree of kinship” from participating in procurements. In 2012, a large number
of cases of government contracts were forwarded to the Prosecutor’s Office, and more than 30 cases are
under review in the court system as of early 2013.
Oman’s Ministry of Defense may require that companies involved in defense-related transactions
participate in its offset program, entitled “Partnership for Development.”
Oman is an observer to the WTO Committee on Government Procurement. In accordance with the
commitment in its WTO accession, Oman began negotiations to accede to the WTO Agreement on
Government Procurement in 2001, but it has not completed the accession process.
Oman committed to provide strong intellectual property rights (IPR) protection and enforcement in the
United States-Oman FTA. Oman revised its IPR laws and regulations to implement its FTA
commitments, and it acceded to several international IPR treaties. While IPR laws in Oman are generally
enforced, cases of online piracy, which can be difficult to detect, remain common.
As the six Member States of the Gulf Cooperation Council (GCC) explore further harmonization of their
IPR regimes, the United States will continue to engage with GCC institutions and the Member States and
provide technical cooperation on intellectual property policy and practice.
Oman does not permit representative offices or offshore banking.
Legal Services
By a decree from the Ministry of Justice in October 2009, non-Omani attorneys, including U.S. attorneys
practicing in Oman, are prohibited from appearing in courts of first instance.
U.S. companies had reported difficulty obtaining registrations to operate in Oman on terms required under
the FTA, as a result of onerous government requirements to document the nationality of all company
shareholders. Following discussion of this issue during the September 2012 FTA Joint Committee
meeting, Omani officials have eliminated the requirements, unblocking pending business applications.
U.S. companies remain concerned about rules governing the acquisition of space in Oman. Although
U.S. investors are permitted to purchase freehold property in designated residential developments,
businesses must adhere to more restrictive guidelines when acquiring real estate for commercial purposes.
With the exception of certain tourism-related property agreements, only companies or enterprises with at
least 51 percent Omani shareholding are permitted to own real estate for the purpose of establishing an
administrative office, staff accommodation, warehouse or show room, or other building with a similar
purpose. Other enterprises, including foreign majority-owned businesses, must seek “usufruct” rights that
enable them to exploit, develop, and use land granted by a third party.
The U.S. goods trade deficit with Pakistan was $2.1 billion in 2012, up $258 million from 2011. U.S.
goods exports in 2012 were $1.5 billion, down 23.1 percent from the previous year. Corresponding U.S.
imports from Pakistan were $3.6 billion, down 5.2 percent. Pakistan is currently the 68th largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Pakistan was $762 million in 2011 (latest data
Pakistan’s overall average applied tariff in 2012 was 14.32 percent. There are 14 different ad valorem
tariff levels, ranging from 0 percent to 150 percent. Specific duty rates are applied on 45 products. In the
2012-2013 budget, Pakistan reduced duties on 293 items from 35 percent to 30 percent (including for
dairy products, preparations of vegetables or fruits, tobacco, cosmetics, soaps, ceramic products, and
furniture). In the same budget, the government reduced the maximum general tariff rate from 35 percent
to 30 percent (except for vehicles) and simplified the tariff structure by reducing the number of duty
brackets from 8 to 7.
Pakistan imposes higher tariff rates (50 percent) on imports of automobile parts that compete with
domestically manufactured products than the tariff rates (35 percent) it imposes on imports of automotive
parts where there is no domestic production. Pakistan grants sector- or product-specific duty exemptions,
concessions, and other protections through promulgation of Statutory Regulatory Orders (SROs).
Pakistan also provides concessionary tariffs for the import of raw materials used as active ingredients in
pharmaceutical production. In the 2012-2013 budget, the government reduced duties on 88
pharmaceutical raw materials and other input goods from 10 percent to 5 percent. A list of SROs and
other trade policy and regulatory documents can be found on the Federal Board of Revenue’s website:
In January 2000, Pakistan implemented the WTO Customs Valuation agreement and modified its system
for valuation of goods. Since then, a number of traders in the food and consumer products sectors have
expressed concerns regarding a lack of uniformity in customs valuation. Similarly, a few major U.S.
companies in the machinery and materials sector have reported specific concerns that customs officials
have erroneously assessed goods based on a set of minimum values rather than the declared transactional
On October 5, 2009, Pakistan began to enforce a 2005 regulation requiring that commercial invoices and
packing lists be included inside each shipping container. This requirement presents challenges to
industry: invoice and packing lists do not always originate in the same location as the shipment and
invoices and packing lists may be created after the shipment departs. The penalty for non-compliance is
$526 per container.
Pakistan is not a signatory to the WTO Agreement on Government Procurement. The Public Procurement
Regulatory Authority (the Authority), established in 2002, is an autonomous body responsible for
prescribing and monitoring public sector procurement regulations and procedures. According to a 2004
public procurement framework, international tender notices must be publicly advertised, and sole source
contracting tailored to company-specific qualifications is prohibited. There are no official “buy national”
Political influence on procurement awards, charges of official corruption, lack of transparency, and long
delays in bureaucratic decision making are common in government procurement. Suppliers have reported
instances in which the government used the lowest bid as a basis for further negotiations, rather than
accepting the lowest bid as required by regulation.
Pakistan promotes the export of Pakistani products (such as textiles, surgical products, leather, and
sporting goods) through measures such as tariff concessions on imported inputs, along with income and
sales tax concessions. Three SROs (SRO 565, 567 and 575) provide exemptions and concessions on
imports of certain machinery and imports of a large number of raw materials used by domestic industries.
The government established the Export Processing Zone (EPZ) Authority in 1980 to establish and
administer EPZs. In 1989, Pakistan established its first EPZ in Karachi. Export oriented industries,
defined as those that export 80 percent to 100 percent of their production, receive various incentives for
operating in the EPZ. These incentives include exemption from all taxes and duties on equipment,
machinery, and materials (including components, spare parts, and packing material), and indefinite loss
carry-forward. Import and foreign exchange control regulations are not applicable in these zones. The
EPZ Authority has the exclusive right to collect estimated taxes on exports. Final taxes are 1 percent of
the total profits. The EPZ Authority also collects a “development surcharge” of 0.5 percent of the total
profits. Exports from EPZ companies are otherwise exempt from all other federal, provincial, and
municipal taxes. Companies in the EPZ do not pay sales taxes on input goods, including electricity and
Besides the EPZ in Karachi, Pakistan has authorized eight additional EPZs. These EPZs are located in
Risalpur in Khyber Pakhtunkhwa Province; Gujranwala and Sialkot in Punjab; and Saindak, Gwadar,
Reko Dek, and Duddar in Balochistan. Of these, only Risalpur, Sialkot, Saindak, and Duddar are
operational. Foreign investors are eligible to establish businesses in the EPZ and are guaranteed full
repatriation of capital and profits. There are no minimum or maximum limits for investment. Up to 3
percent of defective goods/waste can be sold in the domestic market after payment of applicable duties.
Despite the various incentives offered, most EPZs have failed to attract significant investment. Pakistan
enacted the Special Economic Zones (SEZ) legislation in September 2012; unlike EPZs, the SEZs have
no performance requirements and offer more incentives for investors. Specifically, SEZs create industrial
clusters through the provision of incentives, infrastructure, and investor facilitation services to reduce
business costs. The law permits private companies to establish these zones in addition to public/private
Pakistan remains on the Priority Watch List in the 2012 Special 301 report, and the 2013 Special 301
Report will be released in late April, 2013. The report cites weak protection and enforcement of
intellectual property rights (IPR), particularly with respect to copyrights, pharmaceutical data, and media
While the government took some steps in 2012 to improve copyright enforcement, especially with respect
to addressing optical disc piracy, it appears that only a very small proportion of arrests resulted in
prosecutions, and the few verdicts that were issued resulted in minor prison sentences. Pakistan is
reportedly being used as a conduit for infringing products from Russia, Malaysia, Singapore, China,
Bangladesh, and Sri Lanka, for onward distribution to third countries. Book piracy also continues to
undermine legitimate trade and investment. The Intellectual Property Organization law was adopted in
December 2012, and provides for specialized IPR tribunals to adjudicate cases and a policy board with
private sector representation to assess policy decisions. It is too early to evaluate the effectiveness of the
Pakistan has not made progress in providing effective protection against unfair commercial use of
undisclosed test and other data generated to obtain marketing approval for pharmaceutical products.
While the government and international and local pharmaceutical companies have been negotiating a
draft data protection law for the past four years, it has still not been enacted. Pakistan also lacks an
effective system to prevent the issuance of marketing approvals for unauthorized copies of patented
pharmaceutical products. With respect to patents, the processing of pending patent applications has been
hampered due to a 2009 ordinance that removed an 18 month deadline for the processing of patent
Pakistan generally permits foreign investment in services, subject to certain provisions. These provisions
unless specified otherwise, include a minimum initial capital investment requirement of $150,000.
Foreign investors in services and other non-manufacturing sectors are limited in remittance of royalty
payments to a maximum of $100,000 for the first payment. Royalty payments are capped at 5 percent of
net sales for the subsequent five years.
Pakistan deregulated the telecommunications sector in order to comply with its WTO commitments and
encourage growth in the sector. The Pakistan Telecommunication Company Limited (PTCL) lost its
monopoly on basic telephone services, and the government issued 14 licenses to long distance telephone
companies (13 of which are currently in use), 84 licenses to 37 local loop companies (of which 17 are in
use), and 93 licenses to 16 wireless local loop companies (of which 11 are in use).
The ability of telecommunications companies to operate in Pakistan is dependent upon access to PTCL
infrastructure. The government combined a number of value-added services, including provision of
Internet service, vehicle tracking systems, and data network operations, into one license, the Class Value
Added Services (CVAS) license. Applicants which applied prior to the announcement of this policy were
given the option to either continue their old licenses or convert to CVAS licenses. To date, the
government has issued 465 new CVAS licenses and converted 527 old licenses to CVAS. At present, the
government does not issue licenses specifically for Voice over Internet Protocol (VoIP), but long
distance/local loop telephone license holders may also provide VoIP services.
On October 1, 2012, the Ministry of Information Technology and Telecommunication (MoITT) ordered
establishment of an International Clearing House (ICH) that effectively quadrupled charges and curtailed
competition for international calls to Pakistan. The United States, the Competition Commission of
Pakistan (CCP), and cellular operators expressed serious concern with this change. In November 2012,
the Lahore High Court (LHC) rolled back the MoITT’s international call termination rate increases,
declaring the ICH to be in conflict with The Competition Act of 2010. The court additionally described
the increase in termination rates as an additional tax, and stated that the MoITT does not have the
mandate to levy such taxes. Following the decision, the MoITT scaled back rates to pre-October 1 levels.
The Pakistan Telecommunication Authority (PTA) supposedly ordered carriers to revise their
international termination rates back to the levels that existed prior to the adoption of the ICH agreement.
However, multiple international carriers have informed U.S. officials the increased rate of $0.088 per
minute remains in effect, even though PTA no longer officially mandates it. From October until
February, the Pakistan LDI operators seemingly worked together to fix prices through one carrier, PTCL.
In February 2013, the Pakistan Supreme Court (SC) overturned the LHC ruling and directed the matter to
the jurisdiction of the CCP.
On March 5, 2013 the U.S. Federal Communications Commission (FCC) released an Order concluding
that “recent and ongoing actions by certain Pakistani long distance international carriers (Pakistani LDI
carriers) to set rate floors over previously negotiated rates with U.S. carriers for termination of
international telephone calls to Pakistan are anticompetitive and require action to protect U.S. consumers
in accordance with FCC policy and precedent. Their continuation would result in a substantial increase in
the cost of and repress demand for calling Pakistan2.” The FCC ordered all U.S. carriers not to pay
termination rates to Pakistani carriers in excess of “the rates that were in effect immediately prior to the
rate increase on or around October 1, 2012.”
Banking and Insurance
Foreign banks that do not have a global Tier-1 paid up capital (e.g., equity and retained earnings of $5
billion or more) or are not from countries that are part of regional groups and associations of which
Pakistan is a member (e.g., the Economic Cooperation Organization and the South Asian Association for
Regional Cooperation), and that wish to conduct banking business in Pakistan, must incorporate a local
company because a foreign bank may hold a maximum of 49 percent of the shares of a bank in Pakistan.
The National Insurance Company, a majority state-owned enterprise, has the exclusive authority to
underwrite and insure public sector firms, assets and properties. The government has discretion to grant
exemptions to this requirement pursuant to Section 166 of the Insurance Ordinance 2000. Private sector
firms may seek foreign reinsurance facilities to meet up to 65 percent of their re-insurance needs. The
government has allowed 100 percent of foreign equity in an insurance business. The Investment Policy
2013 was approved on March 13, 2013. The new policy eliminated the minimum capital requirements for
the insurance sector. Nonetheless, the Investment policy retained the 49 percent equity cap for foreign
investors in the banking sector and 60 percent equity cap in the non-corporate agriculture sector.
Foreign investors are generally free to establish wholly-owned business enterprises in Pakistan with the
exception of five restricted sectors: arms and munitions; high explosives; currency/mint operations;
radioactive substances; and new, non-industrial alcohol plants. The Investment Policy 2013 abolished the
minimum foreign investment requirements for all non-restricted sectors.
Businesses operating in Pakistan consistently call for strengthening Pakistan’s domestic security. Foreign
businesses are equally vocal in expressing concern over corruption and a weak judicial system, as these
are substantial disincentives to investment. Pakistani laws targeting corruption include the 1947
Prevention of Corruption Act, the 1973 Efficiency and Discipline Rules, and the 1999 National
Accountability Bureau (NAB) Ordinance. Previously, the NAB, the Federal Investigation Agency, and
provincial anticorruption departments shared official responsibility for combating corruption. In October
2002, Pakistan’s Cabinet approved the National Anti-Corruption Strategy (NACS) that identified areas of
pervasive corruption and recommended the implementation of reforms to combat corruption. The NACS
recognized the NAB as the sole federal anticorruption agency. In mid-2009, the Supreme Court directed
2 See Petition for Protection from Anticompetitive Behavior and Stop Settlement Payment Order on the U.S.Pakistan Route, Memorandum Opinion and Order, DA No. 13-341, IB Docket No. 12-324 (Int’l Bur. 2013),
available at
that legislation replace the executive ordinance establishing the NAB, but as of the date of publication of
this report, the National Assembly has yet to pass such legislation.
Contract enforcement can be difficult for U.S. and other foreign investors in Pakistan. Parties pursuing
legal remedies in the Pakistani judicial system may face years of delays and unpredictable outcomes in
the country’s overloaded courts. In July 2005, Pakistan’s Cabinet ratified the 1958 New York
Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) by
ordinance. That ordinance expired in August 2010. A law ratifying the New York Convention was
enacted by the Parliament on July 15, 2011.
The Drug Regulatory Authority (DRA) ceased to exist after the 18th Constitutional Amendment returned
the provision of health services to the provinces. In the absence of the DRA, the Cabinet Division was to
approve drug registration and licenses, but close to 14,000 drug registration cases remained pending in
2012. On October 15, 2012, the National Assembly approved the Drug Regulatory Authority Act, reestablishing the DRA.
The U.S. goods trade surplus with Panama was $9.4 billion in 2012, an increase of $1.5 billion 2011.
U.S. goods exports in 2012 were $9.9 billion, up 20.3 percent from the previous year. Corresponding
U.S. imports from Panama were $542 million, up 39.2 percent. Panama is currently the 30th largest
export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Panama was $5.7 billion in 2011 (latest data
available), up from $5.6 billion in 2010. Reported U.S. FDI in Panama is led by the finance/insurance,
mining, and wholesale trade sectors.
The United States-Panama Trade Promotion Agreement
The United States-Panama Trade Promotion Agreement (TPA) was signed on June 28, 2007. The U.S.
Congress enacted legislation approving and implementing the TPA on October 12, 2011, and President
Obama signed the implementing legislation October 21, 2011. Panama completed its domestic
procedures in October 2012 and the TPA entered into force on October 31, 2012.
The TPA is a comprehensive free trade agreement and includes important disciplines relating to customs
administration and trade facilitation, technical barriers to trade, government procurement, investment,
telecommunications, electronic commerce, intellectual property rights, and labor and environmental
protection, in addition to significant liberalization of trade in goods and services, including financial
services. Under the TPA, U.S. firms will have better access to Panama’s services sector than Panama
provides to other WTO Members under the General Agreement on Trade in Services. All services sectors
are covered under the TPA, except where Panama has made specific exceptions. Moreover, Panama
agreed to become a full participant in the WTO Information Technology Agreement (ITA).
Before the U.S. Congress approved the implementing legislation, the Obama Administration worked with
the government of Panama to address concerns regarding Panama’s labor regime and its tax transparency
rules. As a result, Panama implemented several labor and tax transparency reforms in 2010 and 2011.
The United States-Panama Tax Information Exchange Agreement was signed on November 30, 2010, and
entered into force on April 18, 2011.
Panama’s average tariff (non-preferential or MFN) on consumer and industrial goods is 7 percent,
although tariffs on some products are as high as 81 percent. Panama’s average tariff (non-preferential or
MFN) on agricultural goods is 15 percent, but some agricultural imports face tariffs as high as 260
Over 86 percent of U.S. exports of consumer and industrial products to Panama became duty free on
October 31, 2012, when the TPA entered into force. Tariffs on the remaining consumer and industrial
products will be phased out over the course of 10 years. Almost all U.S. products within each of the
following key industrial sectors gained immediate duty-free access to the Panamanian market:
information communications and telecommunications equipment; agricultural and construction
equipment; aircraft and parts; medical and scientific equipment; environmental products;
pharmaceuticals; fertilizers; and agro-chemicals. Apparel products made in Panama will be duty free
under the TPA if they use U.S. or Panamanian fabric and yarn. In 2012, Panama notified the WTO of its
ITA tariff schedule and thereby achieved membership in the ITA. As an ITA participant, Panama has
committed to provide duty-free treatment on imports of products covered by the ITA to all WTO
The TPA provides for immediate duty-free treatment for over half of U.S. agricultural exports to Panama
(by value), including high quality beef, certain pork and poultry products, cotton, wheat, soybeans and
soybean meal, most fresh fruits and tree nuts, distilled spirits and wine, and a wide assortment of
processed products. Under the terms of the TPA, duties on most other agricultural goods will be phased
out within 5 years to 12 years depending on the product. Sensitive products will see tariffs phased out
within 15 years to 20 years. In some cases, the current applied MFN tariff for agricultural goods is lower
than tariff commitment under the TPA and will continue to apply to U.S. products.
The TPA also provides for some immediate improved market access opportunities through tariff-rate
quotas (TRQs) for certain U.S. agricultural products. The TRQs permit immediate duty-free access for
specified quantities of certain agricultural products during the tariff phase-out period, with the duty-free
amount expanding during that period. The TRQs are administered using four different mechanisms
depending on the product: auctions; first-come, first-served; licensing; and an export trading company.
The government of Panama issued the Implementing Regulations for TRQ administration systems under
the TPA in Executive Decree No. 154 of October 10, 2012. Customs Resolution No. 246 of October 22,
2012 governs the implementation of the first-come, first-served TRQ administration system.
Strong customs cooperation commitments between the United States and Panama under the TPA will
allow for verification of claims of origin or preferential treatment, and denial of preferential treatment or
entry if claims cannot be verified.
Nontariff Measures
In addition to tariffs, all goods, except for foods and feeds, and most services sold in Panama, are subject
to a 7 percent ITBMS (value-added tax). In the case of imported goods, the ITBMS is levied on the cost,
insurance, and freight value, as well as on import duties and other handling charges. The tax is higher for
cigarettes and alcohol. Pharmaceuticals, foods, school supplies, goods that will be re-exported, and all
products related to transactions occurring in any free zone are exempt from the tax under most
circumstances. In 2012, the government introduced an excise tax on vehicle sales, which varies from 5 to
25 percent based on the value of the vehicle and other characteristics of the vehicle, for example, if the
vehicle is a hybrid.
Importing entities are required to hold a license to operate in Panama in order to import manufactured
goods into the country. The license may be obtained through Panama’s online business registration
service, Panama Emprende. Importing entities holding such a license are not required to have a separate
import license for individual shipments, except for imports of certain controlled products such as
weapons, medicine, pharmaceutical products, and certain chemicals.
Panamanian Law 22 of 2006, as amended by Law 48 of 2011 and Law 62 of 2012, among others,
regulates government procurement and other related issues. Law 22 requires publication of all proposed
government purchases, and established Panama Compra, an Internet-based procurement system. Panama
has an administrative court to handle all public contracting disputes. The rulings of this administrative
court are subject to review by Panama’s Supreme Court.
Despite the oversight of the administrative court, many observers believe that political interests often
appear to influence procurement decisions. Panamanian business leaders have requested that sole-source
contracting be used only on an exceptional basis, and U.S. firms have expressed concern about how the
government of Panama establishes and evaluates the criteria used to select a procurement winner.
The TPA introduced new disciplines on certain government procurements. The goal of the disciplines is
to ensure competitive, transparent, and predictable procurement practices. The TPA applies to
procurements by entities covered by the TPA above certain dollar thresholds. The thresholds vary, but for
covered central government entities, the threshold for procurements of goods and services is at least
$193,000, while the threshold for construction procurements is $7.407 million. Higher thresholds apply
to other government agencies or enterprises.
To enhance the competitive bidding process, the TPA requires that all covered procurements allow at
least 40 days for the presentation of bids, although in cases of emergencies the minimum is 10 days. The
TPA requires that all information relevant to a bid be published as part of the bidding process. In
addition, technical specifications must not be written in a way that favors a particular supplier. The TPA
also requires that Panama ensure under its domestic law that bribery in matters affecting trade and
investment, including government procurement, is treated as a criminal offense or is subject to noncriminal penalties where criminal responsibility is not applicable. There have been numerous news
articles about alleged corruption involving an Italian company and the donation of six patrol boats to
Panama, and a sole-source purchase of radar equipment and helicopters for reportedly inflated prices.
When Panama became a WTO Member, it committed to accede to the WTO Agreement on Government
Procurement (GPA). While Panama is an observer to the WTO Committee on Government Procurement,
it has not proceeded with accession to the GPA.
In December 2009, Panama’s National Assembly passed Law 82 of 2009, which created an agricultural
export promotion program, known as the Certificate of Promotion of Agricultural Exports (CEFA)
program. The CEFA gives incentives to agricultural exporters to reduce packing and transportation costs
for specified nontraditional agricultural products.
A number of export industries, such as tourism, and special economic areas, such as free trade zones, are
also exempt from paying certain types of taxes and import duties. The government of Panama established
this policy to attract foreign investment, especially in economically depressed regions, such as the city of
Colon. Companies that benefit from these exemptions are not eligible to benefit from the CEFA program
for their exports. The 99 companies operating in Panama’s 15 free zones may import inputs duty free, if
products assembled in the zones are to be exported.
Under the TPA, Panama may not adopt new duty waivers or expand existing duty waivers conditioned on
the fulfillment of a performance requirement (e.g., the export of a given level or percentage of goods or
the use of domestic content in the production of goods).
Law 61 of October 5, 2012, amending Panama’s industrial property law, and Law 64 of October 10, 2012,
amending Panama’s copyright law, introduced important updates to Panama’s legislative framework in
order to, among other things, implement certain intellectual property rights (IPR) obligations of the TPA.
The TPA provides for improved standards for the protection and enforcement of a broad range of IPR,
including protections for patents, trademarks, undisclosed test and other data submitted to obtain
marketing approval for pharmaceuticals and agricultural chemicals, and digital copyrighted products such
as software, music, text, and videos. The TPA also provides for improved IPR enforcement, including
further deterrence of piracy and counterfeiting. These recent changes to these laws build on Panama’s
efforts over the last decade to improve IPR enforcement.
The Panamanian government also reports that it investigated 934 intellectual property violations (July
2011 to June 2012), of which 437 were crimes against copyrights and related issues, 456 for crimes
against industrial property, 41 for crimes against information system security, and 54 for reinstatement.
As a result, there were 239 convictions and 11 acquittals for IPR-related violations (down from 339 and
26 respectively in 2011).
The Colon Free Zone created a special office for IPR enforcement in 1998. As of October 2012, the
office had performed 22 inspections, compared to 24 inspections in 2011. Given Panama’s importance as
a hub for regional and global trade, enforcement against trans-shipment of pirated and counterfeit goods is
and will continue to be crucial.
Under the TPA, U.S. service suppliers are granted better access to Panama’s services sector than other
WTO Members under the General Agreement on Trade in Services. All services sectors are covered
under the TPA, except where Panama has scheduled specific exceptions. Panama agreed to provide
improved access in sectors such as express delivery, and to grant new access in certain professional
services that previously had been reserved exclusively to Panamanian nationals. Panama also agreed that
portfolio managers in the United States would be able to provide portfolio management services to both
mutual funds and pension funds in Panama. Under the TPA, U.S. insurance suppliers will be permitted to
operate as a branch or a subsidiary.
On October 5, 2012, Panama amended its telecommunications law to eliminate the universal service
program contribution amount charged on inbound international traffic to Panama that was significantly
higher than the amount collected from carriers engaged in domestic telecommunications. Under the
revised law, which took effect January 1, 2013, all carriers engaged in telecommunications in Panama
will contribute up to 1 percent of their taxable income to Panama’s universal service program. This
change eliminates the competitive imbalance Panama’s former law had imposed on foreign competitors.
While Panama maintains an open investment regime and is generally receptive to foreign investment, the
U.S. Government has received numerous property dispute complaints from U.S. investors and individual
property holders. Many of the complaints seem to arise from a general lack of titled land in Panama and
an inadequate government system for the administration of property. Panama enacted a law in 2009 (Law
80) that attempts to address the lack of titled land in certain parts of the country. Decisions taken by the
National Land Authority established by this law, however, have reinforced investors’ concerns regarding
inadequate government administration, perceived corruption, and the inability of the judicial system to
resolve these issues.
There is a low level of confidence in the competency and independence of the judicial system. The
United States continues to stress the need to increase transparency and accountability in land titling and to
reinforce the rule of law in Panama.
The United States-Panama Bilateral Investment Treaty (BIT) entered into force in 1991 with additional
amendments in 2001. Among other protections, the BIT and the investment chapter of the TPA ensure
that, subject to some exceptions, investors of both Parties receive fair, equitable, and nondiscriminatory
treatment and have the right to make free transfers. The BIT also ensures that both Parties abide by
international law standards relating to expropriation. The investor protection provisions in the TPA
supplant those in the BIT. However, until October 31, 2022 (10 years after the TPA entered into force),
investors may invoke dispute settlement under the BIT with respect to investments covered by the BIT.
Under the TPA, Panama must provide nondiscriminatory treatment of digital products transmitted
electronically and not impose customs duties, fees, or other charges on digital products transmitted
electronically. Additionally, under the TPA, Panama must have in place procedures for resolving
disputes about trademarks used in Internet domain names.
The Panamanian judicial system continues to pose a problem for investors due to poorly trained
personnel, case backlogs, and a perceived lack of independence from political influence. The Martinelli
administration campaigned in 2009 on a promise to “eradicate corruption” and continues to assert its
commitment to combating corruption as part of its overall agenda of institutional reform, but it has not yet
delivered concrete results. Domestic anticorruption mechanisms exist, such as asset forfeiture, protection
for witnesses and whistleblowers, and conflict-of-interest rules. In addition, Panama ratified the
Organization of American States Inter-American Convention Against Corruption in 1998 and the United
Nations Convention Against Corruption in 2005. However, the general perception is that anticorruption
laws are not applied rigorously, and that government enforcement bodies and the courts have lacked
effectiveness in pursuing and prosecuting those accused of corruption, particularly in high profile cases.
There is also a perception that Panama could do more to implement the conventions and respond to
official recommendations.
The anticorruption provisions in the TPA require Panama to ensure that bribery in matters affecting trade
or investment is treated as a criminal offense or is subject to comparable penalties under its law.
The U.S. goods trade surplus with Paraguay was $1.5 billion in 2012, a decrease of $320 million from
2011. U.S. goods exports in 2012 were $1.7 billion, down 11.8 percent from the previous year.
Corresponding U.S. imports from Paraguay were $197 million, up 79.1 percent. Paraguay is currently the
65th largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Paraguay was $193 million in 2010 (latest data
Paraguay is a member of the MERCOSUR common market, formed in 1991 and comprised of Argentina,
Brazil, Paraguay, Uruguay and Venezuela. Venezuela was admitted as a full member in July 2012. Since
June 26, 2012, following the impeachment of Paraguayan President Fernando Lugo, Paraguay has been
suspended from participating in MERCOSUR meetings.
MERCOSUR’s Common External Tariff (CET) averages 11.5 percent and ranges from 0 percent to 35
percent ad valorem, with a limited number of country-specific exceptions. Paraguay’s average bound
tariff rate in the WTO is significantly higher at 33.5 percent. According to current MERCOSUR
procedure, any good introduced to any member country must pay the CET to that country’s customs
authorities. If the product is re-exported to any other MERCOSUR country, the CET must be paid again
to the second country. Thus, for any U.S. good imported into landlocked Paraguay via any other
MERCOSUR country, all of which have ocean ports, the CET is effectively doubled.
Paraguay’s import tariffs tend to be much lower than the CET, ranging from 0 percent to 20 percent, with
an average applied tariff rate of 10.2 percent. Paraguay is permitted to maintain a list of 649 exceptions
to the CET until December 31, 2019. At the MERCOSUR Common Market Council (CMC) ministerial
meeting in December 2011, MERCOSUR members agreed to allow member countries to increase import
duty rates temporarily to a maximum rate of 35 percent on 100 items per member country. In June 2012,
the MERCOSUR CMC authorized each member country to increase tariffs on an additional 100 products.
To date, Paraguay has not raised tariffs pursuant to these ministerial decisions.
In August 2010, MERCOSUR’s CMC advanced toward the establishment of a Customs Union with its
approval of a Common Customs Code and decision 5610 (December 2010) to implement a plan to
eliminate the double application of the CET within MERCOSUR. The plan was to take effect in three
stages with the first phase to have been implemented no later than January 1, 2012, but the deadline was
not met. In November 2012, Argentina became the first MERCOSUR member to ratify the CCC. The
CCC still must be ratified by the other MERCOSUR member countries.
Nontariff Barriers
Paraguay requires non-automatic import licenses on personal hygiene products, cosmetics, perfumes and
toiletries, textiles and clothing, insecticides, agrochemicals and poultry. Obtaining a license requires
review by the Ministry of Industry and Commerce. Imports of personal hygiene products, cosmetics,
perfumes and toiletries also require a health certification and therefore must undergo a review by the
Ministry of Health. The process usually takes 10 days but can take up to 30 days for goods that require a
health certification. Once issued, the health certifications are valid for 30 days.
With support from the Millennium Challenge Corporation’s Threshold II Program, in July 2010 the
Paraguayan Customs Office launched a “single window” web-based system for imports (referred to by its
Spanish acronym, VUI- Ventanilla Unica de Importación). The cost and time required to process import
permits from government institutions has since been reduced, improving competitiveness and
transparency in customs operations.
Since 2000, Paraguay has prohibited the importation of used cars that are over 10 years old and used
Customs Procedures
Paraguay requires specific documentation for imports, such as the commercial receipt, certificate of origin
and cargo manifest, to be certified by either the Paraguayan consulate in the country of origin or at the
Ministry of Foreign Affairs in Paraguay; the latter requires an additional fee.
Paraguay requires all companies operating in the country to contract the services of a customs broker.
The customs broker fees are standardized by Paraguayan law.
Paraguay is not a signatory to the WTO Agreement on Government Procurement. In September 2011, the
government of Paraguay passed a law that provides preference to a locally produced good in public
procurements open to foreign suppliers, even if the domestic good is up to 20 percent more expensive
than the imported good. This law remains in effect.
In 1998, the United States initiated a Section 301 investigation of Paraguay and determined that
Paraguay’s acts, policies and practices with respect to the protection and enforcement of intellectual
property rights (IPR) were unreasonable and discriminatory and constituted a burden or restriction on
U.S. commerce. The United States subsequently suspended the Section 301 investigation and negotiated
a Memorandum of Understanding (MOU), which was intended to resolve the underlying IPR issues. The
MOU was originally concluded in November 1998 and was extended several times thereafter. The MOU
was renegotiated in 2008 and then extended in December 2009 and again in December 2011. The MOU
expired on April 30, 2012, and the United States and Paraguay have not been able to agree on the terms
for a new MOU.
While Paraguayan authorities have engaged in some raids and seizures of pirated and counterfeit goods,
significant concerns remain because of weak border enforcement which allows, for example, for the transshipment of blank media from Paraguay into neighboring countries, ineffective prosecution of IPR
violators, and court sentences that are insufficient to deter infringement. For example, Cuidad del Este
has been included in the 2012 Out-of-Cycle Review of Notorious Markets due to the prevalence and sale
of counterfeit and pirated goods, including circumvention devices and modified game systems. Infringing
goods sold at this and other similar markets in Paraguay are often found in neighboring countries
Argentina and Brazil.
Serious concerns also remain about inadequate protection against unfair commercial use of undisclosed
test or other data generated to obtain marketing approval for agrochemical or pharmaceutical products and
the shortcomings in Paraguay’s patent regime. Laws enacted in 2007 and 2008 (Law 3283 and Law
3519, respectively) require that for data protection to be available, Paraguay must be the first country in
which marketing approval for agrochemical or pharmaceutical is sought.
Under Paraguayan Law 194 from 1993, foreign companies must demonstrate “just cause” to terminate,
modify, or decide not to renew contracts with Paraguayan distributors. Severe penalties and high fines
may result if a court determines that the foreign company ended the relationship with its distributor
without first having established that just cause exists. This requirement often leads to expensive out-ofcourt settlements. In a few cases, the courts have upheld the rights of foreign companies to terminate
representation agreements after finding the requisite showing of just cause. However, the effect of the
law is to discourage foreign investment, given concerns about potential lawsuits and contractual
Corruption in Paraguayan government agencies is also a concern. The judiciary has been unreliable in
enforcing the laws that protect foreign investment. In addition, executive branch ministries, regulatory
agencies and the tax agency often lack the resources, expertise, or impartiality necessary to properly carry
out their respective mandates, creating uncertainty for investors.
Two laws, Article 195 of the Civil Procedural Code and Law 1376/1988, read in tandem, raise a particular
concern for potential investors. A plaintiff pursuing a lawsuit may seek reimbursement of legal costs
from the defendant regardless of the merits of the underlying suit, and the plaintiff is entitled to retain
reimbursed costs irrespective of the outcome of the suit. In larger suits, the amount of reimbursed legal
costs often far exceeds the actual legal costs incurred. Such measures are a significant disincentive to
foreign investment in Paraguay.
The U.S. goods trade surplus with Peru was $2.9 billion in 2012, an increase of $1.2 million from 2011.
U.S. goods exports in 2012 were $9.4 billion, up 12.3 percent from the previous year. Corresponding
U.S. imports from Peru were $6.4 billion, down 2.7 percent. Peru is currently the 32nd largest export
market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Peru was $7.8 billion in 2011 (latest data available),
up from $6.4 billion in 2010. U.S. FDI in Peru is led by the mining sector.
Trade Agreements
The United States-Peru Trade Promotion Agreement (PTPA) entered into force on February 1, 2009. The
PTPA is a comprehensive free trade agreement that is resulting in significant liberalization of trade in
goods and services between the United States and Peru. Under the PTPA, Peru immediately eliminated
most of its tariffs on U.S. exports, with all remaining tariffs phased out over defined time periods. The
PTPA also includes important disciplines relating to customs administration and trade facilitation,
technical barriers to trade, government procurement, services, investment, telecommunications, electronic
commerce, intellectual property rights, transparency, and labor and environmental protection.
Peru is a participant in the Trans-Pacific Partnership (TPP) negotiations, through which the United States
and 10 other Asia-Pacific partners are seeking to establish a comprehensive, next-generation regional
agreement to liberalize trade and investment. This agreement will advance U.S. economic interests with
some of the fastest-growing economies in the world; expand U.S. exports, which are critical to the
creation and retention of jobs in the United States; and serve as a potential platform for economic
integration across the Asia-Pacific region. The TPP agreement will include ambitious commitments on
goods, services, and other traditional trade and investment matters. It will also include a range of new
and emerging issues to address trade concerns our businesses and workers face in the 21st century. In
addition to the United States and Peru, the TPP negotiating partners currently include Australia, Brunei,
Canada, Chile, Malaysia, Mexico, New Zealand, Singapore, and Vietnam.
Under the PTPA, more than 80 percent of U.S. exports of consumer and industrial products now enter
Peru duty free. All remaining tariffs on these goods will be phased out by 2018. More than two-thirds of
current U.S. agricultural exports enter Peru duty free, and remaining tariffs on U.S. agricultural exports to
Peru will be completely phased out by 2025. In accordance with its PTPA commitments, Peru has
eliminated its price band system on trade with the United States.
Imported spirits are assessed an effective tax rate that is higher than the tax assessed on domesticallyproduced pisco products, thus putting distilled spirits produced in the United States at a competitive
Nontariff Measures
The government of Peru already has eliminated many nontariff barriers, and, under the PTPA, is
subjecting remaining measures, including subsidies, to additional disciplines. Peru currently restricts
imports of certain used goods, including used clothing and shoes (except as charitable donations), used
tires, cars over five years old, and heavy trucks (weighing three tons or more) more than eight years old.
The value-added tax does not apply to charitable donations, although this charitable exemption requires
prior registration by the importer with APCI (the Peruvian government’s Agency for International
Cooperation). A 45 percent excise tax applies to used cars and trucks (compared to 20 percent for a new
car). However, if these used cars and trucks undergo refurbishment in an industrial center in the south of
the country (located in Ilo, Matarani, or Tacna) after importation, no excise tax applies.
Peru currently requires that biopharmaceutical companies submit a “Batch Release Certificate” issued by
the competent authority of the country of origin. The United States Food and Drug Administration (FDA)
does not issue such certificates for all types of biological pharmaceuticals. As a result, this requirement
adversely affects market access for some biologics produced in the United States. Other administrative
processing requirements and duplicative product testing have a negative impact on access to the Peruvian
The PTPA requires that procuring entities use fair, nondiscriminatory, and transparent procurement
procedures, including advance notice of purchases and timely and effective bid review procedures for
procurements covered by the Agreement. Under the PTPA, U.S. suppliers also can bid on procurements
of most Peruvian central government entities on the same basis as Peruvian suppliers. This includes
procurements by state-owned enterprises, such as Peru’s oil company and Peru’s public health insurance
Peru is not a signatory to the WTO Agreement on Government Procurement.
Peru was listed on the Watch List in the 2012 Special 301 Report. Pirated and counterfeit goods remain
widely available in Peru. Inadequate resources for law enforcement and the need for improvements at
Peru’s border and in its judicial system are evident. Piracy over the Internet is a growing problem,
especially with respect to music. There has been improvement in removing pirated and unlicensed
software from government computers, but the problem persists. A further concern is the lack of deterrent
penalties in criminal intellectual property rights (IPR) cases and against businesses found to have engaged
in infringing activity. In addition, Peru needs to clarify its system for protecting against the unfair
commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain
marketing approval of agricultural chemical products. In accordance with provisions of the PTPA, Peru
must also clarify its protections for biotechnologically-derived pharmaceutical products.
In order to address IPR-related trade barriers, the United States is engaging in discussions with Peru,
facilitating training for Peruvian prosecutors on IPR issues, and organizing programs highlighting the
benefits to Peru and its citizens.
In 2012, Peru promulgated a privacy law that has caused concern among companies dependent on crossborder data flows, as it is unclear how certain provisions, particularly consent requirements, can be
implemented. The United States will continue to monitor the development of implementing regulations
for this new regime.
Peruvian law prohibits majority foreign ownership in the broadcast media sector. Peruvian law also
restricts foreigners from owning land or investing in natural resources located within 50 kilometers of its
border, although the Peruvian government may grant special authorization to operate within those areas.
Under current law, foreign employees may not comprise more than 20 percent of the total number of
employees of a local company (whether owned by foreign or Peruvian persons) or more than 30 percent
of the total company payroll.
Both U.S. and Peruvian firms remain concerned that executive branch ministries, regulatory agencies, the
tax agency, and the judiciary often lack the resources, expertise, or impartiality necessary to carry out
their respective mandates. U.S. and Peruvian investors have also complained about the reinterpretation of
rules and the imposition of disproportionate fines by Peru’s tax agency, Superintendencia Nacional de
Administracion Tributaria.
The U.S. goods trade deficit with the Philippines was $1.5 billion in 2012, up $81 million from 2010.
U.S. goods exports in 2012 were $8.1 billion, up 4.6 percent from the previous year. Corresponding U.S.
imports from the Philippines were $9.6 billion, up 4.8 percent. The Philippines is currently the 33rd
largest export market for U.S. goods.
U.S. exports of private commercial services (i.e., excluding military and government) to the Philippines
were $2.2 billion in 2011 (latest data available), and U.S. imports were $3.0 billion. Sales of services in
the Philippines by majority U.S.-owned affiliates were $3.3 billion in 2010 (latest data available), while
sales of services in the United States by majority Philippines-owned firms were $37 million.
The stock of U.S. foreign direct investment (FDI) in Philippines was $5.3 billion in 2011 (latest data
available), down from $5.4 billion in 2010. U.S. FDI in the Philippines is mostly in the manufacturing
In the Philippines, the simple average most favored nation (MFN) tariff applied to imports is 6.1 percent.
Five percent of applied tariffs are 20 percent or greater. All agricultural tariffs and about 60 percent of
non-agricultural tariff lines are bound in the World Trade Organization (WTO). The simple average
bound tariff in the Philippines is 25.7 percent. Products with unbound tariffs include certain automobiles,
chemicals, plastics, vegetable textile fibers, footwear, headgear, fish, and paper products. Applied tariffs
on fresh fruit, including grapes, apples, oranges, lemons, grapefruits, and strawberries are between 7
percent and 15 percent whereas bound rates are much higher at 40 percent and 45 percent.
High in-quota tariffs for agricultural products under the Minimum Access Volume (MAV) system range
from 30 percent to 50 percent, significantly inhibiting U.S. exports to the Philippines. Sugar has the
highest in-quota tariff at 50 percent, followed by rice, poultry products, and potatoes at 40 percent. The
in-quota tariff for corn is 35 percent, while pork and coffee have in-quota tariffs of 30 percent.
The Philippines has reduced tariffs to below MFN rates through preferential trade agreements with
trading partners such as China, Australia, and New Zealand. The Philippines has eliminated tariffs on
approximately 99 percent of all goods from ASEAN trading partners.
Quantitative Restrictions
Under the MAV system, the Philippines imposes a tariff-rate quota on numerous agricultural products,
including corn, coffee/coffee extracts, potatoes, pork, and poultry and poultry products. Since 2005, the
Philippines has maintained MAV quota levels at its Uruguay Round commitments despite increasing
Philippine demand for MAV products.
The National Food Authority (NFA) controls rice imports through quantitative restrictions and provides
price support to domestic growers of rice. NFA’s stated objectives are to achieve self-sufficiency and to
ensure sufficiently high and stable food prices to enhance farm incomes and alleviate rural poverty.
According to the WTO, NFA’s policies have contributed to the sector’s non-competitiveness by reducing
incentives for farmers to reduce production costs and improve efficiency.
The special treatment for rice accorded to the Philippines under Annex 5 of the WTO Agreement on
Agriculture, under which the Philippines maintains a rice quota of 350,000 metric tons, expired on June
30, 2012. The Philippines is negotiating to extend its exemption from WTO tariffication obligations
through 2017 with other WTO Members, including the United States.
Automobile Sector
The Philippines continues to apply high tariffs on finished automobiles and motorcycles, including a 30
percent tariff on passenger cars; tariffs of 20 percent to 30 percent on vehicles for the transport of goods;
and tariffs of 15 percent to 20 percent on vehicles for the transport of persons, depending on vehicle
weight. ASEAN countries and Japan enjoy preferential import tariffs on new vehicle imports under the
ASEAN Free Trade Agreement and the Japan-Philippines Economic Partnership Agreement, respectively.
The Philippines continues to extend zero duty treatment on importation of capital equipment, spare parts,
and accessories by motor vehicle manufacturers and other enterprises registered under the Board of
Investments (BOI).
Motor vehicle production is covered under the Philippine Motor Vehicle Development Program (MVDP).
This program, implemented by BOI, is designed to encourage local assembly through low tariffs on
components in order to encourage Philippine automotive exports. A 1 percent tariff applies to completely
knocked-down kits (CKDs) imported by MVDP-registered participants. CKDs of alternative fuel
vehicles enter duty free. Japan and ASEAN nations enjoy zero import tariffs on all CKDs. The policy
also prohibits the importation of used motor vehicles.
Manufacture and assembly of motor vehicles, parts, and components is a preferred activity under the 2012
Philippine Investment Priorities Plan (see Subsidies).
The Philippines continues to levy safeguard duties on imports of glass products, steel angle bars, and
testliner boards. The Safeguard Measures Act allows interested parties a short five-day comment period.
An amendment to extend this comment period to 30 days has been pending since 2007.
The Department of Agriculture has a price-based special safeguard on imports of chicken, effectively
doubling the effective rate of protection for out-of-quota imports. The imposition of the special safeguard
reportedly stems from domestic industry pressure for import protection.
Excise Tax on Distilled Spirits
In March 2010, the United States and European Union brought disputes at the WTO challenging the
Philippines tax system on distilled spirits. The Philippines had for many years applied lower taxes to
distilled spirits made from typical local raw materials, such as sugar. Under this system, other spirits,
including almost all imported spirits, were taxed at a higher rate. In August 2011, a WTO panel found
that the Philippine excise taxes on imported distilled spirits are discriminatory and inconsistent with the
Philippines’ WTO obligations under Article III:2 of the GATT 1994. The WTO Appellate Body affirmed
these findings in December 2011.
On December 20, 2012, President Aquino signed into law a new excise tax system for distilled spirits.
Under the new system, all distilled spirits are subject to a 20 peso tax, based on a standard size bottle. An
additional ad valorem tax of 15 percent by value is being imposed for two years and will increase to 20
percent by value on January 1, 2015. The specific tax of 20 pesos will increase 4 percent per year every
year starting January 1, 2016. The United States will carefully monitor implementation of the new system
to ensure that it does not discriminate against imported products.
Customs Barriers
Reports of corruption and irregularities in customs processing persist, including undue and costly delays,
irregularities in the valuation process (e.g., use of reference prices rather than declared transaction values,
100 percent inspection and testing of some products, and customs officials seeking the payment of
unrecorded facilitation fees). Some exporters report, for instance, that the Bureau of Customs arbitrarily
will not accept the prices in the documentation provided to it