Microsoft Word - 2016 NTE 3 30 MV MF GY (4)

THE 2016 NATIONAL TRADE ESTIMATE REPORT

Trade policy done right bolsters the United States economy and reinforces our global leadership. That’s

why President Obama has pursued a trade agenda that promotes economic growth, supports high-paying

American jobs, and strengthens the middle class – because we know that when the playing field is level,

our workers and businesses can compete – and win – in the global economy.

The United States already has one of the world’s most open economies. But not all countries are playing

by the same rules, and all too often, our workers and businesses face significant obstacles when they export

their goods and services abroad. Opening foreign markets through smart, high-standard trade agreements

– and enforcing our existing agreements to ensure that other countries live up to their commitments – is

how we can level that playing field and make trade deliver for the American middle class.

The 2016 National Trade Estimate (NTE) plays a vital role in our efforts to open overseas markets for our

businesses and workers by identifying and cataloguing the challenges American exporters face worldwide.

The NTE covers 63 economies – from China, Japan, and the European Union to India, Brazil, South Africa

and more– and addresses thousands of particular issues in specific markets, from technical barriers to trade

affecting U.S. auto exports and limits on the flow of digital data to steel overcapacity, conformity

assessment procedures and local-content rules. Cataloguing these barriers helps to facilitate efforts to

resolve them. And of course, the Administration continues to work with Congress and stakeholders to

address trade barriers and policy issues as they emerge, whether or not if they are included in the NTE,

including ongoing issues that have been raised in the context of U.S. trade agreements.

The status quo is that our workers and businesses face high tariffs and other complex barriers in many

foreign markets. They compete against workers in some countries that do not protect even the most basic

labor rights. And they are competing against companies that get subsidies or other preferential treatment

from their governments, or that are not required to maintain strong environmental protections. The question

is, what do we do about it? Do we accept this status quo, or do we actively work to change it?

The Obama Administration has demonstrated a commitment to shape the global trading system to reflect

our interests and our values, leveling the playing field for American workers and businesses.

We have worked tirelessly to tear down barriers to Made-in-America exports.

 We successfully concluded the Trans-Pacific Partnership, which will eliminate over 18,000 foreign

taxes on U.S. exports. Adding up all these gains for American workers and businesses, the Peterson

Institute for International Economics finds passage of the TPP this year offers the United States

and its workers the prospect of an additional $357 billion in annual exports and $131 billion in

annual national income by 2030.

 We are forging ahead with negotiations for a high-standard Transatlantic Trade and Investment

Partnership with the EU, as part of an effort to strengthen the largest trade and investment

relationship in the world.

 We are seeking to conclude the Environmental Goods Agreement to reduce tariffs on

environmental technologies like wind turbines and solar water heaters.

 We are pursuing the Trade in Services Agreement to create new opportunities for U.S. exporters in

an industry where the United States is a global leader.

 We successfully concluded the Trade Facilitation Agreement, the first multilateral trade agreement

in the WTO’s 20-year history, which will improve efficiency, reduce costs, and ease exports for

our businesses and workers.

 We finalized expansion of the Information Technology Agreement to eliminate tariffs and expand

exports of information and communication technology goods.

 We worked with Congress to secure passage of free trade agreements with Korea, Colombia and

Panama.

President Obama has also made trade enforcement a key part of our strategy for opening markets for U.S.

exports, and we have put in place a robust and strategic trade enforcement program.

Since 2009, the Administration has filed 20 complaints at the WTO – more than any other WTO Member

during this period – and has won every case decided to date. We have focused on systemic barriers in key

strategic markets for our exporters, including China, India, the EU, Argentina, and the Philippines. This

has included significantly increasing the rate of cases against China, winning all seven cases decided to

date and reaching a favorable settlement in an eighth.

The NTE report has helped focus these enforcement efforts: for example, an earlier version of this report

identified Chinese export quotas and other restraints on products like rare earths, tungsten, silicon, and other

essential industrial inputs. Following U.S. victories in WTO disputes on these issues, in 2013 China in

removed export restraints on an array of products of particular interest to U.S. steel, aluminum, and

chemicals industries, and in 2015 announced the elimination of export restraints on rare earths, tungsten,

and molybdenum. These victories helped level the playing field for U.S. workers and businesses that

manufacture downstream products in the steel, aluminum and chemical sectors

This report is both a guide to the significant barriers our exporters face in foreign markets, and a case study

in the value of President Obama’s strategy of opening markets, enforcing rights, and using trade policy to

help promote growth and support better jobs for Americans. Together, those features help underscore that

American leadership on trade is more important than ever.

Amb. Michael B.G. Froman

U.S. Trade Representative

2016 National Trade Estimate Report on

FOREIGN TRADE BARRIERS

Ambassador Michael B.G. Froman

Office of the United States Trade Representative

LIST OF FREQUENTLY USED ACRONYMS

AND ABBREVIATIONS

AD ................................................................................... Antidumping

AGOA ............................................................................. African Growth and Opportunity Act

APEC .............................................................................. Asia Pacific Economic Cooperation

ASEAN ........................................................................... Association of Southeast Asian Nations

ATC ................................................................................ Agreement on Textiles and Clothing

ATPA .............................................................................. Andean Trade Preferences Act

ATPDEA ......................................................................... Andean Trade Promotion & Drug Eradication

Act

BIA .................................................................................. Built-In Agenda

BIT .................................................................................. Bilateral Investment Treaty

BOP ................................................................................. Balance of Payments

CACM ............................................................................. Central American Common Market

CAFTA ........................................................................... Central American Free Trade Area

CARICOM ...................................................................... Caribbean Common Market

CBERA ........................................................................... Caribbean Basin Economic Recovery Act

CBI .................................................................................. Caribbean Basin Initiative

CFTA .............................................................................. Canada Free Trade Agreement

CITEL ............................................................................. Telecommunications division of the OAS

COMESA ........................................................................ Common Market for Eastern & Southern Africa

CTE ................................................................................. Committee on Trade and the Environment

CTG ................................................................................ Council for Trade in Goods

CVD ................................................................................ Countervailing Duty

DDA ................................................................................ Doha Development Agenda

DSB ................................................................................. Dispute Settlement Body

EAI .................................................................................. Enterprise for ASEAN Initiative

DSU ................................................................................ Dispute Settlement Understanding

EU ................................................................................... European Union

EFTA .............................................................................. European Free Trade Association

FTAA .............................................................................. Free Trade Area of the Americas

FOIA .............................................................................. Freedom of Information Act

GATT .............................................................................. General Agreement on Tariffs and Trade

GATS ............................................................................. General Agreements on Trade in Services

GDP ................................................................................ Gross Domestic Product

GEC ................................................................................ Global Electronic Commerce

GSP ................................................................................. Generalized System of Preferences

GPA ................................................................................ Government Procurement Agreement

IFI .................................................................................... International Financial Institution

IPR .................................................................................. Intellectual Property Rights

ITA .................................................................................. Information Technology Agreement

LDBDC ........................................................................... Least-Developed Beneficiary Developing

Country

MAI ................................................................................. Multilateral Agreement on Investment

MEFTA ........................................................................... Middle East Free Trade Area

MERCOSUL/MERCOSUR ............................................ Southern Common Market

MFA ................................................................................ Multifiber Arrangement

MFN ................................................................................ Most Favored Nation

MOSS .............................................................................. Market-Oriented, Sector-Selective

MOU ............................................................................... Memorandum of Understanding

MRA ............................................................................... Mutual Recognition Agreement

NAFTA ........................................................................... North American Free Trade Agreement

NEC ............................................................................... National Economic Council

NIS .................................................................................. Newly Independent States

NSC ................................................................................. National Security Council

NTR ................................................................................ Normal Trade Relations

OAS ................................................................................ Organization of American States

OECD .............................................................................. Organization for Economic Cooperation and

Development

OPIC ............................................................................... Overseas Private Investment Corporation

PNTR .............................................................................. Permanent Normal Trade Relations

ROU ................................................................................ Record of Understanding

SACU .............................................................................. Southern African Customs Union

SADC .............................................................................. Southern African Development Community

SME ................................................................................ Small and Medium Size Enterprise

SPS .................................................................................. Sanitary and Phytosanitary Measures

SRM ............................................................................... Specified Risk Material

TAA ................................................................................ Trade Adjustment Assistance

TABD .............................................................................. Trans-Atlantic Business Dialogue

TACD .............................................................................. Trans-Atlantic Consumer Dialogue

TAEVD ........................................................................... Trans-Atlantic Environment Dialogue

TALD .............................................................................. Trans-Atlantic Labor Dialogue

TBT ................................................................................. Technical Barriers to Trade

TEP ................................................................................. Transatlantic Economic Partnership

TIFA ................................................................................ Trade & Investment Framework Agreement

TPP .................................................................................. Trans-Pacific Partnership

TPRG .............................................................................. Trade Policy Review Group

TPSC ............................................................................... Trade Policy Staff Committee

TRIMS ............................................................................ Trade-Related Investment Measures

TRIPS .............................................................................. Trade-Related Intellectual Property Rights

T-TIP ............................................................................... Transatlantic Trade and Investment Partnership

UAE ................................................................................ United Arab Emirates

UNCTAD ........................................................................ United Nations Conference on Trade &

Development

UNDP .............................................................................. United Nations Development Program

URAA ............................................................................. Uruguay Round Agreements Act

USDA .............................................................................. U.S. Department of Agriculture

USITC ............................................................................. U.S. International Trade Commission

USTR .............................................................................. United States Trade Representative

VRA ................................................................................ Voluntary Restraint Agreement

WAEMU ......................................................................... West African Economic & Monetary Union

WB .................................................................................. World Bank

WTO ............................................................................... World Trade Organization

TABLE OF CONTENTS

FOREWORD ................................................................................................................................................ 1

ALGERIA ..................................................................................................................................................... 7

ANGOLA .................................................................................................................................................... 13

ARAB LEAGUE ........................................................................................................................................ 17

ARGENTINA ............................................................................................................................................. 23

AUSTRALIA .............................................................................................................................................. 37

BAHRAIN .................................................................................................................................................. 43

BANGLADESH ......................................................................................................................................... 45

BRAZIL ...................................................................................................................................................... 51

BRUNEI DARUSSALAM ......................................................................................................................... 61

CAMBODIA ............................................................................................................................................... 65

CANADA ................................................................................................................................................... 69

CHILE ......................................................................................................................................................... 77

CHINA ........................................................................................................................................................ 81

COLOMBIA ............................................................................................................................................... 97

COSTA RICA ........................................................................................................................................... 105

DOMINICAN REPUBLIC ....................................................................................................................... 111

ECUADOR ............................................................................................................................................... 115

EGYPT ...................................................................................................................................................... 123

EL SALVADOR ....................................................................................................................................... 129

ETHIOPIA ................................................................................................................................................ 135

EUROPEAN UNION ............................................................................................................................... 139

GHANA .................................................................................................................................................... 181

GUATEMALA ......................................................................................................................................... 187

HONDURAS ............................................................................................................................................ 191

HONG KONG .......................................................................................................................................... 195

INDIA ....................................................................................................................................................... 197

INDONESIA ............................................................................................................................................. 215

ISRAEL .................................................................................................................................................... 233

JAPAN ...................................................................................................................................................... 237

JORDAN ................................................................................................................................................... 255

KAZAKHSTAN ....................................................................................................................................... 257

KENYA .................................................................................................................................................... 265

KOREA .........................................................................................................................

............................ 271

KUWAIT .................................................................................................................................................. 285

LAOS ........................................................................................................................................................ 289

MALAYSIA ............................................................................................................................................. 293

MEXICO ................................................................................................................................................... 299

MOROCCO .............................................................................................................................................. 307

NEW ZEALAND ...................................................................................................................................... 311

NICARAGUA........................................................................................................................................... 315

NIGERIA .................................................................................................................................................. 319

NORWAY ................................................................................................................................................ 325

OMAN ...................................................................................................................................................... 329

PAKISTAN ............................................................................................................................................... 333

PANAMA ................................................................................................................................................. 339

PARAGUAY ............................................................................................................................................ 343

PERU ........................................................................................................................................................ 347

THE PHILIPPINES .................................................................................................................................. 351

QATAR ..................................................................................................................................................... 359

RUSSIA .................................................................................................................................................... 363

SAUDI ARABIA ...................................................................................................................................... 379

SINGAPORE ............................................................................................................................................ 383

SOUTH AFRICA...................................................................................................................................... 387

SRI LANKA ............................................................................................................................................. 395

SWITZERLAND ...................................................................................................................................... 401

TAIWAN .................................................................................................................................................. 403

THAILAND .............................................................................................................................................. 411

TUNISIA .................................................................................................................................................. 420

TURKEY .................................................................................................................................................. 423

UKRAINE ................................................................................................................................................ 431

UNITED ARAB EMIRATES ................................................................................................................... 437

VENEZUELA ........................................................................................................................................... 443

VIETNAM ................................................................................................................................................ 451

FOREIGN TRADE BARRIERS

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FOREWORD

SCOPE AND COVERAGE

The 2016 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 31st in an annual series

that highlights significant foreign barriers to U.S. exports. This document is a companion piece to the

President’s Trade Policy Agenda published by USTR in March.

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 enhances awareness of these trade restrictions and facilitates

negotiations aimed at reducing or eliminating these 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 ten different categories. These categories cover

government-imposed measures and policies that restrict, prevent, or impede the international exchange of

goods and services. The categories covered include:

 Import policies (e.g., tariffs and other import charges, quantitative restrictions, import licensing,

customs barriers, and other market access barriers);

 Sanitary and phytosanitary measures and technical barriers to trade;

 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);

FOREIGN TRADE BARRIERS

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 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,

that affect a single sector).

Pursuant to Section 1377 of the Omnibus Trade and Competitiveness Act of 1988, USTR annually reviews

the operation and effectiveness of U.S. telecommunications trade agreements. The USTR makes a

determination on whether any foreign government that is a party to one of those agreements is failing to

comply with that government’s obligations or is otherwise denying, within the context of a relevant

agreement, “mutually advantageous market opportunities” to U.S. telecommunication products or services

suppliers.

The Section 1377 Review highlights both ongoing and emerging barriers to U.S. telecommunication

services and goods exports, and identifies the most effective bilateral or multilateral fora to monitor, engage,

and seek to overcome these barriers. In past years, the findings of the Section 1377 Review have been

published along with the description of the foreign practices reviewed in a separate report. This year, USTR

has streamlined the presentation of the 1377 Review by consolidating that information on foreign trade

barriers into the NTE. This change allows USTR to describe in one comprehensive report all trade barriers

concerning telecommunications services and goods along with related digital trade issues.

Barriers to trade in telecommunications services and goods can have outsized effects beyond the

telecommunications sector because a large and growing segment of international trade is conducted

digitally or otherwise depends on high quality telecommunications. The telecommunications trade barriers

identified in this year’s NTE include restrictions on cross-border data flows, foreign investment caps,

limitations on competition, increased termination rates for international traffic, and restrictions on the

supply of satellite services, as well as concerns about possible local content requirements and burdensome

equipment standards and conformity assessment procedures. USTR works with foreign governments

bilaterally and in multilateral fora to address these concerns and to forestall new obstacles to

telecommunications trade.

The NTE continues to highlight the increasingly critical nature of standards-related measures (including

testing, labeling and certification requirements) and sanitary and phytosanitary (SPS) measures to U.S.

trade policy, to identify and call attention to problems and efforts to resolve them during the past year and

to signal new or existing areas in which more progress needs to be made. Standards-related and SPS

measures serve an important function in facilitating international trade, including by enabling small and

medium sized enterprises (SMEs) to obtain greater access to foreign markets. Standards-related and SPS

measures also enable governments to pursue legitimate objectives such as protecting human, plant, and

animal health, the environment, and preventing deceptive practices. But standards-related and SPS

measures that are nontransparent and discriminatory can act as significant barriers to U.S. trade. Such

measures can pose a particular problem for SMEs, which often do not have the resources to address these

problems on their own.

FOREIGN TRADE BARRIERS

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USTR will continue to identify, review, analyze, and address foreign government standards-related and

SPS measures that affect U.S. trade. USTR coordinates rigorous interagency processes and mechanisms,

through the Trade Policy Staff Committee and, more specifically, through specialized TBT and SPS

subcommittees. These TPSC subcommittees, which include representatives from agencies with an interest

in foreign standards-related and SPS measures, maintain an ongoing process of informal consultation and

coordination on standards-related and SPS issues as they arise.

The United States actively engages with foreign governments to prevent unwarranted standards-related and

SPS measures, and works to resolve specific trade concerns arising from standards-related and SPS

measures. The WTO TBT Committee and the WTO SPS Committee are the principal multilateral fora for

engagement on trade issues relating to standards-related and SPS measures. The mechanisms for

cooperation on these measures in U.S. FTAs and Trade and Investment Framework Agreements (TIFAs)

also play a vital role in facilitating U.S. efforts to prevent and resolve standards-related and SPS trade

concerns. In addition, U.S. agencies seek to prevent potential standards-related and SPS trade barriers from

emerging by engaging in multilateral, regional, and bilateral cooperative activities, information exchanges,

technical assistance, and negotiations on specific arrangements. These efforts are aimed at helping other

governments design effective and well-conceived standards-related and SPS measures, with the goal of

producing better regulatory outcomes and facilitating trade.

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 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 vigorously scrutinize foreign labor practices and to address 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 2016 Trade Policy Agenda and 2015 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).

FOREIGN TRADE BARRIERS

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This report discusses the largest export markets for the United States, including 58 countries, the European

Union, Taiwan, Hong Kong, and one regional body. The discussion of Chinese trade barriers is structured

and focused to align more closely with other Congressional reports prepared by USTR on U.S.-China trade

issues. The China section includes cross-references to other USTR reports where appropriate. This year,

sections on Bangladesh, Algeria, and Tunisia have been added to the coverage of NTE, reflecting the

growing importance of their countries as a market for U.S. exports and services. Sections on Iraq and

Uzbekistan do not appear in this year’s report due to the relatively small size of their markets, a lack of

progress in government to government engagement, and the absence of major trade complaints from

representatives of U.S. goods and services sectors. As always, 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 more than half

of the specified cases, U.S. bilateral goods trade continued to increase in 2015 compared to the preceding

period. The merchandise trade data contained in the NTE are based on total U.S. exports, free alongside

(f.a.s.)

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 the size of the export

market). The services data are drawn from the October 2014 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 2014 Survey of Current Business, also from BEA.

TRADE IMPACT ESTIMATES AND FOREIGN BARRIERS

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.

FOREIGN TRADE BARRIERS

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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 report.

In some cases, stakeholder 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 2016

FOREIGN TRADE BARRIERS

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Endnotes

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 (Anti-bribery Convention). In November

1997, the United States and 33 other nations adopted the Anti-bribery Convention, which currently is in force for 40 countries,

including the United States. The Anti-bribery 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 http://www.export.gov/tcc and http://www.oecd.org).

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 November 2014, there were 174

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 led other countries in

concluding multilateral negotiations on the World Trade Organization (WTO) Trade Facilitation Agreement which contains

provisions on transparency in customs operations and avoiding conflicts of interest in customs penalties. The United States has

also advocated for transparency of government procurement regimes in FTA negotiations. In the Trans-Pacific Partnership and

Transatlantic Trade and Investment 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.

FOREIGN TRADE BARRIERS

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ALGERIA

TRADE SUMMARY

The U.S. goods trade deficit with Algeria was $1.5 billion in 2015, a 25.7 percent decrease ($517 million)

over 2014. U.S. goods exports to Algeria were $1.9 billion, down 28 percent ($741 million) from the

previous year. Corresponding U.S. imports from Algeria were $3.4 billion, down 27 percent. Algeria was

the United States' 60th largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Algeria (stock) was $5.2 billion in 2014 (latest data available), a

11.3 percent increase from 2013.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Vehicles

In March 2015, the Algerian government enacted various new safety requirements for imported vehicles,

with a focus on passenger automobiles. Algerian officials assert that these new requirements apply to all

vehicles, but the effect of the requirements has been most noticeable on vehicles imported into Algeria.

Automotive industry representatives have expressed concerns that the requirements, which are based only

loosely on the United Nations Economic Commission for Europe (UNECE) vehicle standards, are overly

broad and focus on the attributes of specific safety components rather than performance. Under the new

procedures intended to enforce the requirements, all vehicles entering the country must be accompanied by

a “certificate of conformity” before they are inspected by a representative of the Ministry of Industry and

Mines. Algeria also requires a certificate in order to obtain the letter of credit necessary to finance a vehicle

importation. In addition, the new requirements were adopted without stakeholder input, or sufficient

transition period for implementation, resulting in thousands of cars blocked on arrival or held at the port of

origin as a result of non-compliance.

Food Products

Algeria requires imported food products to have at least 80 percent of their shelf life remaining at the

time of importation.

Sanitary and Phytosanitary Barriers

The Algerian government currently bans the importation, distribution, or sale of seeds that are the products

of biotechnology. There is an exception for biotech seeds imported for research purposes.

Algeria has not agreed to export certificates that would permit the importation of beef and poultry from the

United States. Although there are no official bans or specific regulations prohibiting the importation of

U.S. beef into Algeria, the Government of Algeria has expressed concerns about the widespread use of

growth hormones in the United States and has restricted U.S. beef imports in the past. Export certificates

are being negotiated between U.S. and Algerian veterinary authorities to allow the importation into Algeria

of U.S. breeding cattle and bovine genetics.

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IMPORT POLICIES

Tariffs

Goods imported into Algeria face a range of tariffs, from zero to 70 percent. Nearly all finished

manufactured products entering Algeria are subject to a 30 percent tariff rate, but some limited categories

are subject to a 15 percent rate. Goods facing the highest rates are those for which direct equivalents are

currently manufactured in Algeria, including some pharmaceuticals. The few items that are duty free are

generally EU-origin goods that are for use in manufacturing industries and are exempt from tariffs under

the European Union-Algeria Association Agreement.

In addition, most imported goods are subject to the 17 percent value-added tax and an additional 0.3 percent

tax is levied on a good if the applicable customs duty exceeds DZD 20,000.

Customs Procedures

Clearing goods through Algerian customs is the single most frequently reported problem facing foreign

companies operating in Algeria. Delays can take weeks or months, and in many cases are not accompanied

by official explanations. In addition to a certificate of origin, the Algerian government requires all importers

to provide certificates of conformity and quality from an independent third party. Customs requires

shipping documents to be stamped with a “Visa Fraud” note from the Ministry of Commerce, indicating

that the goods have successfully passed a fraud inspection, before the goods are cleared. Many importations

also require authorizations from multiple ministries, which causes additional bureaucratic delays, especially

when the regulations do not clearly specify which ministry’s authority is being exercised.

Storage fees at Algerian ports of entry are high, and the fee rates double when goods are stored for longer

than 10 days. One U.S. manufacturer reported spending $6 million in 2014 on storage fees. Firms report

that bribery is used widely to effect the release of shipments, and both U.S. and non-U.S. company

representatives have claimed that shipments are sometimes deliberately held at port to increase payments

to customs officials.

Import Restrictions

Pharmaceuticals and Medical Devices

Since 2010, Algeria’s Ministry of Health has been issuing regulations, pursuant to a 1985 law, to ban imports

of a number of medications, medical devices, and other medical goods. It is now estimated that 460 products

have been affected by these regulations. In mid-2015, Algeria began to set quotas for drugs for which an

equivalent is produced domestically. If at least three national laboratories produce an equivalent, imports

of the drug are prohibited. The Ministry of Health has been applying these policies despite the inability of

local production to meet demand for dozens of affected medications.

The Ministry of Health also began imposing mandatory local sales price reductions of up to 75 percent for

imported drugs in May 2015. In its calculations, the Ministry sought to match, with only a slight adjustment,

the lowest sale price worldwide for all imported pharmaceuticals, disregarding potentially unique factors

present in other economies that would contribute to price variations.

The Algerian government instituted in 2007 a regulation that effectively bans the import of used medical

equipment. The government has applied the rule broadly to block the re-importation of machinery that has

been sent abroad for maintenance under warranty, even for equipment owned by state-run hospitals.

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Import Licenses and Quotas

The 2016 budget, signed into law on December 31, 2015, empowers the Ministry of Commerce to require

import licenses for goods in certain sectors. Products subject to licensing are determined by an inter-

ministerial committee chaired by the Ministry of Commerce. As of February 2016, these licensing

requirements have been used to establish quotas for automobiles, cement, and steel reinforcing rods (rebar),

as part of an effort to protect 15 “strategic sectors” defined in the 2015 budget. Other products under

consideration for such requirements include wood, ceramics, iron, raisins, garlic, potato chips, and some

confectionary products.

Vehicles

The Ministry of Commerce has announced that, beginning in 2016, Algeria will limit imports of vehicles

to 400,000 per year. Imports of used vehicles and of construction equipment have been banned since 2007.

Other Product Bans

All types of used machinery are banned from entry into Algeria. All products containing pork or pork

derivatives are prohibited.

GOVERNMENT PROCUREMENT

Algeria announced in August 2015 that all ministries and state-owned enterprises (SOEs) would be required

to purchase domestically manufactured products whenever available. It further announced that the

procurement of foreign goods would be permitted only with special authorization at the minister level and

if a locally made product could not be identified. For housing projects that are at least partially funded by

the state, a Ministry of Housing and Town Planning edict in effect since December 2014 prohibits

contractors from using imported construction materials when equivalent products of equal quality are

produced locally.

Algeria is not a WTO member and is not party to the WTO GPA.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Algeria remains on the Watch List in the Special 301 Report. Although Algeria has a robust legal

framework for IPR protection, enforcement of those rights is lacking. The production of counterfeit goods

has been nearly eradicated, but imports of counterfeit goods have increased dramatically; an estimated 85

percent or more of software in the country is pirated. Patent and trademark protection is ineffective,

especially in the pharmaceutical sector. U.S. companies have reported unlicensed production of their brand-

name drugs in the Algerian market.

SERVICES BARRIERS

Banking

Since 2010, Algeria has restricted foreign shareholders from making loans to Algerian subsidiaries.

Direct wire payments for imported goods are not permitted. Instead, all importers must secure letters of

credit covering at least the full cost of the imported goods for any shipments totaling at least DZD 4 million

(approximately $38,000), and the validity of the letters of credit is limited to 60 days.

FOREIGN TRADE BARRIERS

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The government tightly controls foreign exchange for Algerian firms. Algerian companies (except those in

the hydrocarbons sector) may receive up to 50 percent of their export earnings in U.S. dollars, and the

remainder must be paid in local currency. Algerian companies in the hydrocarbons sector must receive 100

percent of export revenue in local currency. These limits present barriers to trade for international companies

as well, since these companies must form joint ventures with Algerian firms to make any local investments.

With few exceptions, the Algerian government prohibits Algerian citizens from holding financial assets

abroad. The government permits Algerians to obtain foreign currency for the importation of goods only if

they have in local currency the equivalent of the hard currency cost of the imports.

Electronic Payment Services

Electronic payment services are limited in Algeria owing to an underdeveloped telecommunications

infrastructure to support electronic banking and a weak consumer credit culture. The government banned

consumer credit from 2009 to 2014, and consumer loans are almost entirely restricted to the purchase of

domestically-produced goods. Credit cards are rare. Those that exist are primarily local use cards known

as CIBs issued by local banks. Internationally recognized cards such as Mastercard and Visa have been

authorized only recently for use within Algeria.

INVESTMENT BARRIERS

The 49/51 investment law requires Algerian ownership of at least 51 percent in all projects involving foreign

investments. It originated as part of the 2006 law governing hydrocarbons but was expanded in the 2009

supplementary budget law to include all foreign investments.

As there is no economy-wide process for registering foreign investments, prospective investors must work

with the relevant ministry or ministries to negotiate, register, and set up their businesses. U.S. businesses

have commented that the process is subject to political influence, and that companies not given an informal

“green light” by the relevant ministry may not be able to establish their company in Algeria. The lack of

transparency behind the decision making process makes it difficult to determine the reasons for any delays.

Algeria does not currently have a law allowing franchising, but is working, with U.S. Government

assistance, to draft one. In addition, franchisees currently may not repatriate royalties, and as a result, it is

very difficult for foreign franchises to operate in Algeria.

The extent of Algerian bureaucratic requirements causes significant delays and deters many companies

from attempting to enter the market. Several U.S. companies, particularly in the pharmaceutical sector,

have reported difficulties in renewing their operating and market access licenses with the relevant ministries

in Algeria. Without a valid license, the process for obtaining import authorization is extremely slow. In

some cases, the companies have speculated that licenses have been deliberately obstructed to block imports.

ELECTRONIC COMMERCE

Under current law, Algerian citizens may not purchase goods online. Businesses, however, may purchase

items online and import them for business-related uses.

FOREIGN TRADE BARRIERS

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OTHER BARRIERS

State-Owned Enterprises

State-owned enterprises (SOEs) comprise about two-thirds of the Algerian economy. The national oil and

gas company Sonatrach is the most prominent SOE, but SOEs are present in all sectors of the economy.

While Algeria once gave equal opportunity to foreign and local companies competing for government

contracts, in the last few years the government has favored SOEs and other Algerian companies.

FOREIGN TRADE BARRIERS

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ANGOLA

TRADE SUMMARY

The U.S. goods trade deficit with Angola was $1.6 billion in 2015, a 55.3 percent decrease ($2.0 billion)

over 2014. U.S. goods exports to Angola were $1.2 billion, down 43 percent ($876 million) from the

previous year. Corresponding U.S. imports from Angola were $2.8 billion, down 51 percent. Angola was

the United States' 74th largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Angola (stock) was $1.9 billion in 2014 (latest data available), a

56.2 percent increase from 2013.

IMPORT POLICIES

Tariffs and Nontariff Measures

Angola is a member of the World Trade Organization (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. The Angolan government is concerned that implementation of the SADC

Protocol on Trade would lead to a large increase in imports, particularly from South Africa.

Angola’s new tariff schedule was published in November 2013 and became effective in January 2014.

Through the new schedule, the government aims to protect and stimulate national industry by raising import

and consumption duties on items that Angolan companies already produce, even if domestic production

cannot meet domestic demand. Notable changes under the new schedule include a 50 percent import tax

on beer (reflecting a 20 percent increase from the previous import tax); a 50 percent import duty (35 percent

increase) on fruit juices; and a 50 percent import tax (35 percent increase) on certain vegetables, including

tomatoes, onions, garlic, beans, and potatoes. The import taxes for roofing materials and bricks have also

increased by 20 percent to 50 percent. The import tax for chicken products, which make up the bulk of

U.S. food exports, has not changed under the schedule, but it remains high.

Tariff rates on a few products like palm oil, railway materials, and wheat flour have decreased, to a limited

extent, under the 2013 tariff schedule. Another prominent feature of the new tariff schedule is a policy that

allows Angolan producers to enjoy import tax exemptions on inputs that are used to manufacture Angolan

products.

Tariffs for the oil industry are largely determined by individually negotiated contracts between international

oil companies and the Angolan government. As most U.S. exports to Angola consist of specialized oil

industry equipment, which are largely exempt from tariffs, the annual impact of tariffs 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.

Under Presidential Decree No. 2/15, “Operações Cambiais de Invisíveis Correntes,” a new 10 percent tax

on remittances to pay for foreign technical or administrative services became law in June 2015. The new

10 percent tax on remittances to pay for services sourced abroad is in addition to the 6.5 percent tax assessed

on such services.

FOREIGN TRADE BARRIERS

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Presidential Decree No. 5/15 in September 2015 sets forth new consumption taxes mostly on luxury goods,

with what appear to be different rates on a number of domestically produced goods compared to

international goods. The United States is working to address this issue with Angolan government officials.

Cement is also a focus of the Angolan government’s efforts to protect and promote local production, both

for domestic consumption and exports. Executive Decree No. 15/14 sets limits on cement importation,

regulates prices, and specifies ports through which cement can be imported.

Customs Barriers

Administration of Angola’s customs service has improved in the last few years, but remains a barrier to

market access.

Presidential Decree No. 63/13 established that pre-shipment inspections are no longer mandatory for goods

shipped after June 12, 2013. However, traders may continue to contract for pre-shipment inspection

services from private inspection agencies if they wish to benefit from faster “green channel” access, or if

pre-shipment inspection is required by their letter of credit agreement. Some importers find that the fees

charged by Bromangol, a private laboratory which dominates the inspection market, are excessive, and they

also question whether testing is actually completed.

Any shipment of goods equal to or exceeding $1,000 requires use of a clearing agent. While the number

of clearing agents increased from 55 in 2006 to 232 in 2015, competition among clearing agents and reduced

importing activity have not reduced fees for such agents, which typically range from one percent to two

percent of the value of the declaration.

The importation of certain goods may require specific authorization from various government ministries,

which 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); fiscal or

postal stamps, 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); poisonous and toxic substances and drugs (Ministries of Agriculture, Industry,

and Health); and samples or other goods imported to be given away (Customs). The import of goods such

as poultry has also been hindered at times through the use of restrictive import licensing rules.

GOVERNMENT PROCUREMENT

Angola’s government procurement process lacks transparency and fails to support competition among

suppliers. Information about government projects and procurements is often not readily available from the

appropriate authorities. Although calls for bids for government procurements are sometimes published in

the government newspaper, “Jornal de Angola,” many contracting agencies already form a preference for

a specific business before receiving all the bids. The Promotion of Angolan Private Entrepreneurs Law

provides Angolan companies preferential treatment in the government’s procurement of goods, services

and public works contracts. Angolan companies often then deliver these goods and services by

subcontracting with foreign companies.

Angola is not a signatory to the WTO Agreement on Government Procurement.

FOREIGN TRADE BARRIERS

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INTELLECTUAL PROPERTY RIGHTS PROTECTION

Angola was not listed on the 2015 Special 301 Report. 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 rights (IPR) are administered by the Ministry of

Industry (trademarks, patents, and designs) and by the Ministry of Culture (authorship, literary, and artistic

rights).

Although Angolan law provides basic protection for IPR and the National Assembly continues to work to

strengthen existing legislation, IPR protection remains weak in practice due to a lack of enforcement

capacity.

INVESTMENT BARRIERS

Angola can be a difficult environment for foreign investors. Oil revenues contribute 77 percent of

government revenues and are the dominant source of foreign exchange. Starting in late 2014, as a direct

result of the decline in oil prices, foreign exchange availability for imports, royalties and remittances has

greatly suffered. To address this shortfall, the Angolan government significantly revised downward its

2015 budget, and is limiting foreign exchange approvals through a Central Bank managed, foreign

exchange auction and approval process. This process prioritizes imports related to oil sector operations,

food, and medicine, but even these imports face long delays for approval of foreign exchange.

American businesses have reported significant difficulties repatriating profits out of Angola. Central Bank

approvals for remittance and royalties are subject to particularly severe delays. Corporations report that,

following direct appeals to the Central Bank, they are able to access foreign exchange to remit only very

small portions of their local currency accounts.

On August 26, 2015, the Angolan government enacted a new private investment law that stripped the

National Agency for Private Investment (ANIP) of its authority with respect to attracting, facilitating, and

approving investments. The law assigned responsibility for overseeing new investments across various line

ministries, with the aim of expediting investments and improving investment oversight. ANIP is folded

into a new entity, the Angolan Investment and Export Promotion Agency.

The new private investment law maintains the existing requirement that a $1 million investment is required

of foreign investors in order to be eligible for fiscal incentives from the government. The threshold for

eligibility for these incentives for Angolan investors is lowered to $500,000. The law also requires at least

35 percent local participation in foreign investments in the following strategic sectors: electricity, water,

tourism, hospitality, transportation, logistics, telecommunications, information technology, construction,

and media. The previous law did not require local partnerships in specific sectors, with the exception of

the energy, banking, and insurance sectors. The new private investment law will not apply to existing

investments, which will continue to be governed by the old legal framework. Investments in Angola’s

mining, finance, and petroleum sectors are not affected by the new law, as they continue to be governed by

sector-specific legislation.

The investment law expressly prohibits private investment in strategic areas such as defense and national

security; banking activities relating to the operations of the Central Bank and the Mint; the administration

of ports and airports; and other areas where the law gives the state exclusive responsibility.

Under the new law, foreign investors pay higher taxes on dividends and profit repatriation. The new tax

rate starts at 15 percent and rises to as much as 50 percent, depending on the date and amount of repatriation.

FOREIGN TRADE BARRIERS

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By law, the Council of Ministers has 30 days to review a foreign investment application, although in

practice decisions are often subject to lengthy delays. Obtaining the proper permits and business licenses

to operate in Angola is time consuming, and adds to the cost of investment. The World Bank’s “Doing

Business in 2015” report noted that it takes an average of 66 days to start a business in Angola compared

to a regional average of 29.7 days.

The Angolan justice system can be slow and arduous. The World Bank’s “Doing Business in 2015” report

estimates that enforcing contracts (measured by the amount of time elapsed between the filing of a

complaint and the receipt of restitution) generally takes 1,296 days in Angola, whereas the average period

in sub-Saharan Africa is 650 days. While existing law contemplates domestic and international arbitration,

arbitration law is not widely practiced in the country.

The Angolan government is gradually implementing legislation for the petroleum sector, which was

originally enacted in November 2003 (Order 127/03 of the Ministry of Petroleum). This legislation requires

many foreign oil services companies to form joint venture partnerships with local companies. With respect

to the provision of goods and services not requiring heavy capital investment or specialized expertise,

foreign companies may only participate as a contractor or sell manufactured products to Angolan companies

for later resale. Foreign petroleum companies face local content requirements forcing them to acquire low-

capital investment goods and services from Angolan-owned 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.

The Foreign Exchange Law for the Petroleum Sector requires that all petroleum, oil, and gas companies

use Angola-domiciled banks to make all payments, including payments to suppliers and contractors located

outside of Angola. Furthermore, payments for goods and services provided by resident service providers

must be made in local currency.

OTHER BARRIERS

Corruption

Corruption is prevalent in Angola for many reasons, including an inadequately trained civil service, a

highly-centralized bureaucracy, antiquated regulations, and a lack of implementation of anticorruption

laws. “Gratuities” and other facilitation fees are sometimes requested to secure quicker service and

approval. It is common for Angolan government officials to have substantial private business interests.

These interests are not necessarily publicly disclosed. Likewise, it is difficult to determine the ownership

of some Angolan companies. The business climate continues to favor those connected to the government.

Laws and regulations regarding conflict of interest are not widely enforced. Some investors report pressure

to form joint ventures with specific Angolan companies believed to have connections to political figures.

FOREIGN TRADE BARRIERS

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ARAB LEAGUE

The effect of the Arab League’s boycott of Israeli companies and Israeli-made goods on U.S. trade and

investment in the Middle East and North Africa varies from country to country. While the boycott still on

occasion can pose a barrier (because of associated compliance costs and potential legal restrictions) for

individual U.S. companies and their subsidiaries doing business in certain parts of the region, it has for

many years had an extremely limited practical effect overall on U.S. trade and investment ties with many

key Arab League countries. The 22 Arab League members are the Palestinian Authority and the following

countries: 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 non-application 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 governments to end it. The U.S. Department of

State and U.S. embassies in relevant Arab League host capitals take the lead in raising U.S. concerns related

to the boycott with political leaders and other officials. 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 members and, aided by U.S. embassies, lend advocacy support to firms facing boycott-related

pressures.

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 United States 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 and the Internal

Revenue Service, deny certain foreign tax benefits to companies that agree to requests from boycotting

countries to participate in certain types of boycotts.

The U.S. Government’s efforts to oppose the Arab League boycott include alerting appropriate officials to

the presence of prohibited boycott requests and those requests’ adverse impact on both U.S. firms and on

Arab League members’ 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 those counterparts to identify language in commercial documents 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 firms from other countries that contribute to Israel’s military or economic development.

FOREIGN TRADE BARRIERS

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Such firms may be placed on a blacklist maintained by the Central Boycott Office (CBO), a specialized

bureau of the Arab League; the CBO often provides this list to other Arab League member governments,

which decide whether or to what extent to 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 among them. Some Arab League member governments have consistently maintained

that only the Arab 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; thus, a number of governments

have taken steps to dismantle various aspects of their national boycotts. 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

varies; 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 company blacklist. Ongoing political upheaval in Syria since 2011 has prevented the CBO

from convening meetings on a regular basis.

The current situation in individual Arab League members is as follows:

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 in Egypt since early 2011 introduced some uncertainty with respect to future Egyptian

approaches to boycott-related issues, but thus far the Egyptian government has affirmed its continued

commitment to the peace treaty.

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. While some elements of Jordanian society continue to oppose

improving political and commercial ties with Israel as a matter of principle, government policy has sought

to enhance bilateral commercial ties.

LIBYA: Prior to its revolution, Libya did not maintain diplomatic relations with Israel and had a law in

place mandating application of the Arab League boycott. The Qaddafi regime enforced the boycott and

routinely inserted boycott language in contracts with foreign companies. Bills of lading and customs

declarations for imports could not indicate trade with Israel, and shippers were legally required to certify

that no goods they were handling were of Israeli origin. Foreign ships were prohibited from calling at

Libyan ports if they had called at an Israeli port within the preceding year. Ongoing political upheaval in

Libya since 2011 has made it impossible to determine the current attitude of Libyan authorities toward

boycott issues. The Administration will continue to monitor closely Libya’s treatment of the boycott.

IRAQ: U.S. companies and investors consider the existence of boycott-related requirements in

procurement contracts and tenders issued by the government of Iraq as significant disincentives for doing

business in the country. It is estimated that since 2010, U.S. companies have lost more than $1 billion in

sales opportunities in Iraq due to Arab League boycott-related requests.

Despite antiboycott guidance given on two occasions from the Iraqi Council of Ministers to all ministries,

the number of boycott-related requests from Iraqi entities increased from 2009 to 2013. In 2014, there were

70 prohibited requests (as defined by U.S. antiboycott laws) from Iraqi entities reported to the U.S.

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Department of Commerce; the level fell to 62 in 2015. Requests emanated from several Iraqi government

entities, including the Ministry of Health (MOH) and its procurement arm, the Iraqi State Company for

Importation of Drugs and Medical Appliances (Kimadia); the Ministry of Planning; the South Oil

Company; the General Directorate of Electrical Energy Production; and the Ministry of Electricity.

The MOH committed to the United States in June 2013 that it would stop issuing boycott-related requests.

Since that time, however, the MOH has issued several boycott-related requests that negatively affected U.S.

suppliers of medical and pharmaceutical products. In January 2014, the head of Kimadia informed the

United States that the MOH and Kimadia would move to end the practice of including Arab League boycott-

related requirements in tender packages for new procurements. The South Oil Company, which had stopped

issuing tenders with boycott language several years ago, recently resumed issuing tenders containing

boycott-related language. Increased boycott-related requests from the Ministry of Electricity are also very

troubling, since Iraq is seeking investment and procurement of key power sector technologies from foreign

companies and critical procurement projects currently are underway.

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, though it pledged

to adhere to its 1995 governmental decision to renounce observance of the secondary and tertiary aspects

of the boycott. Continuing serious political unrest within the country and resultant deterioration in the

government’s ability to implement policies make it difficult to predict Yemen’s future posture toward

boycott-related 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 by all accounts 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: All foreign trade involving Palestinian producers and importers must be

managed through Israeli authorities. The Palestinian Authority (PA) agreed not to enforce the boycott in a

1995 letter to the U.S. Government and the PA has kept to this commitment since. Various groups

advocating for Palestinian interests continue to call for boycotts and other actions aimed at restricting trade

in goods produced in Israeli West Bank settlements.

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 in general 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 is reportedly 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. According to previously published Israeli statistics, Morocco in recent

years has been Israel’s seventh largest trading partner in Africa and third largest in the Arab world, after

Jordan and Egypt. U.S. firms have not reported boycott-related obstacles to doing business in Morocco.

Moroccan officials do not appear to attend CBO meetings.

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 Tunisian revolution, there has been no

indication that Tunisian government policy with respect to the boycott has changed.

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SUDAN: The government of Sudan supports the Arab League boycott and has enacted legislation requiring

adherence to it. However, there appear to be no regulations in place to enforce the secondary and tertiary

aspects of the boycott.

COMOROS, DJIBOUTI, AND SOMALIA: None of these countries have 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 traditionally was diligent in implementing laws to enforce the Arab League boycott,

maintaining its own boycott-related blacklist of firms, separate from the CBO list. Syria’s boycott practices

have not had a substantive impact on U.S. businesses due to U.S. economic sanctions imposed on the

country since 2004; the ongoing and serious political unrest within the country has further reduced U.S.

commercial interaction with Syria.

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-related

language continues to surface on occasion and impact individual business transactions.

The situation in individual GCC member countries is as follows:

Bahrain: The U.S. Government has received assurances from the government of Bahrain that it 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. Bahrain abolished its boycott law and enforcement office in

September 2005 while preparing to sign its Free Trade Agreement with the United States. Tender

documents from Bahrain have occasionally referred to the secondary and tertiary aspects of the boycott,

but such instances have been remedied when brought to authorities’ attention. The government has stated

publicly that it recognizes the need to abandon formally the primary aspect of the boycott. There are no

laws prohibiting bilateral trade and investment between Bahrain and Israel. No entities exist in Bahrain

that promote trade with Israel; however, Israeli-labeled products reportedly can occasionally be found in

Bahraini markets.

Kuwait: Kuwait continues to recognize the 1994 GCC decision and has not applied secondary or tertiary

aspects of the boycott since 1991. Kuwait claims to have eliminated all direct references to the boycott in

procurement documentation as of 2000. Kuwait has a three person boycott office, which is part of the

General Administration for Customs. Although Kuwaiti officials reportedly regularly attend Arab League

boycott meetings, it is unclear whether they are active participants.

Oman: Oman does not apply any aspect of the boycott and has no laws providing for boycott enforcement.

Although boycott-related language occasionally appears in tender documents, Omani officials are

committed to ensure that such language is not included in new tender documents and have removed boycott-

related language when brought to their attention. Omani customs processes Israeli-origin shipments

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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: Qatar has a boycott law but the extent to which the government enforces it is unclear. 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 continue to report receiving boycott-related

requests from public Qatari companies; in those instances, companies have made an effort to substitute

alternative language. 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

higher than 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: 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. Saudi companies have usually been willing to void or revise

boycott-related language in commercial documents when they are notified of its use.

The United Arab Emirates (UAE): The 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. The United States has had some success in

working with the UAE to resolve specific boycott-related cases. The U.S. Department of Commerce/OAC

and Emirati Ministry of Economy officials have held 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 degree, though OIC members are geographically

and culturally much more diverse). Information gathered by U.S. embassies in various non-Arab League

OIC member states does not paint a clear picture of whether the OIC enforces 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; Turkey has an active history of trade with Israel.

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ARGENTINA

TRADE SUMMARY

The U.S. goods trade surplus with Argentina was $5.4 billion in 2015, a 18.2 percent decrease ($1.2 billion)

over 2014. U.S. goods exports to Argentina were $9.3 billion, down 14 percent ($1.5 billion) from the

previous year. Corresponding U.S. imports from Argentina were $3.9 billion, down 6.9 percent. Argentina

was the United States' 28th largest goods export market in 2015.

U.S. exports of services to Argentina were an estimated $6.7 billion in 2014 (latest data available), and U.S.

imports were $1.7 billion. Sales of services in Argentina by majority U.S.-owned affiliates were $9.4 billion

in 2013 (latest data available), while sales of services in the United States by majority Argentina-owned

firms were $7 million.

U.S. foreign direct investment (FDI) in Argentina (stock) was $13.4 billion in 2014 (latest data available),

a 0.2 percent decrease from 2013. U.S. direct investment in Argentina is led by manufacturing, information,

and mining.

INTRODUCTION

The government of President Mauricio Macri, which took office on December 10, 2015, has taken steps to

reverse many of the trade restrictive policies and measures that were in effect in 2015, as noted in this

report. During President Obama’s visit to Argentina, the United States and Argentina signed a bilateral

Trade and Investment Framework Agreement (TIFA) on March 23, 2016. The TIFA creates a forum for

the United States and Argentina to engage on a broad range of bilateral economic issues, such as market

access, intellectual property rights protection, and cooperation on shared objectives in the World Trade

Organization and other multilateral fora.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Consumers Goods Label Supervision System

In October 2015, Argentina issued Resolution 420/2015, which established a Label Supervision System

affecting several products for human consumption and human handling, including imported food and

beverages, personal hygiene, perfume and cosmetics. This measure contained duplicative requirements for

documentation that must be submitted to regulatory authorities, resulting in delayed label approval and

increased costs that will increase prices to the consumer. On January 28, 2016, the recently elected

government of President Mauricio Macri issued Resolution 6/2016, which revokes this measure in its

entirety, and removes this barrier to U.S. exports.

Regulation of Low Voltage Electrical Equipment Safety

On October 22, 2015, Argentina issued Resolution 508/2015, which changes the procedures for obtaining

safety certificates for low voltage electrical equipment. Specifically, the measure amends the universe of

products that, when used professionally or by electrical safety experts, may be subject to alternative means

of compliance with safety requirements; establishes criteria for forming families of products, with a view

to issuing a certificate for each of these families and creating a single certificate format for each of the

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authorized modalities; and establishes new guidelines for the monitoring of certified products by

certification bodies. Argentina notified this measure to the WTO Committee on Technical Barriers to Trade

(TBT Committee) on November 2, 2015, and it came into force on November 22, 2015. U.S. stakeholders

submitted comments on the measure through the U.S. Inquiry Point on January 4, 2016 citing transparency

concerns, a need for a longer implementation period, and offered suggestions to improve the regulation.

We will continue to engage with Argentina on this issue in 2016.

Conformity Assessment Requirements

Since 2013, Argentina has maintained mandatory conformity assessment requirements for electrical and

electronic products that require foreign manufacturers and importers of all electrical and electronic products

to obtain safety certifications from Argentine bodies before they can enter commerce in Argentina. These

repetitive testing requirements are applicable only to foreign manufacturers, and they impose significant

delays and increase costs.



Testing Requirements for Lead in Graphic Products

In 2010, Argentina issued Resolution 453/2010, which required that all inks, lacquers and varnishes used

in producing printed materials, such as books, magazines, newspapers, package labeling and inserts,

undergo testing for lead content. The resolution also required the testing to be conducted in one of two

designated laboratories in Argentina. The United States, along with other WTO members, raised these

requirements in the WTO Committee on Technical Barriers to Trade, noting that the requirements appeared

to apply only to foreign producers and resulted in a de facto ban on imports of books, magazines and

newspapers. In January 2016, the new government issued Resolution 1/2016, to exclude books, magazines,

brochures, leaflets, and periodicals from the technical restrictions established in Resolution 453/2010,

thereby re-opening the Argentine market to imports of printed materials.

Sanitary and Phytosanitary Barriers

Food Safety and Animal Health

Live Cattle, Beef, and Beef Products

Argentina has banned imports of all U.S. live cattle, beef, and beef products since 2002 due to concerns

about the status of bovine spongiform encephalopathy (BSE) in the United States. In June 2015, through

Resolution 238/2015, Argentina’s National Service of Agricultural and Food Health and Quality

(SENASA) published new import requirements for ruminants and ruminant products, replacing previous

requirements from 2010 and adopting three World Organization for Animal Health (OIE) categories for

BSE risk classification. The OIE recognizes the United States as negligible risk for BSE. The United States

has initiated discussions with SENASA to gain full access for U.S. beef, beef products and live cattle based

on the United States’ BSE negligible risk status.

Animal Health

Pork

Argentina does not currently allow imports of U.S. pork. In July 2014, Argentina provided an official

response to a 2011 request from the United States for access for fresh, chilled, frozen and cooked pork meat

and meat products. Argentina indicated that it will only accept imports of U.S. pork from herds that have

tested negative for Trichinellosis and have no reported cases of Porcine Reproductive and Respiratory

Syndrome (PRRS), among other requirements. The United States does not consider any of these

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requirements to be science-based. For example, U.S. producers maintain stringent biosecurity protocols

that have virtually eradicated trichinae in commercial pork production. The risk of introducing PRRS into

the Argentine herd due to the import of U.S. pork is negligible. The OIE does not recognize trade in pork

as posing a threat of transmitting the disease. The United States will continue to engage with SENASA to

resolve these issues.

Poultry

Argentina does not allow imports of fresh, frozen, and chilled poultry from the United States due to

concerns over Avian Influenza (AI). Argentina also has not recognized the U.S. sanitary inspection system

as equivalent to the Argentine system. During bilateral technical meetings in October 2015, the U.S.

Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) and Foreign Agricultural

Service (FAS) provided SENASA a comprehensive presentation on the current status of Highly Pathogenic

Avian Influenza (HPAI) in the United States and the success of the U.S. Government eradication program.

In addition, APHIS requested that Argentina regionalize its restrictions related to HPAI either by state or

county. On November 30, 2015, APHIS informed SENASA that the United States had complied with all

required OIE actions and requirements related to HPAI to be declared free of the disease after the 2015

HPAI outbreak. Argentina has indicated that it would accept cooked poultry products from the United

States, but there is no agreement yet on the terms of the necessary sanitary certificate as Argentina has

maintained that the U.S. poultry inspection system is not “equivalent” to the Argentine system.

IMPORT POLICIES

Tariffs

Argentina is a member of the MERCOSUR common market, formed in 1991 and composed of Argentina,

Brazil, Paraguay, Uruguay, and Venezuela. MERCOSUR maintains a Common External Tariff (CET)

schedule with most favored nation (MFN) applied rates ranging from zero percent to 35 percent ad valorem.

Argentina’s import tariffs follow the MERCOSUR CET with some permitted exceptions. Argentina’s

MFN applied average tariff was 13.6 percent in 2014. Argentina’s average bound tariff rate in the WTO is

significantly higher at 31.8 percent. According to current MERCOSUR procedures, 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. For Argentina, the list of products subject to the tariff increases

as of October 2014 can be viewed at: http://www.infoleg.gob.ar/infolegInternet/anexos/235000-

239999/235857/norma.htm. These tariff increases are still in effect.

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.

Argentina currently imposes a 14 percent tariff on imports of capital goods that are also 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 at http://infoleg.gov.ar/infolegInternet/anexos/195000-199999/199256/norma.htm.

Argentina has bilateral arrangements with Brazil and Uruguay on automobiles and automotive parts

intended to provide preferential access among the three countries. Mexico and Argentina also have a

separate bilateral trade agreement regarding automobiles and automotive parts.

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Nontariff Barriers

In recent years, Argentina has imposed a number of customs and licensing procedures and requirements,

which make importing U.S. products difficult. The measures include additional inspections, restrictions on

entry ports, expanded use of reference prices, import license requirements, and other requirements, such as

requiring importer invoices to be notarized by the nearest Argentine diplomatic mission when imported

goods are valued 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.

Argentina has relied on nontariff barriers to protect industries considered sensitive, such as leather, shoes,

textiles, toys, plastics and chemicals, and automobiles. The new Argentine government, which took office

December 10, 2015, has stated publicly that about 1,200 product types will still require non-automatic

import licenses.

Capital Goods Imports

Argentina prohibits the import of many used capital goods. Under the Argentina-Brazil Bilateral

Automobile Pact, Argentina bans the import of used self-propelled agricultural machinery unless it is

imported to be rebuilt in country. Argentina also 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 the case of remanufactured

medical goods, imports are further restricted by the requirement that the importer of record must be the end

user, such as a hospital, doctor, or clinic. Such parties are generally not accustomed to importing and are

not typically registered as importers.

Domestic legislation requires compliance with strict conditions on the entry of those used capital goods that

may be imported, as follows:

 Used capital goods can only be imported directly by the end user;

 Overseas reconditioning of the goods is allowed only if performed by the original

manufacturer. Third-party technical appraisals are not permitted;

 Local reconditioning of the good is subject to technical appraisal only to be performed by the

state-run Institute of Industrial Technology (INTI), except for aircraft related items;

 Regardless of where the reconditioning takes place, the Argentine Customs Authority requires

at the time of import the presentation of a “Certificate of Import of Used Capital Goods.” This

certificate is issued by the Secretariat of Foreign Trade, after the approval by the Secretariat of

Industry. Pursuant to Resolutions 12/2014 and 4/2014 of January 2014, the import certificate

for used capital goods has a duration of 60 working days from the issuing date; and

 The time period during which the imported used capital good cannot be transferred (sold or

donated) is four years.

Pursuant to Decree 2646/2012, capital goods that may be imported are subject to a 28 percent tax if there

is existing local production of the good, a 14 percent tax in the absence of existing local production, and a

6 percent tax for used capital goods for the aircraft industry. There are exceptions for some industries (e.g.,

graphics, printing, machine tools, textiles, mining, and some types of aircraft), enabling importation of used

capital goods at a zero percent import tax.

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National Supply Law

In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the

government to regulate private enterprises by setting minimum and maximum prices and profit margins for

goods and services of private enterprises. The law covers all economic processes related to such goods and

services at any stage of economic activity. Private companies determined by the government to be making

“artificial” or “unjustified” profits may be subject to fines of up to 10 million pesos (approximately $770

thousand) and a potential 90-day closure of their business. Under the authority of the amended Supply

Law, Argentina requires pharmaceutical companies, including some U.S. companies, to lower their prices

of certain medicines. The government also imposes hefty fines on certain automakers for failing to provide

an adequate supply of cars at a specified price for the government’s auto stimulus program.

In February 2015, Argentina issued Resolution 17, which creates a System of Monitoring the Supply and

Availability of Goods and Inputs (SIMONA). SIMONA is a data tracking tool that aims to detect

production or distribution issues before they affect supply. Pursuant to Resolution 17, any company

engaging in production or distribution in Argentina must report via SIMONA any impediments to its

production or distribution process. The information gathered by the government through SIMONA may be

used to identify ways to reduce the effects of variations in supply. In addition, the government may impose

fines on companies found to be setting unjustifiably high prices. Argentina apparently uses SIMONA to

collect price data.

Used Clothing Imports

Argentina maintains an import prohibition on used clothing that was due to expire in December 2015. Since

no new resolution has been issued to negate the current resolution, the decree remains in effect.

Taxes

In August 2012, the Argentine Tax Authority (AFIP) issued Resolution 3373, which raised the rate of

certain taxes charged after import duties are levied, thereby increasing 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 2015, Argentina imposed a sliding scale tax on imported luxury vehicles. Under that system, cars priced

above 195,500 pesos (approximately $15,000, based on the 2015 average official exchange rate of 13 pesos

to the U.S. dollar) were subject to a 30 percent tax, while vehicles priced above 241,500 pesos

(approximately $18,600) were subject to a 50 percent tax. Motorbikes priced above 34,500 pesos

(approximately $2,650) were taxed at 30 percent, and motorbikes priced above 61,500 pesos

(approximately $4,700) were taxed at 50 percent. The luxury tax was imposed on top of the normal import

duty.

In January 2016, the Macri government issued Decree 11/2016, which reduced the luxury tax for imports

and also applied such taxes to locally produced vehicles. In particular, the Decree eliminated taxes on cars

priced below 350,000 pesos (approximately $26,900), reduced the tax to 10 percent for cars valued between

350,000 (approximately ($26,900) and 799,000 pesos (approximately $61,500) and to 20 percent for cars

priced above 800,000 pesos (approximately $61,5000). This Decree also reduced the tax imposed on

motorbikes priced above 65,000 pesos (approximately $5,000), boats priced above 400,000 pesos

(approximately $31,000) and planes priced above 225,000 pesos (approximately $17,300) to 10 percent.

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Consumer Goods Price Control Program

In January 2014, the Argentine government launched a consumer goods price control program called

“Precios Cuidados,” which established price caps on nearly 200 basic consumer goods. Although

participation in the program is supposed to be voluntary, several supermarkets have reportedly been subject

to steep fines for failing to stock all of the products subject to price caps. Since the program was first

launched in January 2014, the number of products subject to price caps has increased substantially, and the

maximum prices have been revised several times. The list of goods and their maximum prices can be found

at: http://precioscuidados.gob.ar/inicio. The website also includes a link for consumers to claim if a shop

or supermarket does not comply with the price control program. In January 2016, the new government

announced the extension of the program for several more months. In February 2016, the Argentine

government issued resolution 12/2016, which established the Argentine Electronic System of Advertised

Prices (or SEPA) program, accessible online or via mobile app, to monitor retail prices. Supermarkets are

required to publish their price lists, and customers can submit observed price information. Customers can

complain about price increases on any given product to the Competition Defense Commission, which has

the authority to fine companies if it determines the price increases are not justified. Previously, the

Commission had fined companies nearly 15 million pesos (approximately $1.2 million) for violations of

the “Precios Cuidados” program.

Preference for Domestic Medicines

In October 2015, Resolutions 1710/2015 and 406/2015 established a framework to comply with the

reimbursement functions assumed by health insurance agents in connection with high cost medicines. The

resolutions provided that health insurance agents should give preference to locally manufactured products

that have the same active ingredient as, or are biosimilars to, imported products, subject to the condition

that the final selling price of the locally manufactured products are significantly lower than the average

price of similar products of foreign origin.

Import Licenses

From 2012 through 2015, Argentina maintained an import licensing system known as the Advance Sworn

Affidavit on Imports (or “DJAI” by its Spanish acronym), which required that all imports receive advance

approval by the Argentine government. Argentina used the DJAI system to limit the volume or value of

imports, extract commitments from importers to export goods from Argentina, increase investments in

Argentina, increase the use of local content, and refrain from repatriating profits. Prior to 2012, Argentina

also operated a far-reaching automatic and non-automatic import licensing scheme. That system was the

subject of much criticism by WTO members even before the DJAI requirement was put in place.

In 2012, the United States, along with the European Union and Japan, initiated WTO dispute settlement

proceedings to challenge Argentina’s import licensing regime. In August 2014, the WTO dispute

settlement panel ruled in favor of the United States, the European Union, and Japan, finding that Argentina’s

import licensing requirements and other import restrictions breached international trade rules. In September

2014, Argentina appealed the panel decision, and on January 15, 2015, the Appellate Body affirmed the

earlier findings of the WTO panel. Argentina agreed to comply with the WTO ruling by December 31,

2015.

On December 22, 2015, AFIP issued Resolution 3823/2015, which established a Comprehensive Import

Monitoring System (SIMI) to manage a new automatic and non-automatic import licensing regime, created

by Resolution 5/2015 issued on December 23, 2015. The new resolutions require that importers submit

electronically to SIMI detailed information about goods to be imported into Argentina. Once the

information is submitted, the relevant Argentine government agencies are able to review the application

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through a “Single Window System for Foreign Trade” and make any observations or request additional

information. The automatic import licensing requirements apply to approximately 18,000 tariff lines, or

approximately 86.5 percent of Argentina’s tariff schedule. Non-automatic import license requirements

apply to approximately 1,200 tariff lines, or approximately 13.5 percent of Argentina’s tariff schedule,

including sectors and products the government has deemed import-sensitive, such as automobiles, paper

and cardboard, iron and steel, nuclear reactors, electrical materials and parts, toys, textiles, apparel and

footwear. The resolutions do not provide a maximum time period for AFIP to issue a decision on import

license applications. Automatic import licenses are valid for 180 days from the date of approval, while

non-automatic licenses are valid for 90 days. The full text of Resolution 5/2015 with the affected tariff

lines can be accessed at: http://www.infoleg.gob.ar/infolegInternet/anexos/255000-

259999/257251/norma.htm. The United States has significant questions about whether the adoption of the

SIMI brings Argentina’s import licensing measures into compliance with its WTO obligations, and the

United States is working with Argentina to address these concerns.

Dollar Payments Authorization Requirement

From 2012 through December 2015, many U.S. companies reported that they had to request authorization

from the Central Bank to make substantial exchanges of pesos to U.S. dollars to pay foreign suppliers for

imported goods. This requirement was neither officially published nor written, and Central Bank officials

reportedly communicated the amounts permitted informally via phone calls or text messages. The threshold

level of the amount permitted for payments abroad was apparently lowered from $300,000 to $150,000

daily in September 2014. By December 2015, the threshold level was reportedly $50,000 daily. Many U.S.

companies have reported that this requirement and the changing threshold amounts prevented them from

planning for inventory and increased delays in their ability to import goods.

On December 17, 2015, the new government announced the elimination of capital controls, a move that

appeared to suggest that importers would no longer need Central Bank authorization to exchange pesos for

dollars to pay for imported goods going forward. Due to delayed Central Bank authorization for dollar

payments, private importers accumulated debt estimated between $5 billion and $10 billion to suppliers for

previously imported goods. To resolve the importers’ debt, as well as a stock of profits that companies

wanted to repatriate, the Central Bank and the Ministry of Treasury and Finance offered two options in late

December 2015, a payment schedule or a sovereign bond. There are to be no restrictions on the amount of

payment requests after May 2016.

Foreign Transactions Monitoring Unit

In November 2014, via Decree 2103/2014, the Argentine government established the Unit of Monitoring

and Traceability of Foreign Trade Operations, coordinated jointly by the Chief of Cabinet with participation

from the Ministry of Economy, the Customs Office, the AFIP, the National Securities and Exchange

Commission, Financial Information Unit, and the Central Bank, among other financial regulatory agencies.

The stated objective of this Joint Unit is to track all international trade operations to ensure transparency

and accuracy and to prevent over- and under-invoicing by commercial entities. Many enterprises,

especially multinationals, have expressed concerns that this Joint Unit further increases governmental

controls over international trade.

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

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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 Argentine

government publishes an updated list of reference prices and applicable countries, which is available at:

http://www.afip.gov.ar/aduana/valoracion/valores.criterios.pdf.

Argentina maintains 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 goods considered at risk for under-invoicing or trademark fraud.

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:

http://www.infoleg.gov.ar/infolegInternet/anexos/130000-134999/131847/norma.htm.

Customs Procedures

Certificates of origin have become a key element in Argentine import procedures in order to enforce

antidumping measures, reference prices (referred to as “criterion values”), and certain geographical

restrictions. Argentina requires certificates of origin for certain categories of products, including 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 MFN tariff rate, a product’s certificate of origin must be certified by an Argentine

embassy or consulate, or carry a “U.S. Chamber of Commerce” seal. For products with many internal

components, such as machinery, each individual part is often required to be notarized in its country of

origin, which can be very burdensome. Importers have stated that the rules governing these procedures are

unclear and can be arbitrarily enforced.

Simplified customs clearance procedures on express delivery shipments are only available for shipments

valued at $1,000 or less. Couriers 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.

EXPORT POLICIES

Export Tariffs

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.

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Argentina imposes significant export taxes on hydrocarbon goods and their derivatives (crude oil or

bituminous mineral). Pursuant to Resolution 803/2014, the export duty is 13 percent if the international

barrel price is lower than the established reference price or $503 per cubic meter; 11.50 percent if the price

is lower than $75 per barrel or $472 per cubic meter, and 10 percent if the price is lower than $70 per barrel

or $440 per cubic meter. In response to falling international oil prices, in December 2014, the Argentine

government issued Resolution 1077/2014, which established that beginning in January 2015 the export duty

will be one percent whenever the international Brent crude reference price is below $70 per barrel.

Argentina has a long history of applying differential export tariffs on a variety of agricultural commodities

with lower rates on processed goods to incentivize value-added processes and increase fiscal revenue for

the government. In 2015, Argentina applied differential taxes to the soy and grain sectors as follows:

soybeans at 35 percent; soybean oil and soybean meal at 32 percent; soybean pellets and animal food

containing soy bean hulls and waste at 32 percent; biodiesel mainly from soy oil currently at 14 percent to

15 percent, although that rate fluctuated; sunflower seed at 32 percent; sunflower seed meal and sunflower

seed oil at 30 percent; wheat at 23 percent; wheat flour at 13 percent; and corn at 20 percent with corn flour

at 15 percent. Other export taxes included beef at 15 percent; poultry, pork, apples, pears, and wine at 5

percent; and lemons, sweet citrus, at 2.5 percent. In December 2015, through the issuance of Decrees

133/2015 and 160/2015, the new government has eliminated export taxes on most goods but maintained

the following differential taxes: soybeans are taxed at 30 percent; soy flour and oil at 27 percent; soy pellets

and other refined mixed soy oils at 27 percent; bovine leather at 10 percent; wool not card or combed at 5

percent, and paper and cardboard waste for recycling at 20 percent. Full text of the decrees can be found

at: http://www.infoleg.gob.ar/infolegInternet/anexos/255000-259999/256979/norma.htm and

http://www.infoleg.gob.ar/infolegInternet/anexos/255000-259999/257076/norma.htm.

On January 6, 2016, Argentina established a 24.24 percent export tax on biodiesel exports pursuant to

Decree 25/2016. The export tax is applied to the declared FOB price. The full text of the rule can be found

at: http://www.infoleg.gob.ar/infolegInternet/anexos/255000-259999/257595/norma.htm.

In April 2014, Argentina issued Decree 374/2014 banning exports of iron, steel, copper, and aluminum

scrap for 360 days in an attempt to ensure domestic supply. In June 2015, Decree 1102/2015 extended the

export ban for an additional 360 days. According to Decree 160/2015 issued on December 18, 2015, iron

and steel scrap are subject to a 5 percent export duty.

On February 12, 2016, the Argentine government issued decree 349/2016, eliminating the export duties on

metal and non-metal mining products, which previously ranged between 5 and 10 percent. The full text of

the decree can be found at: http://www.infoleg.gob.ar/infolegInternet/verNorma.do?id=258595.

The MERCOSUR Common Customs Code (CCC) restricts future export taxes and anticipates a transition

to a common export tax policy, but the CCC is not yet in effect. In November 2012, Argentina became the

first MERCOSUR member to ratify the CCC, but all MERCOSUR member countries must ratify the CCC

before it goes into effect.

Export Registrations and Permits

Argentina previously required major agricultural commodities to be registered and pre-approved for export

before they could be shipped out of the country. The administration of the Registry of Export Operations

(ROEs) resided in the Office of Coordination and Evaluations of Subsidies to Domestic Consumption

(UCESCI) under the Ministry of Economy. On December 29, 2015, the new government issued

Resolutions 4/2015, 7/2015 and 7/2015 from the Ministry of Treasury and Finances, the Ministry of Agro-

industry and the Ministry of Production, eliminating export permits that controlled the flow of grain and

oilseed exports.

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In place of the export permits, the Argentine government has reintroduced Affidavits of Foreign Sales

(“DJVE” or Declaraciones Juradas de Ventas al Exterior), which was a mechanism used to track exports

prior to 2008. The DJVE does not require pre-approval for export sales. The regulations that require export

permits for meat and dairy are still in place, but the government has announced its intention to revoke these

regulations. According to the new resolution, exporters must register the export of grains, oilseeds, and

their derivatives with the Office of Coordination and Evaluations of Subsidies to Domestic Consumption

(UCESCI). Once the registration is approved, the DJVEs are valid for 180 days. In the case of wheat, the

DJVEs are valid for 45 days. In the case of soybeans and other soy products, the DJVEs will be approved

if the exporter pays 90 percent of the export tax at the time the DJVE is approved.

SUBSIDIES

In October 2014, Argentina launched the “Ahora 12” program, which allows individuals to finance the

purchase of certain domestically-manufactured goods, ranging from clothing to home appliances, in 12

monthly installments without interest. The list of qualifying goods for the Ahora 12 program can be found

at http://www.ahora12.gob.ar/. Argentina claims the program has been very successful in increasing the

consumption of locally-produced goods and has stated that more than 4 million transactions have occurred

since the program’s inception. On December 14, 2015, Resolution 1/2015 extended the program through

March 31, 2016.

Argentina currently has a tax-exempt trading area called Special Customs Area (SCA), located in Tierra

del Fuego Province, established in 1972 through Law 19,640 to promote economic activity in the southern

province. The government has authority to exempt products shipped through the SCA (but not assembled

or manufactured therein) from all forms of taxation except excise taxes. The SCA program, set to expire

at the end of 2023, provides benefits for established companies that meet specific production and

employment objectives. Since November 2009, cell phones, televisions, digital cameras and other

electronic items not produced in the SCA are charged value-added tax rates up to 21 percent. There are

concerns that foreign companies have set up local assembly facilities in the SCA that they would not have

otherwise done in order to bring manufactured goods into the country. In particular, there are concerns that

products are brought to facilities in the SCA where they are taken apart and reassembled for sale inside

Argentina.

GOVERNMENT PROCUREMENT

Argentine law establishes 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 five percent to seven

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 sub-national (state) level.

Argentina is not a signatory to the WTO Agreement on Government Procurement, but it is an observer to

the WTO Committee on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Argentina remained on the Priority Watch List in the 2015 Special 301 Report. Enforcement challenges

and other factors have diminished market access for U.S. IP-intensive industries. The absence of sustained

enforcement efforts – including under the criminal laws – sufficient to have a deterrent effect, coupled with

judicial inefficiency, have made it possible for one of South America’s largest black markets for counterfeit

and pirated goods to flourish and spawn smaller branches throughout the country. Apparent lack of

understanding about technology and online jurisdiction within the judicial system hinder the ability to halt,

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through legal action, the growth of illegal online markets (the largest of which launched a mobile platform

in 2015). The United States continues to monitor the situation closely, including via USTR’s Notorious

Markets List.

The situation for innovators in the pharmaceutical and agrochemical sectors also presents significant

concerns. First, the scope of patentable subject matter is significantly restricted under Argentine law.

Second, patent pendency backlog continues to be excessive. Third, there continues to be no means of

adequate protection against unfair commercial use and unauthorized disclosure of undisclosed test and other

data submitted to the government in conjunction with its lengthy and challenging marketing approval

process.

SERVICES BARRIERS

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. The DJAS

requirement, established through Resolution 3276/2012, 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, and personal, cultural and

recreational services. This requirement has reportedly resulted in significant delays in purchasing services

from U.S. services providers and has hindered the ability of Argentine purchasers to promptly transfer

payment to the United States. During 2014 and 2015, DJAS authorization has been subject to tighter

controls particularly in the case of royalty payments.

As of December 17, 2015, pursuant to Resolution 3825 issued by AFIP, all purchases of transportation

tickets and tourist packages to travel abroad paid in cash or by bank transfer are subject to a 5 percent tax.

Audiovisual Services

The Argentine government imposes restrictions on the showing, printing, and dubbing of foreign films in

Argentina. Argentina also charges ad valorem customs duties on U.S. film 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.

The National Institute of Cinema and Audiovisual Arts taxes 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 the films will be screened within Argentina. Films that are

screened in 15 or fewer movie theaters are exempted.

The Media Law, enacted in 2009, requires companies to locally produce advertisement and publicity

materials, or to include 60 percent local content.

Insurance Services

The Argentine insurance regulator (SSN) prohibits cross-border reinsurance. As a result, Argentine insurers

are able to purchase 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. SSN requires that all investments and cash equivalents held by locally registered

insurance companies be located in Argentina.

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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, non-

Argentine insurance firms – whose liabilities are often denominated in U.S. dollars – reported during 2015

that they faced increased pressure by the Argentine government to sell their dollars for pesos. In October

2015, the Argentine Insurance Superintendent issued Resolution 39517, which set out new investment rules

for insurers. Resolution 39517 required the industry to divest from its positions held in U.S. dollars before

the end of 2015. Insurance firms reported that complying with the resolution would force them to take

losses based on an official exchange rate that overvalued the peso. Many companies and industry

associations filed legal claims against enforcement of the resolution. The Argentine government also

blocked payments by subsidiaries of dividends and royalties to parent companies and shareholders abroad.

On January 15, 2016, the Argentine Insurance Superintendent issued Resolution 39646/2016, abolishing

Resolution 39517. As of January 15, insurance companies can hold and dispose their investments in any

currency they deem appropriate.

Telecommunications

Argentina enacted the Argentine Digital Law in December 2014, which declares information technology

and telecommunications as “public services” and allows the government to require private companies to

share the use of their infrastructure, such as cabling, if the government considers that it is in the public

interest. During 2015, the Argentine tax authority, AFIP, initiated several legal proceedings against

foreign-owned firms, alleging that the companies’ structures and operations were inconsistent with the

Digital Law because the companies used offshore shell corporations to shelter profits and assets from

taxation.

On December 29, 2015, Argentina issued Resolution 267/2015, which amends Argentina’s 2009 Media

Law (laws 26,522 and 27,078). One aspect of the amendments jeopardizes the business of satellite and

telecommunications suppliers in Argentina. Specifically, the resolution prohibits a satellite television

supplier from also providing (1) telecommunications services, including broadband Internet access; (2)

video-on-demand services; and (3) bundling of satellite television with any telecommunications

services. Because similar restrictions do not apply to cable or telecommunications suppliers, the measure

appears to discriminate against satellite services providers in Argentina, the main provider of which is a

U.S. supplier. In addition, the decree maintains certain regulatory requirements for satellite television (e.g.,

an obligation to carry certain free-to-air television channels) that are not applied to cable television

suppliers, putting satellite providers at a competitive disadvantage. The United States has begun to engage

the government of Argentina on the issue, and will continue to seek to ensure fair treatment for all providers.

INVESTMENT BARRIERS

Pension System

In 2008, the Argentine Parliament approved a bill to nationalize Argentina’s private pension system and

transfer pension assets to the government social security agency. Compensation to investors in the

privatized pension system, including to U.S. investors, is still pending and under negotiation.

Foreign Exchange

Hard currency earnings on exports of both goods and services must be converted to pesos in the local

official foreign exchange market. Time limits on fulfilling the requirement to convert foreign currency to

pesos range from 60 days to 360 days for goods depending on the goods involved and 15 days for services.

The time period for fulfilling these requirements changes frequently, which can significantly impede trade.

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During 2014 and most of 2015, the Ministry of Economy maintained restrictive controls on certain classes

of inbound investments, including foreign funds from private sector debt, 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, and investments in public sector securities purchased in the secondary market.

Shortly after taking office in December 2015, the new government issued several regulations relaxing

restrictions that were previously established in the foreign exchange market, including the elimination of

the one-year mandatory unremunerated reserve requirement of 30 percent of investment inflows,

elimination of the 20 percent tax on purchases of foreign currency for saving purposes, and elimination of

the 35 percent tax on purchases made abroad using credit cards, debit cards, purchase cards, or through

online websites. The government also announced that individuals and firms are allowed to purchase up to

the equivalent of $2 million of foreign currency per month for savings purposes without prior authorization

from the federal tax agency, AFIP.

U.S. investors have reported that since 2012 the Argentine government has limited their ability to make

payments in foreign currency to entities outside of Argentina. This situation was aggravated in 2015 by a

shortage of U.S. currency in the Central Bank’s international reserves. This restriction is 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. The new

government lifted capital controls for all current and future transactions on December 17, 2015. It

established two methods – a calendar of payments or a sovereign bond – by which companies could obtain

dollars to draw down their stocks of delayed import payments and profit repatriation accumulated due to

the previous government’s imposition of capital controls.

Localization Measures

Argentina maintains certain localization measures aimed at encouraging domestic production. For

example, the Argentine National Mining Agency (Agencia Nacional de Minería) requires mining

companies registered in Argentina to use Argentine-flagged vessels to transport minerals and their industrial

derivatives for export from Argentina. Argentina requires that mining companies registered in Argentina

purchase domestic capital goods, spare parts, inputs and services. Argentina also requires that radio and

TV (via airwaves and cable) advertisements have a minimum of 60 percent local content.

ELECTRONIC COMMERCE

In January 2014, Argentina modified its retail mail order import licensing system through AFIP General

Resolution 3579. Online purchases of foreign products valued up to $3,000 and delivered through

Argentina’s official postal service are assessed a charge of 50 percent of the value of the goods. Goods in

excess of $3,000 may not be sent via the Argentine postal service. In addition, individuals may import by

mail up to $25 in duty free goods per year in up to two mail order transactions. Transactions above $25 are

subject to the import tax of 50 percent. The resolution also requires goods delivered by official mail to be

retrieved in person at the post office or customs authority.

Argentina does not allow the use of electronically produced airway bills, which would accelerate customs

processing and the growth of electronic commerce transactions.

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AUSTRALIA

TRADE SUMMARY

The U.S. goods trade surplus with Australia was $14.2 billion in 2015, a 10.9 percent decrease ($1.7 billion)

over 2014. U.S. goods exports to Australia were $25.0 billion, down 5.8 percent ($1.5 billion) from the

previous year. Corresponding U.S. imports from Australia were $10.9 billion, up 1.8 percent. Australia

was the United States' 15th largest goods export market in 2015.

U.S. exports of services to Australia were an estimated $19.4 billion in 2014 (latest data available), and

U.S. imports were $6.7 billion. Sales of services in Australia by majority U.S.-owned affiliates were $52.6

billion in 2013 (latest data available), while sales of services in the United States by majority Australia-

owned firms were $22.9 billion.

U.S. foreign direct investment (FDI) in Australia (stock) was $180.3 billion in 2014 (latest data available),

a 6.1 percent increase from 2013. U.S. direct investment in Australia is led by nonbank holding companies,

finance/insurance, and mining.

TRADE AGREEMENTS

Trans-Pacific Partnership – Australia is a U.S. partner in the Trans-Pacific Partnership (TPP) Agreement,

with 10 other countries (Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,

Singapore, and Vietnam); the 12 TPP partners together represent 40 percent of the global economy. The

TPP Agreement, which was concluded in October 2015 and signed in February 2016, will significantly

advance U.S. economic interests in some of the fastest growing economies in the world, promoting U.S.

exports of goods and services, and benefiting American workers, farmers, businesses, and

consumers. Under the TPP Agreement, our TPP partners will cut over 18,000 import taxes imposed on

Made-in-America products. The TPP Agreement will also open new markets for U.S. service suppliers;

address non-tariff barriers that unfairly block U.S. exports; promote digital trade and strong and balanced

intellectual property rules for America’s globally competitive intellectual property-intensive industries;

level the playing field for U.S. exporters by fostering fair competition and good governance; establish high,

enforceable labor and environmental standards; help ensure fair and transparent regulatory policies that

promote trade by U.S. innovators and exporters while helping to ensure consumer safety and privacy; and

promote inclusive growth, including by supporting U.S. small businesses. The TPP Parties are now focused

on completing their respective domestic approval processes so they can bring the agreement into force and

so that their workers, farmers, businesses and consumers can begin benefitting from the Agreement as soon

as possible.

United States-Australia Free Trade Agreement -- 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 monitor FTA implementation closely. Under the AUSFTA, trade in goods and services and

foreign direct investment have continued to expand. Between before the agreement entered into force in

2004 and 2015, U.S. goods exports to Australia increased by 79.4 percent, and two-way goods trade

increased by 66.9 percent. Between before the agreement entered into force in 2004 and 2014 (latest data

available), U.S. services exports to Australia increased by 182.8 percent, and two-way services trade

increased by 151.0 percent. Over 99 percent of U.S. exports of consumer and industrial goods now enter

Australia duty free.

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On January 14, 2015, Australia’s FTA with Japan, its second largest trading partner, entered into force.

Under that agreement, tariffs will eventually be eliminated on over 97 percent of Australia’s current exports

to Japan. Products representing about 2.5 percent of Australia’s current exports to Japan are excluded from

the agreement: rice; milk powder; butter; shiitake mushrooms; sake; “low polarity” raw sugar; and certain

fur skin products. Some tariffs and other restrictions will remain on a number of other Australian products,

including beef, pork, and some dairy products.

On June 17, 2015, Australia signed an FTA with China (ChAFTA), its largest trading partner, which entered

into force on December 9, 2015. The first round of tariff cuts occurred on December 20, 2015, and the

second round on January 1, 2016. The ChAFTA will result in the eventual removal of tariffs on 95 percent

of Australia’s goods exports to China. Chinese tariffs on Australian beef, currently set at 12 to 25 percent,

will be eliminated by 2024. Chinese tariffs on Australian wine of 14 percent to 20 percent will be eliminated

within four years. Almost 93 percent of China’s imports of Australian resources, energy, and

manufacturing products enter China duty free upon entry into force of the agreement, with most remaining

tariffs in those sectors eliminated in four years. Some Australian agricultural exports to China, including

sugar and rice, are excluded from the agreement.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Sanitary and Phytosanitary Barriers

Animal Health

Beef and Beef Products

Australia requires completion of a complex approval process before it will permit the importation of bovine

products from a country that has reported any indigenous cases of bovine spongiform encephalopathy

(BSE). Under Australia’s requirements, Food Standards Australia New Zealand (FSANZ) conducts an

individual country risk analysis. In August 2013, an audit team from FSANZ conducted an inspection of

U.S. production and processing facilities. In its final report, FSANZ found that the United States has

comprehensive and well-established controls to prevent the introduction and amplification of the BSE agent

within the cattle population and to prevent contamination of the human food supply with the BSE agent. It

reported that beef imports from the United States are safe for human consumption and recommended

Category 1 status under Australia’s import requirements, indicating that beef from the United States meets

the negligible BSE risk requirements of the World Organization for Animal Health (OIE) and can be

imported subject to specific import conditions. U.S. and Australian officials are currently coordinating

specific wording for required export certificates for heat-treated, shelf-stable beef products from the United

States, after which the export of these products from the United States to Australia will be able to resume.

For fresh (chilled or frozen) beef and beef products in December 2015, the Australian government

announced the start of a review of its import requirements for three countries that have applied for eligibility

to export to Australia: the United States, Japan and the Netherlands. This review will consider fresh (chilled

or frozen) beef and beef products such as meat, bone, and offal of cattle, buffalo, and bison. The start of

this review is a necessary step in the process of fully re-opening the Australian market to U.S. beef. The

United States will continue to urge Australia to open its market fully to U.S. beef and beef products based

on science, the OIE guidelines, and the United States’ negligible risk status for BSE.

Pork

Frozen boneless pork is currently the top U.S. agricultural export to Australia, valued at $136 million in

2015. However, due to concerns about porcine reproductive and respiratory syndrome (PRRS) and post-

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weaning multisystemic wasting syndrome (PMWS), the importations of fresh/chilled pork and bone-in

products are not currently permitted. The United States has requested that Australia remove all PRRS- and

PMWS-related restrictions and has provided scientific evidence to document the safety of U.S. pork

products. Australia has requested additional scientific information. Access to the Australian market for

fresh/chilled pork, bone-in pork, and pork products continues to be a high priority for the United States.

Poultry

Australia currently prohibits imports of uncooked poultry meat from all countries except New Zealand.

While cooked poultry meat products may be imported, the current import conditions (as set out in an import

risk analysis) require that imported poultry meat products must be cooked to a minimum core temperature

of 74°C for 165 minutes or the equivalent. This temperature requirement does not permit importation of

cooked product that is suitable for sale in restaurants or delicatessens, thus limiting commercial

opportunities.

In 2012, Australia initiated an evaluation of whether it would grant access for U.S. cooked turkey meat to

the Australian market under amended import conditions. The Australian government is currently

conducting an import risk analysis to assess this issue. The United States has identified resolution of this

issue as a high priority and continues to work with Australia to gain meaningful commercial market access

for cooked turkey meat.

Plant Health

Stone Fruit

In July 2013, Australia opened its market to peaches and nectarines which have been fumigated with methyl

bromide before being shipped to Australia. In December 2014, Australia also agreed to accept methyl

bromide fumigation against spotted wing drosophila (SWD) in plums. The Australian and U.S. plant

protection organizations consulted to successfully implement the methyl bromide fumigation program for

plums for the 2015 export season. As a result, the Australian market was successfully opened for California

plum exports for the 2015 season. The United States is continuing to work with Australia to obtain market

access for U.S. apricots and hybrids of apricots and plums.

Apples

Australia currently prohibits the importation of apples from the United States based on concerns about fire

blight and other pests. The U.S. Government and U.S. stakeholders have engaged with Australian officials

to demonstrate that U.S. mature, symptomless apples pose no risk of transmission of fire blight. In October

2009, Australia published a pest risk analysis for apples from the United States and identified three

additional fungal pathogens of concern to Australian regulatory authorities. Australia has indicated that in

light of the U.S. Government’s provision of additional information to Australia in December 2014,

Australia will shortly resume work on a previously commenced import risk analysis for apples from the

United States. The United States continues to work to obtain access to Australia’s market for apples, which

is a priority item for the United States.

Table Grapes

In 2010, Australia raised concerns regarding spotted wing drosophila (SWD), a species of fruit fly allegedly

associated with table grapes from California. As a result, Australia requires a carbon dioxide/sulfur dioxide

treatment plus a cold treatment to address SWD, despite the fact that SWD has never been found on

California table grapes either before or since 2010. In October 2013, USDA submitted new research to

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Australia on a revised cold treatment protocol for California table grapes that would allow the grapes to be

treated in transit to Australia. In November 2014, Australia indicated agreement that the research both

supports the efficacy of the new treatment for SWD in California table grapes and would support other

market access improvements. In July 2015, Australian and U.S. plant health regulators reached agreement

on new import conditions for California table grapes that allow cold treatment to be conducted before

departure from California or in transit to Australia, resolving the issue and permitting the exportation of

table grapes from California to continue uninterrupted.

GOVERNMENT PROCUREMENT

Under the AUSFTA, the Australian government opened its market for covered government procurement to

U.S. suppliers, eliminating preferences for domestic suppliers and committing to use fair and transparent

procurement procedures. In the Trans-Pacific Partnership (TPP), Australia has made similar government

procurement commitments to the United States and other TPP partners.

Australia began negotiations to join the World Trade Organization’s plurilateral Agreement on Government

Procurement (GPA) in June 2015.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Australia generally provides strong intellectual property rights (IPR) protection and enforcement through

legislation that, among other things, criminalizes copyright piracy and trademark counterfeiting. Under the

AUSFTA, Australia must provide that a pharmaceutical product patent owner be notified of a request for

marketing approval by a third party for a product claimed by that patent. U.S. and Australian

pharmaceutical companies have expressed concerns about delays in this notification process.

Under the TPP Agreement, which sets strong and balanced standards on IPR protection and enforcement,

Australia has committed to more robust standards for its IPR regime. The United States continues to work

with Australia to address IPR issues through TPP implementation as well as through bilateral engagement.

SERVICES BARRIERS

Audiovisual Services

The Australian Content Standard of 2005 requires commercial TV broadcasters to produce and screen

Australian content, including 55 percent of transmissions between 6:00 a.m. and midnight (and also requires

minimum annual sub-quotas for Australian drama, documentary, and children’s programs). A broadcaster

must also 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 a.m. 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 announcements). These local content

requirements do not apply to cable or online programming.

Australia’s Broadcasting Services Amendment Act requires subscription TV channels with significant

drama programming to spend 10 percent of their programming budgets on new Australian drama programs.

This local content requirement applies to cable and satellite services but does not apply to new digital multi-

channels or to online programming.

The Australian commercial radio industry Code of Practice sets quotas for the broadcast of Australian music

on commercial radio (requiring 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

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announced a temporary exemption from the Australian music quota for digital-only commercial radio

stations (i.e., stations not also simulcast in analog); that exemption was renewed in 2014 and remains in

effect.

While these quotas remain unaffected by TPP, several provisions negotiated in TPP will enhance the ability

of U.S. suppliers to offer video services in the Australia market, including on a cross-border basis: namely,

provisions on cross-border transfer of data, location of computing facilities, and use of goods containing

encryption.

INVESTMENT BARRIERS

Foreign direct investment into 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 that stands

at A$252 million as of January 1, 2016. Based on advice from the FIRB, Australia’s Treasurer may deny

or place conditions on the approval of particular investments above the threshold on national interest

grounds.

Under the AUSFTA, all U.S. greenfield investments are exempt from FIRB screening. In addition, under

the AUSFTA, non-greenfield U.S. investments are only screened above a (higher) threshold value, which

stands at A$1,094 million as of January 1, 2016. The FIRB has generally approved U.S. investments. 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 enterprises in the media sector, regardless of the value of the

investment.

ELECTRONIC COMMERCE

The AUSFTA recognizes the importance of avoiding erecting barriers to trade conducted electronically and

commits Parties not to impose tariffs or otherwise discriminate against digital products distributed

electronically (e.g., books, films, and music). Key provisions negotiated in the TPP that enhance electronic

commerce include provisions covering the cross-border transfer of information; the location of computing

facilities; and the protection of computer source code.

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BAHRAIN

TRADE SUMMARY

The U.S. goods trade surplus with Bahrain was $372 million in 2015, a 293.9 percent increase ($277

million) over 2014. U.S. goods exports to Bahrain were $1.3 billion, up 20 percent ($214 million) from the

previous year. Corresponding U.S. imports from Bahrain were $902 million, down 6.5 percent. Bahrain

was the United States' 71st largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Bahrain (stock) was $765 million in 2014 (latest data available), a

10.7 percent decrease from 2013.

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 duty-

free immediately. 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. This provision will expire on July

31, 2016.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

In December 2013, the six Member States of the Gulf Cooperation Council (GCC), working through the

Gulf Standards Organization (GSO), issued regulations on the GCC Regional Conformity Assessment

Scheme and GCC “G” Mark in an effort to “unify conformity marking and facilitate the control process of

the common market for the GCC Members, and to clarify requirements of manufacturers.” U.S. and GCC

officials continue to discuss concerns about consistency of interpretation and implementation of these

regulations across all six GCC Member States, as well as the relationship between national conformity

assessment requirements and the GCC regulations, with a view to avoiding unnecessary duplication.

Sanitary and Phytosanitary Barriers

GCC Member States notified WTO Members in June 2014 of their intention to implement a new “GCC

Guide for Control on Imported Foods” by June 2015. Due to concerns about implementation of the Guide,

Member States have not implemented it but are reviewing the current version. Stakeholders have raised

concerns that the requirements outlined in the Guide will impede trade beyond the extent necessary to

protect human or animal health. The requirements also could impose burdensome and disproportionate

demands regarding requirements for certification or forms of recognition or acceptance of foreign food

safety systems. The Guide as currently drafted does not provide scientific justification for requiring

exporting government officials to certify and attest to statements that are inconsistent with guidelines

established by the Codex Alimentarius Commission and the World Organization for Animal Health. The

United States raised concerns about the current version of the Guide in 2014 and 2015, and GCC Member

States delayed entry into force until food safety experts have an opportunity to address these concerns. The

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United States continues to engage in discussions with the GCC and its Member States regarding their import

requirements for food and agricultural products.

GOVERNMENT PROCUREMENT

Bahrain is an observer but not a signatory to the WTO Committee on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Bahrain was not listed in the 2015 Special 301 Report. As part of its FTA obligations, Bahrain enacted

several

key laws to improve protection and enforcement for copyrights, trademarks, and patents. Bahrain’s

record on intellectual property rights (IPR) protection and enforcement continues to be mixed. Over the

past several years, Bahrain has launched several campaigns to combat piracy of cable and satellite TV by

blocking illegal signals and prohibiting the sale of decoding devices, and has launched several public

awareness campaigns regarding IPR piracy. However, many counterfeit consumer goods continue to be

sold openly.

As the six GCC Member States explore further harmonization of their IPR regimes, the United States will

continue to engage with GCC institutions and the Member States and to provide technical cooperation and

capacity building programs on IPR policy and practice.

OTHER BARRIERS

In February 2015, Bahrain’s Minister of Industry and Commerce issued a Ministerial Order banning

pyramid and network marketing schemes. In practice, the Minister has used this order to prevent direct

sales and multi-level marketing organizations from operating in Bahrain. One U.S.-headquartered multi-

level marketing firm, a company which operates legally in more than 30 countries worldwide, was ordered

to close its storefront and cease selling merchandise with little warning.

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BANGLADESH

TRADE SUMMARY

The U.S. goods trade deficit with Bangladesh was $5.0 billion in 2015, a 21.0 percent increase ($873

million) over 2014. U.S. goods exports to Bangladesh were $948 million, down 15 percent ($165 million)

from the previous year. Corresponding U.S. imports from Bangladesh were $6.0 billion, up 13 percent.

Bangladesh was the United States' 78th largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Bangladesh (stock) was $465 million in 2014 (latest data available),

a 12.6 percent increase from 2013.

IMPORT POLICIES

Bangladesh’s import policies are outlined in the Import Policy Order (IPO) of the government of the

People’s Republic of Bangladesh, issued by the Chief Controller of Imports and Exports, Ministry of

Commerce. Foreign exchange is controlled by the Bangladesh Bank in accordance with Foreign Exchange

Control policies.

All imports, except for capital machinery and raw materials for industrial use, must be supported by a letter

of credit. A letter of credit authorization form and a cash margin (ranging from 10 to 100 percent) are also

required.

Tariffs

The IPO is the primary legislative tool governing customs tariffs. The importance of tariffs as a source of

government revenue – more than a quarter of the total – greatly complicates efforts to lower tariff rates.

Bangladesh levies tariffs at four primary levels as found at: http://customs.gov.bd/portal/services/tariff/

index.jsf. Customs duties are levied on all imports except generators, information technology equipment,

raw cotton, textile machinery, certain types of machinery used in irrigation and agriculture, animal feed for

the poultry industry, and certain drugs and medical equipment.

The average MFN tariff rate is 15.5 percent, with the average rates for agricultural products higher than for

industrial goods. The maximum MFN applied rate is 25 percent. Products subject to duty rates of 5 percent

to 25 percent include general input items, basic raw materials, and intermediate and finished products.

However, Bangladesh provides concessions for the import of capital machinery and equipment, as well as

certain inputs and parts, which can make application of tariffs complex and non-transparent. Other charges

applicable to imports are an advance income tax of 5 percent; a value-added tax of 5 percent to 15 percent

(basic necessities, food, and medicine used in poultry and dairy sectors, raw cotton, and textile machinery

are exempted from the VAT); and a supplementary duty of 10 to 150 percent (applicable on luxury items

such as cigarettes and perfume).

Bangladesh has abolished excise duties on all items except manually prepared cigarettes, bank accounts,

and textiles. Samples in reasonable quantity can be carried by passengers during travel and are not subject

to tax; however, samples are subject to tax if sent by courier.

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Nontariff Measures

All importers, exporters, and agents must be members of a recognized chamber of commerce and industry

as well as an organization in Bangladesh representing their own trade.

Import Licenses

In general, documents required for imports include the letter of credit authorization form, a bill of lading or

airway bill, commercial invoice or packing list, and certificate of origin. In certain instances, additional

certificates and/or import permits related to health, security or other matters may be required by the relevant

government agencies for imports of restricted items. There are minor documentation requirements for

public sector importers (government organizations, statutory bodies, state-owned corporations, universities,

research institutions, and industrial enterprises in the public sector). According to the IPO, import licenses

are generally not required unless otherwise specified.

Bangladesh imposes registration requirements on private industrial consumers and commercial importers,

which in some cases specify maximum values of imports. Private industrial consumers are units registered

with one of four sponsoring agencies: the Bangladesh Export Processing Zones Authority (BEPZA) for

industries located in the Export Processing Zones (EPZs); the Bangladesh Small and Cottage Industries

Corporation (BSCIC) for small and cottage industries; the Handloom Board, for handloom industries run

by weavers’ associations; and the Board of Investment (BOI) for all other private industries. Commercial

importers are defined as those who import goods for sale without further processing.

Private industrial consumers (with the exception of those located in EPZs) and commercial importers must

an import registration certificate (IRC). An IRC is generally issued within 10 days of receipt of the

application. For industrial consumers, the IRC specifies the maximum value (the “import entitlement”) for

each product that the industrial consumer may import each year, including items on the restricted list for

imports. (Commercial importers are free to import any quantity of non-restricted items.) The import

entitlement reportedly serves to monitor imports of raw materials and machinery, most of which enter

Bangladesh at concessional duty rates.

Registration Certificate

Registered commercial and industrial importers are classified into six categories on the basis of the

maximum value of annual imports. The initial registration fee and annual renewal fee varies depending on

the category. The sixth category, for example, applies where annual imports are over approximately

$641,000; the initial registration fee is approximately $769, and the renewal fee is approximately $385.

An importer must apply in writing to the concerned Import Control Authority (ICA) for registration in any

of the six categories, and provide necessary documents, including an original copy of the “Chalan” (the

Treasury payment form) as evidence of payment of the prescribed registration fees. The ICA makes an

endorsement under seal and signature on the IRC for each importer, indicating the maximum value of

annual imports and the rate of renewal fees applicable in each case. An importer may not open a letter of

credit in excess of the maximum value of annual imports.

Indentors and exporters must also pay registration and renewal fees, of approximately $513 and $256, and

$90 and $64, respectively.

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GOVERNMENT PROCUREMENT

Government procurement is primarily undertaken through public tenders under the Public Procurement Act

2006 and conducted by the Central Procurement Technical Unit (CPTU). The CPTU was established in

April 2002 as a unit within the Implementation Monitoring and Evaluation Division (IMED) of the Ministry

of Planning. It is headed by a Director-General, who reports directly to the Secretary of IMED. The

government of Bangladesh publicly subscribes to principles of international competitive bidding; however,

charges of corruption are common. Bangladesh recently launched a national e-Government Procurement

portal at http://eprocure.gov.bd.

Bangladesh it is not a signatory to the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Although Bangladesh has shown improvement on intellectual property rights (IPR) enforcement,

counterfeit goods continue to be widely available and music and software piracy are widespread. U.S. and

other international companies in the software, publishing, clothing, and consumer product industries

complain that inadequate IPR protection and enforcement is damaging their businesses in

Bangladesh. Bangladesh is in the first stage of formulating a National Intellectual Property Policy, which

should provide an important opportunity to address the challenges facing IPR holders in Bangladesh.

Foreign software companies face significant challenges with registering and enforcing their copyrights in

Bangladesh. Although the annual bilateral trade talks between the United States and Bangladesh, the Trade

and Investment Cooperation Framework Agreement (TICFA), have made progress on this issue by granting

recognition for foreign country copyrights, Bangladesh has not yet instituted a gazette notification system

that would allow for enforcement of these rights.

SERVICES BARRIERS

While foreign companies are legally allowed to provide services in Bangladesh, most regulated commercial

fields (such as telecommunications, banking, and insurance) and legal entities (such as financial

institutions) are strictly controlled for new entrants. There have been reports that licenses are not always

awarded in a transparent manner. Foreign investment generally is not restricted, except in sectors controlled

by administrative licensing processes. Transfer of control of a business from local to foreign shareholders

requires prior approval from the Bangladesh Bank (control is defined as the ability to control the board of

directors or a majority of the directors).

Telecommunications

In 1997, the government of Bangladesh opened telecommunications services to increased competition by

removing the sector from the “Reserve List” and establishing the Bangladesh Telecommunication

Regulatory Commission (BTRC) as the regulatory authority. The BTRC was established to facilitate

dependable telecommunication services, with the mobile sector as its primary focus. However, due to

BTRC’s control over licensing, foreign participation in the telecommunications industry in Bangladesh

remains relatively limited. Further, frequent changes to regulations and tax policy increase uncertainty for

businesses and consumers.

Bangladesh has the highest taxes on mobile services in the region, with the high taxes on the mobile industry

providing the biggest source of tax revenue for the government of Bangladesh. Under the present tax

regime, the mobile industry is taxed like a supplier of luxury goods, with multiple taxes imposed at all

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stages of operation. For example, at the infrastructure level, duties up to 25 percent are imposed on

telecommunications equipment and servicing equipment. SIM cards are subject to a 5 percent regulatory

duty, a 15 percent supplementary duty, and sales taxes of $3.80 per card. Mobile handsets are subject to a

VAT of 15 percent plus a $3.80 surcharge, plus a 15 percent customs duty, plus a one percent surcharge.

Scratch cards to purchase call time are taxed at 5.5 percent, plus 30 percent for international and roaming

calls.

Overall, total tax and fee payments as a proportion of mobile revenues were 45 percent in 2013. This

adversely affects the industry’s growth and expansion. Although 2G networks cover almost the entire

population in Bangladesh, 3G licenses were only awarded at the end of 2013 and 3G coverage stands at 70

percent.

Insurance

Section 22 of the Insurance Act of 2010 provides for foreign investors to buy or hold shares of an insurance

company and for exclusively foreign-owned companies to supply insurance without a requirement for local

or State-Owned Enterprise (SOE) equity participation. However, U.S. companies have reported that

permission to open branch offices may be politically influenced and, at present, the government of

Bangladesh is not permitting new, exclusively foreign-owned companies into its insurance market.

National Payment Switch

In 2012, Bangladesh began phasing in a National Payment Switch for processing electronic payments from

various channels, including ATMs, point of sale, mobile devices and over-the-Internet payments. Initially

only ATM transactions were routed through the National Payment Switch (NPSB); however, Bangladesh

intends to expand the system and, at present, seems to be requiring certain point of sale transactions to be

routed through the system. In operation, the NPSB is limiting the ability of global suppliers of electronic

payment services to participate in the market. Financial institutions have reported that they have been

ordered to use NPSB rather than the payment switches offered by commercial firms. As the central bank

is both the regulator and a competitor (by owning NPSB), this creates a formidable barrier for competitors

to the NPSB as their clients are afraid to avoid use of the regulator’s product.

Broadcasting

According to the Bangladesh Telecommunication Act 2001, the government must approve licenses for

foreign channels. Foreign television distributors are required to pay a 25 percent supplementary duty and

a 15 percent VAT.

OTHER BARRIERS

Bureaucratic inefficiencies often act as a discouragement to investment in Bangladesh. Overlapping

administrative procedures and the absence of a transparent system of formalities often confuse investors

proposing projects and staff and personnel assigned for discharging procedural responsibilities. Frequent

transfers of top and mid-level officials in various ministries, directorates, and departments disrupt continuity

and prevent timely implementation of both strategic initiatives and routine duties.

Extortion of money from businesses by individuals claiming political backing is common in

Bangladesh. Frequent blockades called by political parties can negatively affect businesses by keeping

workers away and blocking transport, resulting in productivity losses. Vehicles and other property are at

risk from vandalism or arson during such activities, and looting of businesses has also occurred.

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Corruption remains a serious impediment to investment in Bangladesh. While the government has

established legislation to combat bribery, embezzlement, and other forms of corruption, enforcement is

inconsistent. The 2007-2008 caretaker government attempted to address the culture of impunity in

Bangladesh by prosecuting corruption cases, implementing systemic reforms, and strengthening the role of

the Anti-Corruption Commission (ACC) as the main institutional anti-corruption watchdog. Efforts to ease

public procurement rules and proposals to curb the independence of the ACC, however, may undermine

institutional safeguards against corruption.

Concerns over the safety of infrastructure and industrial relations practices also have discouraged greater

investment and trade. The rapid growth of the garment sector in recent years has led to the unregulated

expansion in the number and size of factories. The collapse of the Rana Plaza building and the death of

1129 workers in April 2013 highlighted health and safety concerns in the country’s factories and the lack

of effective oversight and regulation. Recent initiatives by the government of Bangladesh and by

international garment buyers have led to improvements in factory safety standards and transparency in the

past year, though remediation of safety concerns has progressed slowly. A lack of meaningful progress

towards labor law reform in the country’s export processing zones, greater protections for labor

organizations, and stronger enforcement mechanisms have also been major points of concern for

Bangladeshi and international stakeholders.

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BRAZIL

TRADE SUMMARY

The U.S. goods trade surplus with Brazil was $4.3 billion in 2015, a 64.2 percent decrease ($7.6 billion)

over 2014. U.S. goods exports to Brazil were $31.7 billion, down 25.4 percent ($10.8 billion) from the

previous year. Corresponding U.S. imports from Brazil were $27.4 billion, down 10.3 percent. Brazil was

the United States' 11th largest goods export market in 2015.

U.S. exports of services to Brazil were an estimated $28.2 billion in 2014 (latest data available), and U.S.

imports were $8.4 billion. Sales of services in Brazil by majority U.S.-owned affiliates were $39.6 billion

in 2013 (latest data available), while sales of services in the United States by majority Brazil-owned firms

were $2.0 billion.

U.S. foreign direct investment (FDI) in Brazil (stock) was $70.5 billion in 2014 (latest data available), a 1.6

percent increase from 2013. U.S. direct investment in Brazil is led by manufacturing, nonbank holding

companies, and finance/insurance.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Telecommunications – Acceptance of Test Results

Pursuant to Resolution 323 of November 2002, the Brazilian National Telecommunications Agency

(ANATEL) requires testing of telecommunications products and equipment by designated testing facilities

in Brazil, rather than allowing testing by a facility certified by an independent certification body. The only

exception is in cases where the equipment is too large or too costly to transport to the designated testing

facilities. As a result of these requirements, U.S. manufacturers and exporters must present virtually all of

their information technology and telecommunications equipment for testing at laboratories located in Brazil

before that equipment can be placed on the Brazilian market. This redundant testing increases the cost for

U.S. exporters and can delay the time to market for their products.

The United States has urged Brazil to implement the Inter-American Telecommunication Commission

(CITEL) Mutual Recognition Agreement (MRA) with respect to the United States. Under the CITEL MRA,

CITEL participants may agree to provide for the mutual recognition of conformity assessment bodies and

mutual acceptance of the results of testing and equipment certification procedures undertaken by those

bodies to determine whether telecommunications equipment meets the importing country’s technical

regulations. The United States and Brazil are both participants in CITEL. If Brazil implemented the CITEL

MRA with respect to the United States, it would benefit U.S. suppliers seeking to sell telecommunications

equipment in the Brazilian market by accepting product testing and certification conducted in the United

States to meet Brazil’s technical requirements. The United States will continue to encourage Brazil to

implement the CITEL MRA with respect to the United States.

Toys – Conformity Assessment Procedures

Since November 2014, Brazil’s National Institute of Metrology, Quality, and Technology (INMETRO) has

been considering new testing requirements for toys (Ordinance 489/2014), which are intended to improve

conformity assessment procedures and consolidate all toy-related certification requirements into a single

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measure. While under current regulations, toy manufacturers must register manufacturing facilities, the

proposal appears to go further and require the registration of each toy as part of a family of products. In

addition, it appears that product labels would have to bear a separate registration number for each product

family, which must be obtained through a new “Object Registration” (Registro de Objecto) system. The

application of the proposed Object Registration system to toys is expected to increase the complexity of the

existing certification system, create delays in importing toys, and increase costs for importers and Brazilian

consumers. This proposed system would also require U.S. exporters to submit commercially sensitive and

confidential business information.

Sanitary and Phytosanitary Barriers

Live Cattle, Beef, and Beef Products

Brazil imposed a ban on imports of U.S. live cattle, beef, and beef products following the detection of an

animal that tested positive for Bovine Spongiform Encephalopathy (BSE) in the United States in 2003. The

United States continues to work with Brazil to negotiate the necessary bilateral agreements that will allow

Brazil to open its market fully to U.S. live cattle, beef, and beef products based on science, the World

Organization for Animal Health guidelines, and the U.S. negligible risk status for BSE.

Pork

U.S. fresh, frozen and further processed pork products are ineligible for import into Brazil. Brazil has

indicated it will only authorize imports of U.S.-origin pork and pork products that have been tested and

shown to be free of trichinae or otherwise mitigated. The United States does not consider these

requirements for trichinosis to be necessary as U.S. pork producers maintain stringent biosecurity protocols

that serve to limit the incidence of trichinosis in the United States to extremely low levels in commercial

swine.

IMPORT POLICIES

Tariffs

Brazil is a member of the Southern Common Market (MERCOSUR) customs union, formed in 1991 and

comprised of Argentina, Brazil, Paraguay, Uruguay, and Venezuela. MERCOSUR maintains a Common

External Tariff (CET) schedule, with most favored nation (MFN) applied tariff rates ranging from zero to

35 percent ad valorem. The CET allows for a limited number of exceptions, but Brazil’s import tariffs

generally follow the MERCOSUR CET. Brazil’s MFN applied tariff rate averaged 10.2 percent for

agricultural products and 14.1 percent for non-agricultural products in 2014. Brazil’s average bound tariff

rate in the WTO is significantly higher at 35.4 percent for agricultural products and 30.8 percent for non-

agricultural products. 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 frequently increases and decreases tariffs to protect domestic industries from import

competition and to manage prices and supply. The lack of predictability with regard to tariff rates makes

it difficult for U.S. exporters to forecast the costs of doing business in Brazil.

Brazil imposes relatively high tariffs on imports across a wide spread of sectors, including automobiles,

automotive parts, information technology and electronics, chemicals, plastics, industrial machinery, steel,

and textiles and apparel. Under a July 16, 2015 MERCOSUR Common Market Council decision, Brazil is

permitted to maintain 100 exceptions to the CET until December 31, 2021. Using these exceptions, Brazil

maintains higher tariffs than its MERCOSUR partners on certain goods, including cellular phones,

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telecommunications equipment, computers and computer printers, wind turbines, certain chemicals and

pharmaceuticals, cosmetics, joint cement, hydrogenated castor oil, white mineral oils, hydrogen carbonate,

machining centers, speed changers, and certain instruments and models designed for demonstration

purposes.

In 2010, MERCOSUR’s Common Market Council (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. All MERCOSUR

members must ratify the CCC for it to take effect, but thus far, only Argentina has done so. Brazil’s

executive branch continue to work on draft legislation to ratify the CCC.

Brazil agreed to establish a 750,000 metric ton (MT) duty-free tariff-rate quota (TRQ) for wheat as part of

its Uruguay Round commitments. Brazil has never opened the TRQ, and therefore no wheat has been

shipped under it. In April 1996, Brazil notified the WTO of its intent to withdraw the wheat TRQ in

accordance with the process established in Article XXVIII of the GATT 1994. Brazil considers the current

MFN applied tariff rate for wheat of 10 percent, along with ad hoc duty-free MFN quotas established to

bridge supply gaps, to confer benefits that are commensurate with, or in excess of, the 750,000 MT TRQ.

However, because Brazil could increase the 10 percent applied tariff at any time to as high as the 55 percent

bound rate, and because of the unpredictable nature of the ad hoc quotas, these arrangements do not offer

U.S. wheat exporters the same certainty that a 750,000 MT TRQ would provide. The United States will

continue to engage Brazil on this issue.

Nontariff Barriers

Brazil applies federal and state taxes and charges to imports 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 all companies operating in

and exporting to Brazil, including U.S. firms.

For example, effective January 1, 2013, Brazil instituted a “temporary” regime for a reduction in the

Industrial Product Tax (IPI) that made preferential tax rates to locally produced vehicles, provided that

manufacturers comply with a series of local content and other requirements. This program will remain in

effect until 2017. As part of the program, the baseline IPI on all vehicles will be revised upward by 30

percent, which is equivalent to the level applied to imported vehicles under the prior regime. However,

those vehicles meeting certain levels of local content, fuel efficiency and emissions standards, and required

levels of local engineering, research and development, or labeling standards receive tax breaks that may

offset the full amount of the IPI. As a result, imported automobiles face a potential 30 percent price

disadvantage compared to equivalent vehicles manufactured in Brazil even before import duties are levied.

On August 31, 2015, Brazil issued a decree to reform its excise tax regime for distilled spirits, which

introduced a tax advantage for domestic producers of Cachaça, a distinctive product produced from

sugarcane. Pursuant to this decree, which was signed into law on December 30, 2015, Brazil imposes a 25

percent ad valorem industrial products (IPI) tax on domestically-produced Cachaça, while imposing a 30

percent ad valorem IPI tax on all other distilled spirits, such as Tennessee whiskey, bourbon, rum, gin and

vodka.

Brazil prohibits imports of all used consumer goods, including automobiles, clothing, tires, medical

equipment, and information and communications technology (ICT) products, as well as imports of certain

blood products. Brazil also restricts the entry of certain types of remanufactured goods (e.g., earthmoving

equipment, automotive parts, and medical equipment). Brazil only allows the importation of such goods if

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an importer can provide evidence that the goods are not or cannot be produced domestically, or if they meet

certain other limited exceptions.

A 25 percent merchant marine tax on ocean freight plus port handling charges at Brazilian ports also puts

U.S. products at a competitive disadvantage vis-à-vis MERCOSUR products.

Import Licenses and Customs Procedures

All importers in Brazil must register with the Secretariat of Foreign Trade (SECEX) to access the Brazilian

Secretary of Foreign Trade’s computerized documentation system (SISCOMEX). SISCOMEX registration

is onerous, and includes a minimum capital requirement.

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 agricultural commodities and 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 non-automatic import license requirements and explanations for rejections of non-automatic

import license applications are lacking. The lack of transparency surrounding these procedures creates

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, 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 footwear, textiles, and

apparel in the Brazilian market.

The Brazilian government imposes non-automatic import licensing requirements on imported automobiles

and automotive parts, including those originating in MERCOSUR countries. Delays in issuing the non-

automatic import licenses negatively affect U.S. automobile and automotive parts manufacturers that export

vehicles to Brazil.

U.S. companies continue to complain of burdensome documentation requirements for the import of certain

types of goods that apply even if imports are on a temporary basis. In addition, 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. The registration process at

ANVISA typically takes from three months to more than a year for new versions of existing products and

more than six months for new products.

SUBSIDIES

The Plano Brasil Maior (Greater Brazil Plan) industrial policy offers a variety of tax, tariff, and financing

incentives to encourage local producers and production for export. For example, Brazil allows tax-free

purchases of capital goods and inputs to domestic companies exporting over 50 percent of their output.

Similarly, the Reintegra program, launched in December 2011 as part of Plano Brasil Maior, exempted

from certain taxes exports of goods covering 8,630 tariff lines, and allowed Brazilian exporters to receive

up to three percent of their gross receipts from exports in tax refunds. The Reintegra program expired at

the end of 2013 and was reintroduced in July 2014 through Provisional Measure 651. The program was

amended in September 2014 through Decree 8.304 to add sugar, ethanol, and cellulose, among others, to

the list of eligible products. The Reintegra program was amended again in February 2015 (Decree 8415)

and October 2015 (Decree 8543), establishing that throughout most of 2015, exporters received one percent

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of gross receipts from exports in tax refunds, dropping to 0.1 percent for 2016, and increasing to two percent

for 2017.

For the majority of products eligible for Reintegra benefits, the total cost of imported inputs cannot exceed

40 percent of the export price of the product. For a small number of eligible products, the total cost of

imported inputs cannot exceed 65 percent of the export price.

In 2014 (latest data available), Brazil’s National Bank for Economic and Social Development (BNDES)

provided approximately $80 billion (R$187.84 billion) in assistance to various sectors of the Brazilian

economy through several different programs. BNDES provided approximately $18 billion (R$42.5 billion)

to the Investment Maintenance Program (PSI) in 2014 to finance the purchase of locally-manufactured

capital goods at preferential fixed rates. Most of the lending under this program was used to finance

infrastructure projects under the Growth Acceleration and the Logistics Investment programs.

Another BNDES program, FINAME, provides preferential financing for the sale and export of Brazilian

machinery and equipment, and provides financing for the purchase of imports of such goods provided that

such goods are not produced domestically. The funding is used to finance capacity expansions and

equipment purchases in industries such as steel and agriculture. BNDES also provides preferential

financing for wind and solar farm development, contingent upon progressively more stringent local content

requirements. Currently, wind turbine suppliers of any nationality are eligible to receive preferential

BNDES financing, provided the wind towers are built with at least 70 percent Brazilian steel by 2016, and

photovoltaic suppliers must use 60 percent Brazilian-made components by 2020. In 2014, BNDES funding

for FINAME was approximately $22.9 billion (R$53.85 billion).

BNDES also provided approximately $6 billion (R$14.64 billion) for the agriculture and livestock sectors

in 2014 in support of a broad range of agribusiness projects. For example, BNDES funded investment in

sugarcane production, expansion of industrial capacity for sugar and ethanol, cogeneration, logistics, and

multimodal transportation through three programs: (1) Prorenova, a program for the renewal and/or

expansion of sugarcane fields, (2) BNDES PASS, an ethanol stock program, and (3) Paiss Agricola, a

program for the development of agricultural research.

Brazil’s Special Regime for the Information Technology Exportation Platform (REPES) suspends Social

Integration Program (PIS) and Contribution to Social Security Financing (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 the

company’s 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 the company’s overall gross income for the previous calendar year.

Brazil provides tax reductions and exemptions on many domestically-produced ICT and digital goods that

qualify for status under the Basic Production Process (Processo Productivo Básico, or PPB). The PPB

provides benefits for the production and development of goods that incorporate a certain minimum amount

of local content. Tax exemptions are also provided for the development and build-out of

telecommunications broadband networks that utilize locally developed products and investments under the

Special Taxation Regime for the National Broadband Installation Program for Telecommunication

Networks (Regime Especial de Tributação do Programa de Banda Larga para Implantação de Redes de

Telecomunicações, or REPNBL-Redes).

In 2013, Brazil passed the Special Regime for the Development of the Fertilizer Industry (REIF). Under

this program, fertilizer producers receive tax benefits, including an exemption for the IPI on imported

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inputs, provided they comply with minimum local content requirements and can demonstrate investment in

local research and development projects.

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. Brazil establishes minimum guaranteed

prices for specific commodities through different programs to ensure that the returns to producers do not

fall below the guaranteed level. These programs include the Federal Government Acquisition (AGF)

program, the Acquisition from Public Option Contracts (POC) program, the Premium for Product Outflow

(PEP) program, and the Agricultural Products’ Sale Option Private Premium (PEPRO) program. Under the

AGF and POC programs, the Brazilian government purchases commodities to maintain prices at the level

of the minimum guaranteed price. Under the PEP and PEPRO programs, processors receive a government

payment in return for purchasing commodities exported or shipped to specified regions in Brazil. The

primary difference between these two programs is that the PEP payment goes to the first purchaser of the

commodity while PEPRO payments are made through an auctioning system to producers or cooperatives.

The amount of the PEPRO payment is based on the difference between the minimum price set by the

government and the prevailing market price. Each PEPRO auction notice specifies the commodity to be

tendered and the approved destinations for that product, including export destinations. From 2003 through

2015, approximately 38 million metric tons of commodities received assistance under PEPRO at a cost of

R$4.4 billion ($1.2 billion). Most of that assistance was for cotton, corn, wheat, and oranges. In 2015, the

PEPRO program also supported the production of 33,000 metric tons of rubber.

GOVERNMENT PROCUREMENT

U.S. companies without a substantial in-country presence regularly face significant obstacles to winning

government contracts and often are more successful in subcontracting with larger Brazilian firms. By

statute, a Brazilian state enterprise may 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.

Brazil gives procurement preference to firms that produce in Brazil and that fulfill certain economic

stimulus requirements such as generating employment or contributing to technological development, even

if 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 procurements to be restricted to those with

indigenously developed technology. The Ministry of Development, Industry, and Commerce maintains an

8 percent preference margin for domestic producers in the textile, clothing, and footwear industries when

bidding on government contracts, and 5 percent to 25 percent preference margins for domestically produced

backhoes, motor graders, and a variety of pharmaceuticals.

In 2012, Brazil’s Ministry of Science, Technology and Innovation issued the “Bigger IT Plan,” which

establishes a process for the government to evaluate and certify that software products are locally developed

in order to qualify for price preferences. Brazil’s regulations (Decrees 8.184, 8.185, and 8.186) require

federal agencies and parastatal entities to give preferences as high as 25 percent for domestically produced

high technology products such as printers and data processing machines, executive jets, certain ICT

equipment, and local software services.

Presidential Decree 8135, adopted in 2013, imposes cyber auditing requirements on IT systems used by

Brazilian government entities. The decree continues to be implemented in stages and is a concern for U.S.

technology companies because of the potentially prohibitive costs of having a system certified for an

individual market.

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State-controlled oil company Petrobras’ local content requirements are established and regulated by

Brazil’s National Petroleum Agency. 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 first auctions in 1999, local

content requirements were as low as five percent. Requirements have gradually become more rigorous

with local content requirements now commonly 60 percent. Technology-intensive equipment and services

are subject to higher local content requirements than low-technology equipment and services. Petrobras

produces over 90 percent of Brazil’s oil and gas, and is required by law to operate new projects in designated

offshore areas with particularly high potential, known as the “pre-salt” region, although a law is now under

debate in Brazil’s Congress that would remove the requirement for Petrobras to participate in each project.

Petrobras is responsible for ensuring that its workforce and its entire supply chain, which comprises the

vast majority of the market, adhere to these high local content requirements.

Brazil is not a signatory to the WTO Agreement on Government Procurement (GPA). The United States

continues to urge Brazil to become a signatory to the GPA, which would ensure that companies in both

countries have access to each other’s procurement markets.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Brazil remained on the Special 301 Watch List in 2015. Brazil is an increasingly important market for

domestic and foreign IP-intensive industries; however, certain administrative and enforcement challenges

continue to stymie market access. Brazil has taken steps to address a backlog of pending patent applications

but considerable delays remain, hindering foreign investment and domestic development and licensing of

new technologies. The restriction on university ownership and licensing of IP is hindering investment in

and development of domestic high technology industries. A non-transparent regulation that gives the health

regulatory agency, ANVISA, the ability to review patent applications for pharmaceutical products and

processes, creates further delays and uncertainty for companies wishing to invest in Brazil. Additionally,

in spite of continued enforcement efforts by some Brazilian agencies, significant piracy and counterfeiting

continue at physical markets, and readily accessible pirated content online undermines legitimate offerings.

The United States will continue to engage Brazil on these and other issues.

SERVICES BARRIERS

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. The taxes are significantly higher than the

corresponding taxes levied on Brazilian productions.

Remittances to foreign producers of audiovisual works are subject to a 25 percent income withholding tax.

The producer can elect to invest 70 percent of this tax in local independent productions. In addition, local

distributors of foreign films are subject to a levy equal to 11 percent of remittances to the foreign producer.

This levy, a component of the CONDECINE (Contribution to the Development of a National Film

Industry), is waived if the producer agrees to invest an amount equal to three percent of the remittance in

local independent productions. The CONDECINE levy is also assessed on foreign video and audio

advertising.

Brazil requires that 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.

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In 2011, Brazil enacted law 12.485, which covers the subscription television market, including satellite and

cable television. The law permits telecommunications companies to offer television packages with their

services and removes the previous 49 percent limit on foreign ownership of cable television companies.

However, there are content quotas requiring 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 law also makes subscription television programmers subject to

the 11 percent CONDECINE levy on remittances. This levy may be waived if an amount equal to three

percent of remittances is invested in local productions. In addition, the law delegates significant

programming and advertising regulatory authority to the national film industry development agency,

ANCINE.

Cable and satellite operators are subject to a fixed levy on foreign content and foreign advertising released

on their channels. Foreign ownership in media outlets is limited 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, including high import taxes, an automated express delivery clearance system that is only partially

functional, and levels for de minimis exception from tariffs that are too low to facilitate efficient import of

goods.

The Brazilian government charges a flat 60 percent duty for all goods imported through the Simplified

Customs Clearance process used for express delivery shipments. This flat rate is higher than duties

normally levied on goods arriving through 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.

Financial Services

Through Resolutions 225 and 232, the Brazilian National Council on Private Insurance (CNSP) restricts

foreign insurers’ participation in the Brazilian market. Brasil Resseguros SA, a state-controlled company,

monopolized the provision of reinsurance in Brazil until the enactment of Complementary Law 126 in 2007,

which allowed private reinsurers to operate in the Brazilian market. The Superintendent Office of Private

Insurance (SUSEP) keeps and discloses a list of reinsurance companies authorized to function in Brazil. In

August 2010, the Brazilian government passed Complementary Law 126/2007, an updated form of

Complementary Law 137/2010, to liberalize entrance into national markets for foreign firms. For a foreign

company to qualify as an admitted reinsurer, it must have a representation office in Brazil, meet the

requirements of Complementary Law 126/2007, keep an active registration with SUSEP, and maintain a

minimum solvency classification issued by a risk classification agency equal to Standard & Poor’s or Fitch

ratings of at least BBB.

In July 2015, the Brazilian government announced a significant relaxation of the restrictions on foreign

insurers’ participation in the Brazilian market, established in Resolutions 225 and 232. Under the new

rules, the preferential offer rate for local reinsurers will remain at 40 percent of each cession, but mandatory

cessions will be decreased to 30 percent in 2017, 25 percent in 2018, 20 percent in 2019, and 15 percent in

2020. The cap on intra-group cessions, currently at 20 percent, will be increased annually to 30 percent in

2017, 45 percent in 2018, 60 percent in 2019, and 75 percent in 2020. While the restrictions will not be

eliminated entirely under the new rules, these changes mark a significant improvement.

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Telecommunications

As a condition of the 2012 auction for 2.5 GHz and 450 MHz radio spectrum, ANATEL required wireless

carriers to ensure that 50 percent of the infrastructure, including software, installed to supply the licensed

service met the requirements of the PPB (discussed above in the Subsidies section). ANATEL also required

wireless carriers to use a minimum percentage of technology developed in Brazil, starting with 10 percent

in 2012, 15 percent in 2015, and 20 percent after 2017. ANATEL extended these requirements to the 700

MHz spectrum in an auction of that frequency held in 2014. As a result of these eligibility requirements,

which favor local manufacturing and technology development, no U.S. telecommunications companies

submitted bids in the 2012 and 2014 auctions. In November 2015, ANATEL’s auction for 1.8, 1.9, and 2.5

GHz spectrum had the stated goal of increasing competition and attracting smaller carriers, and did not

contain specific local content requirements. However, in the case of equivalent bids, the auction rules

provided a preference for a bid utilizing services, equipment, or materials produced in Brazil, including

those with national technology.

In 2013, Brazil issued Decree 8135, which mandates that government agencies procure email, file sharing,

teleconferencing and Voice Over Internet Protocol (VoIP) services from a federal Brazilian public entity

such as the SERPRO, Brazil’s Federal Data Processing Agency. In May 2014, the Ministry of Planning,

Budget and Logistics issued implementing regulations (Portarias 141 and 54) that may require access to

source code for hardware and software used in the federal government’s e-mail, file-sharing,

teleconferencing, and VoIP solutions.

INVESTMENT BARRIERS

Foreign Ownership of Agricultural Land

The National Land Reform and Settlement Institute (INCRA) administers the purchase and lease of

Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought

or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal

district. Additionally, no more than 10 percent of agricultural 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 agricultural land can be purchased by foreign nationals, foreign

companies, or Brazilian companies with majority foreign shareholding.

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BRUNEI DARUSSALAM

TRADE SUMMARY

The U.S. goods trade surplus with Brunei was $114 million in 2015, a 78.0 percent decrease ($403 million)

over 2014. U.S. goods exports to Brunei were $133 million, down 75.7 percent ($416 million) from the

previous year. Corresponding U.S. imports from Brunei were $19 million, down 39.2 percent. Brunei was

the United States' 137th largest goods export market in 2015.

Trade Agreements

Trans-Pacific Partnership -- Brunei Darussalam is a U.S. partner in the Trans-Pacific Partnership (TPP)

Agreement, with 10 other countries (Australia, Canada, Chile, Japan, Malaysia, Mexico, New Zealand,

Peru, Singapore, and Vietnam); the 12 TPP partners together represent 40 percent of the global

economy. The TPP agreement, which was concluded in October 2015 and signed in February 2016, will

significantly advance U.S. economic interests in some of the fastest growing economies in the world,

promoting U.S. exports of goods and services, and benefiting American workers, farmers, businesses, and

consumers. Under the TPP agreement, our TPP partners will cut more than 18,000 import taxes imposed

on Made-in-America products. The TPP Agreement will also open new markets for U.S. service suppliers;

address non-tariff barriers that unfairly block U.S. exports; promote digital trade and strong and balanced

intellectual property rules for America’s globally competitive IP-intensive industries; level the playing field

for U.S. companies by fostering fair competition and good governance; establish high enforceable labor

and environmental standards; help ensure fair and transparent regulatory policies that promote trade by U.S.

innovators and exporters while helping to ensure consumer safety and privacy; and promote inclusive

growth, including by supporting U.S. small businesses. The TPP Parties are now focused on completing

their respective domestic approval processes so they can bring the agreement into force and so that their

workers, farmers, businesses, and consumers can begin benefitting from the Agreement as soon as possible.

TECHNICAL BARRIERS TO TRADE

Technical Barriers to Trade

Meat and Poultry Products – Halal Standards

Most food sold in Brunei is certified as halal. However, there is a small market for non-halal foods, which

must be sold in designated rooms in grocery stores separated from other products or at restaurants that are

specified as non-halal. Under the Halal Meat Act, halal meat (including beef, mutton, lamb, and chicken)

can be imported only by a person holding a halal import permit and an export permit from the exporting

country. The Bruneian government maintains a list of the foreign and local slaughtering centers that have

been inspected and declared fit for supplying meat that can be certified as halal. Brunei’s system of abattoir

approval involves on-site inspections carried out by Bruneian government officials for every establishment

seeking to export meat or poultry to Brunei. Halal meat must be kept separately from non-halal meat at all

times, and halal certification must be renewed annually by the Brunei Religious Council. Non-halal food

importers must also notify the Ministry of Religious Affairs.

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IMPORT POLICIES

Tariffs

Brunei has bound 95.3 percent of its tariff lines, according to the WTO, with an average bound MFN tariff

rate of 25.4 percent. Its average applied MFN tariff rate is 1.2 percent. With the exception of a few

products, including coffee, tea, and alcohol, tariffs on agricultural products are zero. Coffee, tea, petroleum

oils, and lubricants are among the products included in the 55 tariff lines subject to specific rates of duty.

Brunei reduced the tariff rate for machinery and electrical equipment from 20 percent to 5 percent in 2013,

but continues to apply duties of up to 20 percent on automotive parts.

Under the TPP, Brunei has committed to eliminate all tariffs on imports from the United States.

GOVERNMENT PROCUREMENT

Under current Brunei regulations, government procurement is conducted by individual ministries and

departments, which must comply with State Tender Board regulations and guidelines of the Ministry of

Finance. Tender awards above BND $500,000 must be approved by the Sultan in his capacity as Minister

of Finance, based on the recommendation of the State Tender Board. Most invitations for tenders or

quotations are published in a government newspaper but are often selectively tendered to locally registered

companies. Some ministries and departments publish tenders on their individual websites. Foreign firms

may participate in the tenders individually, but are advised by the government to form a joint venture with

a local company.

Under the TPP, Brunei has committed to open its government procurement to competitive bidding from the

United States and other TPP suppliers. Brunei’s government procurement commitments in the TPP cover

all government ministries and goods and services in contracts above agreed value thresholds. The TPP also

requires Brunei to institute reforms to ensure complete and timely provision of information on upcoming

procurements and fair and transparent procurement procedures for government contracts.

Brunei is not a signatory to the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Brunei was not listed in the 2015 Special 301 Report. Despite recent progress, concerns remain in some

areas, including with respect to IPR border enforcement, particularly against transshipments and with

respect to whether Brunei 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. The United States also continues to urge Brunei to proceed with steps to join the

WIPO Internet Treaties.

Under the TPP Agreement, which sets strong and balanced standards on IPR protection and enforcement,

Brunei has committed to strengthening its IPR regime in these and other areas. The United States continues

to work with Brunei to address IPR issues through TPP implementation as well as through bilateral

engagement.

OTHER BARRIERS

Brunei’s Local Business Development Framework seeks to increase the use of local goods and services,

provide local employment, and develop Brunei businesses by placing requirements on all operators in the

oil and gas industry in Brunei to meet targets in hiring and contracting. The Framework sets targets based

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on the sophistication of technology involved and the value of the contract. Under the TPP, while some of

the less technology-intensive activities will be reserved to Bruneian enterprises, all other activities serving

the oil and gas industry will be open to U.S. participation.

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CAMBODIA

TRADE SUMMARY

The U.S. goods trade deficit with Cambodia was $2.6 billion in 2015, a 4.5 percent increase ($112 million)

over 2014. U.S. goods exports to Cambodia were $392 million, up 19.6 percent ($64 million) from the

previous year. Corresponding U.S. imports from Cambodia were $3.0 billion, up 6.2 percent. Cambodia

was the United States' 102nd largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Cambodia (stock) was $77 million in 2014 (latest data available), a

22.2 percent increase from 2013.

IMPORT POLICIES

Tariffs

Cambodia is one of the few least-developed World Trade Organization (WTO) Members that made binding

commitments on all products in its tariff schedule when it joined the WTO in 2004. Cambodia’s overall

simple average bound tariff rate is 19.1 percent, while the average applied tariff rate is now around 11.2

percent. 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, table salt, paints and varnishes, cosmetic and skin care products, glass and glassware,

electrical appliances, cars, furniture, video games, and gambling equipment.

Customs

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. The United States continues to

raise these and other customs issues with Cambodia.

Taxation

Cambodia levies trade-related taxes in the form of customs duties, additional 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 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 zero percent VAT applies). Subject to certain criteria, the zero percent rate

also applies to businesses that support exporters and subcontractors that supply goods and services to

exporters, such as agricultural exporters and garment and footwear manufacturers.

Information and Communications Technology Equipment

With the robust growth of information and communications technology (ICT) in Cambodia, IT equipment

imports have been increasing. The importation of used computers and spare parts are prohibited.

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GOVERNMENT PROCUREMENT

Despite the general requirement of competitive bidding for procurements valued at approximately $25,000

(100 million riel), government procurement often is not transparent. The Cambodian government

frequently provides short response times to public announcements of tenders, which may not be 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, which further limit the opportunity for prospective contractors to participate in tenders.

Cambodia is neither a signatory to nor an observer of the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

The U.S. Government continues to have concerns regarding the protection and enforcement of intellectual

property rights in Cambodia in light of widespread copyright piracy and trademark counterfeiting.

Although public awareness of the dangers of counterfeit products is gradually increasing, pirated CDs,

DVDs, software, garments, and other copyrighted materials, as well as an array of counterfeit goods,

including pharmaceuticals, are reportedly widely available in Cambodia’s markets. The rates of signal and

cable piracy also remain high and online sites purveying pirated music, films, eBooks, software, and TV

shows are spreading and gaining in popularity. Legislation that would address protection of trade secrets

is under review at the Ministry of Commerce and expected to be sent to the Council of Ministers in 2017,

legislation on encrypted satellite signals is under the consultation at the Ministry of Post and

Telecommunication, and legislation on semiconductor layout designs is under review at the Ministry of

Industry and Handicraft.

Cambodia passed a law clarifying the process for obtaining geographical indications in January 2014. A

ministerial declaration on the process for registering trademarks and trade names, recording changes of a

trademark owner’s address and affidavit of use or non-use was issued on May 26, 2014. The declaration

stipulates that an applicant whose permanent residence or place of business is outside Cambodia may

appoint a representative agent to file an application on his or her behalf provided that the agent is domiciled

and practicing in Cambodia.

Cambodia acceded to the Protocol Relating to the Madrid Agreement Concerning the International

Registration of Marks (the Madrid Protocol) in June 2015. With this accession, an applicant can apply for

a trademark in Cambodia by filing a single international application at a national or regional intellectual

property office of a country or region that is party to the system.

Legal enforcement in the protection of collective rights is still limited. The Ministry of Culture and Fine

Arts is drafting the Prakas of the Establishment of a Collective Management Organization, which is

expected to be released in 2016.

INVESTMENT BARRIERS

Cambodia’s constitution restricts foreign ownership of land. In 2010, a law was enacted allowing foreign

ownership of property above the ground floor of a structure. The law stipulates that no more than 70 percent

of a building can be foreign-owned, and that foreigners cannot own property within 30 kilometers of the

national border. Foreign investors may also use land through concessions and renewable leases, although

in May 2012, the Cambodian government imposed a moratorium on Economic Land Concessions (ELCs),

which allow long-term leases of state-owned land. The Cambodian government also has been reviewing

previously granted ELCs and has revoked certain ELCs on the grounds that the recipients had not followed

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through with the projects or complied with the ELC terms and conditions. In 2014, the Minister of the

Environment canceled 23 ELCs totaling approximately 90,000 hectares of land, ostensibly for failing to

develop the land pursuant to the terms of the ELC. By the end of September 2015, the Ministry of

Agriculture, Forestry and Fisheries had cancelled 15 ELCs. The Cambodian government also has reduced

the term of ELCs from between 70 years and 90 years to 50 years.

SERVICE BARRIERS

Telecommunications

A number of telecommunications operators have merged in response to the high levels of competition in

the telecommunications sector, leaving seven telecommunications operators in Cambodia. The Cambodian

government passed the law on telecommunications in December 2015 to further regulate the

telecommunications industry and to balance benefits for investors, the state and users.

ELECTRONIC COMMERCE

Electronic commerce development in Cambodia is limited, in part, due to the low level of confidence in the

banking sector and limited development of credit card services. Some local banks provide credit card

services in order to facilitate online purchase, but only a small fraction of the urban population uses these

services. There is a growing number of online shopping websites, as well as increasing adoption of social

media platforms such as Facebook. However, most transactions are still conducted with cash. A draft law

on electronic commerce is currently under review at the Council of Ministers but has not yet been made

public.

OTHER BARRIERS

Corruption

Both foreign and local businesses have identified corruption in Cambodia as a major obstacle to business

and a deterrent to attracting investment. In 2010, Cambodia adopted anti-corruption legislation and

established a national Anti-Corruption Unit to undertake investigations, implement law enforcement

measures, and conduct public outreach. Enforcement, however, remains inconsistent.

Cambodia began publishing official fees for public services at the end of 2012 in an effort to combat

“facilitation” payments, but this exercise has yet to be completed. After national elections in July 2013,

certain ministries, such as the Ministry of Commerce and the General Department of Taxation, started to

provide online information and services as an effort to reduce paperwork and unofficial fees. Anti-

corruption information has been incorporated into the national high school curriculum. Civil servants’

salaries are disbursed through commercial banks. These changes have resulted in Cambodia receiving one

extra point on Transparency International’s Corruption Perception Index for 2014, where it ranked 156th

out of 175 countries.

Judicial and Legal Framework

Cambodia’s legal framework is incomplete and its laws are unevenly enforced. While the National

Assembly has passed numerous trade and investment laws, including a law on commercial arbitration, many

business-related laws are still pending. Cambodia’s judicial system is viewed as one of the country’s most

corrupt institutions.

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In 2009, the Cambodian government established a commercial arbitration body called the National

Arbitration Center, an alternative dispute resolution mechanism intended to resolve commercial disputes

more quickly than the judicial system. The National Arbitration Center, later renamed the National

Commercial Arbitration Center, was officially launched in March 2013. Three laws related to the judicial

system were enacted in July 2014: the Law on Court Structures, the Law on the Duties and Discipline of

Judges and Prosecutors, and the Law on the Organization and Functioning of the Supreme Council of

Magistracy. Under the Law on Court Structure, the Commercial Court, established as one of the four

specialized Courts of First Instance, will have jurisdiction over all commercial matters, including

insolvency cases. The Commercial Chambers will hear all appeals arising out of the Commercial Court.

Smuggling

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 government agencies, including the General Department of

Customs and Excise, and has established a mechanism within this department to accept and act upon

complaints from the private sector and foreign governments. Enforcement efforts, however, remain weak

and inconsistent.

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CANADA

TRADE SUMMARY

The U.S. goods trade deficit with Canada was $15.2 billion in 2015, a 57.1 percent decrease ($20.2 billion)

over 2014. U.S. goods exports to Canada were $280.0 billion, down 10.4 percent ($32.4 billion) from the

previous year. Corresponding U.S. imports from Canada were $295.2 billion, down 15.1 percent. Canada

was the United States' largest goods export market in 2015.

U.S. exports of services to Canada were an estimated $61.4 billion in 2014 (latest data available), and U.S.

imports were $30.1 billion. Sales of services in Canada by majority U.S.-owned affiliates were $127.6

billion in 2013 (latest data available), while sales of services in the United States by majority Canada-owned

firms were $84.4 billion.

U.S. foreign direct investment (FDI) in Canada (stock) was $386.1 billion in 2014 (latest data available), a

1.0 percent decrease from 2013. U.S. direct investment in Canada is led by nonbank holding companies,

manufacturing, and finance/insurance.

Trade Agreements

Trans-Pacific Partnership -- Canada is a U.S. partner in the Trans-Pacific Partnership (TPP) Agreement,

with 10 other countries (Australia, Brunei Darussalam, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,

Singapore, and Vietnam); the 12 TPP partners together represent 40 percent of the global economy. The

TPP Agreement, which was concluded in October 2015 and signed on February 4, 2016, will significantly

advance U.S. economic interests in some of the fastest growing economies in the world, promote U.S.

exports of goods and services, and benefit American workers, farmers, businesses, and consumers. Under

the TPP Agreement, TPP Parties will cut over 18,000 import taxes imposed on Made-in-America products

imported into TPP countries; open new markets for U.S. service suppliers; address nontariff barriers that

unfairly block U.S. exports; promote digital trade and strong and balanced intellectual property rules for

America’s globally competitive IP-intensive industries; level the playing field by fostering fair competition

and good governance; enforce high labor and environmental standards; help ensure fair and transparent

regulatory policies that promote trade by U.S. innovators and exporters while helping to ensure consumer

safety and privacy; and promote inclusive growth, including by supporting U.S. small businesses. The TPP

Parties are now focused on completing their respective domestic approval processes so they can bring the

agreement into force and so that their workers, farmers, businesses, and consumers can begin benefitting

from the agreement as soon as possible.

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 the environment.

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TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANTIARY BARRIERS

Technical Barriers to Trade

Restrictions on U.S. Seeds Exports

Canada’s Seeds Act generally prohibits the sale or advertising for sale in Canada or import into Canada of

seeds of a variety that is not registered in the prescribed manner. The purpose of variety registration is to

provide government oversight to ensure that health and safety requirements are met and that information

related to the identity of the variety is available to regulators in order to prevent fraud. However, there are

concerns that the variety registration system is slow and cumbersome. The United States is monitoring and

providing input on the steps Canada is taking to modernize and streamline Canada’s variety registration

system.

Cheese Compositional Standards

Canada’s regulations on compositional standards for cheese restrict access to the Canadian market for U.S.

dry milk proteins. These regulations limit the amount of dry milk proteins that can be used in cheese

making. The United States continues to monitor the situation with these regulations for any changes that

could have a further adverse impact on U.S. dairy product exports.

IMPORT POLICIES

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) for imports. Canada’s supply-management

regime severely limits the ability of U.S. producers to increase exports to Canada above TRQ levels and

inflates the prices Canadians pay for dairy and poultry products. Under the current system, U.S. imports

above quota levels are subject to prohibitively high tariffs (e.g., 245 percent for cheese, 298 percent for

butter).

The United States remains concerned about potential Canadian actions that would limit U.S. exports to the

Canadian dairy market. For example, the United States continues to monitor closely any tariff

reclassifications of dairy products to ensure that U.S. market access is not negatively affected.

Under the TPP agreement, U.S. exporters will gain new access into Canada for milk, butter, cheese, and

the whole spectrum of America’s dairy products through new and growing tariff-rate quotas. Tariffs and

quotas will be eliminated altogether in the case of whey and margarine. Canada will also establish new

duty-free TRQs for poultry meat, eggs and egg products.

Special Milk Classes

Canada provides milk components at discounted prices to domestic processors under the Special Milk Class

Permit Program (SMCPP). These prices are “discounted” in the sense that they are lower than Canadian

support prices and reflect U.S. or world prices. The SMCPP is designed to help Canadian processed

products compete against imports and in foreign markets.

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Geographical Indications

Canada and the European Union (EU) announced on August 5, 2014 that they had concluded the Canada-

EU Comprehensive Economic and Trade Agreement (CETA). The agreement contains Canadian

commitments regarding geographical indications (GIs) that raise serious concerns about whether their

implementation will reduce the access for current and future U.S. agricultural and foodstuff producers that

trade with Canada. The U.S. Government continues to engage with Canada on this issue to advance

transparency and due process in Canada’s geographical indications system. The complete list of GIs that

Canada recognized in the CETA text can be found at the following URL address:

http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/text-

texte/22.aspx?lang=eng#221.

Restrictions on U.S. Grain Exports

A number of grain sector policies limit the ability of U.S. wheat and barley exporters to receive a premium

grade (a grade that indicates use for milling purposes as opposed to grain for feed use) in Canada, including

the provisions of the Canada Grain Act and Seeds Act.

Under the Canada Grain Act, the inspection certificate for grain grown outside Canada, including U.S.

grain, can only state the country of origin for that grain and not issue a grade. Also, the Canada Grain Act

directs the Canadian Grain Commission to “establish grades and grade names for any kind of western grain

and eastern grain and establish the specifications for those grades” by regulation. The explicit division

between “eastern grain” and “western grain,” are defined in the Canada Grain Act as “grain grown in the

[Eastern or Western] Division,” defined geographically within Canada, further underscores that grading is

only available to Canadian grains. Under the Canada Grain Act, only grain of varieties registered under

Canada’s Seeds Act may receive a grade higher than the lowest grade allowable in each class

U.S. wheat and barley can be sold without a grade directly to interested Canadian purchasers at prices based

on contract specifications. However, contract-based sales are a relatively small proportion of all sales in

Canada. Most sales occur through the bulk handling system in grain elevators. Canadian grain elevators

offer economic efficiencies by collecting and storing grain from many small-volume growers, giving them

the ability to fulfill larger contracts and to demand higher prices for that ability.

The barriers to assigning U.S. grain a premium grade encourages both a price discounting of high-quality

U.S. grain appropriate for milling use and de facto segregation at the Canadian elevator.

The United States will continue to press the Canadian government to move forward swiftly with legislative

changes that would enable grain grown outside Canada to receive a premium grade and changes to its

varietal registration system.

Personal Duty Exemption

Canada’s personal duty exemption for residents who bring back goods from short trips outside of its borders

is less generous than the U.S. personal duty exemption. Canadians who spend more than 24 hours outside

of Canada can bring back C$200 worth of goods duty free, or C$800 for trips over 48 hours. Canada

provides no duty-exemption for returning residents who have been out of Canada for fewer than 24 hours.

U.S. retailers have raised concerns about the effect of this policy on purchases by Canadians on short trips

to the United States.

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Wine, Beer, and Spirits

Canadians face high provincial taxes on personal imports of U.S. wines and spirits upon their return to

Canada from the United States. This inhibits Canadians from purchasing U.S. alcoholic beverages while

in the United States.

Most Canadian provinces restrict the sale of wine, beer, and spirits through province-run liquor control

boards, which are the sole authorized sellers of wine, beer, and spirits in those provinces. Market access

barriers in those provinces greatly hamper exports of U.S. wine, beer, and spirits to Canada. These barriers

include cost-of-service mark-ups, restrictions on listings (products that the liquor board will sell), reference

prices (either maximum prices the liquor board is willing to pay or prices below which imported products

may not be sold), labeling requirements, discounting policies (requirements that suppliers offer rebates or

reduce their prices to meet sales targets) and distribution policies.

British Columbia

British Columbia (BC) has implemented a measure that allows only BC wines to be sold on grocery store

shelves, while imported wine in grocery stores can only be sold in a “store within a store” with controlled

access with separate case registers. This regulation has raised concerns that the measure may discriminate

against imported wines.

Ontario

Ontario’s new policy on wine sales in grocery stores, under which a certain number of licenses would be

restricted to selling only Ontario Vintners Quality Alliance (VQA) wines, raises concerns that the measure

may discriminate against imported wines.

DOMESTIC SUPPORT MEASURES

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 $1.53 billion to fund 27 advanced research and development (R&D) projects since its

establishment in 2007. To date, SADI has disbursed nearly $935 million of which approximately $554

million was disbursed in 2014.

The Canadian federal government and the Quebec provincial government announced aid to the Bombardier

aircraft company in 2008 to support research and development related to the launch of the new class of

Bombardier CSeries commercial aircraft. The federal government provided C$350 million in financing for

the CSeries aircraft, and the government of Quebec provided another C$118 million. The federal

government and Quebec government are also offering commercial loans to potential buyers of the aircraft.

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In October 2015, the Quebec provincial government entered into a memorandum of understanding with

Bombardier to buy a 49.5 percent equity share in a CSeries joint-venture for $1 billion, with a commitment

by the company to maintain aircraft manufacturing operations in Quebec for a period of 20 years. The

venture will be managed by a board of directors made up of Quebec government officials and Bombardier

executives. The first $500 million payment is scheduled for April 2016, and a second $500 million payment

is scheduled for June 2016. Bombardier expects to begin commercial deliveries of CSeries aircraft in 2016.

The United States will continue to monitor carefully any government financing and support of the CSeries

aircraft.

While Parties to the February 2011 OECD Sector Understanding on Export Credits for Civil Aircraft

implement the revised agreement, 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.

Canada has committed to spend approximately $25 million from 2009 to 2018 to support the Green

Aviation Research and Development Network and provide additional funding to the National Research

Council’s Industrial Research Assistance Program to support research and development in Canada’s

aerospace sector.

GOVERNMENT PROCUREMENT

Canada has made commitments to open its government procurement to U.S. suppliers under the WTO

Agreement on Government Procurement (WTO GPA), the NAFTA, and the 2010 United States-Canada

Agreement on Government Procurement. The current agreements provide U.S. businesses with access to

procurement conducted by most Canadian federal departments and a large number of provincial entities,

and to procurement by some but not all of Canada’s Crown Corporations.

Hydro-Québec, a provincial-level Crown Corporation in Quebec maintains a local (Quebec) content

requirement in its procurements for wind energy projects, and these local content requirements can pose

hurdles for U.S. companies in the renewable energy sector in Canada.

Under the TPP agreement, Canada will make comparable procurement commitments to the United States

and other TPP partners, and expand its government procurement coverage to include additional services

and entities not covered in past agreements with the United States.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Protection and enforcement of intellectual property (IP) rights is a continuing priority in bilateral trade

relations with Canada. In 2012, the U.S. Government moved Canada from the Priority Watch List to the

Watch List in light of steps taken to improve copyright protection through the Copyright Modernization

Act. With respect to pharmaceuticals, the United States continues to have serious concerns about the impact

of the patent utility requirements that Canadian courts have adopted. On IP enforcement, Canada’s

Parliament passed the Combating Counterfeit Products Act on December 9, 2014, but the United States is

disappointed that Canada did not amend this legislation to allow for inspection of in-transit counterfeit

trademark goods and pirated copyright goods entering Canada destined for the United States. Under the

TPP agreement, which sets strong and balanced standards on IP protection and enforcement, Canada has

committed to strengthening its IP regime. The United States continues to work with Canada to address IP

issues through TPP implementation as well as through bilateral engagement.

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SERVICES BARRIERS

Telecommunications

Canada no longer maintains foreign ownership restrictions for carriers with less than a 10 percent share of

the total Canadian telecommunications market, following an amendment to the Telecommunications Act

in June 2012. 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 capped the amount of spectrum that all large incumbent companies could

purchase in the January 2014 700 MHz spectrum auction in an effort to facilitate greater competition in the

sector. No foreign entities participated in the auction, which resulted in Canada's three large incumbent

wireless providers winning 85 percent of the available blocks. Canada has blocked deals it believes would

lead to excessive spectrum concentration among market leaders, and set aside 60 percent of spectrum

auctioned off in March 2015 for new wireless entrants. These positive developments have fostered

increased competition in Canada’s wireless telecommunications sector. The federal government included

a provision to cap wholesale domestic wireless roaming rates in its 2014 budget implementation act. The

measure is intended to foster increased competition in Canada’s telecommunications sector by preventing

large wireless carriers from charging smaller providers’ higher roaming rates than they would charge their

own customers.

Canada maintains a 46.7 percent limit on foreign ownership of certain suppliers of facilities-based

telecommunications services (i.e. those with more than 10 percent market share), 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 must be Canadian citizens. As a consequence of these restrictions on

foreign ownership, the role of U.S. firms in the Canadian market as wholly U.S.-owned operators has been

limited to that of resellers, dependent on Canadian facilities-based operators for critical services and

component parts.

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.

In March 2015, the CRTC announced that it will eliminate the 55 percent daytime Canadian-content quota.

The CRTC is maintaining the Exhibition Quota for primetime at 50 percent from 6 p.m. to 11 p.m. Specialty

services and pay television services that are not part of a large English language private broadcasting group

are now subject to a 35 percent requirement throughout the day, with no prime time quota.

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. Upon an appeal from a Canadian licensee, the CRTC may determine that a non-

Canadian channel competes with a Canadian pay or specialty service, in which case the CRTC may either

remove the non-Canadian channel from the list (thereby revoking approval to supply service) or shift the

channel into a less competitive location on the channel dial.

The CRTC also requires that 35 percent of popular musical selections broadcast on the radio qualify as

“Canadian” under a Canadian government-determined point system.

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In September 2015, the CRTC released a new Wholesale Code that governs certain commercial

arrangements between broadcasting distribution undertakings, programming undertakings, and exempt

digital media undertakings. A proposal in the new Wholesale Code to apply a code of conduct designed

for vertically integrated suppliers in Canada (i.e., suppliers that own infrastructure and programming) to

foreign programming suppliers (who by definition cannot be vertically integrated, as foreign suppliers are

prohibited from owning video distribution infrastructure in Canada) has raised significant stakeholder

concerns. Additionally, stakeholders have expressed concern related to provisions in the Wholesale Code

that affect U.S. broadcast signals and services within Canada. The Wholesale Code came into force January

22, 2016.

U.S. suppliers of programming have also raised concerns about a CRTC policy not to permit simultaneous

substitution of advertising for the Super Bowl beginning in the 2016-2017 season. Simultaneous

substitution is a process by which broadcasters can insert local advertising into a program, overriding the

original U.S. ad and thus providing the Canadian broadcaster an independent source of revenue. U.S.

suppliers of programming believe that the price Canadian networks pay for Super Bowl rights is determined

by the value of ads they can sell in Canada and the CRTC’s decision reduces the value of their

programming. The United States is seeking clarity from the Canadian government on the CRTC’s position

in this matter.

INVESTMENT BARRIERS

The Investment Canada Act (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 above a particular threshold value. Canada amended the ICA in 2009 to raise the

threshold for Canada’s “net benefit” review of foreign investment. The threshold currently stands at C$600

million and will increase to C$800 million in April 2017, then to C$1 billion in 2019. Foreign state owned

enterprises (SOEs) remain subject to a lower threshold of $369 million. Innovation, Science and Economic

Development Canada is the government’s reviewing authority for most investments, except for those

related to cultural industries, which come under the jurisdiction of the Heritage Canada. Foreign acquisition

proposals under government review must demonstrate a “net benefit” to Canada to be approved. The

Industry Minister may 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 the foreign investor.

Under the ICA, the Industry Minister can make investment approval contingent upon meeting certain

conditions such as minimum levels of employment and R&D. Since the global economic slowdown in

2009, some foreign investors in Canada have had difficulty meeting these conditions.

Canada administers supplemental guidelines for investment by foreign SOEs, including a stipulation that

future SOE bids to acquire control of a Canadian oil-sands business will be approved on an “exceptional

basis only.”

OTHER BARRIERS

Cross-Border Data Flows

The Canadian federal government is consolidating information technology services across 63 Canadian

federal government email systems under a single platform. The tender for this project invoked national

security as a basis for prohibiting the contracted company from allowing data to go outside of Canada. This

requirement precludes U.S.-based “cloud” computing suppliers from participating in the procurement

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process, unless they replicate data storage and processing facilities in Canada. The public sector represents

approximately one third of the Canadian economy, and is a major consumer of U.S. services, particularly

in the ICT sector, and thus the requirement could significantly hinder U.S. exports of a wide array of

products and services.

Privacy rules in two Canadian provinces, British Columbia and Nova Scotia, mandate 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.

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CHILE

TRADE SUMMARY

The U.S. goods trade surplus with Chile was $6.7 billion in 2015, a 4.7 percent decrease ($332 million)

over 2014. U.S. goods exports to Chile were $15.6 billion, down 5.6 percent ($927 million) from the

previous year. Corresponding U.S. imports from Chile were $8.9 billion, down 6.3 percent. Chile was the

United States' 22nd largest goods export market in 2015.

U.S. exports of services to Chile were an estimated $3.8 billion in 2014 (latest data available), and U.S.

imports were $1.2 billion. Sales of services in Chile by majority U.S.-owned affiliates were $11.5 billion

in 2013 (latest data available), while sales of services in the United States by majority Chile-owned firms

were $178 million.

U.S. foreign direct investment (FDI) in Chile (stock) was $27.6 billion in 2014 (latest data available), a 3.7

percent decrease from 2013. U.S. direct investment in Chile is led by mining, finance/insurance, and

manufacturing.

Trade Agreements

Trans-Pacific Partnership (TPP) -- Chile is a U.S. partner in the TPP, with 10 other countries (Australia,

Brunei Darussalam, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam); the

12 TPP partners together represent 40 percent of the global economy. The TPP Agreement, which was

concluded in October 2015 and signed in February 2016, will significantly advance U.S. economic interests

in some of the fastest growing economies in the world, promoting U.S. exports of goods and services, and

benefit American workers, farmers, businesses, and consumers. Under the TPP Agreement, our TPP

partners will cut over 18,000 import taxes imposed on Made-in-America products. The TPP Agreement

will also open new markets for U.S. service suppliers; address non-tariff barriers that unfairly block U.S.

exports; promote digital trade and strong and balanced intellectual property rules for America’s globally

competitive IP-intensive industries; level the playing field for U.S. companies by fostering fair competition

and good governance; establish high enforceable labor and environmental standards; help ensure fair and

transparent regulatory policies that promote trade by U.S. innovators and exporters while helping to ensure

consumer safety and privacy; and promote inclusive growth, including by supporting U.S. small businesses.

The TPP Parties are now focused on completing their respective domestic approval processes to bring the

agreement into force, so that their workers, farmers, businesses, and consumers can begin benefitting from

the agreement as soon as possible.

United States-Chile Free Trade Agreement (FTA) -- The FTA entered into force on January 1, 2004.

Pursuant to the FTA, Chile immediately eliminated tariffs on over 85 percent of bilateral trade in goods.

All duties for U.S. goods entering Chile were eliminated on January 1, 2015. Since the FTA’s entry into

force, trade between the United States and Chile more than quadrupled, making the United States Chile’s

second-largest trading partner (after China, which is a significant importer of Chile’s copper).

Trade in Services Agreement (TiSA) -- Chile is participating in the TiSA negotiations, which are aimed at

promoting fair and open trade in services while taking on new issues arising from the rapid growth of digital

trade. The 23 economies participating in TiSA represent 75 percent of the world’s $44 trillion services

market.

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TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANTIARY BARRIERS

Technical Barriers to Trade

Nutrition Labeling

On June 26, 2015, Chile’s Ministry of Health (MOH) published Decree 13, which regulates the labeling of

the nutritional compositions of certain food products. Decree 13 requires labels on certain prepackaged

food products if they exceed specified thresholds of sodium, sugar, energy (calories) and saturated fats.

The thresholds are established based on a 100 gram or 100 ml serving and are not calibrated to the actual

serving size of the package of food being sold. The regulation requires food products that exceed the

thresholds to bear black octagonal “stop” signs with the words “High in” salt, sugar, energy or saturated

fat.

The United States has raised concerns about this issue with Chile within the framework of the WTO

Committee on Technical Barriers to Trade (WTO TBT Committee), in the Free Trade Commission and

TBT Committee under the bilateral FTA, and on other occasions. The United States will continue to discuss

these issues with Chile.

Sanitary and Phytosanitary Barriers

Salmonid Products Ban

In 2010, Chile’s Ministry of Fisheries, SERNAPESCA, suspended imports of salmonid species from all

countries, including the United States, due to Chile’s revised import regulations for aquatic animals,

including salmonid eggs. Under the new regulations, U.S. producers cannot export salmonid eggs to Chile

until SERNAPESCA completes a risk analysis and an on-site audit of the U.S. Department of Agriculture’s

(USDA) oversight of aquatic animal exports and U.S. salmonid egg production sites. An audit of USDA’s

oversight of production sites in the states of Washington and Maine was conducted in 2011. USDA and

SERNAPESCA have continued technical discussions. In connection with the signing of the TPP

Agreement, the United States and Chile agreed, through an exchange of letters, to steps to advance Chile’s

consideration of a resumption of imports from the states of Washington and Maine.

IMPORT POLICIES

Tariffs and Taxes

Chile has one of the most open trade regimes in the world with a uniform MFN applied tariff rate of 6

percent for nearly all goods. Certain goods carry unique tariffs, such as tobacco products (nearly 60 percent)

and pyrotechnics (50 percent). A surcharge is applied to imports of luxury goods, including new cars.

Additionally, many capital goods may be imported with an applied tariff rate of zero percent under specific

conditions. Pursuant to the United States-Chile FTA, as of January 1, 2015, all originating U.S. goods enter

Chile duty free.

Importers must pay a 19 percent value-added tax (VAT) calculated based on the cost, insurance, freight

(CIF) value of the import. The VAT is also applied to nearly all domestically produced goods and services.

There are additional taxes applied to some products regardless of their origin, such as an 18 percent tax on

sugared non-alcoholic beverages, a 20 percent tax for beers and wines, and a 31.5 percent tax for distilled

alcoholic beverages. Cigarettes are subject to a 30 percent ad valorem tax plus approximately $0.07 per

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cigarette; other tobacco products have taxes between 52.6 percent and 59.7 percent. These values reflect

changes implemented under the tax reform introduced in September 2014.

Foreign shareholders will be subject to 35 percent tax on capital gains that are recognized in connection

with the sale or other transfer of Chilean shares on or after January 1, 2017. This tax change applies to

capital gains from the sale of shares in Chilean companies, regardless of their participation in the stock

exchange (Bolsa de Comercio). Currently, such capital gains are subject to tax at a rate of 20 or 35 percent,

depending on certain specific requirements. Under the new rules, the rate will be 35 percent on net gain in

all cases.

Import Controls

There are virtually no restrictions on the types or amounts of goods that can be imported into Chile, nor are

there any requirements to use the official foreign exchange market. However, importers and exporters must

report their import and export transactions to the Central Bank. Commercial banks may sell foreign

currency to any importer to cover the price of imported goods and related expenses as well as to pay interest

and other financing expenses that are authorized in the import report. Licensing requirements appear to be

used primarily for statistical purposes; legislation requires that most import licenses be granted as a routine

procedure. More rigorous licensing procedures apply for certain products such as pharmaceuticals and

weapons.

Nontariff Barriers

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). Companies established in any of Chile’s free trade zones are

exempt from the obligation to use a customs agent when importing or exporting goods, as are

noncommercial shipments valued at less than $500. Chile’s two free trade zones are the Free Zone of

Iquique in the northern tip of Chile and the Free Zone of Punta Arenas in the southern tip.

EXPORT POLICIES

Chile currently provides a simplified duty drawback program for nontraditional exports (except in cases

where a free trade agreement provide otherwise). The program reimburses a firm up to three percent of the

value of the exported good if at least 50 percent of that good consists of imported raw materials. Chile

publishes an annual list of products excluded from this policy. In accordance with its commitments under

the FTA, as of January 1, 2015, Chile eliminated the use of duty drawback and duty deferral for imports

that are incorporated into any good exported to the United States.

Under Chile’s VAT reimbursement policy, which is distinct from its drawback program, exporters have the

right to recoup the VAT paid on 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.

GOVERNMENT PROCUREMENT

The FTA requires procuring entities subject to the Agreement 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 also contains nondiscrimination provisions that require

Chilean entities covered by the FTA to allow U.S. suppliers to participate on the same basis as Chilean

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suppliers in covered procurements. Most Chilean central government entities, 13 regional governments,

10 ports, state-owned airports, and 341 municipalities are covered by the FTA and must comply with the

government procurement obligations.

Chile has made similar government procurement commitments in TPP, and in fact Chile has expanded its

procurement commitments to include several central government ministries that were not covered

previously under the FTA.

Chile is not a party to the WTO Agreement on Government Procurement, but it is an observer to the

Committee on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

The 2015 Special 301 Report identified weaknesses in the adequacy and effectiveness of Chile’s protection

and enforcement of intellectual property. Specific obstacles include an ineffective Internet Service Provider

liability regime, lack of protection against the unlawful circumvention of technological protection

measures, lack of effective remedies to address satellite and cable TV piracy, and failure to ratify the (1991)

Act of the International Convention for the Protection of New Varieties of Plants. The Report also urged

Chile to address challenges in reviewing patent issues in connection with applications to market

pharmaceutical products and to provide adequate protection against unfair commercial use of undisclosed

test of other data generated to obtain marketing approvals for pharmaceutical products. Under the TPP

agreement, which sets strong and balanced standards on IP protection and enforcement, Chile has

committed to more robust standards for its intellectual property rights regime. The United States continues

to work with Chile to address these and other IP issues through TPP implementation and bilateral

engagement.

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CHINA

TRADE SUMMARY

The U.S. goods trade deficit with China was $365.7 billion in 2015, a 6.6 percent increase ($22.6 billion)

over 2014. U.S. goods exports to China were $116.2 billion, down 6.1 percent ($7.5 billion) from the

previous year. Corresponding U.S. imports from China were $481.9 billion, up 3.2 percent. China was the

United States' 3rd largest goods export market in 2015.

U.S. exports of services to China were an estimated $42.5 billion in 2014 (latest data available), and U.S.

imports were $14.4 billion. Sales of services in China by majority U.S.-owned affiliates were $43.3 billion

in 2013 (latest data available), while sales of services in the United States by majority China-owned firms

were $4.4 billion.

U.S. foreign direct investment (FDI) in China (stock) was $65.8 billion in 2014 (latest data available), a 9.8

percent increase from 2013. U.S. direct investment in China is led by manufacturing, wholesale trade, and

depository institutions.

KEY TRADE BARRIERS

The United States continues to pursue vigorous and expanded bilateral and multilateral engagement to

increase the benefits that U.S. businesses, workers, farmers, ranchers, service providers and consumers

derive from trade and economic ties with China. In an effort to remove Chinese barriers blocking or

impeding U.S. exports and investment, the United States uses outcome-oriented dialogue at all levels of

engagement with China, while also taking concrete steps to enforce U.S. rights at the WTO as appropriate.

At present, China’s trade policies and practices in several specific areas cause particular concern for the

United States and U.S. stakeholders. The key concerns in each of these areas are summarized below. For

more detailed information on these concerns, see the 2015 USTR Report to Congress on China’s WTO

Compliance, issued on December 30, 2015 at https://ustr.gov/sites/default/files/2015-Report-to-Congress-

Final.pdf. The USTR Report to Congress on China’s WTO Compliance provides comprehensive

information on the status of the trade and investment commitments that China has made through the United

States-China Joint Commission on Commerce and Trade (JCCT) and the United States-China Strategic and

Economic Dialogue (S&ED).

PRIORITY ISSUES

At present, China’s trade policies and practices in several specific areas cause particular concern for the

United States and U.S. stakeholders, including in relation to China’s approach to the obligations of WTO

membership. The key concerns in each of these areas are summarized below. In 2016, the United States

will continue to pursue vigorous and expanded bilateral engagement to resolve the serious issues that remain

in these areas. The United States also will continue to hold China accountable for adherence to WTO rules

when dialogue does not resolve U.S. concerns, including through the use of the dispute settlement

mechanism at the WTO.

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INTELLECTUAL PROPERTY RIGHTS PROTECTION

Overview

Since its accession to the WTO, China has undertaken a wide-ranging revision of its framework of laws

and regulations aimed at protecting IPR of domestic and foreign right holders, as required by the WTO

Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement). However,

inadequacies in China’s IPR protection and enforcement regime continue to present serious barriers to U.S.

exports and investment. China was again placed on the Priority Watch List in USTR’s 2015 Special 301

report. In addition, in 2015, USTR announced the results of its 2014 Out-of-Cycle Review of Notorious

Markets, which identifies online and physical markets that exemplify key challenges in the global struggle

against piracy and counterfeiting. Several Chinese markets were among those named as notorious markets.

Trade Secrets

The protection and enforcement of trade secrets in China is a serious problem that has attained a higher

profile in recent years. Thefts of trade secrets that benefit Chinese companies have occurred both within

China and outside of China. Offenders in many cases continue to operate with impunity. Most troubling

are reports that actors affiliated with the Chinese government and the Chinese military have infiltrated the

computer systems of U.S. companies and stealing data – including the companies’ intellectual property –

for the purpose of providing commercial advantages to Chinese enterprises. In order to help address these

challenges, the United States has secured commitments from China not to condone this type of state-

sponsored misappropriation of trade secrets and has urged China to update and amend its trade secrets-

related laws and regulations, particularly the Anti-Unfair Competition Law, and to consider issuing judicial

guidance to strengthen its trade secrets regime. The United States also has urged China to take actions to

address this problem across the range of state-sponsored actors and to promote public awareness of this

issue. At the November 2015 JCCT meeting, China announced that it is in the process of amending this

law and intends to issue model or guiding court cases and clarify rules on preliminary injunctions, evidence

preservation orders, and damages.

Pharmaceutical Patents and Market Access

The United States continues to engage China on a range of patent and technology transfer concerns relating

to pharmaceuticals. At the December 2013 JCCT meeting, China committed to permit supplemental data

supporting pharmaceutical patent applications. However, it appears that China has only partially

implemented that commitment. In addition, many other concerns remain, including the need to provide

effective protection against unfair commercial use of undisclosed test or other data generated to obtain

marketing approval for pharmaceutical products, and to provide effective enforcement against infringement

of pharmaceutical patents. Additionally, a backlogged drug regulatory approval system presents market

access and patient access concerns. At the December 2014 JCCT meeting, China committed to significantly

reduce time-to-market for innovative pharmaceutical products through streamlined processes and additional

funding and personnel.

A serious and emerging concern that arose in 2015 emanates from China’s recently unveiled proposals in

the pharmaceuticals sector that seek to promote government directed indigenous innovation and technology

transfer through the provision of regulatory preferences. For example, a State Council measure issued in

final form without having been made available for public comment calls for expedited regulatory review

and approval to be granted to innovative new drugs where the applicant’s manufacturing capacity has been

shifted to China. The United States is engaging with China on this issue.

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The United States is also engaging China’s regulatory authorities as they consider amendments to

pharmaceutical registration regulations. The United States is working to ensure that these amendments

promote the early notification and resolution of patent disputes.

Software Piracy

Due to the serious obstacles in China to the effective protection and enforcement of IPR in all forms, sales

of legitimate IP-intensive goods and services, including software and audiovisual products, remain

disproportionately low compared to similar markets with stronger IPR protection and enforcement. The

United States continues to work with China on a series of JCCT and S&ED commitments to foster a better

IPR environment that will facilitate increased sales of legitimate IP-intensive goods and services. For

example, sales of legitimate software to the Chinese government by U.S. companies have seen only a

modest increase, while losses to U.S. software companies from the use of pirated software by Chinese state-

owned enterprises and other enterprises remain very high. The United States continues to call on China to

fulfill its existing commitments with regard to software legalization and to urge that entities at all levels of

the Chinese government, including state-owned enterprises and state-owned banks, take necessary steps to

ensure the use of legitimate software.

Online Piracy

Online piracy in China is widespread and continues on a large scale, affecting industries distributing

legitimate music, motion pictures, books and journals, software and video games. Increased enforcement

activities have yet to slow online sales of pirated goods. At the December 2014 JCCT meeting, China

committed to strengthen enforcement against copyright piracy activities in the online environment and to

deter the occurrence of copyright piracy through criminal, civil and administrative remedies and penalties.

Separately, new rules providing for domestic quotas and the review of foreign television content (addressed

in more detail below in discussion on services) present a serious concern for the continued viability of

licensed foreign television content, as they are disrupting legitimate commerce while inadvertently creating

conditions that allow for pirated content to displace legitimate content online.

Counterfeit Goods

Although rights holders report increased enforcement efforts by Chinese government authorities,

counterfeiting in China remains widespread, affecting a wide range of goods. One area of particular concern

involves medications. Despite sustained engagement by the United States, China still needs to improve its

regulation of the manufacture of active pharmaceutical ingredients to prevent their use in counterfeit and

substandard medications. At the July 2014 S&ED meeting, China agreed to develop amendments to the

Drug Administration Law to require regulatory control of the manufacturers of bulk chemicals that can be

used as active pharmaceutical ingredients. At the June 2015 S&ED meeting, China further agreed to publish

revisions to the Drug Administration Law in draft form for public comment and to take into account the

opinions of the United States and other relevant stakeholders. The United States will continue to work with

China to ensure that China fulfills its commitments in this important area.

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INDUSTRIAL POLICIES

Overview

China continued to pursue industrial policies in 2015 that seek to limit market access for imported goods,

foreign manufacturers and foreign service suppliers, while offering substantial government guidance,

resources, and regulatory support to Chinese industries. The principal beneficiaries of these policies are

state-owned enterprises, as well as other favored domestic companies attempting to move up the economic

value chain.

Secure and Controllable ICT Policies

In 2015, global concerns heightened over a series of Chinese measures that would impose severe restrictions

on a wide range of U.S. and other foreign information communication technology (ICT) products and

services with an apparent long-term goal of replacing foreign ICT products and services. Concerns centered

on requirements that ICT equipment and other ICT products and services in critical sectors be “secure and

controllable.”

Some of these policies would apply to wide segments of the Chinese market. For example, in June 2015,

China passed the National Security Law with the stated purpose of safeguarding China’s security, but it

included sweeping provisions addressing economic and industrial policy. China also drafted laws relating

to counterterrorism and cybersecurity in 2015 which, if finalized in their current form, would also impose

far-reaching and onerous trade restrictions on imported ICT products and services in China. Additionally,

in September 2015, the State Council published a “Big Data Development” plan, which for the first time

set a time table for adopting “secure and controllable” products and services in critical departments by 2020.

Other policies would apply to specific sectors of China’s economy. A high profile example in 2015 is a

measure drafted by the China Banking Regulatory Commission (CBRC) that called for 75 percent of ICT

products used in the banking system to be “secure and controllable” by 2019 and that imposed a series of

criteria that would shut out foreign ICT providers from China’s banking sector. Other specific sectors for

which China is currently pursuing “secure and controllable” policies include the insurance sector and the

electronic commerce sector.

In 2015, the United States, in concert with other governments and stakeholders around the world, raised

serious concerns at the highest levels of government within China. President Obama and President Xi

Jinping discussed this issue during the state visit of President Xi in September and agreed on a set of

principles for trade in information technologies. The issue was also raised in connection with the June

S&ED meeting and the November JCCT meeting with China making a series of additional important

commitments with regard to technology policy. These include transparency and nondiscrimination

principles, as well as a commitment that measures intended to enhance ICT cybersecurity in the commercial

sector will be narrowly tailored and will not impose unnecessary nationality-based conditions or restrictions

on the purchase, sale, or use of ICT products.

Indigenous Innovation

In 2015, policies aimed at promoting “indigenous innovation” continued to represent an important

component of China’s industrialization efforts. Through intensive, high-level bilateral engagement, the

United States previously secured a series of critical commitments from China that generated major progress

in de-linking indigenous innovation policies at all levels of the Chinese government from government

procurement preferences, culminating in the issuance of a State Council measure mandating that provincial

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and local governments eliminate any remaining linkages by December 2011. Since then, the principal

challenge has been to address a range of discriminatory indigenous innovation preferences proliferating

outside of the government procurement context.

Using the United States-China Innovation Dialogue, the United States was able to persuade China to take

an important step in this direction at the May 2012 S&ED meeting, where China committed to treat 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 press China to revise or eliminate specific measures that appeared to

be inconsistent with this commitment. Throughout 2013 and 2014, China reviewed specific U.S. concerns,

and the United States and China intensified their discussions. At the December 2014 JCCT meeting, China

clarified and underscored that it will treat IPR owned or developed in other countries the same as

domestically owned or developed IPR, and it further agreed that enterprises are free to base technology

transfer decisions on business and market considerations, and are free to independently negotiate and decide

whether and under what circumstances to assign or license intellectual property rights to affiliated or

unaffiliated enterprises.

In 2015, China’s measures on “secure and controllable” ICT policy (discussed above) included provisions

that would create discriminatory indigenous innovation preferences. In addition, China’s recent steps to

reform its drug review and approval system raised new concerns related to indigenous innovation and

technology transfer. For example, in 2015, China’s State Council issued a measure that calls for expedited

review and approval to be granted to “innovative new drugs with manufacturing capacity shifted to China.”

Finally, in 2015, the United States continued to urge China to revise its High and New Technology tax

preference measures to ensure that it treats IPR owned or developed in other countries the same as

domestically owned or developed IPR, and also does not discriminate against companies who conduct

research and development outside of China.

Technology Transfer

While some longstanding concerns regarding technology transfer remain unaddressed, and new ones have

emerged, such as tying government preferences to the localization of technology in China and granting

regulatory review and approval preferences to innovative drug manufacturers that shift their production to

China, some progress has been made in select areas. For example, China committed at the December 2013

JCCT meeting not to finalize or implement a selection catalogue and rules governing official use vehicles.

The catalogue and rules would have interfered with independent decision making on technology transfer

and would have effectively excluded vehicles produced by foreign and foreign-invested enterprises from

important government procurement opportunities.

Export Restraints

China continues to deploy a combination of export restraints, including export quotas, export licensing,

minimum export prices, export duties and other restrictions, on a number of raw material inputs where it

holds the leverage of being among the world’s leading producers. Through these export restraints, it appears

that China is able to provide substantial economic advantages to a wide range of downstream producers in

China at the expense of foreign downstream producers, while creating pressure on foreign downstream

producers to move their operations, technologies, and jobs to China. In 2013, China removed its export

quotas and duties on several raw material inputs of key interest to the U.S. steel, aluminum and chemicals

industries after the United States won a dispute settlement case against China at the WTO. In 2014, as

discussed above, the United States won a second WTO case, where the claims focused on China’s export

restraints on rare earths, tungsten and molybdenum, which are key inputs for a multitude of U.S.-made

products, including hybrid automobile batteries, wind turbines, energy efficient lighting, steel, advanced

electronics, automobiles, petroleum, and chemicals. China agreed to comply with the WTO’s rulings in

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this second case by May 2015, and it subsequently announced that it had eliminated the export quotas and

export duties at issue by that deadline.

Export Subsidies

China has continued to provide a range of injurious subsidies to its domestic industries, some of which

appear to be prohibited under WTO rules. The United States has addressed these subsidies both through

countervailing duty proceedings conducted by the Commerce Department and through dispute settlement

cases at the WTO, including a new dispute launched in 2015. The United States and other WTO Members

also have continued to press China to notify its subsidies to the WTO in accordance with its WTO

obligations. Since joining the WTO 14 years ago, China has not yet submitted to the WTO a complete

notification of subsidies maintained by the central government, and it has not yet notified any of its sub-

central government subsidies.

Excess Capacity

Chinese government actions and financial support in manufacturing industries like steel and aluminum have

contributed to massive excess capacity in China, with the resulting over-production distorting global

markets and hurting U.S. producers and workers in both the United States and third country markets such

as Canada and Mexico. While China recognizes the severe excess capacity problem in the steel and

aluminum industries, among others, and has taken steps to try to address this problem, there have been

mixed results.

From 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth.

Currently, China’s capacity alone exceeds the combined steelmaking capacity of the European Union (EU),

Japan, the United States, and Russia. China has no comparative advantage with regard to the energy and

raw material inputs that make up the majority of costs for steelmaking, yet China’s capacity has continued

to grow exponentially and is estimated to have exceeded 1.4 billion metric tons (MT) in 2014, despite

weakening demand domestically and abroad. While China’s steel production is slowing and China may

produce approximately 2 to 3 percent less steel in 2015 than in 2014, steel demand in China is projected to

decrease 5 percent this year. As a result, China’s steel exports grew to be the largest in the world, at 93

million MT in 2014, a 50 percent increase over 2013 levels, despite sluggish steel demand abroad. In 2015,

there is rising concern that China’s steel exports are still growing and may have increased 25 percent in the

first 10 months of 2015, as compared to the same period in 2014.

Similarly, monthly production of aluminum in China doubled between January 2011 and July 2015 and

continues to grow. Large new facilities are being built with government support, including through energy

subsidies. China’s aluminum excess capacity is contributing to a severe decline in global aluminum prices,

harming U.S. plants and workers.

Excess capacity in China – whether in the steel industry or other industries like aluminum – hurts U.S.

industries and workers not only because of direct exports from China to the United States, but because

lower global prices and a glut of supply make it difficult for even the most competitive producers to remain

viable. Domestic industries in many of China’s trading partners have continued to respond to the effects

of the trade-distortive effects of China’s excess capacity by petitioning their governments to impose trade

remedies such as antidumping and countervailing duties.

Value-added Tax Rebates and Related Policies

As in prior years, in 2015, the Chinese government attempted to manage the export of many primary,

intermediate, and downstream products by raising or lowering the value-added tax rebate available upon

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export. China sometimes reinforces its objectives by imposing or retracting export duties. These practices

have caused tremendous disruption, uncertainty, and unfairness in the global markets for some products,

particularly downstream products where China is a leading world producer or exporter, such as products

made by the steel, aluminum, and soda ash industries. These practices, together with other policies, such

as excessive government subsidization, also have contributed to severe excess capacity in these same

industries. A positive development took place at the July 2014 S&ED meeting, when China agreed to

improve its value-added tax rebate system, including by actively studying international best practices, and

to deepen communication with the United States on this matter, including regarding its impact on trade. To

date, however, China has not made any movement toward the adoption of international best practices.

Strategic Emerging Industries

In 2010, China’s State Council issued a decision on accelerating the cultivation and development of

“strategic emerging industries” (SEIs) that called upon China to develop and implement policies designed

to promote rapid growth in government-selected industry sectors viewed as economically and strategically

important for transforming China’s industrial base into one that is more internationally competitive in

cutting edge technologies. China subsequently identified seven sectors of focus under the SEI initiative,

including energy saving and environmental protection, new generation information technology,

biotechnology, high-end equipment manufacturing, new energy, new materials, and new energy vehicles.

To date, import substitution policies have been included in some SEI development plans at the sub-central

government level. For example, a development plan for the light-emitting diode (LED) industry issued by

the Shenzhen municipal government included a call to support research and development in products and

technologies that have the ability to substitute for imports. Shenzhen rescinded the plan in 2013 following

U.S. Government intervention with China’s central government authorities.

Similarly, some central and sub-central government measures use local content requirements as a condition

for enterprises in SEI sectors to receive financial support or other preferences. For example, in the high-

end equipment manufacturing sector, China has maintained an annual program that conditioned the receipt

of a subsidy on an enterprise’s use of at least 60 percent Chinese-made components when manufacturing

intelligent manufacturing equipment. Citing WTO concerns, the United States began pressing China in

2014 to repeal or modify these measures. In 2015, China reported that it had decided not to renew this

subsidy program.

In addition, an array of Chinese policies designed to assist Chinese automobile enterprises in developing

electric vehicle technologies and in building domestic brands that can succeed in global markets continued

to pose challenges in 2015. As with other measures and policies previously discussed, these policies have

also generated serious concerns about discrimination based on the country of origin of intellectual property,

forced technology transfer, research and development requirements, investment restrictions and

discriminatory treatment of foreign brands and imported vehicles. Although significant progress has been

made in addressing some of these policies, more work remains to be done.

Import Ban on Remanufactured Products

China prohibits the importation of remanufactured products, which it typically classifies as used goods.

China also maintains restrictions that prevent remanufacturing process inputs (known as cores) from being

imported into China’s customs territory, except special economic zones. These import prohibitions and

restrictions undermine the development of industries in many sectors in China, including mining,

agriculture, healthcare, transportation, and communications, among others, because companies in these

industries are unable to purchase high quality, lower cost remanufactured products produced outside of

China.

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Standards and Technology

In the standards area, there are two principal types of challenges. First, Chinese government officials in

some instances have reportedly pressured foreign companies seeking to participate in the standards-setting

process to license their technology or intellectual property on unfavorable terms. Second, China has

continued to pursue unique national standards, such as the ZUC algorithm, in a number of high technology

areas where international standards already exist, such as 3G and 4G telecommunications standards, Wi-Fi

standards, and information security standards. With respect to conformity assessment for

telecommunication equipment, there continues to be a lack of transparency in China's testing and

certification procedures for mobile phones as well as redundant testing requirements that affect U.S.

telecommunication companies’ market access. To date, bilateral engagement has yielded minimal progress

in resolving these matters.

GOVERNMENT PROCUREMENT

The United States continues to press China to take concrete steps toward fulfilling its commitment to accede

to the WTO Government Procurement Agreement (GPA) and to open up its vast government procurement

market to the United States and other GPA parties. To date, however, the United States, the EU, and other

GPA parties have viewed China’s offers of coverage as highly disappointing in scope and coverage. China

submitted its fifth revised offer in December 2014. This offer showed progress in a number of areas,

including thresholds, entity coverage, and services coverage. Nonetheless, it fell short of U.S. expectations

and remains far from acceptable to the United States and other GPA parties as significant deficiencies

remain in a number of critical areas, including thresholds, entity coverage, services coverage, and

exclusions.

China’s current government procurement regime is governed by two primary laws. The Government

Procurement Law, which is administered by the Ministry of Finance, governs purchasing activities

conducted with fiscal funds by state organs and other organizations at all levels of government in China.

The Tendering and Bidding Law falls under the jurisdiction of the National Development and Reform

Commission and imposes uniform tendering and bidding procedures for certain classes of procurement

projects in China, notably construction and works projects, without regard for the type of entity that

conducts the procurement. Both laws cover important procurements that GPA Parties would consider to

be government procurement eligible for coverage under the GPA. The United States will continue to work

with the Chinese government to ensure that China’s future GPA offers include coverage of government

procurement regardless of which law it falls under, including procurement conducted by both government

entities and other entities, such as state-owned enterprises.

INVESTMENT RESTRICTIONS

China seeks to protect many domestic industries through a restrictive investment regime, which adversely

affects foreign investors in services sectors, agriculture, extractive industries, and manufacturing sectors.

In line with its own plans for domestic reform, including as expressed through the Third Plenum Decision,

China continues to consider improvements to its foreign investment regime, including through the use of a

“negative list” to govern access. However, many aspects of China’s current investment regime, including

lack of substantial liberalization, maintenance of a case-by-case administrative approval system, and the

potential for a new and overly broad national security review, continue to cause foreign investors great

concern. In addition, foreign enterprises report that Chinese government officials may condition investment

approval on a requirement that a foreign enterprise transfer technology, conduct research and development

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in China, satisfy performance requirements relating to exportation or the use of local content, or make

valuable, deal-specific commercial concessions.

The United States has repeatedly raised concerns with China about its restrictive investment regime. To

date, this sustained bilateral engagement has not led to a significant relaxation of China’s investment

restrictions, nor has it appeared to curtail ad hoc actions by Chinese government officials.

Meanwhile, the United States and China have committed at high levels to seek to conclude a high standard

bilateral investment treaty (BIT). Building on China’s commitment at the July 2013 S&ED meeting to

negotiate a BIT that will provide national treatment at all phases of investment, including market access

(i.e., the “pre-establishment” phase of investment), and will employ a negative list approach in identifying

exceptions (meaning that all investments are permitted except for those explicitly excluded), the United

States and China exchanged initial negative list offers in June 2015. Subsequently, as agreed at the June

2015 S&ED meeting, the two sides exchanged revised, improved negative list offers in September 2015.

During the state visit of President Xi later that month, the United States and China reaffirmed, as a top

economic priority, the negotiation of a high-standard BIT that represents on each side an open and

liberalized investment regime. These negotiations remain ongoing.

Trade Remedies

China’s regulatory authorities in some instances seem to be pursuing antidumping and countervailing duty

investigations and imposing duties for the purpose of striking back at trading partners that have exercised

their WTO rights against China, even when necessary legal and factual support for the duties is absent. The

U.S. response has been the filing and prosecution of three WTO disputes. The decisions reached by the

WTO in those three disputes – the most recent of which was issued in July 2015 – confirm that China failed

to abide by WTO disciplines when imposing the duties at issue.

SERVICES BARRIERS

Overview

The prospects for U.S. service suppliers in China are promising, given the size of China’s market and the

Chinese leadership’s stated intention to promote the growth of China’s services sectors. The United States

continues to record a substantial surplus in trade in services with China, as the United States’ cross-border

supply of services into China totaled $43 billion in 2014. In addition, services supplied through majority

U.S.-invested companies in China totaled $43 billion in 2013, the latest year for which data is available.

This success has been largely attributable to the market openings phased in by China pursuant to its WTO

commitments, as well as the U.S. Government’s comprehensive engagement with China’s various

regulatory authorities, including in the pursuit of sector openings that go beyond China’s WTO

commitments.

Nevertheless, in 2015, numerous challenges persisted in a range of services sectors. As in past years,

Chinese regulators continued to use discriminatory regulatory processes, informal bans on entry and

expansion, overly burdensome licensing and operating requirements, and other means to frustrate efforts of

U.S. suppliers of banking, insurance, telecommunications, Internet-related, audiovisual, express delivery,

legal and other services to achieve their full market potential in China. Some sectors, including electronic

payment services and theatrical film distribution, have been the subject of WTO dispute settlement. While

China declared an intent to further liberalize a number of services sectors in its Third Plenum Decision, few

concrete steps have been taken.

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Electronic Payment Services

China continues to place unwarranted restrictions on foreign companies, including the major U.S. credit

card and processing companies, that supply electronic payment services to banks and other businesses that

issue or accept credit and debit cards. The United States prevailed in a WTO case challenging those

restrictions, and China agreed to comply with the WTO’s rulings by July 2013, but China has not yet taken

needed steps to authorize access by foreign suppliers to this market. The United States is actively pressing

China to comply with the WTO’s rulings and also is considering appropriate next steps at the WTO.

Theatrical Film Distribution

In February 2012, the United States and China reached an alternative solution with regard to certain rulings

relating to the importation and distribution of theatrical films in a WTO dispute that the United States had

won. The two sides signed a memorandum of understanding (MOU) 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. Significantly more U.S. films have been imported and distributed in

China since the signing of the MOU, and the revenue received by U.S. film producers has increased

significantly. However, China has not yet fully implemented its MOU commitments, including with regard

to critical commitments to open up film distribution opportunities for imported films. As a result, the United

States has been pressing China for full implementation of the MOU, particularly with regard to films that

are distributed in China on a flat-fee basis rather than a revenue-sharing basis. At the June 2015 S&ED

meeting, China committed to ensure that any Chinese enterprise licensed to distribute films in China can

distribute imported flat-fee films on their own and without having to contract with or otherwise partner with

China Film Group or any other state-owned enterprise. China further committed that SAPPRFT, China

Film Group, or any other state-owned enterprise would not directly or indirectly influence the negotiation,

terms, amount of compensation, or execution of any distribution contract between a licensed Chinese

distributor and a U.S. flat-fee film producer.

Banking Services

China has exercised significant caution in opening up the banking sector to foreign competition. In

particular, China has imposed working capital requirements and other requirements that have made it more

difficult for foreign banks to establish and expand their market presence in China. China has limited the

sale of equity stakes in existing state-owned banks to a single foreign investor to 20 percent, while the total

equity share of all foreign investors is limited to 25 percent. Another problematic area involves the ability

of U.S. and other foreign banks to participate in the domestic currency business in China. This is a market

segment that foreign banks are most eager to pursue in China, particularly with regard to Chinese

individuals. Under existing governing regulations, only foreign-funded banks that have had a representative

office in China for two years and that have total assets exceeding $10 billion can apply to incorporate in

China. Moreover, 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. The regulations also restrict the scope of activities that can be

conducted by foreign banks seeking to operate in China through branches instead of through subsidiaries.

Insurance Services

China’s regulation of the insurance sector has resulted in market access barriers for foreign insurers, whose

share of China’s market remains very low. In the life insurance sector, China only permits foreign

companies to participate in Chinese-foreign joint ventures, with foreign equity capped at 50 percent. The

market share of these joint ventures is less than four percent. For the health and pension insurance sectors,

China also caps foreign equity at 50 percent. While China allows wholly foreign-owned subsidiaries in the

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non-life insurance (i.e., property and casualty) sector, the market share of foreign-invested companies in

this sector is only one percent. China’s market for political risk insurance is completely closed to foreign

participation. China has recently modified its treatment of insurance brokerage in the latest version of its

Foreign Investment Catalogue, but it is not clear that any liberalization is actually taking place on the

ground. Meanwhile, some U.S. insurance companies established in China continue to encounter difficulties

in getting the Chinese regulatory authorities to issue timely approvals of their requests to open up new

internal branches to expand their operations.

Telecommunications Services

Restrictions maintained by China on value-added telecommunications services have created serious barriers

to market entry for foreign suppliers seeking to provide value-added services. Since China’s accession to

the WTO, the number of licenses granted to foreign suppliers is less than three dozen, compared to hundreds

granted to Chinese suppliers. In addition, China’s restrictions on basic telecommunications services, such

as informal bans on new entry, a requirement that foreign suppliers can only enter into joint ventures with

state-owned enterprises, and exceedingly high capital requirements, have blocked foreign suppliers from

accessing China’s basic services market. In May 2013, China introduced rules establishing a pilot program

for the resale of mobile services, which can increase competitive opportunities in China’s heavily

concentrated market. The United States is very concerned that foreign firms continue to be excluded from

the pilot program, while China has issued licenses to more than a dozen Chinese suppliers. China pledged

to open this sector to foreign investment by 2016, but implementing regulations that would make such entry

possible have yet to be issued.

Internet-related Services

China’s Internet regulatory regime is restrictive and nontransparent, affecting a broad range of commercial

services activities conducted via the Internet. In particular, China’s treatment of foreign companies seeking

to participate in the development of cloud computing, including remote data processing provided over the

Internet, raises concerns. For example, China has imposed value-added telecommunications licensing

requirements on this sector, even though the services at issue are not telecommunications services.

Furthermore, although most value-added services are open to foreign investment subject to a 50 percent

equity limitation, China has indicated that cloud computing, regulated under its Internet Data Center license,

remains off limits for foreign suppliers. The only evident exception is companies investing under the Hong

Kong Closer Economic Partnership Agreement, through which only one foreign company has successfully

entered the market.

Over the past decade, China’s filtering of cross-border Internet traffic has posed a significant burden to

foreign suppliers, hurting both Internet sites themselves, and users who often depend on them for their

businesses. Outright blocking of websites appears to have worsened over the past year, with 8 of the top

25 most trafficked global sites now blocked in China. Much of the blocking appears arbitrary; for example,

a major home improvement site in the United States, which would appear wholly innocuous, is typical of

sites likely swept up by the Great Firewall.

Audiovisual Services

China’s restrictions in the area of theater services have wholly discouraged investment by foreign suppliers,

and China’s restrictions on services associated with television and radio greatly limit participation by

foreign suppliers. The burgeoning market for Internet-delivered programming, while initially promising,

has been severely constrained by nontransparent quotas designed to favor local production, and content

review procedures that put foreign content at a significant disadvantage in the market. The quota, set at 30

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percent of the content made available by each website, is implemented though a nontransparent method of

calculation. The content review rules, which require a full season of episodes to be submitted to gain

approval, results in delays to market which result in stimulating demand for pirated versions of popular

content, undermining the value of these legitimate channels of distribution.

Express Delivery Services

The United States continues to raise concerns with China regarding implementation of the 2009 Postal Law

and related regulations. China has blocked foreign companies’ access to the document segment of China’s

domestic express delivery market, and it does not have a strong track record of providing nondiscriminatory

treatment in awarding foreign companies business permits for access to the package segment of China’s

domestic express delivery market, where it also applies overly burdensome regulatory approaches.

Legal Services

China has issued measures intended to implement the legal services commitments that it made upon joining

the WTO. However, these measures, among other concerns, impose lengthy delays for the establishment

of new offices and prohibit foreign law firms from hiring Chinese licensed lawyers to practice Chinese law.

AGRICULTURE

Overview

China is the second largest agricultural export market for the United States, with more than $20 billion in

U.S. agricultural exports in 2015. Much of this success resulted from intensive engagement by the United

States with China’s regulatory authorities. Notwithstanding this success, China remains among the least

transparent and predictable of the world’s major markets for agricultural products, largely because of

uneven enforcement of regulations and selective intervention in the market by China’s regulatory

authorities. As in past years, seemingly capricious practices by Chinese customs and quarantine agencies

delay or halt shipments of agricultural products into China. Sanitary and phytosanitary (SPS) measures

with questionable scientific bases and a generally opaque regulatory regime frequently create difficulties

and uncertainty for traders in agricultural commodities, who require as much certainty and transparency as

possible. Market access promised through the tariff-rate quota (TRQ) system set up pursuant to China’s

WTO accession agreement has yet to be fully realized. At the same time, China has been steadily increasing

domestic support for key commodities, and reports commissioned by certain U.S. farm groups have

concluded that China may be exceeding its WTO limits.

Beef, Poultry and Pork

In 2015, beef, poultry and pork products were affected by questionable SPS measures implemented by

China’s regulatory authorities. For example, China continued to block the importation of U.S. beef and

beef products, more than eight years after these products had been declared safe to trade under international

scientific guidelines established by the World Organization for Animal Health (known by its historical

acronym OIE), and despite the further fact that in 2013 the United States received the lowest risk status

from the OIE, i.e., negligible risk. Regarding poultry, in 2015 China suspended imports of all U.S.-origin

poultry and poultry products in direct response to recent outbreaks of highly pathogenic avian influenza

(HPAI) in the United States. China continued to impose avian influenza-related import restrictions that are

inconsistent with OIE guidelines despite successful U.S. mitigation measures.

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Food Safety Law and Other SPS Measures

In 2015, the United States continued to engage China on its new food safety law and plan for

implementation. On December 9, 2015, China released the “Draft Implementing Rules for the 2015 Food

Safety Law.” China has indicated that there will be several hundred additional measures published that

provide the details for this draft measure. To date, China has not notified the draft measure to the WTO

SPS Committee to allow for further comments and discussion with trading partners. China is also in the

process of revising large numbers of maximum residue levels (MRLs) for additives and contaminates for

imported food products, but much work remains to ensure that the changes are all notified in a timely

manner to avoid trade disruptions. The United States will continue to engage China on the importance of

science-based policies and the need for timely notifications of these and other food safety issues.

Biotechnology Approvals

In 2015, delays persisted in China’s approvals of agricultural products derived from biotechnology,

resulting in increased uncertainty among technology providers, farmers and traders of U.S. corn, soy, and

alfalfa. In December 2014, China approved for import three outstanding biotechnology products of

significant importance to U.S. farmers, including two soybean events and one corn event. However, China

did not approve any new biotechnology varieties in 2015. During President Xi’s U.S. visit in September

2015, China fulfilled an agreement made at the December 2014 JCCT meeting to hold an annual, multi-

ministry dialogue with the United States at the Vice Minister level to discuss policies to support increased

agricultural innovation. In September 2015, using this new dialogue, the United States emphasized the

ways in which transparent, science-based policies can support the development and use of innovative

agricultural technologies, and discussed the benefits of increased use of innovative technologies in

agriculture for enhancing global food security and for climate change mitigation and adaption strategies.

China agreed to improve its regulatory process and begin reviewing biotechnology products in a

transparent, timely, science-based, and predictable manner and reaffirmed these promises at the 2015

JCCT.

Agricultural Support

Over the past several years, China has been significantly increasing domestic subsidies and other support

measures for its agricultural sector. China has established a direct payment program, instituted minimum

support prices for basic commodities and sharply increased input subsidies. China has implemented a

cotton reserve system, based on minimum purchase prices, and cotton target price programs. China also

has begun several new support schemes for hogs and pork, along with a purchasing reserve system for pork.

China submitted its most recent notification concerning domestic support measures to the WTO in May

2015, but it only provided information on domestic supports through 2010. The United States remains

concerned that the methodologies used by China to calculate support levels, particularly with regard to its

price support policies and direct payments, result in underestimation of the overall level of support.

TRANSPARENCY

Overview

One of the core principles reflected throughout China’s WTO accession agreement is transparency. China’s

WTO transparency commitments in many ways required a profound historical shift in Chinese policies.

Although China has made strides to improve transparency following its accession to the WTO, there

remains a lot more for China to do in this area.

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Publication of Trade-related Laws, Regulations and Other Measures

In its WTO accession agreement, China committed to adopt a single official journal for the publication of

all trade-related laws, regulations, and other measures, and China adopted a single official journal, to be

administered by MOFCOM, in 2006. To date, it appears that some but not all central government entities

publish trade-related measures in this journal, and these government entities tend to take a narrow view of

the types of trade-related measures that need to be published in the official journal. As a result, while trade-

related administrative regulations and departmental rules are more commonly (but still not regularly)

published in the journal, it is less common for other measures such as opinions, circulars, orders, directives

and notices to be published, even though they are in fact all binding legal measures. In addition, China

does not normally publish in the journal certain types of trade-related measures, such as subsidy measures,

nor does it normally publish sub-central government trade-related measures in the journal.

Notice-and-Comment Procedures

In its WTO accession agreement, China committed to provide a reasonable period for public comment

before implementing new trade-related laws, regulations, and other measures. China has taken several steps

related to this commitment. In 2008, the National People’s Congress (NPC) instituted notice-and-comment

procedures for draft laws, and shortly thereafter China committed at the Strategic Economic Dialogue that

it would also publish proposed trade and economic related administrative regulations and departmental

rules for a public comment period of not less than 30 days from the date of publication on the website of

the State Council’s Legislative Affairs Office (SCLAO). Subsequently, the NPC began regularly

publishing draft laws for public comment, and China’s State Council often (but not regularly) published

draft administrative regulations for public comment. In addition, many of China’s ministries improved the

frequency with which they publish draft departmental rules for public comment, but the practice remains

very irregular. At the May 2011 S&ED meeting, China committed to issue a measure implementing the

requirement to publish all proposed trade and economic related administrative regulations and departmental

rules on the website of the State Council’s Legislative Affairs Office for a public comment period of not

less than 30 days. In April 2012, the SCLAO issued two measures that made progress in addressing this

requirement. Since then, despite continuing U.S. engagement, little noticeable improvement in the

publication of departmental rules for public comment appears to have taken place, even though China

confirmed that those two SCLAO measures are binding on central government ministries.

Translations

In its WTO accession agreement, China committed to make available translations of all of its trade-related

laws, regulations and other measures at all levels of government in one or more of the WTO languages, i.e.,

English, French, and Spanish. Prior to 2014, China had only compiled translations of trade-related laws

and administrative regulations (into English), but not other types of measures, and China was years behind

in publishing these translations. At the July 2014 S&ED meeting, China committed that it would extend

its translation efforts to include not only trade-related laws and administrative regulations but also trade-

related departmental rules. Subsequently, in March 2015, China issued a measure requiring trade-related

departmental rules to be translated into English. This measure also provides that the translation of a

departmental rule normally must be published before implementation. The United States is pressing China

to ensure that it similarly publishes translations of trade-related laws and administrative regulations before

implementation, as required by China’s WTO accession agreement.

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LEGAL FRAMEWORK

Overview

In addition to the area of transparency, several other areas of China’s legal framework can adversely affect

the ability of the United States and U.S. exporters and investors to access or invest in China’s market. Key

areas include administrative licensing, competition policy, the treatment of non-governmental organizations

(NGOs), commercial dispute resolution, labor laws, and laws governing land use. For example, a draft law

on foreign NGO management was criticized in 2015 by the U.S. and other foreign governments and

numerous global stakeholders. The draft law is extremely broad in scope and would negatively impact

many critically important activities, including business and investment facilitation typically undertaken by

NGOs in China. Corruption among Chinese government officials, enabled in part by China’s incomplete

adoption of the rule of law, is also a key concern.

Administrative Licensing

Despite numerous changes made by the Chinese government since the issuance of the Third Plenum

Decision in November 2013, U.S. companies continue to encounter significant problems with a variety of

administrative licensing processes in China, including processes to secure product approvals, investment

approvals, business expansion approvals, business license renewals and even approvals for routine business

activities. While U.S. companies are encouraged by the overall reduction in license approval requirements

and the focus on decentralizing licensing approval processes, U.S. companies report that these efforts have

only had a marginal impact on their licensing experiences so far.

Competition Policy

Chinese regulatory authorities’ implementation of China’s Anti-Monopoly Law poses multiple challenges.

One key concern relates to how the Anti-Monopoly Law will be applied to state-owned enterprises, given

that a provision in the Anti-Monopoly Law protects the lawful operations of state-owned enterprises and

government monopolies in industries deemed nationally important. To date, China has enforced the Anti-

Monopoly Law against state-owned enterprises, and it has stated that this law applies to state-owned

enterprises, but U.S. stakeholders continues to express concerns that enforcement against state-owned

enterprises will be more limited.

Another concern relates to the procedural fairness of Anti-Monopoly Law investigations. U.S. stakeholders

have expressed concern about insufficient predictability, fairness, and transparency in the investigative

processes of the National Development and Reform Commission (NDRC), including NDRC pressure to

“cooperate” in the face of unspecified allegations or face steep fines and limitations imposed by NDRC on

the ability of foreign companies to bring counsel to meetings. Through the S&ED and JCCT processes in

2014, the United States was able to secure commitments from China designed to help address most of these

matters, although some concerns remain.

In 2015, the United States secured additional commitments from China relating to Anti-Monopoly Law

enforcement proceedings. These commitments address the protection of commercial secrets, the

independence of Anti-Monopoly Law enforcement, the jurisdiction of courts reviewing administrative

Anti-Monopoly Law decisions and Anti-Monopoly Law agencies’ processes for reconsidering decisions.

Taking into account the pro-competitive effects of intellectual property licensing, China also attaches great

importance to maintaining coherent rules relating to intellectual property rights in the Anti-Monopoly Law

context.

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COLOMBIA

TRADE SUMMARY

The U.S. goods trade surplus with Colombia was $2.4 billion in 2015, a 35.4 percent increase ($639 million)

over 2014. U.S. goods exports to Colombia were $16.5 billion, down 17.9 percent ($3.6 billion) from the

previous year. Corresponding U.S. imports from Colombia were $14.1 billion, down 23.2 percent.

Colombia was the United States' 20th largest goods export market in 2015.

Sales of services in Colombia by majority U.S.-owned affiliates were $5.5 billion in 2013 (latest data

available), while sales of services in the United States by majority Colombia-owned firms were $90 million.

U.S. foreign direct investment (FDI) in Colombia (stock) was $7.1 billion in 2014 (latest data available), a

3.9 percent decrease from 2013. U.S. direct investment in Colombia is led by mining, manufacturing, and

finance/insurance.

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, under which Colombia immediately eliminated duties

on 80 percent of U.S. exports, with most remaining tariffs to be phased out over ten years, and tariffs on

some sensitive agricultural products being phased out over longer periods of time. Under the CTPA,

Colombia also provides for substantially improved market access for U.S. service suppliers. In addition,

the CTPA includes disciplines on customs administration and trade facilitation, technical barriers to trade,

government procurement, investment, electronic commerce, telecommunications, intellectual property

rights, transparency, and labor and environmental protection.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Local Certification Requirements

Several new directives and guidelines have created growing local certification requirements and other

regulatory obstacles for U.S. companies. Decree 1595, finalized in August 2015, requires “medium and

high risk” products to obtain local safety conformity certifications unless a country agrees to mutually

recognize Colombia’s certifications. To date, Colombia has not articulated the criteria that it would apply

to determine these risk categories and, thus, has not clarified the scope of the measure. Other regulations

that require local certification include measures addressing electrical installations, electrical equipment

(Resolution 181331 of 2009), illumination and public lighting, toy safety (Resolution 3388 of 2008), public

passenger vehicles, and fuel blends. Some of these regulations and/or their modifications were not notified

through the WTO. Additionally, some stakeholders have expressed concerns regarding a lack of

coordination among government ministries and agencies, excessive and duplicative import documentation

requirements, vague guidelines, and frequently changing norms that create uncertainty. The U.S.

Government has raised these issues in WTO Technical Barriers to Trade Committee meetings, as well as

bilaterally, including in CTPA TBT committee meetings.

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Energy Drinks

Resolution 4150 of 2009 by the National Food and Drug Surveillance Institute (INVIMA), Colombia’s

counterpart to the U.S. Food and Drug Administration, notified technical regulations “laying down the

requirements to be met by energy drinks for human consumption” and prohibiting the commercialization

and sale of energy drinks to population under 14 years of age. The measure was updated in late 2014.

Subsequent versions of the draft regulation have required a series of warning labels that must cover 10

percent of the container of energy drinks. These warnings appear to relate to the general risks associated

with caffeine consumption, although equally caffeinated products are not subject to this regulation. The

United States raised this issue at the CTPA Technical Barriers to Trade Committee meeting held in

December 2015, at which time Colombia confirmed that these modifications were going to be set aside.

The United States is seeking formal confirmation through WTO fora. In 2015, U.S. exports to Colombia

of energy drinks (classified under HS 2202.90.90.90) exceeded $16.2 million.

Sanitary and Phytosanitary Barriers

Live Cattle

Colombia continues to ban imports of U.S. live cattle due to concerns over bluetongue and leucosis. In

June 2010, Colombia nominally allowed live cattle imports from the United States, but at the same time

imposed restrictive requirements that effectively prevented any such imports. In 2015, the United States

continued to raise its ongoing concerns regarding Colombia’s bluetongue requirements, including at the

CTPA Standing Committee on Sanitary and Phytosanitary Matters (SPS Committee) meeting held in

September 2015. At that meeting, USDA’s Animal and Plant Health Inspection Service agreed to provide

Colombia a draft protocol with a view to advancing the technical discussion.

Beef

Two 2006 letter exchanges between the United States and Colombia fully opened the Colombian market to

U.S. beef and beef products from animals of all ages. However, as the side letters predated the United

States’ 2007 classification by the World Organization for Animal Health (OIE) as “controlled risk” for

Bovine Spongiform Encephalopathy (BSE), the side letters use the OIE definition of specified risk

materials, which includes the entire vertebral column, rather than the Food Safety Inspection Services’

domestic SRM definition that required participation in a USDA Agricultural Marketing Service (AMS)

export verification (EV) program. Meat used in processed products was also required to be sourced from

establishments that participate in an EV program. Following sustained technical dialogue between the

United States and Colombia, new certification statements were agreed to in 2015, which take account of

the OIE’s classification of the United States as “negligible risk” for Bovine Spongiform Encephalopathy in

2013. These new requirements were operationalized through a November 25, 2015, exchange of letters

and became effective on December 7, 2015. Under the new arrangement, all beef and beef products from

all federally inspected U.S. establishments are eligible for export to Colombia, rather than only those beef

and beef products from establishments that participated in the USDA AMS EV programs under the previous

certification requirements.

Rice

In an exchange of letters dated April 15, 2012, Colombia and the United States agreed that Colombia would

provide access to U.S. rough rice through the Port of Barranquilla, subject to certification that the shipments

were free of Tilletia horrida (a rice smut) and the pre-export fumigation of shipments. Following a

December 2013 report which indicated that Tilletia horrida had been detected in rice production areas in

Colombia, Colombian authorities undertook an epidemiologic survey. The United States sought

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information regarding the status of the survey at the September 2015 CTPA SPS Committee meeting and

also raised the possibility of rescinding the existing fumigation requirements for U.S. rice. The United

States will continue to engage Colombia with the objectives of expanding the list of eligible ports of entry

for U.S. rough rice beyond Barranquilla and securing the elimination of the pre-export fumigation

requirement.

Risk Categorization and Associated Import Requirements

Through INVIMA Resolution 719 of 2015, Colombia has assigned risk categories to foods with a view to

imposing new requirements on foods depending on the category of risk. The United States is concerned

that the criteria that Colombia used to assign risk may not be consistent with international

guidelines. Colombia has indicated it intends to apply the envisioned categories to both imported and

domestic products. Ministry of Health Decree 539 of March 12, 2014 included numerous new requirements

for high risk foods, including plant registration with INVIMA and the inspection of facilities intending to

export to Colombia. The United States and Colombia exchanged information and views on these issues at

the September 2015 CTPA Standing Committee on Sanitary and Phytosanitary Matters meeting, and the

United States will continue to engage with Colombia in addressing the related concerns.

IMPORT POLICIES

Tariffs

About 80 percent of U.S. exports of consumer and industrial products to Colombia became duty free

immediately upon the CTPA’s entry into force on May 15, 2012. The remaining consumer and industrial

product tariffs are to be phased out within 10 years of entry into force, by January 1, 2021.

Colombia applies variable tariffs to imports of certain agricultural products pursuant to the Andean

Community’s price band system. However, upon entry into force of the CTPA, Colombia stopped imposing

variable tariffs on U.S. agricultural exports, and almost 70 percent of U.S. agricultural exports (by value)

became duty free. Duties on most other U.S. agricultural goods will be phased out over a period of 5 years

to 12 years, depending on the product. Tariffs on the most sensitive products for Colombia, such as some

poultry products, some dairy products, sugar, and rice will be phased out over 15 years to 19 years. U.S.

agricultural exporters also currently benefit from zero-duty tariff rate quotas on corn, rice, poultry parts,

dairy products, sorghum, dried beans, standard grade beef, animal feeds, and soybean oil. Access to the

Colombia market for those products will increase as quotas are increased and over-quota duties are phased

out over the course of the implementation period.

Nontariff Measures

Truck Scrappage

Prior to March 2013, new freight trucks over 10.5 metric tons (mt) (23,148.54 pounds) could be legally

registered in Colombia either by paying a “scrappage fee” to the government, or by demonstrating that an

old freight truck of equivalent capacity had been scrapped and its registration cancelled. In March 2013,

Colombia issued Decree 486, without public consultation or a transition period, which eliminated the option

to pay the “scrappage fee.” As a result, scrapping an old truck of equivalent cargo capacity is now a

condition for the registration of new freight trucks over 10.5 mt. This change in policy has significantly

affected previously robust sales of imported trucks (which are generally over 10.5 mt). In the first year of

this policy, such imports reportedly fell 65 percent, and sales-related administration costs rose by $60

million for all importers. In the first two years, U.S. exporters lost a reported $600 million in sales,

according to industry officials.

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Colombia has since continued to issue scrappage-related decrees, without consultation or transition periods.

Most recently, in February 2015, the transportation ministry issued Decree 348, which expands the

mandatory scrappage requirement to additional vehicles – cars, trucks, minibuses, campers, and dump

trucks used for “special public service.” The decree is to be in effect for one year, or until the transportation

ministry issues a study of supply and demand for this vehicle segment. On March 18, 2015, in a move to

end a trucker strike, the Colombian Transportation Minister reportedly agreed to, among other things,

maintain the one-for-one scrappage requirement.

In 2015, the United States continued to raise concerns regarding the scrappage requirement, as well as the

lack of a transparent public consultation process and a transition period for the new measures, in multiple

fora and at senior and working levels, including in the Organization for Economic Cooperation and

Development (OECD) Trade Committee in the context of Colombia’s accession to the OECD. Colombia

has frequently suggested that it would issue new measures to address U.S. concerns, but there has been no

progress to date. The United States will continue to press Colombia for a resolution of this issue to

effectively reopen the market to U.S. products.

Internal Taxes on Distilled Spirits and Alcohol Monopolies

Colombia currently 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, as amended by Law 1393 of

2010). Arbitrary breakpoints based on alcohol content appear to result in a lower tax rate on spirits

produced locally. The CTPA provides certain exceptions for Colombia’s measures relating to the taxation

of alcoholic beverages, until May 15, 2016. The United States has repeatedly made clear its expectation

that Colombia meet this timeframe. In January 2016, the EU sought consultations with Colombia regarding

taxation and departamento practices with respect to imported spirits under the WTO dispute settlement

mechanism, and the United States participated in those consultations as a third party.

In November 2015, the Santos administration and two members of the Colombian congress submitted three

separate bills aimed at reforming aspects of the liquor tax system and oversight of monopolies at the

departamento (state or provincial) level. While the outcome of these reform efforts is uncertain, the version

originally submitted by the Santos administration would replace the current tax structure (including the

breakpoints) with a combination of a “specific tax” based on alcohol content and an ad valorem tax on the

retail price. The bill also contains provisions that appear aimed at disciplining practices of the departamento

level alcohol monopolies. However, the United States has concerns regarding a provision that would appear

to allow the Departamentos that produce a distilled spirit called “aguardiente” to temporarily suspend the

issuance of permits for the introduction of distilled spirits, including rum, that are imported or originates in

other Departamentos, for an extended period of time. The United States will continue to monitor the

development of the bill and engage with Colombia regarding U.S. concerns, particularly when Colombia’s

legislative sessions begin again in March 2016.

Mobile Phones Decree

On October 16, 2015, Colombia’s trade ministry published Decree 2025, which “establishes measures to

control the import and export of smart phones and their parts” as part of its strategy to address phone theft.

The decree established extensive administrative requirements for trade of mobile phones and creates

barriers to export them for legitimate purposes, such as warranty repairs. The decree mandates that each

mobile phone has a government-issued International Mobile Equipment Identity (IMEI) verification

certificate at the time of import and requires all importers and exporters to pre-register with the National

Police to be allowed to trade in mobile phones. Additionally, it prohibits all imports and exports of mobile

devices and parts via mail or express delivery, and broadly prohibits mobile phone imports and exports with

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very few exceptions (e.g., travelers, temporary export for outward processing, and for waste electrical and

electronic equipment). Officials have reportedly counseled companies to fill out forms incorrectly (for

example, by stating exports are temporary) to be able to import or export products. The United States will

work through the Memorandum of Understanding signed in September 2015 between Colombia and the

U.S. Federal Communications Commission to exchange information on risk reduction strategies not based

on trade restrictions.

Biologic and Biosimilar Medicines Regulations

In September 2014, Colombia issued a decree establishing a framework for marketing approval of

biological and biosimilar medicines. It established three approval pathways. The third pathway the

“abbreviated comparability” pathway, appears to be inconsistent with international norms for biosimilars

pathways. It is currently unclear what data, clinical trials, or other information will be required to

demonstrate biosimilarity with the reference products. The decree has not yet taken effect because the

implementing guidelines have not been finalized. The United States will continue to monitor the

implementation of the Decree to assess its impact on fair competition in the Colombian market.

Health Registrations Dependent on Price Review

The National Development Plan 2014-2018 gives the health ministry the authority to require two additional

assessments before medicine and medical devices can receive or renew sanitary registrations, which allow

a product to be sold in Colombia: (1) a health technology assessment by the Institute for Health

Technological Evaluation; and (2) a price determination by the health ministry. Stakeholders report that

this provision has already delayed the granting and renewal of sanitary registrations for innovative

pharmaceutical products.

Third Party Customs Observers

In 2014, Colombia began to implement a 1999 decree that allows third party “customs observers” at ports

of entry to provide technical support to customs inspectors. The “customs observers,” some of whom are

from national producer organizations that represent products that directly compete with the U.S. product

being imported, are permitted to review product quantities, weights, and customs values, and to identify

appropriate commodity codes for agricultural products. Although “customs observers” do not have the

authority to reject shipments, they have reportedly caused delays in the release of U.S. exports. For

example, the customs authority’s classification of U.S. poultry as “high risk” for technical contraband (for

which it did not provide justification) has allowed domestic producers to request to be present for all imports

of U.S. poultry, resulting in both delays and additional costs. Additionally, samples of some products, such

as ethanol, are sent for testing to the laboratories of local producers that compete directly with U.S.

exporters, raising concerns about possible conflicts of interest.

“Luxury Tax” on Vehicles Valued at $30,000 and Above

Colombia charges a 16 percent consumption tax for vehicles with a Free on Board (FOB) value of $30,000

and above. Imported vehicles below this value are subject to a tax of eight percent. The $30,000 value has

not been adjusted for inflation in two decades. As a result, an increasing number of vehicles, particularly

imported vehicles, fall into the higher tax bracket. (Generally, cars containing above three liter engines

have a FOB value over $30,000.) The majority of vehicles assembled in Colombia typically fall below the

$30,000 level, and domestic vehicles are not valued using an FOB calculation. Importers reportedly

frequently choose to strip vehicles of the latest safety and technology advances to keep the value under

$30,000 and avoid paying at a higher tax rate.

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Ethanol

In April 2014, the Ministry of Mines and Energy published a decree that allowed Colombia to set import

quantity limits on ethanol and establish a licensing mechanism for importing firms to allow for imports in

cases of domestic shortfall. The United States continues to engage with Colombia on this issue.

Import Procedures

A number of stakeholders report frustrations with Colombia’s burdensome import process. For example,

Colombia has yet to automate its import documents procedures. However, in March 2016, Colombia issued

a customs reform decree (Decree 390 of 2016) that is intended to modernize and reform its customs

practices, including with respect to express delivery. The United States will continue to monitor

Colombia’s implementation of the new customs provisions and to engage with Colombia on customs issues.

GOVERNMENT PROCUREMENT

Under the CTPA, Colombia grants national treatment to U.S. goods, services, and suppliers in procurements

covered by the Agreement. The CTPA expands U.S. firms’ access to procurements opened by ministries,

departments, congress, courts, and first tier sub-central entities, as well as a number of Colombia’s

government enterprises, including its majority state-owned oil company, Ecopetrol. In addition, Colombia

does not apply Law 816 of 2003 to CTPA-covered procurements, as that law mandates preferential

treatment for tenders that provide Colombian goods or services.

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 February 1996.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Colombia remained on the Watch List in the 2015 Special 301 Report. Colombia’s implementation of

certain intellectual property rights (IPR) provisions of the CTPA was interrupted in 2013 when the

Constitutional Court invalidated on procedural grounds the law enacting those obligations. While

Colombia has made progress on implementing some of the remaining IPR provisions in the CTPA, other

obligations remain outstanding. Colombia anticipates that the remaining CTPA-related implementation

measures will be introduced or significantly advanced in 2016. The United States will continue to engage

with Colombia at political and technical levels to complete implementation as soon as possible.

Companies are increasingly concerned with the growing use of micro-chipped Free-to-Air (FTA) boxes,

used exclusively for pirating broadcasting signals. Although Colombia does not officially prohibit the

importation of these products, it has started to take some measures to restrict their use in response to U.S.

concerns. In November 2014, Colombia issued a guideline which prohibited the use of FTA boxes with

decodification capacities on satellite services provided by the government (primarily to provide satellite

television services to municipalities that had no previous access). In July 2015, the government established

separate tariff heading for different types of signal decoder devices, including one for micro-chipped FTA

boxes, which should allow the Colombian customs authority to control the entry of these products.

Additionally, the government requires Internet service providers to take down webpages that contain

software updates needed to decrypt TV signals. The 2014-2018 National Development Plan included a

requirement that government agencies develop action plans to address piracy of paid television. The United

States will continue to monitor the effectiveness of these measures and continue to engage with Colombia

on these issues.

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Colombia began implementing a system identifying geographical indications (GIs) in 2013 in response to

European Union applications to register a range of GIs in Colombia. While Colombia has clarified with

respect to a number of types of cheeses which terms would be considered generic in Colombia, the United

States has engaged extensively with Colombia on the issue to ensure that market access for U.S. agricultural

producers is preserved and will continue to do so.

SERVICES BARRIERS

The CTPA grants U.S. service suppliers substantially improved market access. 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.

Telecommunications

Spectrum

Spectrum is critical to the provision of mobile telecommunications services and it is essential that suppliers

do not interfere with each other’s assignments of spectrum. Stakeholders report that Colombia

Telecomuniciones interfered with Avantel’s spectrum assignment on multiple occasions in 2015, and

Avantel alleges that the interference continues. The United States continues to urge the government of

Colombia to investigate and resolve these issues in a timely manner.

Roaming

In previous Section 1377 Reports, USTR has expressed concerns with Colombia’s enforcement of roaming

arrangements, particularly with regards to arrangements between dominant providers and their smaller

competitors. The failure of the government of Colombia to ensure functioning, operational roaming

arrangements between suppliers in its market and to respond in a timely and adequate manner to complaints

regarding such arrangements remains a source of concern. It was not until December 2015 that Comcel,

designated as dominant by the Colombian government, completed the required technical capabilities on its

network to support automatic roaming between Comcel and Avantel. Avantel has not been able to

operationalize roaming with Colombia Telecomunicaciones.

Auctions

Timely and efficient allocation of spectrum is critically important to suppliers of mobile

telecommunications services. In September 2015, the Ministry of Information Technologies and

Communications (“MinTIC”), issued a Request for Proposal (RFP) for allocation of the 700 MHz spectrum.

However, due to a lack of qualified applicants, MinTIC has indicated it will reissue the RFP. It is important

for the growth of the mobile market in Colombia that the government adopt in a timely manner a plan for

allocation of this spectrum.

Distribution Services

Commercial Agency

A section of Colombia’s commercial code has certain provisions for agents in the event of termination of a

commercial agent (sales representative) contract that makes it difficult and costly for companies to

terminate such a contract. The United States has been working with Colombia to address this issue for a

number of years. Colombia’s Congress is currently considering legislation to address this, and the United

States will continue to monitor the progress of this issue.

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COSTA RICA

TRADE SUMMARY

The U.S. trade balance with Costa Rica shifted from a goods trade deficit of $2.5 billion in 2014 to a goods

trade surplus of $1.7 billion in 2015. U.S. goods exports to Costa Rica were $6.1 billion, down 11.7 percent

($814 million) from the previous year. Corresponding U.S. imports from Costa Rica were $4.5 billion,

down 53.0 percent. Costa Rica was the United States' 38th largest goods export market in 2015.

Sales of services in Costa Rica by majority U.S.-owned affiliates were $1.5 billion in 2013 (latest data

available), while sales of services in the United States by majority Costa Rica-owned firms were $63

million.

U.S. foreign direct investment (FDI) in Costa Rica (stock) was $955 million in 2014 (latest data available),

a 4.3 percent decrease from 2013. U.S. direct investment in Costa Rica is led by manufacturing,

professional, scientific, and tech. services, and information.

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 in

2009. The CAFTA-DR significantly liberalizes trade in goods and services and includes important

disciplines relating to customs administration and trade facilitation, technical barriers to trade, government

procurement, investment, telecommunications, electronic commerce, intellectual property rights,

transparency, labor, and environment.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

The Costa Rican Ministry of Health requires a Good Manufacturing Practices (GMP) certificate or a

License of Operation as a prerequisite for approval of cosmetics and toiletries registrations in Costa Rica.

However, U.S. manufacturers have difficulty in complying with this requirement because a U.S. Federal

Government certificate of this kind does not exist. U.S. companies have, in some cases, been able to comply

with the requirement by submitting documents from state or local authorities or trade organizations.

However, for U.S. manufacturers unable to obtain such documents, the regulation results in an inability to

gain the approval necessary to sell in the Costa Rican market. The United States has explained that the U.S.

Federal Government does not issue the GMP certificate, but the issue persists.

Beginning in 2014, producers of dietary supplements have expressed concerns to the U.S. Embassy

regarding Costa Rican product registration and technical regulations related for nutritional and dietary

supplements.

Since the United States does not regulate nutritional and dietary supplements as pharmaceuticals, U.S.

manufacturers of these products generally do not have the certification and product analysis required under

the Central American Technical Regulation for Natural Medicines.

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Sanitary and Phytosanitary Barriers

In September 2013, Costa Rica banned the import of fresh potatoes from the United States allegedly due to

excess soil in some shipments and the presence of “zebra chip,” a disease that causes striping of potatoes.

To date, Costa Rica has not been willing to negotiate a new protocol to reopen the market. However, the

United States continues to engage with Costa Rica to resolve this issue.

Importers have complained that the Ministry of Agriculture (MAG) is using phytosanitary import permits

as a tool for stopping or delaying imports of onions from the United States, and that MAG’s failure to issue

permits in a timely manner has resulted in the loss of market access for onions this year.

IMPORT POLICIES

Tariffs

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 originating U.S. consumer and industrial goods have

entered Costa Rica duty free since January 1, 2015. Nearly all textile and apparel goods that meet the

Agreement’s rules of origin also enter Costa Rica duty free and quota free. In addition, more than half of

U.S. agricultural exports currently enter Costa Rica duty free under the Agreement. Costa Rica will

eliminate its remaining tariffs on virtually all U.S. agricultural products by 2020 (2022 for chicken leg

quarters; 2025 for rice; and 2028 for dairy products). For certain agricultural products (rice, pork, dairy,

poultry), tariff-rate quotas (TRQs) will permit duty-free access for specified quantities during the tariff

phase-out period, with the duty-free amount expanding during that period. Costa Rica’s CAFTA-DR

commitments provide for liberalizing trade in fresh potatoes and onions 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 Costa Rica, committed to improve

transparency and efficiency in administering customs procedures. 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 transshipment of goods.

Costa Rica’s Information Technology Customs Control (TICA) system is designed to allow for a single

automated customs declaration process, with a centralized database, including electronic payment,

integrated risk analysis and connectivity with public and private institutions. Some have argued that TICA

is one of the best customs systems in Central America. However, the system has suffered breakdowns as

the volume of entries has increased since its implementation in 2006, and upgrades are needed to facilitate

the import and export of goods without undue delays.

Costa Rica is in the process of ratifying the WTO Trade Facilitation Agreement, which must first be

approved by the Costa Rican Legislative Assembly and then by the Costa Rican Constitutional Court.

In February 2015, Costa Rican Customs resolved an issue related to the value-added tax (VAT) imposed

on imported carbonated beverages. As a result, the end consumer pays the VAT on imported carbonated

beverages, and local producers include the VAT in their cost of the goods.

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Both imported and domestic beers are subject to a consumption tax of 0.22332 colones per milliliter.

However, imported beer is subject to a 10 percent customs tax, from which locally produced beer is exempt.

Mexican beer manufacturers are reportedly also exempt from the customs tax, following a successful claim

in 2001 that the tax was unconstitutional. Costa Rican courts are continuing their review as is the Ministry

of Finance. The United States is continuing to follow this issue.

GOVERNMENT PROCUREMENT

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 to six weeks of

the procurement announcement. U.S. companies interpret the short deadlines as reflecting Costa Rica’s

reluctance to attract foreign bidders to its government procurement processes. The United States will

continue to monitor Costa Rica’s government procurement practices to ensure they are applied consistent

with CAFTA-DR obligations.

The electronic procurement platform “Mer-link” or “SICOP” provides a single purchasing platform for all

participating ministries with an entirely paperless procurement process based on a secure database, allowing

enhanced levels of transparency and competition in the procurement process. Over 70 government entities

have adopted the program over the past 4 years and it continues to expand. Nevertheless, the Costa Rican

public sector continues to host a number of incompatible and deficient procurement systems.

Costa Rica is not a signatory to the WTO Agreement on Government Procurement. Costa Rica became an

observer in June 2015.

EXPORT SUBSIDIES

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). Costa Rica has modified its free trade zone regime in order to conform to this

requirement. While tax holidays are available for investors in free trade zones, sources have expressed

concern that the Ministry of Foreign Trade (COMEX) exercises significant discretionary power using

undefined criteria in determining what investors qualify for Free Trade Zone status, making it unpredictable

and nontransparent.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Costa Rica was again on the Watch List in the 2015 Special 301 report. Key concerns include Costa Rica’s

need to place a higher priority on intellectual property rights (IPR) protection and enforcement, including

to impose deterrent penalties where appropriate, and to follow through on longstanding plans to end

government use of unlicensed software. On another matter of concern, the United States engaged

extensively with Costa Rica as it prepared legislative amendments governing protections for geographical

indications (GIs), in anticipation of action on applications from the European Union, which were received

in 2013, to register a range of GIs in Costa Rica. During that ongoing engagement, the United States has

stressed the need for use of CAFTA-DR consistent protections and processes, including providing public

notice and opportunity for opposition, cancellation, transparency, and impartiality in decision making.

Costa Rica’s National Registry issued multiple unfavorable GI rulings during 2015 on long-pending cheese

cases, raising additional concerns. The United States will continue to monitor Costa Rica’s implementation

of its IPR obligations under the CAFTA-DR.

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SERVICES BARRIERS

Insurance

While foreign companies operate in most segments of the market, mandatory insurance categories such as

worker’s compensation and basic automobile liability are still serviced only by the National Insurance

Institute (INS), despite being open to new entrants. New market entrants continue to face challenges in

light of the market power INS derives from its former monopoly position. Specific concerns relate to

deceptive advertising by the former monopoly, a cumbersome and nontransparent product approval process,

and the extension of exclusivity contracts between INS and insurance retailers designated as agents.

Telecommunications

Under the CAFTA-DR, 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 and expand coverage areas.

INVESTMENT BARRIERS

Costa Rica’s regulatory environment can pose significant barriers to investment. One common problem is

inconsistent action between institutions within the central government or between institutions in the central

government and municipal governments. The resulting inefficiency in regulatory decision-making is

especially noticeable in infrastructure projects, which can languish for years between the award of a tender

and the start of project construction. Construction now underway on a new container terminal at Costa

Rica’s main Atlantic port, a public-private partnership project that is critical to facilitating trade, was

delayed by more than 13 months, reportedly costing the investing private company more than $300 million.

OTHER BARRIERS

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 decision-

making 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 for 2007 that 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 2012 listed

domestic support expenditures at ever increasing levels, reaching $109.7 million in 2010. In 2013, domestic

support expenditures dropped to $86.1 million, still well above Costa Rica’s WTO ceiling. Between 2009

and 2013, Costa Rica’s price support for rice accounted for most of its notified TAMS, and rice accounted

for a majority of its notified TAMS prior to 2009. Between 2009 and 2013, Costa Rica’s domestic

production of rice has increased while U.S. rice exports to Costa Rica have dropped by 37 percent. In May

2013, the government of Costa Rica issued Decree #37699-MEIC, which reduced the price support by a

modest amount and stated that the then current price support mechanism for rice would be eliminated

starting in March 2014. However, in January 2014, Costa Rica delayed that deadline by a year until March

2015. In January 2015, Costa Rica announced a four-year safeguard, imposing an additional 24.88 percent

tariff on pounded rice. The safeguard amount will decline annually to a final tariff of 6.22 percent for the

last year. The safeguard affected our-of-quota rice imports from the United States. On February 27, 2015

the government of Costa Rica published Executive Decree #38884-MEIC which established producer

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prices for dry and clean paddy rice and also set the minimum and maximum price for different presentations

and qualities of milled rice, either locally produced or imported. Those prices took effect on June 8, 2015.

The overarching issue of excessive domestic support for rice remains, as the reference price system does

nothing to change the effective level of the support, only the classification of it.

In a separate rice issue, in 2015 Costa Rican customs authorities initiated an origin verification process for

rice imported during 2013 from the United States. The authorities are questioning the origin of the rice

(primarily imported under the CAFTA-DR tariff rate quota) imported by at least 15 different importers.

The importers, many of which are small importers who took advantage of the TRQs, face steep fines in

case they cannot provide all the information required by the Customs Department, which according to

Customs will prove the country of origin as the United States. Importers have been asked to provide an

exhaustive amount of information, unrelated to the question of whether the rice is of U.S. origin, and official

USDA documents such as APHIS’ phytosanitary export certificates and FGIS’ rice grading certificates are

not considered proof of the origin, but are merely considered part of the evidence in the case.

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 or inconsistent interpretations of tax

regulations and principles. Adoption of a new set of transfer-pricing regulations in September 2013

represented a significant advance by the Costa Rican government in the area of transparency and

predictability. The United States will continue to monitor implementation of the regulations and other tax

measures.

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DOMINICAN REPUBLIC

TRADE SUMMARY

The U.S. goods trade surplus with Dominican Republic was $2.5 billion in 2015, a 27.3 percent decrease

($928 million) over 2014. U.S. goods exports to Dominican Republic were $7.1 billion, down 9.9 percent

($788 million) from the previous year. Corresponding U.S. imports from Dominican Republic were $4.7

billion, up 3.1 percent. Dominican Republic was the United States' 34th largest goods export market in

2015.

Sales of services in Dominican Republic by majority U.S.-owned affiliates were $1.6 billion in 2013 (latest

data available).

U.S. foreign direct investment (FDI) in Dominican Republic (stock) was $1.2 billion in 2014 (latest data

available), a 3.5 percent increase from 2013. U.S. direct investment in Dominican Republic is led by

manufacturing, information, and wholesale trade.

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, for the Dominican Republic in 2007, and for Costa Rica in 2009. The CAFTA-DR significantly

liberalizes trade in goods and services and 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

environment.

IMPORT POLICIES

Tariffs

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.

However, under the CAFTA-DR, as of January 1, 2015, 100 percent of originating U.S. consumer and

industrial goods enter the Dominican Republic duty free. 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.

Also, under the CAFTA-DR, as of 2015, 83 percent of U.S. agricultural products qualify for duty-free

treatment when exported to the Dominican Republic. The Dominican Republic will eliminate remaining

tariffs on nearly all agricultural goods by 2020 (2025 for chicken leg quarters, 2028 for some dairy products

and rice). Tariff-rate quotas (TRQs) permit duty-free access for specified quantities of 47 different

agricultural products, including ice cream, selected cuts of beef, cheddar cheese, and yogurt, with the duty-

free amount progressively expanding during the tariff phase-out period.

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Nontariff Measures

The Dominican Ministry of Agriculture continues to administer the issuance of sanitary and phytosanitary

import licenses in order to regulate trade in sensitive commodities. The United States continues to raise

concerns regarding this matter with Dominican authorities and is working to eliminate this practice. This

is a regular concern with respect to trade in some sensitive products (e.g., dry beans, potatoes, onions, garlic

and recently hatching eggs), but intermittently with respect to other products as well.

Under the CAFTA-DR, TRQs for agricultural products are to be made available for the entire calendar year,

beginning on January 1 of each year. However, the Dominican Republic has often issued quota allocations

several months into the year. In addition, both the issuance of quotas for sensitive products and the

distribution of import licenses, which allow importers to exercise their quota rights, have frequently been

delayed. While the Ministry of Agriculture made substantial improvements to its administration of TRQs

in 2013 and 2014, 2015 CAFTA-DR quotas were not issued until March, while 2016 quotas were issued

on February 5. The United States will continue to engage on these issues with the Dominican Republic and

will monitor its performance with regard to the timely opening of the TRQs, the timely distribution of

import licenses, and the distribution of appropriate quota volumes to allow TRQ products to enter the

Dominican Republic as of January 1 of each year.

The Dominican Republic maintains a ban on imports of all used vehicles over five years old, and took an

exception under the CAFTA-DR to the obligation not to impose import restrictions for this measure. Since

late 2011, importers of U.S.-made used vehicles less than five years old have reported that the Dominican

customs service has frequently challenged the eligibility of those vehicles to be considered as originating

and therefore eligible for preferential tariff treatment under the CAFTA-DR, citing technical difficulties in

demonstrating compliance with the rules of origin. The United States continues to engage with the

Dominican Republic to address complaints received from exporters of used cars of U.S. manufacture.

GOVERNMENT PROCUREMENT

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 CAFTA-DR apply inter alia to government

procurement. Nevertheless, U.S. suppliers have complained that Dominican government procurement is

frequently not conducted in a transparent manner and that corruption is widespread. The U.S. Government

has engaged with the Dominican government on this issue and transparency has increased in its

procurement system over the last few years. The United States will continue to monitor the Dominican

Republic’s government procurement practices to ensure they are applied in a manner consistent with

CAFTA-DR obligations.

The Dominican Republic is not a signatory to the WTO Agreement on Government Procurement.

SUBSIDIES

The Dominican Republic does not have export promotion schemes other than tariff waivers for inputs

imported by firms in the free trade zones. Under Law 139 of 2011, the Dominican Republic levies a 2.5

percent tax on goods sold from free trade zones into the local market.

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INTELLECTUAL PROPERTY RIGHTS PROTECTION

In 2015, the Dominican Republic remained on the Watch List in the Special 301 Report. Key concerns

cited in the report include the widespread availability of pirated and counterfeit goods, satellite signal

piracy, and a longstanding patent application backlog. Despite these concerns, progress recently has been

made in a few areas. The Dominican Republic continued its efforts to strengthen regulatory protection

against pharmaceutical patent infringement. In 2014, the government of the Dominican Republic created

an office in the Public Ministry responsible for preventing pharmaceutical patent infringement. This office

prosecutes makers and sellers of counterfeit drugs and food products and works with the National Police to

execute raids, close illegitimate pharmacies and food retailers, and make arrests. Although the Dominican

Republic’s patent office (ONAPI) granted more patents in 2014 than in 2013, the large backlog of pending

patent applications continues to grow. ONAPI is in the process of digitizing patents and creating an online

application and retrieval system, but these efforts will take several years to complete. The U.S. Patent and

Trademark Office continues to offer technical assistance to complete this modernization effort, and the

United States looks forward to continuing to work with the Dominican Republic to address these and other

issues.

SERVICES BARRIERS

Telecommunications

The United States has expressed a number of concerns with the timeliness and effectiveness of the

telecommunications regulator in the Dominican Republic, INDOTEL, in carrying out its obligations under

CAFTA-DR and the WTO General Agreement on Trade in Services, including ensuring that its major

suppliers offer a cost-based termination rate, timely allocation of spectrum in an objective and transparent

manner, facilitation of roaming arrangements, and prompt decisions on the renewal of operators’ concession

agreements. The United States continues to work with the Dominican Republic to ensure that it fulfils its

obligations to an open and competitive telecommunications sector.

OTHER BARRIERS

Many 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 is perceived as inconsistent, nontransparent, and overly time-

consuming.

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ECUADOR

TRADE SUMMARY

The U.S. goods trade deficit with Ecuador was $1.5 billion in 2015, a 42.5 percent decrease ($1.1 billion)

over 2014. U.S. goods exports to Ecuador were $5.9 billion, down 27.8 percent ($2.3 billion) from the

previous year. Corresponding U.S. imports from Ecuador were $7.4 billion, down 31.5 percent. Ecuador

was the United States' 39th largest goods export market in 2015.

Sales of services in Ecuador by majority U.S.-owned affiliates were $1.1 billion in 2013 (latest data

available), while sales of services in the United States by majority Ecuador-owned firms were $5 million.

U.S. foreign direct investment (FDI) in Ecuador (stock) was $650 million in 2014 (latest data available), a

11.9 percent increase from 2013. U.S. direct investment in Ecuador is led by mining, manufacturing, and

wholesale trade.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Resolution 116 - Product Certificate

Resolution 116, issued by Ecuador’s Foreign Trade Committee (COMEX) on December 4, 2013, continues

to restrict the importation of certain U.S. products by requiring U.S. exporters and Ecuadoran importers

obtain certificates of recognition – through a conformity assessment process conducted in Ecuador – to

demonstrate that products conform to Ecuador’s technical regulations. Ecuadorian officials maintain that

the requirements, which were not notified to the WTO, remain necessary to protect the health and safety of

Ecuadorian consumers, but officials have also stated that the measures are intended to protect local

producers as part of Ecuador’s policy of import substitution, which is described in detail below.

On June 3, 2014, the Minister of Industry and Productivity (MIPRO) – which at that time was negotiating

a Multiparty Trade Agreement with the EU, Colombia, and Peru – signed MIPRO Agreement 14-241,

which creates an exception to Resolution 116 for products of EU origin. Agreement 14-241 states that

products of EU origin can be imported with only a sworn statement by the importer that the product meets

Ecuadorian technical regulations instead of requiring a certificate of recognition.

The United States has raised concerns regarding Resolution 116 and other trade restrictions with senior

Ecuadorian officials. The United States intends to continue to raise these concerns in 2016, both bilaterally

and in the WTO TBT Committee.

COMEX resolutions can be found on the COMEX web site at http://comercioexterior.gob.ec/comex.

Processed Foods – Nutritional Labeling and Quality Compliance Requirements

Executive Decree No. 4522, issued in November 2013 by the Ministry of Health of Ecuador’s National

Agency for Regulation, Control, and Sanitary Surveillance (ARCSA), requires that all processed and

packaged food products include a label that includes a set of colored bars, which reflect low, medium, or

high content of salt, sugar, and fat. For food packages smaller than 14.4 cm, the decree does not require an

icon, but an advisory message stating, “For your health, reduce the consumption of this product”. The

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Decree also requires an advisory statement for foods that contain less than 50 percent “natural” content.

Ecuador defines a “natural food” as “a food present in nature that has not been transformed.”

Ecuador also requires a certificate demonstrating compliance with these labeling provisions pursuant to

COMEX Resolution 116. A separate certificate of recognition is required for food products for which the

Ecuadorian Standards Institute (INEN) has issued a standard. The list of products requiring this separate

certificate includes all U.S. and third-country processed food product imports. Although like domestic

products must also obtain the INEN certificate, implementation of this requirement has halved the imports

of dozens of high-value added food products, including preserved meat and vegetable products, jams,

sauces, and other food products.

The United States, with Ecuador, continues to explore alternatives to the certificates, including the use of

State or Federal Certificates of Free Sale, a Supplier’s Declaration of Conformity, or a determination of

equivalence with INEN’s requirements.

Mandatory Labeling of Foods Derived From Agricultural Biotechnology

Technical regulation RTE-INEN-022 requires products containing at least 0.9 percent genetically-

engineered components (i.e., transgenics) are required to display a label with the statement “contains

transgenics”.

Sanitary and Phytosanitary Barriers

Ecuador requires separate import permits for all agricultural products from three different offices within

the Ministry of Agriculture: Livestock, Aquaculture, or Fishing (MAGAP), which can make the process

both lengthy and burdensome. Businesses complain that the certificate process lacks scientific basis and is

at odds with World Organization for Animal Health (OIE) and Codex Alimentarius Commission standards.

On occasion, Ecuador appears to use the SPS import permit process in a discretionary and unwarranted

manner to impede agricultural imports.

COMEX Resolution 019 mandates that AGROCALIDAD (Ecuador’s national SPS authority) require an

SPS certificate for imported processed agricultural products, including low-risk, cooked products.

Importers of U.S.-origin food products, especially U.S. fast food franchisees report import processing

delays caused by confusion among government agencies over how to enforce the resolution, as well as by

officials intentionally delaying the entry of imported products as part of Ecuador’s policy of import

substitution.

AGROCALIDAD banned all U.S. origin poultry products on April 16, 2015. While AGROCALIDAD

lifted the ban for processed and cooked poultry and poultry products in May 2015, U.S. origin live fowl,

chilled/frozen poultry meat and poultry products, and eggs/egg products remain banned regardless of their

region of origin. This ban has adversely affected U.S. restaurant franchisees in Ecuador.

IMPORT POLICIES

Ecuador has imposed a broad range of tariff and non-tariff restrictions on trade in goods, services and

investment, as well as weakening protection of intellectual property rights. This trend began several years

ago, but accelerated in 2014 and 2015 as Ecuador’s balance of payments circumstances and economic

growth declined. These measures have created uncertainty in Ecuador’s market, which reduces investment,

penalizes Ecuadorian workers and businesses, and denies the people of Ecuador a choice of competitively

priced, high quality goods and services.

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As part of the policy of import substitution, Ecuadorian officials seek commitments from companies to

increase local production and decrease imports. According to Ecuador’s Coordinating Minister for

Production, Employment, and Competitiveness, over 900 companies had signed import substitution

agreements with the government. Some of these importers have complained that the government coerced

them into the agreements by utilizing Resolution 116 technical requirements as a reason to block their

imports until they agreed to sign (see paragraph on Resolution 116 under Technical Barriers to Trade).

The United States has objected to Ecuador’s discriminatory restrictions on trade in a variety of fora –

bilaterally, through the WTO and its various committees, and in coordination with other countries affected

by Ecuador’s increasingly protectionist measures. The United States will continue to press Ecuador to

reverse its protectionist policies to comply fully with its international commitments.

Tariffs

On March 11, 2015, COMEX Resolution 011-2015 took effect, instituting tariff surcharges of 5 to 45

percent on about 3,000 tariff lines, accounting for 30 percent of imported products as measured by the value

of 2014 imports. Ecuador indicated the increased tariffs would reduce imports by about $2.2 billion, or

about 11 percent of non-petroleum imports in 2014, and were necessary to safeguard the country’s balance

of payments due to an unfavorable economic climate. These tariffs replaced those included in Resolution

050-2014, which had placed tariffs only on goods from Peru and Colombia, ostensibly to address the

depreciation of the currencies of Peru and Colombia relative to the U.S. dollar. In June 2015, Ecuador

informed other WTO Members that it would phase out all tariff surcharges by June 2016.

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 agreed

to phase out its participation in the APBS when it joined the WTO; however, to date, Ecuador has taken no

steps to phase out use of the APBS. The most recent WTO Trade Policy Review (TPR) of Ecuador in 2011

reported that Ecuador’s tariff structure had become more complex “with the increase in the number of ad-

valorem rates and the adoption of compound duties.” The TPR indicated that Ecuador’s applied simple

average most-favored-nation (MFN) tariff rate was 9.3 percent in 2011. As Ecuador has implemented trade

restrictions since the TPR, the actual average applied MFN tariff rate for agricultural products was 18.8 in

2014.

Specific tariff changes by sector in recent years include:

Construction Materials

COMEX Resolution 002-2014, issued January 14, 2014, raised tariff rates of 144 sub-tariff items, including

metal and construction items such as doors, windows, cables, and brushes. The tariff rates vary between

10 percent and 25 percent, although COMEX resolution 027, issued August 25, 2014, reversed some of the

increases.

Consumer goods

COMEX Resolution 023, issued July 17, 2014, created a $42 tariff on packages shipped via international

courier. Consumers may receive packages that weigh less than four kilograms and are valued at less than

$400 and may receive no more than five packages per year, with a total value not to exceed $1,200.

COMEX Resolution 033, issued September 19, 2014, modified Resolution 023 to provide a waiver from

the $42 tariff for packages sent by Ecuadorian residents abroad, up to a limit of 12 packages or $2,400

dollars.

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Agricultural products

Ecuador’s continued use of the APBS affects many U.S. agricultural exports. For some U.S. exports, such

as wheat, barley, malt barley, and their byproducts, the total duty (ad valorem tariff plus variable levy) is

often zero percent. However, total duties can be as high as 45 percent for pork and 86 percent for chicken

parts. One product on which the APBS has had a particularly adverse impact is U.S. soybean-meal. In

light of uncertainty over whether Ecuador would extend the temporary tariff exemption under the APBS,

Ecuadorian importers diverted approximately $50 million in U.S. soybean-meal exports to other countries

from late 2014 through early 2015, and Ecuadorian animal feed manufacturers often sourced lower quality

soybean meal from South American trading partners that have negotiated preferential market access with

Ecuador.

Nontariff Measures

Importers must register with Ecuador’s National Customs Service to obtain a registration number for all

products.

Agriculture

Regulations requiring import permits from Ecuador’s Ministry of Agriculture affect imports of U.S. food

and agricultural products. These import licenses generally require several approvals within MAGAP,

including from the Under Secretary for Livestock Development, the Under Secretary for Commerce, the

corresponding consultative committee, and AGROCALIDAD. This non-science based prior authorization

system is vulnerable to lobbying by domestic producers seeking to block or impede imports.

COMEX Resolution 102 and MAGAP Resolution 299-A (enacted in June 2013) impose a mandatory,

cumbersome process for allocating import licenses for cheese, butter, milk, potatoes (including French

fries), beef, pork, chicken, turkey, beans, sorghum, and corn. Resolution 299-A specifies that import

licenses are not granted automatically, but rather are issued based on the level of domestic production

relative to demand. Resolution 299-A requires importers to present to MAGAP their yearly import

requirements in addition to documentation for technical review. The review results are shared with

domestic producers. Resolution 299-A prohibits imports during periods of high domestic production, but

excludes Andean Community members from the resolution.

For a number of agricultural products, MAGAP has established consultative committees. These committees

are composed of private sector representatives and government officials. Originally conceived as an

advisory body for recommending production and agricultural development policies, these committees now

seek to block imports to encourage domestic production.

Automotive

MIPRO Resolution 14-453, dated October 6, 2014, provided that, as of October 6, 2015, Ecuador would

no longer accept U.S. Federal Motor Vehicle Safety Standards (FMVSS) and would require all automobiles

sold in Ecuador to meet the safety standards established by the UN Economic Commission for Europe (UN

ECE). U.S. companies reported that this regulation could impact $150 million of U.S. car and truck exports

to Ecuador annually. Following substantial engagement by the U.S. Government, on August 25, 2015,

Ecuador announced that it would postpone implementation of the regulation until October 6, 2016. The

United States will continue to communicate to Ecuadorian officials the advantages to Ecuador of accepting

automobiles and trucks meeting U.S. FMVSS.

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Ecuador continues to apply an often changing array of quotas in order to restrict automobile imports.

COMEX Resolution 66, issued June 11, 2012, limited vehicle imports to 68 percent of the total value

imported in 2010. Resolution 77, approved July 30, 2012, identified 50 vehicle importers allowed to import

under the quota system. These measures, together with Resolution 96 of 2012, established an import quota

in total units and value per dealer (as opposed to by vehicle type).

COMEX Resolution 049, issued December 29, 2014, reduced the value and unit quotas on imported motor

vehicles and complete knock-downs (CKDs) that were established by Resolutions 65 and 66 in 2012.

Resolution 003, issued February 3, 2015, and Resolution 019, issued May 5, 2015, further adjusted the

quota reductions. The unit quotas were reduced by about 48 percent for motor vehicles and 25 percent for

CKDs.

Consumer Goods

Ecuador applies a special consumption tax (ICE) on a number of products, including alcohol, perfumes,

video games, firearms, airplanes, helicopters, boats, and cable television service. Many of the products to

which the ICE applies are imported, while many products that are domestically produced are excluded. On

December 24, 2014, Ecuador issued Resolution 1109, which increased the specific per liter tax to $7.10 for

every liter equivalent of alcohol.

Mobile phones

Ecuador has restricted phone imports since June 2012. On May 30, 2015, Ecuador issued Resolution 024-

2015, extending these restrictions until December 31, 2015. Cell phones are also subject to a 15 percent ad

valorem tariff.

GOVERNMENT PROCUREMENT

Ecuador is not a signatory to the WTO Agreement on Government Procurement. Bidding on government

procurement can be cumbersome and non-transparent. The lack of transparency poses a risk that procuring

entities will manipulate the process to their advantage.

For example, Public Enterprises have broad flexibility to make procurements with reduced legal oversight.

Ecuador’s Public Procurement Law establishes exceptions for procurements made according to special

rules established by presidential decrees, for exploration and exploitation of hydrocarbons, for emergency

situations, and for national security contracts. Article 34 of the Public Procurement Law allows public

enterprises to follow special procurement rules, provided the National Public Procurement Service

(SERCOP) issues an open-ended authorization for purchases considered within “the nature of the

enterprise.”

Ecuador also requires that preferential treatment be given to locally produced goods, especially those

produced by the constitutionally created “social and solidarity economy,” as well as micro and small

enterprises.

Foreign bidders are required to register and submit bids for government procurement through an online

system (http://www.compraspublicas.gob.ec). Foreign bidders must have a local legal representative in

order to participate in government procurement.

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INTELLECTUAL PROPERTY RIGHTS PROTECTION

The procedures and penalties for intellectual property crimes were repealed in August 2014 when a new

penal code came into effect. Ecuador was moved to the Special 301 Priority Watch List from the Watch

List in April 2015 because of the lack of criminal procedures and penalties for commercial scale

counterfeiting and piracy. In August 2015, Ecuador’s National Assembly passed an amendment reinstating

criminal procedures and penalties.

In addition to copyright and trademark enforcement challenges, U.S. companies face exorbitant fees for

patent registration and maintenance. Market access is further limited for the pharmaceutical and

agricultural chemical industries by the lack of protection against unfair commercial use, as well as

unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for their

products. Additionally, Presidential Decree 522, which has yet to be implemented, may limit the use of

registered trademarks on off-patent and generic medicines in Ecuador.

The United States will continue to engage Ecuador on these issues in 2016, including through the Special

301 process.

SERVICES BARRIERS

Credit Bureaus

On September 12, 2014, Ecuador enacted the Monetary and Financial Code that regulates the financial,

insurance, and capital markets. Article 357 of the law established the National Data Registry as the only

depository of credit information to be allowed in Ecuador. The law as written would force U.S. and other

foreign credit agencies to close. No date has been established for when Article 357 takes effect. At least

one private bureau remained operational as of December 2015.

Telecommunications

On February 10, 2015, the National Assembly passed a law that requires telecommunications companies

with at least a 30 percent market share to pay 0.5 percent of their revenue to the government. The law

increases the required payments on a progressive basis up to nine percent of revenue for companies with

market share of 75 percent or more. The requirement applies to mobile telephone, subscription television,

Internet, and fixed-line telephone service providers.

The February 2015 telecommunications law also established a new unified independent regulator, Agency

for Regulation & Control of Telecommunications (ARCOTEL). USTR will continue to work with

ARCOTEL to ensure that Ecuador fulfils its obligations to an open and competitive telecommunications

sector.

INVESTMENT BARRIERS

Ecuador’s investment climate remains marked by uncertainty, owing to the government’s unpredictable

and frequently restrictive economic policies. Regulations and laws since 2007 limit private sector

participation in sectors deemed “strategic,” most notably in the extractive industries. In addition,

inconsistent application and interpretation of investment laws negatively impact the transparency and

stability of Ecuador’s investment regime. This legal complexity increases the risks and costs of doing

business in Ecuador.

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In 2010, the Ecuadorian government enacted a hydrocarbons law that requires all contracts in the extractive

industries to be in the form of service, or “for fee” contracts, rather than production sharing

agreements. Several foreign companies declined to renegotiate their contracts and instead opted to

negotiate compensation agreements for operations that they subsequently turned over to the Ecuadorian

government.

Ecuador withdrew from the Convention on the Settlement of Investment Disputes (ICSID Convention),

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 Ecuador’s BIT

with the United States, arguing that the BITs 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. To date, the Ecuadorian government has not terminated its BIT with

the United States.

Ecuador’s National Assembly approved a public-private partnership law on December 15, 2015, intended

to attract investment. The law allows increased private participation in some sectors and offers incentives

including the reduction of the income tax, value added tax, and capital exit tax for investors in certain

projects. Potential investors have expressed guarded optimism that the incentives in the law will be

attractive enough to stimulate new investment.

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EGYPT

TRADE SUMMARY

The U.S. goods trade surplus with Egypt was $3.3 billion in 2015, a 34.0 percent decrease ($1.7 billion)

over 2014. U.S. goods exports to Egypt were $4.7 billion, down 26.6 percent ($1.7 billion) from the

previous year. Corresponding U.S. imports from Egypt were $1.4 billion, down 0.3 percent. Egypt was

the United States' 43rd largest goods export market in 2015.

Sales of services in Egypt by majority U.S.-owned affiliates were $1.3 billion in 2013 (latest data available),

while sales of services in the United States by majority Egypt-owned firms were $3 million.

U.S. foreign direct investment (FDI) in Egypt (stock) was $21.3 billion in 2014 (latest data available), a

13.4 percent increase from 2013.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Vehicles

In June 2014, Egypt adopted EU-based emissions and safety regulatory standards for vehicles. Although

Egypt previously indicated it would apply these new standards to both imported and locally produced

vehicles, the implementation currently targets imported cars and trucks. These new standards have resulted

in reduced sales for U.S. manufacturers that do not already produce versions of certain vehicle models that

satisfy the EU standards. Additionally, Egypt applies the same EU-based emission and safety regulatory

standards to replacement parts, and it is frequently not possible to use parts built in conformity with EU

standards to service vehicles built to U.S. regulatory requirements.

Another restrictive element of Egypt’s law is that it prohibits the importation of used vehicles for

commercial purposes and only allows for the importation of new passenger vehicles within the year of

manufacturing. However, used vehicles may be imported for personal use upon verification of ownership.

In May 2014, the Egyptian Ministry of Trade and Industry issued a decree banning the importation of

motorcycles and three wheel vehicles except for tricycles and chassis for trade. The decree bans the

importation of CBUs (Completely Built Units) yet allows the importation of SKD (Semi Knocked Down)

motorcycle chassis and engines. This ban remains in place today.

Seed Potatoes

In 2012, the Egyptian government issued a ministerial decree authorizing seed potato imports from all

origins, including the United States. Prior to this decree, Egypt only permitted imports of seed-potatoes

from EU countries. However, Egypt is not granting import permits for seed potato imports from the United

States, including imports for field trials to address state-specific sanitary and phytosanitary (SPS) concerns.

In December 2015, in response to a new request, Egypt again refused to issue import permits to complete

field trials in time for the 2016 season.

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Poultry Parts and Offal

Since 2003, Egypt has maintained a de facto ban on poultry parts and offal from all origins, only permitting

imports of whole, frozen birds. Although Egypt cites halal slaughter concerns, Egypt’s General

Organization for Veterinary Services (GOVS) inspected and approved 22 U.S. poultry establishments for

export to Egypt in September 2013, certifying that U.S. slaughtering processes and food safety measures

are in accordance with Islamic halal practices. The impact of the de facto poultry ban on U.S. trade is

estimated at $100 million. Egypt has also banned imports of heat-treated feather meal since March 2012.

Foreign Manufacturers Registration

The Ministry of Industry and Trade issued decree 43/2016 requiring the registration of foreign

manufacturers who export to Egypt for specific finished products, where the “General Organization for

Exports and Imports Control “known as GOEIC would handle the registration process. The registration is

for manufacturers of finished consumer products such as: dairy products, furniture, fruits, textiles,

confectioneries, home appliances and others and will go into effect March 16, 2016. Goods from non-

registered manufacturers will not be cleared through customs.

The decree differentiated between documents represented by manufacturers and trade mark owners in terms

of the required documents. Manufacturers should provide a certificate of the legal entity and the license

issued for the factory, list of items produced by the factory and their trademarks, the trademark of the

product and the trademarks produced by means of a license from the owner, and a certificate proving that

the factory applies a quality control system issued by an entity recognized by the International Laboratory

Accreditation Cooperation (ILAC) or by The International Accreditation Forum (IAF). While Trademark

owners should provide a certificate proving that the trademark is registered and the items produced under

this trademark, Certificate from the company who owns the trademark listing the distribution centers which

are licensed to supply the items with this trademark, a Certificate proving that the factory applies a quality

control system issued by an entity recognized by the International Laboratory Accreditation Cooperation

(ILAC) or by The International Accreditation Forum (IAF). All the documents must be notarized from the

respective exporting country (Chamber of Commerce), the Egyptian Embassy in that country, and then

from the Ministry of Foreign Affairs in Egypt.

Sanitary and Phytosanitary Barriers

In recent years the Egyptian government has made limited progress in taking a more scientific approach to

sanitary and phytosanitary measures. Despite these improvements, importers of U.S. agricultural

commodities continue to face unwarranted barriers such as those that lack technical and scientific

justification.

Beef and Beef Products

In June 2014, Egypt made two notifications to the WTO TBT and SPS Committees of requirements that

would establish a zero tolerance level for synthetic hormones and a low maximum residue level for

naturally-occurring hormones in foodstuffs of animal origin. In February 2015, Egypt removed the

requirement on naturally-occurring hormones. Egypt’s zero-tolerance policy is not consistent with Codex

Alimentarius Commission standards, and the United States and other like-minded trading partners have

engaged extensively with Egyptian authorities to dissuade them from adopting these trade-prohibitive

regulations. While implementation of this measure came into effect in January 2015, there have been no

reports to date of detained or rejected shipments of U.S. beef and beef products.

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Wheat, Soybeans and Corn

The Egyptian Central Administration for Plant Quarantine (CAPQ) requires that wheat, soybean and corn

imports be free from Ambrosia spp. weed seeds. If ambrosia seeds are detected in a shipment by CAPQ’s

inspector, the importer is required to seize the shipment under the supervision of the CAPQ. The U.S.

Department of Agriculture’s Animal and Plant Health Inspection Service (APHIS) has reassured CAPQ of

the integrity and transparency of USDA’s Federal Grain Inspection Service (FGIS).

Agricultural Biotechnology

In March 2012, Egypt’s Ministry of Agriculture and Land Reclamation issued a decree “temporarily

suspending” the cultivation of corn seeds developed through agricultural biotechnology. This suspension

followed media reports critical of products of agricultural biotechnology.

Feather Meal

The Ministry of Agriculture and Land Reclamation’s Decree 448 (March 19, 2012) bans the importation of

heat-treated feather meal. Egypt cites concerns about avian influenza and nutritional value as a justification

for the ban. Egypt’s ban on heat-treated feather meal is not consistent with OIE guidelines on avian

influenza.

IMPORT POLICIES

Tariffs

On January 26, 2016, Egypt issued Presidential Decree 26 further increasing high tariffs on approximately

100 “non-essential” items, including sunglasses, nuts, cut flowers, fireworks, grapes, strawberries, apples,

pineapples, video games, chewing gum, watches, and seafood (including shrimp and caviar). Tariffs on

fish are 20 percent. Tariffs on cut flowers are 40 percent and those on fresh and dried nuts increased from

10 percent to 20 percent. Tariffs on some fresh fruits, including strawberries, increased from 10 percent to

20 percent, while those on apples and pears increased from 30 to 40 percent.

Egypt maintains high tariffs on a number of other products. 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 1,600

cc is 135 percent. In addition, cars with engines over 2,000 cc are subject to an escalating sales tax of up

to 45 percent. 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 tariff on alcoholic beverages for use in the

tourism sector, including for hotels, plus a 40 percent sales tax. The tariff on alcoholic beverages for use

outside the tourism sector ranges from 1,200 percent on beer and 1,800 percent on wine to 3,000 percent

on sparkling wine and spirits. Foreign movies are subject to tariffs amounting to 46 percent. They are also

subject to sales taxes and box office taxes higher than those for domestic films.

Customs Procedures

In its efforts to establish modern customs centers at major ports, the Ministry of Finance has attempted to

implement new information technology systems to facilitate communications among ports and airports.

However, implementation of these systems continues to be delayed. Egypt has still not implemented

systems to accept advance information on international cargo and the lack of automated manifesting process

makes it difficult for the Customs Authority efficiently to target suspect shipments for inspection. The

delays also negatively affect the Customs Authority’s capability to process manifests and entry

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documentation, including for customs valuation, which affects its ability to efficiently assess applicable

taxes and tariffs.

The lack of automated manifest collection and of internal coordination, in addition to inefficient inspection

procedures, has resulted in significant customs delays. The Ministry of Finance has invested in new x-ray

scanning technology to enhance inspection capacity and reduce delays. However, lack of maintenance has

been a problem in the past for similar technologies, and it is not certain that new technology will improve

efficiency.

Legislation drafted in 2008 to streamline procedures and facilitate trade has yet to be submitted to

parliament for consideration. It remains unclear whether the new parliament will take up this issue in 2016.

Egypt’s practice of consularization, which requires that exporters secure a stamp from Egyptian consulates

on all documents for goods exported to Egypt – at a cost of $100 to $150 per document – also adds

significant costs in money and time to such exports.

Import Bans and Barriers

Either the National Nutrition Institute or the Drug Planning and Policy Center of the Ministry of Health and

Population (MoHP) must register and approve all nutritional supplements, specialty foods, and dietary

foods. While there is no law that prohibits the importation of nutritional supplements in finished pill form,

import licenses are not provided. 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 six to eight weeks, but occasionally some products face longer

waiting periods for approval. Importers must apply for a license to import specialty food products and

renew the license every one to five 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.

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.

GOVERNMENT PROCUREMENT

A 1998 law regulating government procurement requires procuring entities to consider technical factors,

along with price, 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 expedited 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. The Prime Minister may also grant authorities

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the right to use sole-source contracting for a project, and thus government procurement may occur without

the solicitation of proposals.

Egypt is neither a signatory to, nor an observer of, the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Egypt remained on the Watch List in the 2015 Special 301 Report. The United States remains concerned

about the lack of enforcement in major cases involving trademark violations, online piracy, entertainment

software piracy, and book piracy. The lack of speed and effectiveness in processing trademark and patent

applications are obstacles for growth. The United States will continue to engage Egypt on these issues.

SERVICES BARRIERS

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 senior executives are Egyptian within three years of the start-up date of the venture.

Banking

Foreign banks are able to buy shares in existing banks, but are not able to secure a license to establish a

new bank in Egypt, as commercial banking licenses have not been issued since 1979. Three state-owned

banks (Banque Misr, Banque du Caire, and the National Bank of Egypt) control approximately 40 percent

of the banking sector’s total assets.

Despite having a large and well-developed formal financial sector, a significant portion of small-scale

financial transactions are undocumented or remain outside of the formal banking system. The Egyptian

National Postal Organization (ENPO), for example, remains Egypt’s primary provider of retail banking

services in terms of geographical reach and number of accounts.

In recent years, Egypt’s banking sector has become highly dependent on high-yield government debt for

profitability. Stakeholders report instances of “crowd-out” as small businesses and entrepreneurs compete

with government debt for investment and bank lending. The government of Egypt has taken limited steps

to encourage increased SME lending by banks.

Egypt’s banks play a central role in the country’s allocation of hard currency, which in recent months has

become a priority issue as both foreign corporations and Egyptian importers compete for scarce hard

currency. Banks are allocated currency in regular auctions by the Central Bank, and are required to

prioritize hard currency access for the importation of essential goods.

Telecommunications

The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance,

and international telecommunication sectors in 2005. Nevertheless, Telecom Egypt continues to hold a de

facto monopoly in the fixed line sector, primarily because the National Telecommunications Regulatory

Authority (NTRA) has not approved additional licenses to compete in these sectors. There is competition

in mobile networks at the local level.

NTRA has been working on a unified license regime that would allow a company to offer both fixed line

and mobile networks, but it has not been finalized. Adoption of a unified license regime would allow

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Telecom Egypt, currently operating in the fixed line market, to enter the mobile market and the three mobile

providers to enter the fixed market.

The lack of competition among internet service and fixed landline providers translates into high prices, low

Internet speeds, and poor service quality. In October 2014, Brand Finance ranked two Egyptian companies,

Telecom Egypt and Mobinil, among the most expensive providers of telecommunications in the Arab

world. The Ministry of Information and Telecommunications has stated that 4G services and broadband

will be instituted once the unified license regime is finalized.

Courier and Express Delivery Services

ENPO must grant special authorization to foreign owned 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 of less than 20 kilograms. ENPO imposes an additional fee on

private couriers and express delivery services of £E5 ($0.75) on all shipments under 5 kilograms.

INVESTMENT BARRIERS

Labor rules require that companies employ at least 90 percent Egyptian citizens (75 percent in Free Zones).

Similarly, foreigners are not allowed to operate sole proprietorships or partnerships. Egypt’s trade

regulations allow foreigners to act as commercial agents with respect to the import of goods for trading

purposes, but prohibit foreigners from acting as importers themselves. A foreign company wishing to

import for trading purposes must do so through an Egyptian importer.

Although Egypt is a signatory to the New York Convention on the Recognition and Enforcement of Foreign

Arbitral Awards, U.S. investors have complained that Egyptian courts are not consistent in their approach

to the recognition of foreign arbitral awards. In their view, the arbitration enforcement mechanism can in

some cases require re-litigating the dispute in court. For foreign court judgments, only a few foreign states’

judgments are enforceable in Egypt. There is also a perception that, in some cases, the domestic judicial

system is subject to political influence.

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EL SALVADOR

TRADE SUMMARY

The U.S. goods trade surplus with El Salvador was $718 million in 2015, a 21.0 percent decrease ($191

million) over 2014. U.S. goods exports to El Salvador were $3.3 billion, down 1.4 percent ($46 million)

from the previous year. Corresponding U.S. imports from El Salvador were $2.5 billion, up 6.0 percent.

El Salvador was the United States' 51st largest goods export market in 2015.

U.S. foreign direct investment (FDI) in El Salvador (stock) was $2.8 billion in 2014 (latest data available),

a 1.9 percent decrease from 2013.

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, for the Dominican Republic in 2007, and for Costa Rica in 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, labor, and

environment.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Since 2013, U.S. companies have been disadvantaged by onerous labeling regulations issued by the

Ministry of Health. Though recent legislation was supposed to do away with such restrictions, they

continue to be applied, and the United States is working closely with affected U.S. companies and

associations to address these concerns.

El Salvador requires a “Certificate of Free Sale” to register food products, cosmetics, and hygienic products

in El Salvador. Since no such equivalent certificate exists in the United States for these products, local

companies at times have difficulties complying with this requirement in order to import U.S. products.

The Ministry of Health has drafted regulations without adhering to its domestic procedures for consultation

and notification processes and then attempted to enforce such unapproved regulations via unofficial

notifications. Labeling requirements that are not contemplated by laws have also been inserted into

implementing regulations.

In June 2015, El Salvador issued the implementing regulation for the Act for the Promotion, Protection and

Support of Breast Feeding, which defines requirements for sanitary registration, restricts marketing and

advertising, and sets out labeling requirements for breast milk substitutes. This measure was set into force

immediately without notification to the WTO, and still lacks certainty as to what information must appear

on the label. The United States is monitoring the implementation of the measure and has requested El

Salvador notify it to the WTO to allow WTO Members a comment period and reasonable interval for

implementation.

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Sanitary and Phytosanitary Barriers

El Salvador’s Ministry of Agriculture (MAG) has issued a new requirement for animal origin products

which requires that a plant certification be conducted by MAG personnel at origin. Under the CAFTA-DR,

El Salvador granted equivalence to the U.S. beef, pork, and poultry inspection systems. Thus, this

requirement only applies to U.S. animal origin products not covered by this equivalence.

The Ministry of Agriculture requires plant inspections in the United States by El Salvadoran officials to

accept U.S. seafood imports into El Salvador, rather than accepting the results of the U.S. National Oceanic

and Atmospheric Administration (NOAA) and the U.S. Food and Drug Administration (FDA) inspections

of U.S. seafood plants. The United States will continue to work with the MAG to ask the MAG to recognize

NOAA and FDA inspections in El Salvador.

Food product testing requirements are often redundant and add a burden to the cost of introducing a product

to the Salvadoran market. El Salvador does not distinguish between low- and high-risk products, therefore

extensive laboratory tests are mandatory for all food products, even for those products that would be

considered low-risk in other markets. This requirement applies when importing samples (products that

companies may or may not actually end up importing). To register product samples, the Ministry of Health

requires large quantities of the product for testing, including samples of different flavors of the same

product.

IMPORT POLICIES

Tariffs

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. However, under the CAFTA-DR, as of

January 1, 2015, 100 percent of originating U.S. consumer and industrial goods enter El Salvador duty free.

Nearly all textile and apparel goods that meet the Agreement’s rules of origin also now enter El Salvador

duty free and quota free, creating economic opportunities for U.S. and regional fiber, yarn, fabric, and

apparel manufacturing companies.

Eighty-four percent of U.S. agricultural product exports by product line are eligible for duty-free treatment

in El Salvador under the CAFTA-DR as of 2015. 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 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 yellow corn through a 5 percent continual expansion of the initial 350,000 metric ton

TRQ for 15 years, after which unlimited quantities will be permitted.

Nontariff Measures

Under the CAFTA-DR, all CAFTA-DR countries, including El Salvador, committed to improve

transparency and efficiency in administering customs procedures. 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. In 2013, Salvadoran Customs

implemented nonintrusive inspections with x-rays at border crossings. These inspections have resulted in

detection of over 2,000 cases of anomalies, such as trafficking of drugs or false declarations of goods. At

the same time, while designed to facilitate cross-border movements the procedures have resulted in

considerable delays, causing losses to exporters and importers. Customs is also increasingly charging fines

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when the shipment’s weight differs from that presented on the paperwork, without taking account of

shipping losses or providing an opportunity to amend the manifest.

In October 2015, El Salvador’s Legislative Assembly approved a new amendment to the Customs

Simplification Law, including a required $18 fee for incoming packages and cargo. Though the private

sector made observations and met with Customs beforehand to discuss the amendment, it is concerned that

this input was not taken into account, and that certain language in the amendment might be interpreted as

authorizing the Ministry of Finance to impose additional fees without proper consultation, with potential

negative effects on trade.

GOVERNMENT PROCUREMENT

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. In accordance with 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 CAFTA-DR apply inter alia to

government procurement.

As a result of the U.S. Government raising irregularities in the Ministry of Agriculture’s bean and corn seed

procurements in 2013 and 2014, procurement procedures were modified to be brought in line with CAFTA-

DR norms and were open to both national and international producers.

Concerns were raised when the government of El Salvador’s autonomous Port Operator (CEPA) directly

awarded contracts for ground services at the international airport, as well as for an onsite solar energy

project in 2015. The non-competitive contracts were awarded despite a Salvadoran Supreme Court decree

that CEPA is subject to the public procurement provisions of LACAP. As of the end of 2015, the legality

of the contract awards were still being debated. The United States has raised these concerns with the

government of El Salvador and continues to follow the development of this issue to ensure El Salvador’s

covered procurements are conducted consistent with CAFTA-DR obligations.

El Salvador is not a signatory to the WTO Agreement on Government Procurement.

EXPORT SUBSIDIES

El Salvador has eliminated its Export Processing Zones and Marketing Act, an export subsidy program with

permanent tax exemptions based on export performance and instituted El Salvador’s Free Trade Zone Law,

which grants tax credits based on the number of workers employed and investment levels.

The Salvadoran government operates a form of duty 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).

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INTELLECTUAL PROPERTY RIGHTS PROTECTION

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. 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

insufficient actions against illegally copied software as well as inadequate enforcement efforts against cable

and satellite signal piracy and the competitive disadvantage it places on legitimate providers of this service.

The United States remains concerned about the adequacy of implementation of regulations to protect

against the unfair commercial use, as well as unauthorized disclosure, of test and other data generated to

obtain marketing approval for pharmaceutical products. The effectiveness of the system to address patent

issues expeditiously in connection with applications to market pharmaceutical products is unclear. The

United States will continue to monitor El Salvador’s implementation of its IPR obligations under the

CAFTA-DR.

SERVICES BARRIERS

Telecommunications

In 2015, El Salvador eliminated its discriminatory $0.04 per minute tax on international calls. On October

29, 2015, however, the Legislative Assembly passed a special tax of five percent on fixed and mobile

telecommunications services, pay television services, fixed and wireless Internet access services, and the

transfer and import of telecommunications equipment. The proceeds of the tax will be used to fund

government security initiatives. The tax has been challenged in Salvadoran court as unconstitutional

“double taxation.”

INVESTMENT BARRIERS

While there are few formal investment barriers in El Salvador, investment can be impeded by

nontransparent and duplicative regulations, and by licensing and regulatory decision-making processes that

appear to be inconsistent and contradictory. Such barriers have affected sectors including energy, mining,

and retail sales. Foreign direct investment inflows are paltry compared to other countries in the region. On

December 18, 2014, the Legislative Assembly approved the Judicial Stability Law, which guarantees some

level of judicial and contractual certainty for national and foreign enterprises that undertake new

investments in El Salvador. In addition to providing tax rate stability (by prohibiting indirect taxes and

new taxes), the new law also promises customs regulatory stability and free transfer abroad of proceeds

generated by investments. The law applies to specific targeted sectors: aeronautics, agro industry,

electronics, energy, strategic infrastructure, logistics, health services, distance business services, tourism,

telecommunications, and various manufacturing.

OTHER BARRIERS

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. A proposed Sovereignty

and Food and Nutrition Security Law may include trade protectionist measures; the National Association

of Private Enterprise (ANEP) is also concerned it may impose onerous advertising restrictions under the

guise of protecting public nutritional health.

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On November 26, 2015, the Legislative Assembly approved reforms to the Law on Credit History which,

among other changes, reduced from three years to one the maximum period that credit rating agencies could

retain negative credit information in their databases, once a debt was paid in full. When the original debt

is less than half of the monthly minimum wage in the trade/services sector (at this time, a debt of $120), the

negative information cannot be retained for more than six months. Credit rating agencies state that the

reforms will increase their costs, raise interest rates, and hinder access to credit. There is also concern, in

some quarters that the Office of the Superintendent of the Financial System, which regulates credit rating

agencies and can access their data, is not subject to these maximums.

The Ministry of Finance requires vendors to pay a two percent charge on credit card purchases made by

their customers, which the Ministry refunds to vendors through offsets on value-added taxes paid by the

vendors on local purchases. However, the Ministry of Finance has been unable to find a way to refund the

two percent charge to those vendors who make few or no local purchases but sell imported goods.

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ETHIOPIA

TRADE SUMMARY

The U.S. goods trade surplus with Ethiopia was $1.2 billion in 2015, a 14.9 percent decrease ($217 million)

over 2014. U.S. goods exports to Ethiopia were $1.6 billion, down 6.8 percent ($114 million) from the

previous year. Corresponding U.S. imports from Ethiopia were $310 million, up 49.9 percent. Ethiopia

was the United States' 66th largest goods export market in 2015.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Sanitary and Phytosanitary Barriers

Since September 2009, Ethiopia has had in place a biosafety proclamation that restricts commercial imports

of agricultural biotechnology products by imposing burdensome documentation and testing requirements.

Food aid shipments are exempt from these requirements. In August 2015, the President of Ethiopia signed

into law an amendment to the biosafety proclamation that establishes a legal framework that is expected to

support the cultivation of genetically-engineered (GE) cotton in the country. The government is in the

process of revising the proclamation’s underlying implementing directives to spell out the specific

requirements for introducing GE cotton.

IMPORT POLICIES

Tariffs

According to the latest WTO estimates, published for 2012, Ethiopia’s average applied tariff rate is 17.3

percent. Foreign exchange generation, not protection of local industry, appears to be the primary reason

for Ethiopia’s tariff levels; however, high tariffs are applied to protect certain domestic industries, including

textiles and leather.

Nontariff Measures

An importer must obtain a letter of credit for the total value of an import transaction and apply for an import

permit before an order can be placed. Even with a letter of credit, 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. Larger firms, state-owned enterprises, enterprises owned by the ruling party, and

businesses in priority manufacturing export sectors or emergency food importation do not typically face

major problems obtaining foreign exchange, but less well-connected importers, particularly smaller, new-

to-market firms, face delays in arranging trade-related payments. The unreliability of the foreign exchange

supply in Ethiopia’s banks has negatively affected the ability of all manufacturers to import essential inputs

and industrial capital goods on a timely basis.

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GOVERNMENT PROCUREMENT

A high proportion of Ethiopian import transactions are for government consumption, reflecting the heavy

involvement of the government in the overall economy. Tender announcements are usually made public,

but a number of major procurements have not gone through an open tendering process. 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 competitors who often include financing packages at terms

unavailable on the free market in their tender offers, and a frequent requirement that would-be suppliers

appear in person to collect solicitation packages. Business associations complain that state-owned

enterprises have enjoyed advantages over private firms in government procurement. U.S. firms have

complained about the transparency of the tendering process or the failure of procurement agencies to respect

tender terms; however, there has been progress this area and at least one U.S. firm has successfully utilized

the government appeals process to reverse an unfair tendering decision.

Ethiopia is neither a party nor an observer to the WTO Agreement on Government Procurement, but has

joined the U.S. Trade and Development Agency’s Global Procurement Initiative, which is dedicated to

assisting public officials in emerging economies to better understand the total cost of ownership for

procurement of goods and services related to infrastructure projects and how to establish procurement

practices and policies that integrate life-cycle cost analysis and best-value determination in a fair,

transparent manner.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Ethiopia was not listed in the 2015 Special 301 Report. While the Ethiopian Intellectual Property Office is

responsible for the administration and enforcement of intellectual property rights (IPR) in Ethiopia, it

focuses mainly on protecting domestic content 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; however, it has not ratified most of the major IPR treaties, including the Berne Convention

and Madrid Protocol.

Trademark infringement continues to be widespread in Ethiopia. The lack of enforcement capacity means

the government of Ethiopia only responds to IPR challenges brought to the attention of Ethiopia’s

competition commission. Furthermore, IPR enforcement is often unpredictable due to an overall lack of

coordination between government agencies.

SERVICES BARRIERS

Banking and Financial Services

Ethiopia’s investment code prohibits foreign investment in banking, insurance, and financial services.

There are 16 private commercial banks in addition to three public banks. Few international banks maintain

representative offices.

Telecommunications

The state-owned Ethio-Telecom maintains a monopoly on wired and wireless telecommunications and

Internet service and is closed to private investment. 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

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of the country to use Very Small Aperture Terminals (VSATs), but it does not allow the general public to

use VSATs. Many multi-national companies assert that the current quality of service still impedes

information transfer and general business operations.

Logistics

Logistics backlogs can occur because the shipment process remains paper-based. Companies importing

goods into the country have also raised concerns with delivery delays and difficulties in estimating the full

logistics cost. Within Ethiopia, most goods are transported by trucks from the Port of Djibouti to Addis

Ababa and other parts of the country. Ethiopia’s government-owned companies dominate the truck

transportation market, and the overall number of trucks is insufficient to meet demand. Plans to restore and

dramatically expand Ethiopia’s rail systems are underway but rail systems are not yet fully operational. The

government announced a new Ethiopian National Logistics Strategy in 2015 that may open opportunities

for private enterprise and greater efficiencies overall.

INVESTMENT BARRIERS

A number of formal and informal barriers impede foreign investment in Ethiopia. Investment in the

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 and

shipping agency services. Foreign investors are also barred from investing in a wide range of retail and

wholesale enterprises (e.g., printing, restaurants, and beauty shops).

While the government continues to emphasize the importance of privatization and developing the private

sector generally and most tenders are open to foreign participation, some investors bidding in these tenders

have alleged a lack of transparency in the process. Foreign investors in formerly state-owned businesses

subject to privatization reportedly have encountered problems in transferring title, delays in evaluating

tenders, and 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. Current land-lease regulation 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 the transfer of leasehold rights.

OTHER BARRIERS

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, including preferential access to bank credit, foreign exchange,

land, and procurement contracts, as well as favorable import duties.

Judiciary

Companies that operate businesses in Ethiopia assert that its judicial system remains inadequately staffed

and inexperienced, particularly with respect to commercial disputes. While property and contractual rights

are recognized, and there are commercial and bankruptcy laws, judges often lack understanding of

commercial matters and the scheduling of cases often suffers from extended delays. Contract enforcement

remains weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate

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tenders. Ethiopia has announced plans to modernize and revise the country’s commercial code but little

progress is evident to date.

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EUROPEAN UNION

TRADE SUMMARY

The U.S. goods trade deficit with the European Union (EU) was $153.3 billion in 2015, a 7.9 percent

increase ($11.3 billion) over 2014. U.S. goods exports to the EUwere $272.7 billion, down 1.3 percent

($3.5 billion) from the previous year. Corresponding U.S. imports from the EU were $426.0 billion, up 1.9

percent.

U.S. exports of services to the

EU were an estimated $219.3 billion in 2014 (latest data available), and U.S.

imports were $168.7 billion. Sales of services in the

EU by majority U.S.-owned affiliates were $558.7

billion in 2013 (latest data available), while sales of services in the United States by majority European

Union-owned firms were $451.5 billion.

U.S. foreign direct investment (FDI) in European Union (stock) was $2.5 trillion in 2014 (latest data

available), a 4.7 percent increase from 2013. U.S. direct investment in the European Union is led by

nonbank holding companies, finance/insurance, and manufacturing.

OVERVIEW

The United States and the 28 Member States of the EU share the largest and most complex economic

relationship in the world. Trade and investment flows between the United States and the EU are a key pillar

of prosperity on both sides of the Atlantic.

Transatlantic trade flows (goods and services trade plus earnings and payments on investment) averaged

$4.3 billion each day of 2013. The total stock of transatlantic investment was over $5.1 trillion in 2013.

Countries around the world benefit significantly from the prosperity generated by this transatlantic

relationship.

U.S. exporters and investors nonetheless face persistent barriers to entering, maintaining, or expanding their

presence in certain sectors of the EU market. Some of the most significant barriers, which have endured

despite repeated efforts at resolution through bilateral consultations or WTO dispute settlement, have been

highlighted in this report for many years. Many are highlighted again in this year’s report.

The United States plans to make substantial progress in reducing or eliminating remaining EU barriers to

trade and investment by concluding the Transatlantic Trade and Investment Partnership (T-TIP) agreement.

U.S.-EU negotiations on this comprehensive trade and investment agreement were launched in July 2013,

following an announcement by President Obama and EU leaders. .

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

European Standardization and Conformity Assessment Procedures

The European Union’s approach to standards-related measures, including its conformity assessment

framework, and its efforts to encourage governments around the world to adopt its approach, creates a

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challenging environment for U.S. exporters and has resulted in a lack of reciprocal access to the EU market

and processes for U.S. manufacturers and certification and testing bodies. In particular, the EU system

creates additional burdens for producers who do not manufacture their products to European regional

standards.

Products sold in the EU must comply with the essential requirements of relevant European legislation.

Product requirements in a variety of sectors (from toy safety to pressure equipment) are regulated through

New Approach legislation. Under the New Approach, conformity with European regional standards (called

European harmonized standards or ENs) provide the method by which such requirements can be fulfilled.

If a manufacturer uses the ENs referenced in the Official Journal of the European Union under the relevant

legislation, its products are presumed to be in compliance with the requirements. The CE mark is applied

to products that conform to the relevant EN standard, and the CE mark is a key indicator that the product

complies with EU legislation, enabling the free movement of products within the European market. ENs,

however, can only be developed through the European Standards Organizations (CEN,

CENELEC,

and

ETSI

) as directed by the European Commission through a standardization request. While the New

Approach in theory allows other standards to be used to meet essential requirements, U.S. producers report

that in practice the costs and uncertainty associated with not using an EN and attempting to demonstrate

that use of alternative standards fulfill essential requirements can be prohibitive. For example, if a

manufacturer chooses not to use an EN, it needs to assemble a technical file through a costly and arduous

process indicating how the product meets the essential requirements and, even if a manufacturer assembles

such a file, there is no predictability that EU or Member State authorities will treat the product as

conforming with essential requirements on the basis of that file. As a result, U.S. producers often feel

compelled to use the relevant EN for products they seek to sell on the EU market, even if the U.S. products

are produced according to relevant international standards providing similar or even higher safety levels.

Moreover, because non-EU persons are generally excluded from CEN or CENELEC technical committees

and in the limited instances where they are allowed to participate they are not allowed to vote, when a U.S.

producer uses an EN it is likely using a standard that has been developed through a process in which it had

no meaningful opportunity to participate. This is particularly the case for SMEs and other companies that

do not have a European presence. The opportunity for U.S. stakeholders to influence the technical content

of EU directives setting out essential requirements (i.e., technical regulations) is also limited. This is

because when the EU notifies proposed directives containing essential requirements to the WTO, the EU

does not identify the specific CEN or CENELEC standards for which the presumption of compliance will

be given and only notifies directives after the Commission has transmitted them to the Council and

Parliament and is no longer in a position to revise the directive in light of comments received. As a

consequence, U.S. stakeholders often do not have the opportunity to comment on critical technical elements

of proposed technical regulations and conformity assessment procedures contained in EU directives nor the

standards that may be used to fulfill directives’ essential requirements.

Additionally, the United States has serious concerns regarding the EU’s conformity assessment framework,

as set out in Regulation (EC) No 765/2008 and Decision 768/2008. Regulation 765 requires each Member

State to appoint a single national accreditation body and prohibits competition among Member States’

national accreditation bodies. The regulation further specifies that national accreditation bodies shall

operate as public, not-for-profit entities. This regulation in effect prohibits use of trade-facilitative

international accreditation schemes, and precludes U.S. accreditation bodies from offering their services in

the EU with respect to any mandatory third party conformity assessment requirements.

Committee for Standardization.

European Committee for Electrotechnical Standardization.

European Telecommunications Standards Institute.

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Decision 768 sets out reference provisions to be used in EU Directives establishing conformity assessment

requirements for products falling within the New Approach. Directives applying Decision 768 require that

any mandatory third party conformity assessment be performed by a body that has been designated as a

“Notified Body” and permit only bodies “established under national law” to become Notified Bodies. In

practice, the EU interprets “established under national law” as a requirement that anybody seeking

designation as a Notified Body must be established in the EU and, in particular, in the Member State from

which it is seeking such designation. This raises serious market access concerns for U.S. producers, whose

products may have been tested or certified by conformity assessment bodies located outside the EU, and

denies U.S. conformity assessment bodies the opportunity to test and certify products for the EU market.

This lack of reciprocal treatment of U.S. conformity assessment bodies, in contrast to the U.S. approach to

conformity assessment, adds increased time to market and requires U.S. testing and certification bodies to

establish operations in the EU to remain competitive.

The EU also promotes adoption of European regional standards in other markets – and often requires the

subrogation of non-EU standards to European regional standards as a condition of providing assistance to,

or affiliation with, other countries, which can give EU manufacturers commercial advantages in those

markets. The withdrawn standards can be international standards that U.S. producers use, which may be

of equal or superior quality to the European regional standards that replaced them. U.S. producers thus

must choose between the cost of redesigning or reconfiguring the product or exiting the market.

Refrigeration Appliances: Regulation on Fluorinated 67 Greenhouse Gases (F-Gas)

The EU adopted a new regulation phasing-down and phasing-out the use of many high global warming

potential (GWP) F-gases on April 14, 2014. Consistent with President Obama’s Climate Action Plan

regarding U.S. leadership on global efforts to phase down the consumption and production of climate

damaging hydrofluorocarbons (HFCs), the United States strongly supports the objectives of the EU’s

regulation, including its approach that includes both a phase down of HFCs and specific appliance bans.

However, a particular ban contained in the proposed measure raised concerns for some U.S. household

refrigerator manufacturers. Indeed, several U.S., Korean, and Japanese commenters on the regulation

expressed concerns with particular product bans, tight timelines for implementation and the unwillingness

of the EU to meet with some impacted industries.

Chemicals: Registration, Evaluation, Authorization, and Restriction of Chemicals

The EU regulation for the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)

began as a Communication from the Commission in 2001, “White Paper on Strategy for a future Chemicals

Policy (REACH).” The European Parliament approved the REACH regulation and the European Council

formally adopted it in December 2006. The REACH regulation entered into force on June 1, 2007, and

will be fully implemented by 2018. REACH impacts virtually every industrial sector because it regulates

chemicals as a substance, in preparations and in products. It imposes extensive registration, testing, and

data requirements on tens of thousands of chemicals. REACH also subjects certain identified hazardous

chemicals to an authorization process that would prohibit them from being placed on the EU market unless

a manufacturer or user has obtained permission from the Commission.

Concerns regarding various aspects of REACH have been raised at nearly every WTO TBT Committee

meeting since 2003 by many WTO Members, including the United States. WTO Members have indicated

the need for greater transparency in the development and implementation of REACH requirements, and

frequently cite the need for further information and clarification, as well as problems producers have in

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understanding and complying with REACH’s extensive registration and safety data information

requirements.

Nanomaterials

Among the substances subject to REACH are nanomaterials, or chemical substances or materials that are

manufactured and used at a very small scale (down to 10,000 times smaller than the diameter of a human

hair), which are used in products ranging from batteries to antibacterial clothing. The Commission is

working to adopt implementing regulations to adapt the data requirements for nanomaterials in REACH

registration dossiers. The Commission published an impact assessment regarding the regulations in March

2014.

Although REACH provides a standardized plan for reporting and registering nanoscale ingredients or

products containing nanomaterials, several EU Member States have begun to develop their own such

registries, which often include exemptions for pigments and food additives. The Commission published its

impact assessment on the feasibility of adopting an EU-wide registry of nanomaterials in November 2014.

The impact assessment raised significant concerns about the efficacy of establishing such a registry, and

the Commission has expressed no desire to move forward with this project.

Community Rolling Action Plan

There is also concern over a lack of transparency and science-based analysis associated with the Community

Rolling Action Plan (CoRAP). CoRAP is part of the REACH substance evaluation process and is updated

every March. Its purpose is to allow Member States and ECHA to prioritize substances that are suspected

of being hazardous to human health or the environment. Depending on the outcome of the evaluation, a

substance evaluated under CoRAP may be considered for classification as a substance of very high concern

(SVHC) and become subject to authorization and restriction procedures. It is also possible that after

evaluation, a substance will be found to pose no such risk. ECHA has established criteria for selecting

substances for placement on the list. These criteria address concerns about hazard, exposure, and tonnage.

Member States are encouraged, but not obliged, to use the ECHA criteria. The most recent CoRAP list was

approved by ECHA on March 17, 2015. The most recent list contains 134 substances, which will be

evaluated through 2017. CoRAP preliminary reports should be made available to interested U.S.

companies, even if they have not yet registered the particular substance, but the reports are currently made

available only to registrants. More transparency on the part of the EU with respect to U.S. stakeholders

impacted by the CoRAP process would help reduce costs and address U.S. stakeholders’ concerns.

SVHC Roadmap

The United States has also continued to raise concerns bilaterally with the EU on the lack of public notice

and comment associated with the “Risk Management Options” (RMO) analysis phase of the SVHC

Roadmap. Under the Commission’s Roadmap for evaluation of individual SVHCs, at the request of the

Commission, a Member State competent authority or ECHA will conduct an RMO analysis to determine

whether regulatory risk management is required for a given substance and to identify the most appropriate

regulatory instrument to address a concern. The regulatory decision may be to pursue authorization or

restriction, address the concern via other legislation, or take no action. The Commission’s SVHC Roadmap

identifies five minimum criteria for the RMO analysis and states that the RMO is not meant to be public.

Beyond this, the authority drafting the RMO has discretion with respect to the level of detail provided in

its analysis and whether or not stakeholder consultation is appropriate. ECHA has said that documenting

the RMO analysis and sharing it with other Member States and the Commission promotes early discussion

and should ultimately lead to a common understanding on the regulatory action pursued. The United States

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supports the EU’s efforts to conduct RMO analysis and believes the RMO analysis should be implemented

in a harmonized and consistent manner by Member States. But regulatory decisions taken under this

process may significantly impact trade. To prevent or minimize unnecessary potential adverse effects on

trade, the RMO analysis should be subject to public notice and comment, with the views expressed by

commenters taken into account by the Member State or ECHA irrespective of the domicile of the

commenter.

Court of Justice of the European Union, Judgment in the Case C-106/14

On September 10, 2015, in case C-106/14, the Court of Justice of the European Union (CJEU) released an

important ruling on the notification and information duties applicable to the producers and importers of

articles under REACH. Where such producers and importers are dealing in more than one ton per year of

any SVHC and the SVHC is present in articles at over 0.1 percent by weight, the CJEU held that the

notification and information duties applied to each individual component “article” as defined by REACH,

and not just to the whole assembled or finished “article.”

Under Article 7 of the REACH regulation, producers and importers of articles must notify ECHA of SVHCs

present in articles in quantities over one ton per producer or importer per year. Since the REACH regulation

came into force in 2007, there has been disagreement amongst the Member States on whether the 0.1 percent

threshold should apply to the constituent components of an assembled article or to the assembled article as

a whole. The view of the Commission and Member States (with the exception of Austria, Belgium,

Denmark, Germany, Sweden and France) has been that the 0.1 percent threshold applies to the assembled

article. The CJEU disagreed. The court’s conclusion is contrary then to existing ECHA guidance, which

will now be revised, and it has wide implications for producers and importers of articles and components.

This ruling is expected to require non-EU producers of articles to provide more information on SVHCs in

individual components so as to enable their EU importers to comply with the revised obligations.

The United States is concerned that products which are part of assembled articles will now be required to

products such as vehicles, ICT equipment, and medical devices.

ECHA has issued a press release explaining how it intends to update its guidelines on substances in articles

to adapt to the CJEU ruling. ECHA plans to proceed in two stages:

 In the coming months, ECHA will publish a quick update to correct the parts of REACH that differ

from the CJEU ruling. The update will be carried out using a fast-track procedure, without

stakeholder consultation. Only the Competent Authorities for REACH and CLP (the CARACAL)

will be consulted.

 ECHA will also conduct a more comprehensive restructuring and review of the Guidance on

Requirements for Substances in Articles, previously published in April 2011, which will provide

examples aligned with the CJEU ruling. This comprehensive update will also review the current

examples in light of experience and will address the questions received by ECHA since publication

of the guidelines. The comprehensive review will follow the ordinary three-step consultation

process, including consultation of accredited stakeholders.

Renewable Fuels: Renewable Energy Directive

In April 2009, the EU adopted the Renewable Energy Directive (RED) (2009/28/EC), with the objective of

helping to lower its greenhouse gas emissions (GHG), reducing its dependence on foreign oil, and

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increasing rural development. RED establishes mandatory national targets for the share of energy from

renewable sources by 2020. It also establishes a methodology and accounting system by which Member

States may record and calculate GHG savings as compared to a baseline for fossil fuels. According to the

Commission, this comparison quantifies the total amount of GHG savings in the EU and progresses toward

the EU’s overall goal of a 20 percent reduction in GHG emissions versus 1990 levels by 2020. In order to

count toward Member State specific renewable energy use targets, or benefit from incentives, RED requires

that biofuels and feedstocks for biofuels meet certain sustainability criteria. RED also sets the reporting

and verification requirements for obtaining sustainability certifications. In addition to the sustainability

requirements, on April 28, 2015, the European Parliament voted to approve a cap on the use of first-

generation biofuels (made from crops such as palm oil, soy, and rapeseed) at seven percent of EU transport

energy consumption. The decision will result in amendments to the Fuel Quality Directive (FQD) and

RED. Further, biofuel suppliers will be obligated to report the estimated level of greenhouse gas emissions

caused by indirect land use change (ILUC).

The United States strongly supports the emissions reduction objectives of RED, but has expressed concerns

both bilaterally and in the WTO that the directive’s paperwork and verification requirements are more

burdensome than necessary for the achievement of its goals. Under Article 18(4) of RED, which provides

for bilateral agreements, the Commission and the United States jointly established the U.S.-EU Technical

Working Group on the RED (TWG), to examine how long-standing U.S. conservation programs address

RED sustainability criteria and create the framework for a bilateral agreement to accept U.S. exports of

biofuel feedstock as compliant with the sustainability goals of RED. During the final meetings of the TWG,

the Commission stated that U.S. conservation laws and programs must correspond exactly to those outlined

in the RED sustainability criteria if the EU is to consider U.S. exports of biofuel feedstock as compliant

with RED sustainability criteria.

One method to meet the sustainability and GHG savings requirements of RED is to certify biofuel

production through a voluntary certification system. In April 2015, the U.S. Soybean Export Council

submitted an application to the Commission to recognize the U.S. Soybean Sustainability Assurance

Protocol (SSAP) as a voluntary certification scheme. The SSAP recently met the Dutch Feed Industry

Association’s requirements for sustainable feedstuffs, but additional work remains to be done by the U.S.

soybean industry before the Commission would be willing to consider SSAP as meeting the RED

sustainability criteria.

Transport Fuel: Fuel Quality Directive

The EU’s revised FQD, adopted in 2009 as part of the EU’s Climate and Energy package, requires fossil

fuel suppliers to reduce the lifecycle greenhouse gas intensity of transport fuel by six percent by 2020. The

directive granted the Commission the power to develop a methodology for calculating GHG life-cycle

emissions for transport fuels. The United States strongly supports the goal of FQD for reducing GHG

emissions. The United States, however, has raised concerns with the Commission about the lack of

transparency and opportunity for public comment in the development of the Commission proposal for the

methodology for calculating GHG life-cycle emissions for transport fuels.

Trucks: Maximum Authorized Dimensions

U.S. stakeholders have long raised concerns that the EU’s truck length requirements were too prescriptive

and unnecessarily restricted U.S. exports of aerodynamic and fuel efficient trucks to Europe. On April 15,

2013, the EU issued a “Proposal for a Directive of the European Parliament and of the Council amending

Source: USDA FAS, EU Biofuels Annual 2015.

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Directive 96/53/EC laying down for certain road vehicles circulating within the Community the maximum

authorized dimensions in national and international traffic and the maximum authorized weights in

international traffic.” The United States engaged in extensive discussions with the EU at the WTO TBT

Committee and bilaterally in other fora on the overly restrictive nature of this regulation. On April 29,

2015, the EU adopted the proposed Directive 2015/719/EU amending Directive 96/53/EC that included

several elements to promote greater energy efficiency, including revisions that would allow truck tractor-

semitrailer combinations to exceed 16.5 meters in length and to add flaps to the rear of the vehicle. In

particular, Article 9a allows vehicle combinations to “exceed the maximum lengths laid down in point 1.1

of Annex I to this Directive provided that their cabs deliver improved aerodynamic performance, energy

efficiency and safety performance.” By May 27, 2017, the Commission must assess the need to develop

the technical requirements for type-approval of trucks equipped with such cabs. These changes will become

applicable three years after the transposition or application of these amendments to type-approval rules

within the framework of 2007/46/EC. The United States will continue to monitor the development of these

technical specifications to ensure they will allow for the acceptance of longer American aero-nosed truck

tractors in the EU market.

Nutritional Labeling

EU framework regulation 1169/2011 on the provision of food information to consumers went into effect

on December 13, 2014, except for the provision on mandatory nutrition labeling, which will become

effective December 13, 2016. The measure regulates the display of product information on product

packaging and online stores ostensibly to provide consumers with information related to nutrition,

ingredients, and allergens.

The United States has concerns regarding how certain elements of regulation 1169/2011 will be

implemented and is monitoring developments closely. Specifically, the principal concern of U.S.

stakeholders is that regulation 1169/2011 appears to provide wide latitude for Member States to adopt non-

uniform and potentially inconsistent implementing regulations. U.S. stakeholders are thus concerned about

the burden of meeting multiple labeling requirements, particularly if those requirements cannot be met

through stickering or supplemental labeling. During the consultative process, the United States has sought

assurances that imported products will be subject to harmonized EU requirements, regardless of port of

entry, and that compliance with national schemes (such as the United Kingdom and Ireland’s traffic light

requirements) would remain voluntary.

Fishery and Aquaculture Labeling

Commission Regulation 1379/2013 identifies specific requirements for the labeling of fishery and

aquaculture products intended for the retail sector. This regulation only concerns products from Chapter 3

of the Tariff Harmonized System, and not products from Chapter 16 (e.g., not canned products). Since

December 13, 2014, all fishery and aquaculture products for sale at retailers and mass caterers must provide

the following information: the commercial name of the species, the production method (e.g., aquaculture

or fishery product), the fishing gear, and the catch area (products caught at sea must identify the area of

capture, which is taken from the FAO list).

The United States is working bilaterally to better understand the rationale and basis for mandatory labeling

requirements that appear more stringent than those found in the Codex General Standard. The United States

is also seeking assurances that only harmonized EU requirements will be mandatory and that national

labeling requirements remain voluntary.

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Agriculture Quality Schemes

In 2012, the EU adopted Regulation 1151/2012 “on quality schemes for agricultural products and

foodstuffs.” Regulation 1151/2012 combines into one regulation rules for three different EU schemes and

adds new rules on optional terms. The regulation applies to a range of agricultural products and covers:

Protected Designations of Origin (PDO) and Protected Geographical Indications (PGI); “Traditional

Specialties Guaranteed” (TSG); and optional quality terms. Optional quality terms are intended to provide

additional information about product characteristics such as “first cold-pressed extra virgin olive oil” and

“virgin olive oil.” A separate measure addressing the marketing standards for wine and spirits was notified

to the WTO on September 11, 2011.

The three schemes covered by the regulation are either: (1) certification schemes for which detailed

specifications have been laid down and are checked periodically by a competent body; or (2) labeling

schemes, which are subject to official controls and communicate the characteristics of a product to the

consumer. Schemes can indicate that a product meets baseline requirements but can also be used to show

“value-adding qualities,” such as specific product characteristics or farming attributes (e.g., production

method, place of farming, mountain product, environmental protection, animal welfare, organoleptic

qualities, Fair Trade, etc.). Schemes can be voluntary or mandatory.

The United States submitted comments on the “Proposal for a Regulation of the European Parliament and

of the Council on agricultural product quality schemes (COM (2010)733)” to the EU on August 2, 2011,

and received a response from the EU in December 2011. The United States comments focused on optional

quality terms aspect of the proposal and asked the EU to clarify the level of specificity required to identify

a “place of farming,” as well as the legitimate objective for this requirement. The U.S. comments also

highlighted concerns that the proposal sought to establish a framework that would provide a “legal basis”

for expanding place of farming requirements to all processed products made from specified commodities.

The EU responded that “place of farming” will be applied on a case-by-case basis, following impact

assessments, and further noted that the definition of “place of farming” will vary from one product to

another.

The United States remains concerned that “place of farming” requirements are unclear, difficult to comply

with, and lack a basis in international standards. Codex, for instance, maintains no recommendation for

place of farming designations and has rejected proposals that would have expanded country of origin

designations to foods with multiple ingredients, because such labeling caused consumer confusion.

Further, the United States remains concerned over certain aspects of the TSG requirements, including

whether “prior use of a name” includes a trademark or prior geographical indication. The United States is

also seeking clarification of the manner of precedence used in determining TSG requirements relative to

trademarks. Despite assurances from the EU that the provisions of EU 1151/2012 “ensure that a prior

trademark is not affected by the registration of a TSG,” it remains unclear whether prior use of a trademark

will be grounds for opposing registration of a TSG. Finally, U.S. stakeholders have expressed concern

about the EU’s decision to shorten the comment period to oppose a registration from six months to two

months.

The United States continues to stress to the Commission that common usage names of products should not

be absorbed into quality schemes, whether for wine or other products. If a Codex standard exists, or if a

name is used in a tariff schedule or by the World Customs Organization, the United States believes that the

name should be excluded from the quality schemes. The United States has further argued that new

certification and labeling quality schemes not be required for market access; however, where the EU

implements such schemes, efforts should be made to acknowledge voluntary U.S. industry definitions.

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Similarly, U.S. processes and procedures should be acceptable for labeling requirements, and system and

process comparability with industry definitions should be sought in order to minimize any negative market

access impact for U.S. exports.

Wine Traditional Terms

Separate from its regulation on agricultural quality schemes, the EU continues aggressively to seek

exclusive use for EU producers of “traditional terms,” such as “tawny,” “ruby,” and “chateau,” on wine

labels. Such exclusive use of traditional terms impedes U.S. wine exports to the EU, including U.S. wines

that include these traditional terms within their trademarks. U.S. wines sold under a trademark before 2005

can continue to use the terms, but products sold more recently cannot. In June 2010, U.S. stakeholders

submitted applications to be able to use the terms in connection with products sold within the European

Union. In 2012, the EU approved the applications for use of two terms, “cream” and “classic,” but the

EU’s delayed application approval process for other terms continues to be a significant concern. The United

States has repeatedly raised this issue in the WTO TBT Committee in recent years, and has also pursued

bilateral discussions, including through the T-TIP negotiations. Beyond approving the two terms, however,

the EU has not taken any visible steps to address U.S. concerns.

Representatives from the European Commission Directorate for Agriculture and Rural Development (DG

AGRI) have indicated that the EU is reforming its application process. They acknowledged difficulties

with the term-by-term approval process and suggested that the Commission would develop a different

approval procedure. The Commission has not provided any timeline for completing the application process

reforms.

In 2014, the World Wine Trade Group (WWTG), which includes major wine-producing countries, such as

Argentina, Australia, Canada, Chile, Georgia, New Zealand, South Africa, and the United States, conveyed

to DG AGRI that WWTG countries were frustrated with the EU’s application process and concerned that

it may be more trade restrictive than necessary. The Commission replied in February 2015 that it is

discussing with Member State governments the conditions under which traditional terms may be used for

labeling, but it did not commit to a timeline for resolving the issue.

Distilled Spirits Aging Requirements

The EU requires that for a product to be labeled “whiskey” (or whisky) it must be aged a minimum of three

years. The EU considers this a quality requirement. U.S. whiskey products that are aged for a shorter

period cannot be marketed as “whiskey” in the EU market or other markets that adopt EU standards, such

as Israel and Russia. The United States views a mandatory three-year aging requirement for whiskey as

unwarranted. Recent advances in barrel technology enable U.S. micro-distillers to reduce the aging time

for whiskey. In 2014, the United States continued to urge the EU and other trading partners to end whiskey

aging requirements that are restricting U.S. exports of whiskey.

Sanitary and Phytosanitary Barriers

The United States remains concerned about a number of measures the EU maintains ostensibly for the

purposes of food safety and protecting human, animal, or plant life or health. Specifically, the United States

is concerned that these measures unnecessarily restrict trade without furthering their safety objectives

because they are not based on scientific principles, or maintained with sufficient scientific evidence, or

applied to the extent necessary. Moreover, the United States believes there are instances where the EU

should recognize current U.S. food safety measures as equivalent to those maintained by the EU because

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they achieve the same level of protection. If the EU recognized the equivalence of U.S. measures, trade

could be facilitated considerably.

Hormones and Beta Agonists

The EU maintains various measures that impose bans and restrictions on meat produced using hormones,

beta agonists, and other growth promotants, despite scientific evidence demonstrating that such meat is safe

for consumers. Because of these measures, U.S. meat products cannot be exported to the EU unless it is

verified through costly and burdensome programs that hormones, beta agonists, or other growth promotants

have not been used in their production.

For example, the EU continues to ban the use of the beta agonist ractopamine, which promotes leanness in

animals raised for meat. The EU maintains this ban even though international standards promulgated by

Codex have established a maximum residue level (MRL) for the safe trade in products produced with

ractopamine. The Codex MRL was established following scientific study by the Joint FAO/WHO Expert

Committee on Food Additives (JECFA) that found ractopamine at the specified MRL does not have an

adverse impact on human health.

The EU’s ban on growth promotant hormones in beef has been found to be inconsistent with its WTO

obligations. Specifically, in 1996, the United States brought a WTO dispute settlement proceeding against

the European Communities (the EU predecessor entity) over its ban on beef treated with any of six growth

promotant hormones. A WTO dispute settlement panel concluded -- and a subsequent report of the WTO

Appellate Body affirmed -- that the ban was maintained in breach of the EU’s obligations under the WTO

Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). Following the

failure by the EU to implement the recommendations of the WTO Dispute Settlement Body (DSB) to bring

itself into compliance with its WTO obligations, the United States was granted permission by the WTO in

1999 to apply retaliatory tariffs. The United States levied ad valorem tariffs of 100 percent on imports of

certain EU products. The value of the retaliation, $116.8 million, represented the damage that the hormone

ban caused to U.S. beef sales to the EU.

In September 2009, the United States and the Commission signed a Memorandum of Understanding, which

established a new EU duty-free import quota for grain-fed, high quality beef (HQB) as part of a compromise

solution to the U.S.-EU hormone beef dispute. Since 2009, Argentina, Australia, Canada, New Zealand,

and Uruguay have also become eligible to ship under the HQB quota, and as a result, the market share of

U.S. beef in the HQB quota has decreased and currently represents 45 percent of the quota. Since 2014,

the United States has engaged in discussions with the EU on the future operation of the MOU.

The United States will continue to engage the EU regarding the unscientific ban on meat and animal

products produced using hormones, beta agonists, and other growth promotants.

Animal Cloning

Currently, the EU Novel Foods and Novel Food Ingredients Regulation (Novel Foods Regulation) issued

in 1997 is the only EU measure that potentially addresses the use of animal cloning for food production.

The Novel Foods Regulation would appear to encompass food products derived directly from cloned

animals, but not food products derived from the offspring of clones.

Food products subject to the Novel

Regulation (EC) No 258/97.

The Novel Foods Regulation covers certain types of “foods and food ingredients which have not hitherto been used

for human consumption to a significant degree within the Community...” Id.

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Foods Regulation require a pre-market authorization by the EU Member State decision and potentially the

Commission in order to be imported or sold in the EU.

In January 2008, the Commission proposed a revision of the EU’s Novel Foods Regulation to simplify the

authorization procedure for placing new food products on the market. However, the proposed revision

failed in significant part due to a disagreement among the Commission, the European Parliament and the

Council regarding the need for specific rules on food from cloned animals.

In December 2013, the Commission published two new proposals

on animal cloning, in conjunction with

a new proposal for a novel foods regulation. One of the proposed directives (the Cloning Technique

Proposal) would ban animal cloning for food purposes in the EU and the import of cloned animals or

embryos, while the other (the Cloning Food Proposal) would ban the marketing of food, both meat and

dairy, from cloned animals, but not from their offspring. However, both of these proposals appear to be

inconsistent with risk assessments done by competent authorities in the EU and other countries that show

no differences in terms of food safety between food products produced from cloned animals or their

offspring and those produced from conventionally-bred animals.

In June 2015, the European Parliament’s Agriculture and Rural Development (AGRI) Committee and

Environment, Public Health and Food Safety (ENVI) Committee, adopted a joint report proposing

amendments to the Commission’s aforementioned proposals that would vastly extend their scope and

impact and change the measure from a directive into a regulation. The substance of these proposed

amendments include permanent bans on clones and their descendants for all farmed animals, including fish

and poultry, as well as bans on all agricultural products derived from them, including food, semen, and

embryos. The proposed amendments also include a ban on cloning of animals for sports. In September

2015, the full Parliament, or Plenary, approved the AGRI/ENVI report and amendments. The Council has

begun discussions on the Parliament’s amendments at a working level as part of its first reading position.

Agricultural Biotechnology

Delays in the EU’s approval process for biotech crops has prevented biotech crops from being placed on

the EU market even though the events have been approved (and grown) in the United States. Moreover,

the length of time taken for EU approvals of new biotech crops appears to be increasing. As of March 14,

2016, 40 biotech applications (for import, renewal, or cultivation approval) await the European Food Safety

Authority’s (EFSA) scientific review, while 14 applications are pending approval at the Commission level.

The EU’s own legally prescribed approval time for biotechnology imports is approximately 12 months, i.e.,

six months for the review with the EFSA and six months for the political committee process

(comitology). However, in practice, total approval times are taking an average of 47 months. In April

2015, the Commission adopted ten new authorizations for biotech crops for food or feed use, seven renewals

of existing authorizations for food or feed use, and two new authorizations for the import of biotech cut

flowers.

While welcomed, these approvals took 17 months in the comitology process. Since April 2015,

three soy and two corn applications for food and feed imports have completed the comitology process. On

December 4, the EU authorized the import of the two genetically engineered corn products for food/feed

use. The three soy applications are still pending approval by the Commission.

(1) Proposal for a Directive of The European Parliament and of The Council on the cloning of animals of the bovine,

porcine, ovine, caprine and equine species kept and reproduced for farming purposes (Cloning Technique Proposal)

and (2) Proposal for a Council Directive on the placing on the market of food from clones (Cloning Food Proposal).

Source: USDA FAS, GAIN Report: EU Agricultural Biotechnology Annual 2015.

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Between 1998 and 2003, the EU failed to approve any biotech products for sale in the EU. In 2003, the

United States initiated a WTO dispute settlement proceeding against the EU. A WTO dispute settlement

panel concluded that the EU applied a general de facto moratorium on the approval of biotech products.

The WTO panel found this moratorium was inconsistent with the EU’s obligations under the SPS

Agreement because it led to undue delays in the completion of EU approval procedures. The WTO panel

also found that various EC member State safeguard measures were inconsistent with WTO obligations as

they were not based on a risk assessment.

Currently, exports of U.S. corn have been adversely impacted because of concerns that the exports may

contain a low level presence of biotech crops that have not yet received EU approval resulting in the entire

shipment being rejected. This possibility of low level presence exists precisely because the United States

has approved products that the EU has yet to approve. U.S. exports of distillers’ dried grains and corn

gluten feed continue but could be disrupted by the detection of an unapproved crop. U.S. rice exports

remain well below the levels seen before the discovery of an unapproved event (LL 601) in the U.S. rice

crop. Although no agricultural biotech rice varieties are currently grown in the United States, EU approval

of this single rice event (LL62), which was originally requested in the EU in 2004, could reduce commercial

uncertainty associated with concerns about the detection of low-level presence in a shipment. The United

States continues to work with the EU to support trade in corn byproducts, but success will depend on the

EU addressing the larger issue of delays in the biotech approval process.

Pathogen Reduction Treatments

The EU maintains measures that prohibit the use of any substance other than water to remove contamination

from animal products unless the substance has been approved by the Commission. U.S. exports of beef,

pork, and poultry to the EU have been significantly hurt as a result because the Commission has failed to

approve various pathogen reduction treatments (PRTs). PRTs are antimicrobial rinses used to kill

pathogens that commonly exist on meat after slaughter. The PRTs at issue have been approved by the U.S.

Department of Agriculture, after establishing their safety on the basis of scientific evidence.

In 1997, the EU began blocking imports of U.S. products that had been processed with PRTs, which have

been safely used by U.S. meat producers for decades. Between 1998 and 2008, various EU agencies issued

scientific reports concerning poultry processing and reaffirmed the findings of U.S. food safety authorities

that residues of four PRTs -- chlorine dioxide, acidified sodium chlorate, trisodium phosphate, and

peroxyacids – do not pose a health risk to consumers.

In May 2008, the Commission prepared a proposal that approved the use of the four PRTs during the

processing of poultry, but imposed unscientific highly trade restrictive conditions with respect to their use.

Member States rejected the Commission’s proposal in December 2008.

The United States believes the use of PRTs are a critical tool during meat processing that helps further the

safety of products being placed on the market. The United States has engaged the EU to share scientific

data regarding the safe use of PRTs, and the United States will continue to engage the EU regarding the

approval of PRTs in pork and poultry.

Export Certification

EU certification requirements are limiting U.S. agricultural exports such as meat, dairy, eggs, processed

products, and animal byproducts, adding unnecessary costs to the movement of exports in Europe,

irrespective of whether these goods are destined for commercial sale in the EU, transiting through the EU,

or even intended for cruise ships or U.S. military installations located in the EU. These requirements often

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appear inconsistent with international standards and to have been implemented without scientific evidence

or a risk assessment. Moreover, the certificates are often very complex and burdensome to the point that it

is very difficult to verify the applicable certification requirements. For example, the level of detail required

on the certificate (e.g., the specific attestation language) necessitates a multitude of forms being required

for each product containing references to multiple levels of EU legislation that in turn cites other

legislation. The multitude of forms also creates enormous confusion and burden for manufacturers and

exporters, as well as U.S. regulatory agencies, EU Member State authorities, and EU importers. Codex

guidance and ongoing work in APEC seek to limit certification to the minimum amount of information

necessary to ensure the safety of the product being traded. The United States continues to engage the EU

in various international fora and bilaterally, including through T-TIP, to find a resolution of these concerns

regarding the EU’s certification requirements.

Somatic Cell Count

Somatic cell count (SCC) refers to the number of white blood cells in milk. The count is used as a measure

of milk quality and as indicators of overall udder health – it does not, however, have any bearing on the

safety of the milk itself. Since April 1, 2012, the EU has required imports of dairy products that require

EU health certificates to also comply with EU SCC requirements. Specifically, the EU requires certification

to establish that the SCC does not exceed 400,000 cells per milliliter, a threshold that is significantly lower

than the U.S. requirement for Grade A milk at 750,000 cells per milliliter. The certification necessary to

meet the EU requirement is burdensome, requiring farm level sampling and a Certificate of Conformance.

Accordingly, while U.S. dairy products can continue to be shipped to the EU, the EU’s SCC requirements

hinder trade by adding unnecessary costs. The United States continues to engage the EU regarding their

SCC requirement in the appropriate technical working groups.

EU Flavorings

In the EU, the food industry can only use flavoring substances that are on the EU Flavouring list.

On July

29, 2015, five substances (1-methylnaphthalene, furfuryl methyl ether, difurfuryl sulphide, difurfuryl ether,

and ethyl furfuryl ether) were deleted from the list. These five substances are generally recognized as safe

(GRAS) by the Flavor and Extract Manufacturers Association (FEMA) for their intended use as flavoring

substances. FEMA makes a GRAS determination following an expert panel’s evaluation of the substance.

The expert panel includes experts in toxicology, organic chemistry, biochemistry, metabolism, and

pathology. Accordingly, the United States and other countries, including China, Japan, Brazil, and Mexico,

accept the use of flavorings deemed by FEMA to be GRAS. In addition, these five substances have already

been evaluated, or are under consideration by, other safety assessment bodies such as JECFA. The United

States will continue to raise this issue with the EU.

Citrus Canker

In 2010, the United States petitioned the EU with a request to remove a requirement that citrus fruit exports

to the EU be sourced from groves displaying no symptoms of the disease citrus canker. This EU

requirement has effectively eliminated EU market access for a majority of Florida citrus groves. The United

States provided the EU with a substantive, peer-reviewed risk analysis that concluded citrus fruit, including

symptomatic fruit, was “highly unlikely” to be a vector of citrus canker. The United States continues to

request a derogation from the existing EU import requirements relating to citrus canker.

See Annex I of Regulation 1334/2008) & Regulation 872/2012.

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Proposal for Categorization of Compounds as Endocrine Disruptors

The EU is considering measures that would proscribe the use of various pesticides by the agriculture

industry on the basis that they may be classified as endocrine disruptors (EDs). EDs are naturally occurring

compounds or man-made substances that may mimic or interfere with the function of hormones in the body.

While the United States shares public health concerns with respect to EDs, the United States is concerned

that the EU appears to be contemplating approaches to regulating these compounds that are not based on

scientific principles and evidence, thereby restricting trade without improving public health.

In early November 2012, the EU released a proposal for the definition, identification, and categorization of

EDs. Under the options proposed, the EU could ban a substance without considering exposure and

evaluating the weight of evidence to determine whether there are any actual adverse effects to human and

animal health. Active substances that are considered to have endocrine disrupting properties could

potentially be banned and be required to be either withdrawn entirely or limited to permissible levels in

food set at a default residue level of 0.01 ppm.

The U.S. agricultural industry is concerned that the proposal may lead to restrictions on “suspected EDs”

based purely on bioactivity without considering issues such as dosage and exposure. The restrictions on

suspected EDs could remove products that are safe in light of their application or even promote the

transition to alternatives whose health effects may be less well understood. The proposal also provides no

specific criteria to evaluate data to determine the specific properties and the methods to use to assure

scientific validity.

In 2013, after internal consultation, the Commission decided to conduct an impact assessment to evaluate

the possible impact of its proposal along with other policy options for the final ED criteria. In June 2014,

the Commission published the long-awaited roadmap for the impact assessment. The United States, eight

other foreign governments, and 27,000 stakeholders submitted official comments on the roadmap to the

EU. The U.S. submission expressed concern that the options in the EU’s roadmap omitted a risk-based

scientific approach to EDs, which is likely to have severe implications both for EU growers and suppliers

that export to the EU. The United States also suggested that a more extensive and developed public

consultation process could result in measures that meet the objective of protecting human, animal, or plant

life or health, while not unnecessarily restricting trade. The United States continues to monitor this issue

and raise our concerns in international and bilateral fora.

Animal Byproducts, Including Tallow

The EU considers all animal byproducts sourced from animals raised under conditions not essentially

identical to those in the EU to be hazardous materials (category 1 and 2 materials). Between 2002 and the

present, the EU has made modifications to its regulations and implementation practices governing animal

byproducts that have resulted in the treatment of U.S. products as being considered hazardous. The current

EU interpretation of the animal byproducts regulations could potentially prevent most exports of U.S.

animal byproducts. Several Member States border inspection posts have already begun to block

consignments of various technical blood products.

Tallow exported to the EU must meet criteria that are not scientifically justified and significantly exceed

the recommendations of the World Animal Health Organization (OIE). The United States has requested

that tallow be allowed entry into the EU for any purpose without verification other than that the tallow and

derivatives made from this tallow contain no more than a maximum level of insoluble impurities consistent

with international guidelines. Specifically, tallow with less than 0.15% insoluble impurities does not pose

any risk of Bovine Spongiform Encephalopathy. Tallow under these specifications should be allowed for

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import without any animal health-related requirements according to the OIE’s international – and

scientifically based – guidelines. The United States continues to request that the EU determine a resolution

for these concerns.

Live Cattle

U.S. live cattle from the United States are not authorized to be exported to the EU, or transited through the

EU en route to third countries due to EU certification requirements for several bovine diseases. Although

the U.S. Animal and Health Inspection Service (APHIS) successfully resolved issues related to bovine

leucosis and bluetongue in 2003, the EU subsequently established certification requirements for Bovine

Spongiform Encephalopathy (BSE) that precluded U.S. exports. Since then, the EU model certificate has

been amended to align the BSE requirements with the OIE Code. Although the United States can now meet

the BSE certification requirements, U.S. exporters remain frustrated because the United States and EU have

not agreed on the conditions and format for the export certificate. APHIS continues to work with the EU

to resolve the remaining import health conditions and agree on a mutually acceptable certificate through

the Animal Health Technical Working Group.

Certification Requirements for Marinated Pork

The EU meat preparations certificate for marinated pork includes the condition that the product must be

frozen. The United States is concerned that this condition has resulted in a de facto ban on shipments of

chilled marinated pork, which by definition is not frozen. The United States will continue to engage with

the EU on this issue.

Specified Risk Materials Certification Requirement

The EU has a different definition of specified risk materials (SRM) than the United States for the animal

tissues most at risk of harboring the transmissible spongiform encephalopathies. The EU requires that

materials exported to the EU meet the EU’s SRM definition and be derived from carcasses of animals that

can be confirmed as never having been outside of regions that the EU considers to be of negligible risk for

BSE. Although the U.S. has been recognized by OIE as having negligible risk, the source cattle for U.S.

ruminant origin animal byproduct exports may not necessarily come from negligible risk countries. The

SRM requirement thus unnecessarily impedes U.S. exports of ruminant origin animal byproducts, and

would potentially limits the market for ovine/caprine meat were other market impediments removed.

This requirement otherwise has not been an issue for bovine meat for human consumption, because the

special EU required production controls in the non-hormone treated cattle (NHTC) program already

provides the necessary verifications regarding the history of the animal. The United States has requested

the removal of the EU’s “born and raised” requirement for all U.S. commodities. Consistent with the

recommendations of OIE, it is the BSE status of the country of export that should determine whether SRMs

have to be removed. The United States continues to raise this issue in the appropriate bilateral technical

working groups, and the WTO SPS Committee.

Pesticides and Maximum Residue Limits

Regulation (EC) No. 1107/2009, which governs the registration of crop protection products, establishes

several hazard-based “cut-off” criteria that exclude certain categories of products from consideration for

normal authorization for use in the EU. For such products, the EU will not perform a risk assessment.

Rather, it will discontinue EU authorization for a particular product at the time of re-approval, or, in the

case of new products, declare them to be ineligible for authorization, based solely on their intrinsic

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properties, without taking into account important risk factors such as level of exposure or dosage. The

United States is concerned that a large number of safe and widely-used substances will not be reapproved

or not have reasonable import tolerances set for their use due to these arbitrary cut-off criteria when current

registrations expire.

Complicating matters further, MRLs and import tolerances are established under separate legislation,

Regulation (EC) No. 396/2005, and a list of approved substances is listed in Commission implementing

Regulation 540/2011. The regulatory decision-making process under Regulation (EC) 396/2005 is

purportedly risk-based rather than hazard-based. Accordingly, the relationship between the hazard based

approach of Regulation 1107/2009 and Regulation 396/2005 remains unclear. The United States is

concerned that for substances not approved under Regulation 1107/2009 due to the cut-off criteria, the EU

may decide to ignore the normal risk assessment process of Regulation 396/2005 and automatically reset

the MRLs and import tolerances to the default level of 0.01 mg/kg, which is not commercially viable.

Resetting MRLs and import tolerances to the default level could have a significant negative effect on

agricultural production and trade. U.S. stakeholders have estimated the potential damage to U.S. exports

at over $5 billion and global trade damage at over $75 billion. Discontinuing the use of critical substances

without a proper science-based risk assessment is not a realistic option for the EU, since doing so would

have serious adverse effects on agricultural productivity and global markets.

Fosetyl-al

Fosetyl-al is a fungicide that is not authorized to be used on nut trees in the United States. The United

States does allow the use of phosphonate fertilizers on nut trees, however, because such fertilizers have low

toxicity. In late 2013, the Commission changed the designation of phosphonates as both a fertilizer and

pesticide to only a pesticide. However, the Commission did not establish an MRL for phosphonate-

containing products. Instead, it simply included any residues found as being under the EU’s MRL for

fosetyl-al. In short, the Commission now considers the use of phosphonate fertilizers as treatment with

fosetyl-al. The application of the fosetyl-al MRL to phosphonates would result in several U.S. nuts and

fruits exceeding the MRL and thus being prohibited from the EU market.

On November 9, 2015, the Standing Committee on Plants, Animals, Food and Feed (PAFF) approved the

draft Commission Regulation to extend the temporary MRL of 75 mg/kg for almonds, cashew nuts,

hazelnuts, macadamias, pistachios, and walnuts until March 1, 2019. Under the higher MRL, U.S. trade is

able to continue. The draft act was formally adopted by the Commission on January 25, 2016, but made

retroactive to January 1, 2016, to minimize trade disruptions. The Commission instructed Member States

to follow this guidance for import checks and sampling.

The United States was pleased by the extension of the temporary MRL for tree nuts. However, a number

of other U.S. producers will be affected when the new shipping season starts as a result of the temporary

fosetyl-al MRL reverting to the default level of 2 mg/kg. For example, exports of fresh and processed

commodities such as stone fruits (apricots, cherries, peaches, and plums), berries (raspberries, blueberries,

and blackberries), figs, and papayas became subject to the default MRL as of January 1, 2016. Some fruit

and berry commodity groups are gathering residue monitoring data and preparing information to submit to

the Commission, but while these commodity groups are preparing their submissions, more than $100

million of fresh and dried fruit and berry exports (including $68 million of dried plums alone) may no

longer be able to enter the EU.

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DPA

In 2009, the EU removed Diphenylamine (DPA) as a plant protection product authorized for use within the

EU. Subsequently, the EU established a MRL of 0.1 parts per million (ppm) for DPA on apples and

pears. The United States and Codex have a harmonized standard of 10 ppm for apples and 5 ppm for pear.

The EU MRL was implemented on March 2, 2014, and affects both domestic and imported products. The

MRL will be reviewed two years following the implementation date, resulting in an MRL further below the

limit detection. However, the MRL of 0.1 ppm already greatly limits the use of DPA on U.S. products

destined for the EU. Such a low MRL could also result in rejection of untreated fruit due to inadvertent

cross-contamination during handling and storage. Without the use of DPA or a workable MRL that

accounts for cross contamination, the European market is significantly limited for U.S. apple and pear

exports. The United States will continue to engage the EU regarding this issue.

Member State SPS Measures

Agriculture Biotech Cultivation Opt-Out

In March 2015, the EU adopted a directive that allows Member States to ban the cultivation of genetically

engineered (GE) plants in their respective territories for non-scientific reasons. Under the transitional

measures, the Member States had until October 3, 2015, to request to be excluded from the geographical

scope of the authorizations already granted or in the pipeline. Nineteen countries have “opted-out” of GE

crop cultivation for all or part of their territories. These decisions will not lead to a change in the field,

since none of the five European countries (Spain, Portugal, Czech Republic, Slovakia, and Romania) that

currently grow GE corn are opting out.

Seventeen countries and four regions in two countries (Wallonia in Belgium; Northern Ireland, Scotland,

and Wales in the United Kingdom) have opted-out of cultivation. The 17 countries that requested their

entire territory to be excluded from the geographical scope of biotech applications are: Austria, Bulgaria,

Croatia, Cyprus, Denmark, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg,

Malta, the Netherlands, Slovenia, and Poland. All of these (17 countries plus regions in two countries)

have decided to ban the cultivation of Monsanto 810 corn (MON810) and the seven varieties of corn that

are in the pipeline, apart from Denmark and Luxembourg that have only banned MON810 and three from

the seven varieties of corn in the pipeline.

Austria: After the release of EU Directive 2015/412, which allows Member States to restrict or ban the

cultivation of GE plants in their territory, the Austrian government issued the Biotech Cultivation

Framework Law on August 3, 2015. This law streamlines the requirements for Austrian states to continue

banning the cultivation of biotech crops. The specific federal bans are for the cultivation of MON810 and

the import and processing of Monsanto’s GT73 rapeseed, Monsanto’s 863 corn, and other non-U.S

varieties.

French Ban on Food Packaging Containing Bisphenol A

The production or import of food containers containing Bisphenol A (BPA) has been banned in France

since January 1, 2015. The law applies to all products manufactured using BPA, where the BPA is

“intentionally” used to manufacture part or all of the final product, or where the BPA comes from an

environmental or adventitious source. The French law contradicts an EFSA opinion of January 21, 2015,

which stated that BPA does not present any risk to consumers. On September 17, 2015, France’s

Source: USDA FAS, GAIN Report: 19 European countries restrict the cultivation of GE crops.

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Constitutional Commission issued a ruling on the legality of the BPA as presented by the European and

International Plastics industry. The Constitutional Commission overturned the ban on BPA in food

containers produced in France for export, but upheld the prohibition of BPA in the sale and import of

substances in France on the basis of the precautionary principle. In parallel to this action, the EU

Commission initiated an infringement procedure against France for violation of the EU single market. On

November 20, 2015, a roadmap was released with five different possible outcomes from the Commission,

ranging from accepting the BPA ban for the entire EU to overturning France’s ban partially to completely.

The next Commission consultation meeting for BPA will take place during the second quarter of 2016. The

United States is following the Commission’s infringement procedure closely and will continue to advocate

for a science-based outcome.

MARKET ACCESS

Non-Agriculture

Pharmaceutical Products

U.S. pharmaceutical stakeholders have expressed concerns regarding several 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, such as therapeutic

reference pricing and other price controls. Such policies reportedly create uncertainty and unpredictability

regarding investment in these markets and can undermine incentives to market and innovate further. These

policies have been identified in several Member States, including Austria, Belgium, Czech Republic,

France, Hungary, Lithuania, Poland, Portugal, and Romania. Additional detail on some of these Member

State policies follows. Pharmaceutical firms have also expressed concern regarding recent changes to

European Medicines Agency (EMA) policy regarding disclosures of clinical trial data, including potential

disclosure of confidential commercial information submitted to EMA by pharmaceutical firms seeking

marketing authorization. The United States continues to engage with the EU and individual Member States

on these matters.

Austria: U.S. companies have expressed concern regarding the degree of transparency of, and opportunity

for meaningful stakeholder input in, the reimbursement rules and determinations for biosimilar

pharmaceutical products. U.S. companies also criticize as excessive the “solidarity contribution” for the

sector, which are a prerequisite to receiving reimbursement for prescribed drugs, as part of Austria’s deficit

reduction policies.

Belgium: Over the past 15 years, U.S. pharmaceutical companies have repeatedly expressed concern about

the Belgian government’s lack of adequate transparency in the decision-making process related to cost-

containment measures in the pharmaceutical sector. These companies have identified several tax-related

measures, such as a 6.73 percent turnover tax, the 1 percent crisis tax, the 0.13 percent marketing tax, and

the claw back tax (an additional 1.93 percent of turnover in 2015), as exemplifying such concerns. In July

2015, the Belgian government announced that the 1 percent crisis tax will be abolished in 2017. The United

States continues to highlight the need for closer dialogue with the government and meaningful opportunities

for stakeholder input into budget and pricing decisions.

Czech Republic: While pharmaceutical approvals in the Czech Republic often exceed the EU timetables,

U.S. stakeholders report that the duration for such approvals has decreased incrementally in recent years.

Regarding the Czech Republic’s system for determining pricing and reimbursement levels for

pharmaceutical products, U.S. stakeholders continue to express concerns about such determinations. For

example, U.S. stakeholders continue to raise questions regarding the Czech government’s practice of setting

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maximum medicine prices based on the average of the three lowest prices in a basket of countries (currently

a group of 18 Member States). Such determinations should be made transparently and include meaningful

opportunities for stakeholder input, including engagement by Czech authorities with stakeholders regarding

their concerns regarding how such practices reflect the Czech market and adequately incentivize innovation

in research and development of pharmaceutical products. Additionally, the United States urges the Czech

Republic to engage meaningfully with stakeholders regarding their concerns that such policies incentivize

third parties to re-export pharmaceuticals to third-country markets, where they are sold at a profit.

France: Pharmaceutical industry stakeholders continue to raise concerns about the French pharmaceutical

market, including with respect to the significant tax burden on the industry and the constraints facing the

sales of reimbursable medicines, sales of which have dropped by two percent for the third consecutive year.

As an example of such constraints, U.S. stakeholders have expressed concern that market access for drugs

in France is slower than elsewhere in Europe, resulting from delays in reimbursement approvals of 440

days after marketing authorization, compared to the 180 days required by EU law.

Hungary: Pharmaceutical manufacturers have expressed concerns regarding the lack of transparency and

stakeholder engagement in Hungarian government volume and pricing determinations; and delays in

reimbursement approvals. Stakeholders are also concerned with a series of tax measures, including high

sector-specific taxes, high taxes levied on pharmaceutical companies of roughly $50,000 per year for each

sales representative that the company employs, and a claw-back tax, which results in considerable

uncertainty for pharmaceutical companies that are financially responsible for government overspending

with respect to its annual retail pharmaceutical budget. U.S. stakeholders continue to raise questions

regarding some of the Hungarian government’s pricing and reimbursement policies, including pricing and

reimbursement delays of over a year (resulting in extended market access delays), determinations regarding

reimbursement based in part on decisions of countries outside of the EU (resulting in an uncertain and non-

transparent business environment), and the frequency of changes to, including de-listing of products from,

the reimbursement list (resulting in considerable unpredictability in the Hungarian market). The United

States urges the Hungary to engage meaningfully with stakeholders regarding their concerns.

Italy: U.S. healthcare companies face an unpredictable business environment in Italy, which includes

highly-variable implementation of complex budget policies. One such policy is the “pay-back system,”

which is a measure that was first applied to hospital pharmaceutical purchases in 2013. Under this policy,

pharmaceutical companies must pay back 50 percent of the amount spent over budgetary limits for

pharmaceutical spending. Industry estimates that the Italian government has asked for roughly $2.8 billion

from pharmaceutical companies between 2013 and 2016 as part of this policy. While several U.S. and

European companies have prevailed on appeal to the Regional Administrative Court when challenging the

2013 pay-back calculations, legal challenges to some of the 2014 and 2015 calculations are still pending.

Stakeholders have also raised concerns regarding delays in Italy regarding reimbursement determinations.

While reimbursement delays have decreased in recent years, the average time between marketing

authorization and reimbursement approval in Italy continues to exceed the EU average as well as the period

required in EU law.

Lithuania: The United States continues to engage with the government of Lithuania regarding

pharmaceutical market access issues. Discussions between the Health Ministry and U.S. stakeholders have

made little progress to add innovative drugs to the government’s reimbursement list. Stakeholders remain

concerned about the lack of transparency in the pricing and reimbursement process for innovative drugs.

Poland: U.S. stakeholders report improved transparency and engagement with the Ministry of Health

regarding the development and implementation of cost-containment measures affecting pharmaceutical

reimbursement and pricing policies. However, U.S. companies have expressed concern regarding the

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transparency of, and opportunity for meaningful stakeholder input in, reimbursement rules and

determinations for biosimilar pharmaceutical products.

Portugal: U.S. stakeholders report that there continues to be a lack of transparency in the development and

implementation of government cost-containment measures. In addition, pharmaceutical companies

continue to raise concerns regarding the patent dispute resolution mechanism established under Portuguese

Law No. 52/2011, which has been in effect since January 2012. The law does not provide for injunctive

relief with respect to the marketing of pharmaceutical products that infringe patents covering

pharmaceuticals already authorized to be on the market. Instead, the law provides only for damages for

patent infringement. While the arbitration system has proven to be faster than the Portuguese court system,

stakeholders report that this mechanism is costly, lacks injunctive relief, and has resulted in questionable

rulings.

Romania: Innovative pharmaceutical producers have identified several significant challenges in Romania

due to the fact that the government has not updated the lists of innovative pharmaceuticals that are eligible

for reimbursement under the national health system, despite repeated requests. According to stakeholder

reports, Romania has started the process of adding several new innovative drugs to the reimbursement list,

but has not concluded the process to make them available to patients. Numerous applications remain

pending with no progress. This severely undermines the ability of U.S. pharmaceutical companies to

introduce newer drugs in Romania because the National Health Insurance House will not pay

reimbursement for drugs that are not included on the reimbursement list. Both innovative and generic

pharmaceutical companies have also started to withdraw drugs from the Romanian market, as the low

official prices set in Romania can fall below production costs and create parallel trade problems. The claw-

back tax, equivalent to 12.35 percent of total gross sales for the third quarter of 2015, is another major

challenge for U.S. stakeholders. This tax rate is determined on the basis of the difference between the

state’s budget for reimbursable drugs and the amount consumers actually spend on the drugs. U.S.

stakeholders continue to raise concerns regarding a lack of transparency, particularly in pricing and

computation of the claw-back tax.

Uranium

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. The EU appears to

maintain quantitative restrictions on imports of enriched uranium in accordance with the terms of the Corfu

Declaration, a joint 1994 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, reportedly by reserving 80 percent of the EU enriched uranium

market for European suppliers. Such restrictions on imports of enriched uranium may raise concerns in

light of the EU’s obligations under the WTO. The United States has conveyed to the Commission its

concerns about the non-transparent nature of the Corfu Declaration and its application.

Agriculture

Bananas

In June 2010, the United States and the EU signed 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 banana 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

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and several Latin American banana-supplying countries (also signed in June 2010), which provides for

staged EU tariff cuts to bring the EU into compliance with its WTO obligations.

The agreements marked the beginning of a process that, when completed, will culminate with the resolution

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 U.S.

bananas dispute with the EU, provided certain conditions are met.

Concerns have been expressed by U.S. stakeholders about actions taken by Italian customs authorities, and

related decisions taken by Italian courts, challenging the use of certain EU banana import licenses under

pre-2006 EU regulations. The United States is pressing the Commission to clarify its position on this

matter.

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 WTO 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

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 seeks the

elimination of EU tariffs on brown rice in the T-TIP negotiations.

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 and Vegetables

The EU Common Market Organization (CMO) provides a framework for market measures under the EU’s

Common Agricultural Policy (CAP), including for measures related to the promotion of fruit and

vegetables, and entered into force on January 1, 2014. 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 POs for dozens of products,

including peaches, citrus fruits, and olives. EU support for the fruit and vegetable sector appears to have

been fully decoupled from production decisions in 2014. However, U.S. producers remain concerned about

potential hidden subsidies. The United States continues to monitor and review EU assistance in this sector,

evaluating potential trade-distorting effects.

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Certification of Animal Welfare

In an attempt to “level the playing field,” the EU is requiring animal welfare statements on official sanitary

certificates. Although the United States supports efforts to promote animal welfare, the EU’s certification

requirements do not appear to advance any food safety or animal health objectives, and thus do not belong

on sanitary certificates. The U.S. position is that official sanitary and phytosanitary certificates – the

purpose of which is broadly limited to prevent harm to animal, plant, or human health and life from diseases,

pests, or contaminants – should only include statements related to animal, plant, or human health, such as

those recommended by Codex, OIE, and the International Plant Protection Convention.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

In 2015, the EU took several steps with respect to intellectual property rights protection, including with

respect to copyright, trademarks, and trade secrets. Among those steps, the EU’s approach to geographical

indications continues to be problematic for the United States and its stakeholders, including those that rely

on trademark protection and use generic names.

On May 6, 2015, the Commission issued several statements and related documents on its Digital Single

Market strategy, which cover several aspects of copyright protection, inter alia, announcing the future

introduction of legislative proposals on portability of legally acquired content, cross-border issues,

exceptions and limitations, intermediary liability, and enforcement. Subsequently, on December 9, 2015,

the Commission issued a more detailed communication entitled “Towards a Modern, More European

reform. On the same day, the Commission also released a draft regulation on portability entitled, “Proposal

for a Regulation of the European Parliament and of the Council on Ensuring the Cross-Border Portability

of Online Content Services in the Internal Market” (COM(2015) 627 final), which includes provisions on

stakeholder engagement in these Commission-led processes 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.

Regarding trademarks, the EU adopted its revised trademark package, including a Trademark Directive and

a Trademark Regulation, on December 15, 2015. The trademark package is extensive and contains

numerous revisions to existing EU trademark law. The Trademark Directive entered into force in January

2016, and Member States have three years to transpose the Directive into national law. The Trademark

Regulation is expected to enter into force in March 2016. The United States looks forward to continuing

to work with the EU and its Member States on trademark issues and will follow implementation of the

trademark package closely.

The EU also made significant steps with respect to trade secret protection in 2015. Following the

Commission’s introduction of draft legislation entitled “Proposal for a Directive of the European Parliament

and of the Council on the Protection of Undisclosed Know-How and Business Information (Trade Secrets)

Against their Unlawful Acquisition, Use and Disclosure” (COM(2013) 813 final) on November 28, 2013,

the European Council issued a revised proposal on May 26, 2014. On June 16, 2015, the Legal Affairs

Committee of the European Parliament adopted its revised proposal. On December 15, 2015, as a result of

the informal “trialogue” process between the European Council, Parliament and Commission,

representatives of the Parliament and Council reached a preliminary agreement on the final text of the

Directive, which has to be formally adopted by both the Parliament and Council. This legislation

harmonizes civil trade secret law in the EU, including provisions defining trade secrets and what constitutes

misappropriation, and establishes remedies for trade secret misappropriation.

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With respect to geographical indications (GIs), the United States has concerns with several initiatives

undertaken by the EU in 2015 and remains troubled with the EU’s system that provides over-broad

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. Regulation (EU) 1121/2012, for example, contains

numerous problematic provisions with respect to the protection and enforcement of protected designations

of origin (PDOs) and protected geographical indications (PGIs). These troubling provisions include those

governing the scope of protection of PDOs and PGIs, that include expansive rules governing evocation,

extension, co-existence and translation, among others, that not only adversely affect trademark rights and

the ability to use generic names, they also undermine access to the EU market for U.S. rights holders and

producers. As confirmed in the recital to Regulation 1121/2012, this measures also serves as the basis for

the EU’s international GI agenda, which includes requiring EU trading partners to protect and enforce lists

of EU GIs according to EU rules in EU trading partners’ markets, with often only very limited due process

requirements to safeguard existing producers, rights holders, consumers, importers and other interested

parties.

The EU adopted its current GI regulation for food products, Council Regulation (EC) 510/06, in response

to findings adopted by the WTO DSB 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 concerns about this regulation

and intends to monitor carefully both its implementation and current initiatives to modify it. These concerns

also extend 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 United

States is carefully monitoring the implementation of each of these regulations.

The EU also continues to consider expanding the scope of GI protection in the EU territory to include non-

agricultural products. At present, the EU law only harmonizes the protection of GIs in the EU for wines,

spirits, food stuffs and agricultural products. On July 15, 2014, the Commission issued a green paper

entitled “Making the Most out of Europe's Traditional Know-How: A Possible Extension of Geographical

Indication Protection of the European Union to Non-Agricultural Products” (COM(2014) 469 final), to

evaluate GI protection for non-agricultural products in the EU. This was followed by the Parliament’s

adoption of a resolution inviting the Commission to propose legislation providing for such extension. The

United States is closely monitoring developments in this area, including to evaluate and respond to the

negative implications in the EU of extending the coverage of GI protection beyond existing product

categories.

Finally, the United States remains extremely concerned by the process and outcome of the World

Intellectual Property Organization (WIPO) negotiations to expand the Lisbon Agreement for the Protection

of Appellations of Origin and Their International Registration to include GIs. Of particular concern to the

United States was the manner of engagement in these negotiations by the Commission and several Member

States, including the Czech Republic, France, Greece, Italy, and Portugal, which took precedent-setting

steps to deny the United States and the vast majority of WIPO countries of full negotiating rights, and to

depart from long-standing WIPO practice regarding consensus-based decision making in this international

organization. Likewise, the resulting text – the Geneva Act of the Lisbon Agreement – raises numerous

and serious legal and commercial concerns, including with respect to the degree of inconsistency with the

trademark systems of many WIPO countries as well as the significant negative commercial impact on

trademark holders and U.S. exporters that use generic terms.

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Member State Measures

Generally, Member States maintain high levels of intellectual property rights (IPR) protection and

enforcement. While some Member States in 2015 made improvements, the United States continues to have

concerns with respect to the IPR practices of 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. companies report some gaps in criminal liability, insufficient specialization of judges dealing

with trade secrets, low criminal penalties, and procedural obstacles, which limit efforts to effectively

combat infringement.

Bulgaria: Bulgaria continues to be listed on the Watch List after it was added in the 2013 Special 301

Report. U.S. stakeholders report continued concerns about IPR enforcement, including with respect to

piracy over the Internet. Stakeholders have also highlighted the need for Bulgaria to enhance the

effectiveness of its patent and trademark enforcement system, including with respect to prosecutions, and

to address bad faith trademark registration at the Bulgarian Patent Office. Bulgaria has an established

process for administrative rulings and appeals in cases of patent and trademark infringement, although

concerns still remain regarding the decisions issued in those adjudicatory proceedings.

Czech Republic: While sale of copyright-infringing media in physical form continues at a modest level in

outdoor markets, rights-holding organizations did not identify any problematic physical markets during the

2015 Special 301 mid-cycle Notorious Markets review. Due to the advance of technology, digital piracy

in the Czech Republic, as elsewhere, has migrated primarily to the online realm, where rights-holders have

identified several “cyberlockers” that feature pirated material for download and streaming. Rights-holders

have experienced positive results in a number of instances when they have gone to court, although websites

often reappear under a new name. Also commendable is the Czech government interagency IPR task force,

led by the Ministry of Industry and Trade, which coordinates policy and oversees implementation of laws

involving IPR.

Estonia: While the new draft IPR legislation is not in force yet, U.S. software and entertainment industries

have raised concerns regarding the adequacy of the protections contained in the draft. Stakeholders also

report that the amendments to the penal code, combined with a lack of adequate resources, continue to limit

efforts by law enforcement authorities to effectively combat online piracy in Estonia.

France: Copyright stakeholders report that the French government’s efforts to reduce piracy over the

Internet has led to positive results. Stakeholders note that piracy over the Internet remains a serious concern

in France, and that while civil proceedings in French courts continue to provide the most effective channel

for enforcement against piracy in France, non-deterrent sentencing in criminal proceedings remains a

problem.

Greece: Greece remained on the Watch List in the 2015 Special 301 Report. The United States

acknowledges some improvements in IPR protection and enforcement in Greece, including actions taken

to address piracy over the Internet. However, inadequate IPR protection continues to pose barriers to U.S.

exports and investment. Key issues cited in the 2015 Special 301 Report include widespread copyright

piracy and limited and inconsistent IPR enforcement.

Italy: In 2015, Italy continued to refine its regulations that were initiated in 2014 aimed at combating

welcomed the results. Italy’s financial police, the Guardia di Finanza (GdF), continue to dedicate resources

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to identify large scale online piracy. In addition, the GdF partnered with the International Anti-

Counterfeiting Coalition to provide officers with training on the identification and disruption of counterfeit

products being produced in or imported into Italy.

Latvia: Latvia remains committed to improving IPR protection and enforcement, and recent efforts include

amending criminal statutes to simplify aspects of IPR infringement cases, enabling more successful

prosecutions. In March 2015, the Latvian cabinet approved five-year guidelines governing IPR protection,

which aim to enhance the capacity of relevant authorities to penalize and deter such violations as well as

enhance public awareness. The ability to secure deterrent penalties under the Copyright Law, and a lack of

provisions in the Public Procurement Law requiring use of legitimate software by government authorities,

remain concerns. On enforcement, Latvia’s police and prosecutors actively pursue IPR cases, but a lack of

resources and forensics backlogs hamper efforts.

Malta: Although stakeholders report that Malta’s civil regime for copyright is generally adequate, they

also report that Malta’s criminal law is insufficient, especially with respect to the inadequate deterrence of

IPR infringement. While the relevant provisions of the Maltese Criminal Code are generally viewed as

satisfactory in the context of trademarks and designs, the criminal code provisions governing other IPRs

remain largely unenforced and should be updated to reflect technological advances.

Poland: Stakeholders continue to identify copyright piracy over the Internet as a significant concern in

Poland. Poland has largely finished updating copyright and related rights laws to EU standards with a few

additional changes that took effect in 2015. On November 20, 2015, President Duda signed amendments

to Poland’s Copyright and Related Rights law. The changes were related to implementation of EU

Directives 2012/28/EU on orphan works and 2006/115/EC on rental rights and lending rights.

Romania: Romania remained on the Watch List in the 2015 Special 301 Report. While some categories

of infringement, such as street sales of counterfeit goods and piracy of optical discs, continued to decline

in 2015, piracy over the Internet, especially peer-to-peer file sharing, remains a serious concern. Some of

the most notorious pirate file-sharing sites have connections to Romania. Criminal IPR enforcement

remains generally inadequate, with questions arising regarding Romania’s commitments to such

enforcement, reflected in reduced cooperation among enforcement authorities, a small number of

enforcement actions, and a lack of meaningful sanctions. Additional resources are also needed in order to

achieve effective enforcement in Romania, such as increased training of law enforcement and prosecutors.

Organized criminal networks have taken advantage of the widening gap between their ability to use

technology and the ability of law enforcement and prosecutors to discover, investigate, and prosecute cases,

especially when the activities cross national borders. Romania would benefit from reinvigoration of the IP

Working Group, formed in 2006 as a public-private partnership for the organization of training programs

and intra-governmental cooperation. Romania should also develop a new national strategy for IP

enforcement to reaffirm its commitment to protecting IPR.

Spain: Spain has been part of a Special 301 Out-of-Cycle Review since 2013, after Spain was removed

from the Watch List in the 2012 Special 301 Report. In 2015, Spain took several legislative steps, including

to amend its civil and criminal copyright laws. Spain’s Prosecutor General also issued a new circular with

respect to copyright piracy over the Internet. Concerns remain, however, with respect to implementation

of these amendments as well as with respect to administrative enforcement by Spain’s Intellectual Property

Commission. The United States will continue to carefully monitor developments in this area and to work

closely with Spain to address these issues.

Sweden: Sweden continues to grapple with widespread piracy on the Internet. Government enforcement

efforts have shown positive results and police and prosecutors are now working more efficiently to

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investigate and move cases to prosecution. Recent figures indicate that piracy levels are no longer

increasing, in that the number of persons who file share illegally is now as low as it was in 2007.

Meanwhile, consistent with international trends, the problems related to illegal streaming are increasing,

resulting in losses for the movie, TV, and live sports telecast industries. However, legal sales of music and

film have increased dramatically in recent years, in part because of Swedish enforcement efforts against

illegal streaming.

SERVICES BARRIERS

Telecommunications

Telecomm Single Market Regulation

In September 2013, the Commission presented its draft for a regulation “[l]aying down measures to

complete the European single market for electronic communications and to achieve a Connected

Continent.” On June 30, 2015, after two years of negotiations, the European Commission, Parliament, and

Council reached an agreement on the Telecoms Single Market Regulation (TSM), which was formally

ratified by the Council on October 2 and by Parliament on October 27. The regulation will directly apply

in all Member States as of April 30, 2016, without requiring further transposition measures and updates the

Common Regulatory Framework for Electronic Communications Networks and Services (last updated in

2009).

The TSM includes new rules on net neutrality, network investments, spectrum management, and roaming.

The TSM phases out roaming fees in the EU as of June 15, 2017. The changes will only affect consumers

in Europe who have contracts with local operators. International carriers, including American operators

like AT&T and Verizon Wireless, will still be able to set their own roaming charges for customers traveling

in the EU. The regulation also enshrines net neutrality rules that require Internet service providers (ISPs)

to treat all traffic equally, subject to public interest exceptions, such as network security or compliance with

law enforcement decisions. ISPs will be allowed to use traffic management techniques to minimize

temporary or exceptional network congestion, but blocking, throttling, and paid prioritization are banned.

Digital Single Market

As part of the DSM strategy, the Commission will consider a number of mechanisms to reform its

telecommunications rules, including adopting a consistent single market approach to spectrum policy and

management, promoting infrastructure competition and greater investment in high speed broadband

networks, and online platform regulation. An extensive revision of the Common Regulatory Framework

for Electronic Communications Networks and Services, expected in 2016, will look at network access

regulation, spectrum management, communication services, universal service, and institutional governance.

The Commission is also apparently considering regulation of “over the top” (OTT) service providers that

traditionally have not been regulated. European telecommunications suppliers have long pursued efforts to

extend regulation to Internet content and application providers, pointing to a “convergence” in the types of

services offered by traditional telecommunications suppliers and some Internet-based services (e.g.,

Facebook’s WhatsApp, which is allegedly a substitute for traditional SMS) to justify a more comparable

regulatory approach. Some U.S. suppliers have responded to these arguments by highlighting that Internet-

based communications tools still face low barriers to entry by new competitors, while traditional

telecommunications providers enjoy high barriers to new entry and little direct competition.

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Termination Rates

One of the main cost components of an international telephone call from the United States to an EU country

is the rate a foreign telecommunications operator charges a U.S. operator to terminate the call on the foreign

operator’s network and deliver the call to a local consumer. The GATS Telecommunications Services

Reference Paper includes disciplines designed to ensure that the charge for terminating a call on a network

of a major supplier (which in most countries is the largest or only fixed‐line telecommunications supplier)

is cost‐oriented. This ensures that a major supplier is not able to gain an unfair competitive advantage from

terminating foreign or competitive carriers’ calls, and also helps to ensure that U.S. carriers can offer

reasonable and competitive international rates to consumers located in the United States. Termination rates

for both fixed and wireless traffic should be set in relationship to the costs of providing termination, as

would be reflected in a competitive market. Where competition does not discipline the costs of termination

services, governments should ensure that the termination rates charged by its operators are not unreasonably

above cost.

Several suppliers in EU Member States, including Portugal, Czech Republic, Croatia, Greece, and France,

are charging higher rates for the termination of international traffic originating outside the EU, or in some

cases outside the European Economic Area (comprised of the EU plus Iceland, Liechtenstein, and Norway),

than for international traffic between sovereign states within the EU or EEA. These discrepancies in rates

do not appear to reflect incremental costs for termination of such traffic. The European Commission and

EU Member States appear to endorse, explicitly or implicitly, a two-tier approach to the termination of

international traffic. These actions adversely affect the ability of U.S. telecommunications operators to

provide affordable, quality services to U.S. consumers calling Europe and may raise questions regarding

these EU governments’ treatment of U.S. suppliers. Such cost increases also disadvantage enterprises in

those foreign markets for which foreign communications is a key part of business (e.g., traders, hotels).

Television Broadcasting and Audiovisual Services

Audiovisual Media Services Directive

The 2007 EU Directive on Audiovisual Media Services (AVMS) amended and extended the scope of the

Television without Frontiers Directive (which covered traditional broadcasting, whether delivered by

terrestrial, cable, or satellite means) to cover audiovisual media services provided on demand, including via

the Internet. AVMS establishes minimum content quotas for broadcasting that must be enforced by all

Member States. Member State requirements are permitted to exceed this minimum quota for EU content,

and several have done so, as discussed below. AVMS does not set any strict content quotas for on-demand

services, but it 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.

In 2016, the Commission will review whether AVSM remains an appropriate regulatory framework given

developments in the audiovisual and video on-demand markets. This will include analysis of whether

differences in regulatory treatment between broadcast and on-demand services allowed by AVSM remain

appropriate, and whether the AVSM’s scope ought to be expanded to include new services.

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Satellite and Cable Directive

The 1993 Satellite and Cable Directive (SCD) governs satellite broadcasting and cable retransmission. It

was enacted to promote cross-border satellite broadcasting of programs and their cable retransmission from

other Member States and remove obstacles arising from disparities between national provisions on

rights holder and such rights may only be acquired by agreement. Cable retransmission of broadcasts is

governed by copyright and related rights in the Member States and by agreements between copyright

owners, holders of related rights, and cable operators. The rights to authorize or prohibit the cable

retransmission of a broadcast are exercised through a collecting society, except where they are exercised

by a broadcasting organization with respect to its own transmissions. The Commission is currently

reviewing SCD to assess how it is working to provide cross-border access to broadcasters’ services in

Europe and to consider whether to broaden the scope of SCD to cover broadcasters’ services provided over

the Internet.

Member State Measures

Several 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 AVMS in a restrictive manner. France’s implementing legislation,

which was approved by the Commission in 1992, requires that 60 percent of programming be of EU origin

and 40 percent be of French-language content. These requirements exceed AVMS requirements.

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 to 35 percent French-language content,

but channels and services are required to increase their investment in the production of French-language

content. 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 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 TV. France also maintains a four month waiting

period between the date a movie exits the cinema and the date when it can be shown on video-on-demand.

Italy: Broadcasting Law DL 44, which implements EU regulations, reserves at least 50 percent of the

programming time (excluding sports, news, game shows, and advertisements) for EU-origin content, half

of which must have been produced over the last five years. Ten percent of transmissions (and 20 percent

for state broadcaster RAI) must be reserved for works by EU independent producers.

Poland: TV and radio broadcasters must adhere to content quotas in Poland. TV broadcasters must devote

at least 33 percent of their broadcasting time each quarter for programming originally produced in the Polish

language, except information services, advertisements, telesales, sports broadcasts, and TV quiz shows.

Radio broadcasters are obliged to dedicate 33 percent of their broadcasting time each month, and 60 percent

of broadcasting time between 5:00 a.m. and midnight, to Polish language programming. TV broadcasters

must dedicate more than 50 percent of their broadcasting time quarterly to programs of EU origin, except

information services, advertisements, telesales, sports broadcasts, and TV quiz shows. On-demand

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audiovisual media services providers also must promote content of EU origin, especially content originally

produced in Polish, and dedicate at least 20 percent of their catalog to EU content.

Portugal: Television broadcasters must dedicate at least 50 percent of air time to programming originally

produced in the Portuguese language, with at least half of this produced in Portugal. Music radio

broadcasters must dedicate between 25 to 40 percent of time to music produced in the Portuguese language

or in traditional Portuguese genres, with at least 60 percent of this produced by citizens of the EU.

Spain: For every three days that a film from a non-EU country is screened, one EU film must be shown.

This ratio is reduced to four days 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 annually must invest five percent of their revenues in the production of

EU and Spanish films and audiovisual programs.

In 2010, the Autonomous Community of Catalonia passed legislation requiring distributors to include the

regional Catalan language in any print of any movie released in Catalonia that had been dubbed or subtitled

in Spanish, but not any film in Spanish. The law also requires exhibitors to exhibit such movies in Catalan

on 50 percent of the screens on which they are showing. In 2012, the Commission ruled that the law

discriminated against European films and must be amended. To date, the law has not been amended to

comply with EU law and the issue has not been brought before the CJEU.

In 2010, the Spanish government revised its audiovisual law and imposed restrictions on non-EU ownership

(limited to no more than 25 percent share) and leasing of AV licenses, and U.S. investors report that they

have been negatively impacted. Following the 2010 amendment, several U.S. investors signed agreements

with Spanish AV license holders to provide content for free-to-air TV channels. These investments were

disrupted by a November 2012 decision by the Spanish Supreme Court, which annulled the digital terrestrial

television (DTT) broadcasting licenses of these Spanish firms on the basis that the government had not

followed the proper public tender process in allocating the licenses in 2010. In May 2014, all of the annulled

DTT channels ceased broadcasting, and in October 2015 the Spanish government awarded six new licenses

through a public tender process. U.S. investors were unable to participate directly in this tender process

due to restrictions on foreign ownership. The United States continues to engage on these issues with the

Spanish government.

Legal Services

Austria, Belgium, Bulgaria, Cyprus, Greece, Hungary, Lithuania, Malta, and Slovakia require EU or EEA

nationality for full admission to the bar, which is necessary for the practice of EU and Member State law.

In many cases, non-EU lawyers holding authorization to practice law in one Member State face more

burdensome procedures to obtain authorization in another Member State than would a similarly situated

lawyer holding EU citizenship.

Member State Measures

Bulgaria: The Bulgarian Bar Act allows law firms registered in the EU to practice in Bulgaria under their

original name after they register with the local bar association. However, at least one of the partners has to

be registered both in Bulgaria and in another Member State if the local partnership is to use an

internationally recognized name.

Czech Republic: 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). However, attorneys from U.S. law

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firms admitted as foreign lawyers may establish a business entity to engage in the practice of law under the

U.S. company name.

Hungary: U.S. lawyers may provide legal services only under a “cooperation agreement” in partnership

with a Hungarian law firm and can only provide information to their clients on U.S. or international law.

Accounting and Auditing Services

Member State Measures

Austria: Tax advisors must hold Austrian or EU nationality to represent clients before tax authorities.

Foreign tax advisors may not hold more than 25 percent of the equity of Austrian entities.

Czech Republic: The Czech Republic requires that at least a majority of the voting rights in the audit firm

must be held by auditors licensed in the EU or by a firm licensed to perform statutory audits in a Member

State.

Slovakia: Slovakia requires that companies providing auditing services be registered in a Member State,

and maintains an equity cap requiring that a majority of the voting rights of these companies be held by EU

nationals.

Retailing

Member State Measures

EU nationality is required for operation of a pharmacy in Austria, France, Germany, Greece, and Hungary.

Hungary: In May 2015, Hungary banned large retail shops from opening on Sunday. Small, family-run

shops, and ones where local farmers sell their products, can still open. While the EU forced Hungary to

repeal a sanitation tax levied only on large, multinational supermarkets, government officials stated they

would find new ways to make foreign retailers pay more. A new draft bill, for example, would require

supermarkets with over 400 square meters of retail space to make at least one employee available to

shoppers for every 70 square meters, a requirement that would fall disproportionately on multinational

firms.

EU Enlargement

After 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 EU

Member States. 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 the EU successfully negotiated a compensation package, which was agreed to on August

7, 2006. To date, however, the Commission has failed to secure the approval of all Member States, which

is necessary to implement the agreement. The United States will continue to monitor this process to ensure

the agreement is implemented as soon as possible.

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INVESTMENT BARRIERS

Foreign investors in the EU are accorded national treatment 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.

Member State Measures

Bulgaria: Weak corporate governance remains a problem in Bulgaria. Legislative protection for minority

shareholders has improved through insolvency rules in Bulgaria’s Commercial Code and changes to its

Law on Public Offering of Securities. Yet enforcement of these statutory provisions remains inadequate.

A history of non-payment of contractual obligations, particularly in the energy sector, remains a significant

deterrent to investment. The government owes hundreds of millions of euros to thermal power plants and

generators of renewable energy, including two U.S. power companies. The government has imposed a five

percent mandatory fee in an attempt to reduce its energy sector debt, but this fee reduces the short-term

profit margin of all power producers. State-owned Bulgarian Energy Holding is negotiating with a bank

consortium for a bridge-to-bond loan to pay the two U.S. power companies for the electricity generated

under two long-term purchase contracts. The government declined to offer a sovereign guarantee for the

loan.

Regulations in Bulgaria are not always enforced, even when compliance is directed by the EU, and

particularly when politically connected domestic companies are involved. A U.S. bottled water company,

for example, has had an ongoing dispute with a domestic competitor over sourcing of water. In connection

with this dispute, the U.S. company has challenged the government’s compliance with EU directives, but

the government has not yet resolved the issue. Elsewhere, excise taxes, which according to the

government’s schedule, were to be raised on all cigarettes, were raised on international cigarette brands

ahead of schedule while domestic cigarettes remained at the lower rate, causing a significant price gap.

Croatia: U.S. companies doing business in Croatia complain that their operations are negatively affected

by frequent, unexpected legislative changes. Investors find it difficult to make sound, long-term business

plans due to the unpredictable legislative environment.

Croatia has a law that calls for mandatory regulatory impact assessments of proposed legislation. This law

is not strictly observed. Only 7.2 percent of the laws enacted in 2014 were subject to proper regulatory

impact assessments, and the government has presented no clear commitment or timeline to meaningfully

increase this percentage.

Cyprus: Cypriot law imposes significant restrictions on the foreign ownership of real property and

construction-related businesses. Non-EU residents may purchase no more than two independent housing

units (apartments or houses), or one housing unit and a small shop or office. Exceptions can be made for

projects requiring larger plots of land, but are difficult to obtain and rarely granted. Separately, only EU

citizens have the right to register as construction contractors in Cyprus, and non-EU investors are not

allowed to own a majority stake in a local construction company. Non-EU residents or legal entities may

bid on specific construction projects, but only after obtaining a special license from the Cypriot Council of

Ministers.

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France: Pursuant to a November 2004 law that streamlined the French Monetary and Financial Code, the

State Council has designated a number of “sensitive” sectors in which prior approval is 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 monitors, and can potentially

restrict, foreign ownership through a system of “prior authorization.” In May 2014, the government

issued decree 2014-479, which expanded the list of strategic sectors to include energy, water, health,

transportation, and telecommunications, as well as any installation, facility, or structure deemed to be

“vital” within the meaning of the Defense Code.

The French government has expressed concern over foreign acquisition of “strategic” companies whose

stock prices fell steeply in the wake of the financial crisis. In late 2008, France established a strategic

investment fund, the Fonds Strategique d’Investissement, to assume a stake in companies with “key

technologies.” The fund is majority-owned and run as a “strategic priority” by the Caisse des Dépôts et

Consignations (CDC), a state-sponsored financial institution and France’s largest institutional investor. The

government has asked the CDC to work as a domestic buffer against foreign takeovers by increasing its

stake in French companies. The government is also able to become directly involved in mergers and

acquisitions by 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 such purchases 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.

Hungary: Since 2010, the Hungarian government has passed several hundred laws, including many

“cardinal” laws that require a two-thirds majority to repeal. U.S. investors have expressed concern with

the volume and pace of these legislative changes on the predictability of Hungary’s investment climate, in

particular since they are frequently enacted with little time for debate and no consultation with potentially

affected businesses and stakeholders. Recent “crisis taxes” have targeted foreign-owned firms in a disparate

way – either by hitting sectors dominated by foreign-owned firms, or by taxing larger foreign-owned firms

at a far higher rate than smaller Hungarian firms. The business community voiced concerns that strategic

agreements the government signed with over 70 major companies operating in Hungary could be a hidden

forum for lobbying, allowing the government to give preferential treatment to favored companies.

Italy: Some U.S. companies claim to have been adversely targeted by the Revenue Authority by virtue of

the fact that they engage in international operations. Tax rules change frequently and are interpreted

inconsistently. Companies report long delays in receiving VAT refunds to which they are legally

entitled. Tax disputes are resolved slowly and initial findings are frequently reversed, which reduces

certainty and increases compliance costs.

Poland: Financial service institutions and retailers have expressed concerns over new tax proposals, such

as a new bank tax on assets, increased contributions to the Bank Guarantee Fund, and the potential costs of

converting Swiss Franc-denominated loans, which is still under consideration. The bank tax on assets,

which entered into force in early 2016, could cost the industry 1 billion euro this year – more than a third

of their aggregate net profits in 2015.

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

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frequent instances in which the government has issued legal decrees or regulations affecting the business

climate without following required transparency and public consultation procedures.

Slovenia: Weak corporate governance and a lack of transparency, particularly with respect to state-owned

enterprises, continue to be a significant challenge in Slovenia. Potential U.S. investors have reported that

opaque decision-making processes in the government’s privatization program have discouraged

investment.

GOVERNMENT PROCUREMENT

The EU is a signatory to the WTO Government Procurement Agreement (GPA). U.S. suppliers participate

in Member State government procurement tenders, but the lack of quality EU statistics that take into account

the country of origin of winning bids makes it difficult to assess the level of U.S. and non-EU

participation. However, a 2011 report commissioned by the EU noted that only 1.6 percent of total

Member-State procurement contracts were awarded to firms operating and bidding from another Member

State or a non-EU country, demonstrating that in practice the value of direct cross-border procurement

awards even among Member States was very small. In this study, U.S. firms not established in the EU

received only 0.016 percent of total EU procurement contracts awarded.

The EU Utilities Directive covers 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 for tenders 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 2014, the European Parliament approved three legislative proposals on public procurement including:

(1) a revised Public Procurement Directive for general sectors; (2) a revised Public Procurement Directive

for the utilities sectors; and (3) a new Public Procurement Directive on concessions contracts. All Member

States must transpose these procurement directives into national legislation. A fourth proposal, aimed at

regulating access of third-country goods and services to the EU public procurement market (relative to the

access provided to EU goods and services in third-country public procurement markets), is still being

debated in the Parliament and in the Council. The Luxembourg Presidency had hoped to move the file

forward but failed because Member States could not find a common position. U.S. access to the EU’s non-

GPA covered procurement could be affected under this new regulation.

Member State Measures

Bulgaria: Stakeholders report that the public procurement process in Bulgaria is not always transparent

and is frequently discriminatory and unfair. There are persistent complaints that tenders are narrowly

defined and that they appear tailored to a specific company. In certain cases the Bulgarian government has

included mandatory specifications, which in practice could be met by only one of the bidders, thus putting

others at a disadvantage in winning the tender. In other cases companies are asked to provide superfluous

certification documents in order to qualify as bidders on public procurement projects and to do so under

unreasonably tight deadlines. In February 2016, the government cancelled several large tenders, citing the

need for greater transparency.

Czech Republic: In 2012, the Czech government adopted a major public procurement reform bill that

addressed some transparency and corruption concerns. However, in October 2014, an analysis of financing

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of all political parties represented in the Chamber of Deputies between 2006 and 2013 (published by NGO

Index) showed that sponsors of political parties received public contracts for 390 billion CZK ($20 billion).

The Chamber of Deputies is currently discussing a new public procurement law to increase transparency,

but critics allege it would put a premium on the government disbursing funds more rapidly and contractors

spending down funds faster at the expense of proper oversight. Business leaders are also concerned that

the draft bill does not envision any accountability for procurements carried out below the threshold.

France: The February 2014, the EU Anti-Corruption Report emphasized that France should root out

corruption of public procurement contracts at the local level, calling on France to take action “to identify

risks at local levels” and “set priorities for anti-corruption measures.” France has taken some anti-

corruption steps, such as requiring electronic bid applications for any calls for tender over €90,000 to lower

corruption risks, and has improved quality control. However, French laws that make it a crime to breach

public procurement rules rarely result in criminal charges, and when they do, the punishment is not

severe. In July 2015, the Ministry of Finance proposed creating a new anti-corruption authority and other

measures for improving transparency and fighting corruption in France. The draft law, known as “Loi

Sapin II,” will likely be enacted in 2016.

The French government continues to maintain ownership shares in several major defense contractors

(EADS, now Airbus – 10.97 percent of shares; Safran – 22.4 percent of shares and 25.7 percent of voting

rights; and Thalès – 36.65 percent of indirect share ownership). 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 significant 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. These requirements are onerous on U.S. firms

because competent authorities in the United States do not issue these types of certifications.

Additionally, U.S. stakeholders have 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 United States is continuing to engage with the Greek

government on this issue. Greece often requires suppliers to source services and production locally or

partner with Greek manufacturers as a condition for the awarding of some defense contracts.

Hungary: Inadequate transparency in public procurement continues to be a significant problem in Hungary.

Hungarian companies, state-owned enterprises, and companies close to the government appear to have an

advantage over other players in public tenders. A recent Transparency International study on EU-financed

public procurements concluded that corruption is a significant problem for the Hungarian public

procurement system. Transparency watchdogs have criticized the new public procurement law, enacted in

November 2015, because it permits state enterprises to manage smaller procurements (below HUF 25

million ($86,000) for goods and services and HUF 150 million ($516,000) for construction services)

without a public tender and allows the use of subjective, non-price criteria to adjudicate tenders.

Italy: Italy’s public procurement practice often lacks transparency, which has created obstacles for some

U.S. bidders. Laws implemented following a major 1992 scandal somewhat reduced corruption, but

stakeholders assert that corruption is still widespread, especially at the local level. In 2012, the Italian

parliament approved an anti-corruption bill that introduced greater transparency and more stringent

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procedures to the public procurement process. In 2013, additional implementing regulations were

introduced to increase transparency, including measures regulating the conduct of civil servants. To

increase transparency, the Italian government has also started publishing information online about the use

of public funds, including data on procurement. Nonetheless, corruption in public administration remains

a challenge, as evidenced by a series of wide-scale corruption investigations in 2014 in Rome, Milan, and

elsewhere. In 2015, the government has increased the funding and authority of the National Anti-

Corruption Authority (ANAC), whose Commissioner has a broad and powerful mandate to reduce fraud

and corruption in public administration. In May 2015, the Italian Parliament approved a revised anti-

corruption law, which increased corruption sentences and criminalized accounting fraud.

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 for its central purchasing body, the central project management

agency. In 2013, the government adopted legislation requiring all public procurement to occur through a

centralized online portal and all contracts to be published. In general, procurement documents are only

available in Lithuanian.

Poland: U.S. firms report disappointment with the speed of changes in public procurement regulations in

Poland. Company representatives note “lowest cost” is the main criterion Polish officials use to award

contracts, often overlooking other important factors in bid evaluation, like quality, company reputation, and

prior experience in product and service delivery. U.S. firms also state the high cost of tender document

preparation discourages participation in public tenders.

Romania: Romania revised its public procurement law in 2013, exempting certain state-owned enterprises

from the public procurement law and allowing them to use nontransparent procedures for their

procurements. In an effort to enhance absorption of EU funds, the government has simplified the

procurement procedures for private sector beneficiaries. Romania requires offsets as a condition for the

awarding of defense contracts.

Slovenia: As in previous years, U.S. firms continue to express concerns that Slovenia’s public procurement

process is nontransparent. They also allege short timeframes for bid preparation, tendering documentation

that is difficult to understand, and opacity in the bid evaluation process. Slovenia’s quasi-judicial National

Revision Commission (NRC), which reviews all disputed public procurement cases, received multiple

complaints. The NRC has the authority to review, amend, and cancel tenders, and its decisions are not

subject to judicial appeal. In the instances where U.S. companies alleged improprieties in the procurement

process, Slovenian authorities pointed them to the NRC, which is not required to justify its decisions.

SUBSIDIES

Government Support for Airbus

Over many years, the governments of Belgium, 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 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, research and development funding,

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. Member State governments have spent

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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. The relevant Member State governments

have also provided launch aid for the new Airbus A350 XWB 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 Airbus Group, which is now

the second largest aerospace company in the world. This entity was previously known as the European

Aeronautic, Defense, and Space Company (EADS). The name change accompanies a reorganization of the

company’s ownership structure, resulting in the governments of Germany and France each owning up to

11 percent of the shares, Spain approximately 4 percent, and the remaining approximately 72 percent of

shares trading on open markets. The reorganization also ended these governments’ rights to veto strategic

decisions and to appoint directors to the Airbus board. Instead, the governments only have the right to veto

board members appointed by the company. The Airbus Group accounted for more than half of worldwide

deliveries of new large civil aircraft over the last few years and is a mature company that should face the

same commercial risks as its global competitors.

On May 31, 2005, the United States requested establishment of a WTO panel to address its concern that

Member State 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. That dispute is currently before a WTO

panel, which has indicated that it expects to complete its work by mid-2016.

Government Support for Airbus Suppliers

Member State Measures

Belgium: The Belgian federal government coordinates with Belgium’s three regional governments on the

subsidies for Belgian manufacturers that supply parts to Airbus. Recently, Belgium had a €195 million

support program for the A380 superjumbo and a €175 million support program for the A350. Belgium has

always claimed that these were refundable advances, structured in accordance with the 1992 bilateral

agreement, and that they covered nonrecurring costs. Both in 2006 and in 2009, the Commission initially

disputed that view, but later acquiesced. Industrial research or experimental development projects linked

to the A350 and A380 were cited as examples of projects that could benefit from the program. However,

Eurostat, the Commission’s statistical unit, notified the Belgian government in 2014 that these amounts

should not be considered advances but subsidies, because they were never reimbursed. Beginning in 2016,

Belgian federal and regional governments will have to include the Airbus subsidies as such in their budgets,

something which they have never done before. For the A350 and A380 programs, the price distortion

coming from Belgian subcontractors is estimated to be a minimum of €370 million.

France: In addition to the seed investment 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 airplanes, aircraft engines, helicopters, and

onboard equipment. In February 2013, the government confirmed €1.4 billion in reimbursable advances

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for the A350 over the 2009-2017 time period and a similar scheme for the helicopter X6 to be built by

Eurocopter. At the same time, the government announced the implementation of tax and financial

assistance for airline companies to restore their competitiveness. The government’s 2015 budget included

€136 million in reimbursable advances, which is expected to grow to €152 million in the 2016

budget. French appropriations for new programs included €80.24 million in support of research and

development in the civil aviation sector in 2015. In 2016, this support is expected to decrease by 7.3 percent

to €74.3883 million.

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 small and medium sized subcontractors

that supply the aeronautical sector. In March 2009, France’s Strategic Investment Fund 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, a precision engineering firm, and Prosonic’s acquisition of Industron, a designer of

specialized machines.

The Strategic Investment Fund also helped finance the sale of Esterel Technologies to the U.S. group Ansys

in 2012. In 2013, Airbus, the Caisse des Dépôts et Consignations Entreprises, Safran group, and Eurocopter

set up Aerofund III, an investment fund designed to raise €150 million for the French aeronautical

sector. The goal of the investment fund, run by ACE Management, is to prolong Aerofund II with a target

of raising a total of €300 million. In 2014, Aerofund III acquired stakes in AEDS, a firm producing joints

and wire pullings; in Test & Services, a firm specializing in the development, production and maintenance

of test equipment; and in Finaero, a company specializing in the finishing of planes and helicopters. In

2015, Aerofund III became a shareholder of Groupe RAFAUT, a French weapons-to-aircraft interface

systems manufacturer, through an “owner buy-out” contract clause.

Germany: In March 2015, the German Ministry of Economic Affairs and Energy announced the issuance

of €623 million in loans to Airbus for the new A350 widebody jet. The loan runs until 2031 and covers

deliveries of 1,500 airplanes. Negotiations between Airbus and the German government on this second

tranche of a €1.1 billion loan package to Airbus had broken down in 2013 amid differences between the

company and the government over guaranteed work and jobs. The German government had paid the first

tranche of the loan package of €500 million at the end of 2010. In addition to the A350 loan package,

Airbus continues to receive funds from the 2012 to 2015 aeronautics research program for a number of

projects. In their 2013 coalition agreement, the German government pledged further support for the

aeronautics program.

Spain: In July 2014, the Commission approved a rescue plan for ALESTIS Aerospace, a first level provider

of airframes for Airbus’ commercial and military production. The rescue plan was the result of an

agreement between the Spanish state-owned industrial holding company Sociedad Estatal de

Participaciones Industriales (SEPI) and Airbus. The Commission’s approval of the plan ensures the future

sustainability of ALESTIS. According to SEPI and Airbus, in order to develop the agreement, Spain’s

Ministry of Finance and Public Administrations authorized a settlement submitted by ALESTIS which

includes a seven-year, interest-free extension of the payment of ALESTIS’ €176 million debt, both in its

capacity as a common creditor and in regard to its patent terms. After a shareholder restructuring that

concluded at the beginning of February 2015, SEPI subscribed and disbursed a capital increase through a

cash contribution amounting to €13.5 million in exchange for receiving 24.05 percent of ALESTIS’s

capital. The final shareholder structure is as follows: Airbus (61.91 percent), SEPI (24.05 percent), and

Unicaja (14.04 percent). Additionally, on October 23, 2015, Spain’s government authorized the Ministry

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of Industry, Energy and Tourism to grant ALESTIS Aerospace aid amounting to €19 million for its

participation in the development program of the Airbus A350 XWB. Aid corresponds to the schedule for

2013, which was not paid initially because the company was bankrupt at that time. Measures taken in

connection with ALESTIS ensure the successful outcome of its participation in the A350 XWB program,

which is considered strategic for the aviation industry in Spain. In 2014, the industry had a turnover of €7.6

billion euros and directly employed approximately 40,300 people.

In the case of Airbus commercial programs, ALESTIS supplies parts and components for the A380, A330,

A320, and A350 aircrafts, among others. Regarding Airbus military programs, ALESTIS supplies parts

and components for the CN235/C295 and A400M. It is also a supplier for Embraer and

Boeing. Headquartered in Seville, ALESTIS has seven production facilities, six in Spain and one in Brazil,

and employs approximately 1,600 people.

Government Support for Aircraft Engines

United Kingdom: Propulsion is an area considered important to the future of the United Kingdom aerospace

industry, so 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. The United Kingdom also provides repayable funds, known as

Repayable Launch Investment (RLI), towards the design and development of civil aerospace projects in the

United Kingdom. In 2011 and 2012, the United Kingdom RLI expenditure totaled £75 million ($120

million). BIS forecasts current commitments from 2012-2013 to 2014-2015 to be £160 million ($256

million) with a further £200 million ($320 million) forecasted beyond this period. Since 1997, the United

Kingdom has invested nearly £1 billion ($1.6 billion) in RLI projects.

CUSTOMS ADMINISTRATION

Notwithstanding the existence of customs laws that govern all 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 28 Member States. No EU institutions or procedures

successfully ensure that EU rules on classification, valuation, origin, and customs procedures are applied

uniformly throughout the Member States, other than the Binding Tariff Information program offered at the

EU level that provides advance rulings on tariff classification and country of origin only. 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.

In some cases, where the customs agencies in different Member States administer EU law differently, the

matter may be referred to the Customs Code Committee (CCC). The CCC is an entity established by the

Community Customs Code to assist the Commission. The CCC consists of representatives of the Member

States and is chaired by a representative of the Commission. While a stated goal for the CCC is 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 CCC and other EU-level institutions ineffective tools for achieving the uniform

administration and application of EU customs law, but 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 vary from

Member State to Member State. Thus a trader encountering differing treatment in multiple Member States

must bring a separate appeal in each Member State whose agency rendered an adverse decision.

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Ultimately, a question of interpretation of EU law may be referred to the CJEU. The judgments of the

CJEU have effect throughout the EU. However, referral of a question to the CJEU generally is

discretionary, and CJEU proceedings can take years. Thus obtaining corrections with EU-wide effect for

administrative actions relating to customs matters is a cumbersome and frequently time-consuming process.

The United States has raised each of the preceding concerns with the EU in various fora, including the

WTO DSB. The concerns have taken on new prominence in light of the expansion of the EU and the T-

TIP negotiations.

The Commission has expressed its intent to modernize and simplify customs rules and processes. The

Commission adopted the Union Customs Code (UCC) in October 2013 and sent it to the Council and the

Parliament for co-decision under the ordinary legislative procedure. The UCC is expected to enter into

effect in 2016, once the Commission acts (delegated and implementing acts) related to the Union

Modernized Community Customs Code are adopted and in force. In July 2015, the Commission adopted a

delegated act with regard to some of the provisions of the UCC, including simplification of certain customs

procedures and clarifications to help ensure the equal treatment of economic operators. The United States

will monitor the implementation process closely, focusing on its impact on the consistency of treatment

under EU customs law.

ELECTRONIC COMMERCE

In May 2015, the Commission issued its communication on the creation of an EU Digital Single Market

(DSM), intended to eliminate internal market barriers within the EU’s digital services economy. The

Commission launched a number of initiatives in 2015 to advance its DSM agenda, including conducting a

review of the Satellite and Cable Directive; drafting a new e-Government Action Plan; developing an ICT

standards plan; developing plans for a “cybersecurity contractual public-private partnership;” conducting

an analysis of Internet platforms; analyzing data flow issues; and reviewing legislative proposals on geo-

blocking. The Commission also launched a competition inquiry into the e-commerce sector and adopted

telecommunications regulations for roaming services and net neutrality policy.

Cross-Border Contract Consultation

In June 2015, the Commission opened a consultation on harmonization of contract rules for online

purchases of digital content and physical goods. The Commission also expressed concern over a perceived

relative lack of legal remedies in certain cases, such as for “defective” digital content purchased online.

Specific proposals included expanding the cases in which vendors may rely on their own national laws

when selling to other European markets and improving coordination and monitoring for infringements of

consumer protection rules.

It is not yet known whether, and to what extent, greater regulatory harmonization would be beneficial for

U.S. online vendors selling in Europe. On the one hand, the Commission’s proposal to create “harmonized

EU rules for online purchases of digital content” should reduce burdens for all sellers, including U.S.

vendors. In particular, this should help smaller players to scale up in Europe, demanding fewer resources

to manage legal differences between markets. On the other hand, we do not know what shape regulatory

harmonization will take on other aspects of cross-border e-ecommerce that could cause concern for

providers of digital content. These include possible new rules affecting contracts between such providers

and users, remuneration for damage done by “defective” digital content, and data portability requirements.

Also, while it seems reasonable to assume that U.S.-based vendors would be able to rely on the laws of the

country of their European headquarters, this has not been made explicit.

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The DSM also includes a review of the Regulation on Consumer Protection Cooperation, which lays out

basic EU requirements for national governments to coordinate consumer protection enforcement activities

among the Member States. The United States is supportive of greater harmonization of consumer protection

rules across Member States, improved cooperation among enforcement authorities, and decreased

administrative burdens for online businesses. At the same time the EU’s actions should not erect barriers

to trade outside of the EU. The Commission will establish an EU-wide online dispute resolution platform,

but it will be important to know whether non-EU providers will be forced to use it or whether they will

have a choice to use it, which could influence consumer choice in the marketplace.

Electronic Commerce Inquiry

On May 6, 2015, the Commission launched an inquiry into the “e-commerce sector” to identify potential

competition concerns. The inquiry is focused on potential barriers to cross-border trade in goods and

services, including such products as electronics, clothing, and digital content. DG Competition is

examining whether companies are creating barriers to cross-border online trade through measures like

restrictive contract terms and other business practices. The investigation has been inserted into the broader

discussion on geo-blocking, which is sure to be one of the practices competition officials probe for potential

impacts on the cross-border provision of physical goods (i.e., through retailing sites like Amazon) and

content (i.e., through video on-demand services like Netflix). The Commission expects to release a

preliminary report on its findings by mid-2016. The Commission has announced that this will be followed

by another public consultation and then a final report in the first quarter of 2017. Given the negative impact

new rules in this area could have on U.S. suppliers and the questionable consumer benefits that might ensue,

the United State will monitor such proceedings carefully.

Internet Platforms

The DSM strategy announced a “[c]omprehensive assessment of the role of platforms in the market

including illegal content on the Internet.” The term “platform” applies to a wide array of leading online

services mostly based in the United States (e.g., search engines, social media, and online marketplaces).

The Commission fears that such players can quickly become Internet “gatekeepers,” with a potentially

harmful ability to shape how third-party companies gain access to consumers and how online information

is presented. It also has several more specific concerns, including transparency of their business practices,

gathering and uses of data, and bargaining power relative to the online businesses reliant on platforms.

The Commission is simultaneously exploring whether to increase online intermediaries’ network and

system management responsibilities as they pertain to illegal content and to require some platforms to more

proactively monitor and filter such content (i.e., a “duty of care”), despite logistical difficulties and

implications for free expression. Consequently, the Commission may eventually introduce a new regulatory

regime to more tightly control platforms’ behaviors. The e-Commerce Directive 2000/31/EC currently

grants limitations of liability to intermediary service providers.

Both these initiatives appear motivated, at least in part, by legacy businesses struggling to compete against

the efficiencies provided by Internet-based commerce. This underscores the risk that even well-intentioned

goals can, if implemented through heavy-handed regulation, or even just threat thereof, seriously undermine

innovative business development and hurt the EU’s own efforts to inject more dynamism into its markets.

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Mandatory Fees for Linking to Content Published Online (“Link Tax”)

Over the past several years, publishers in Europe have been advocating for the right to impose fees for the

right to link to content published online. This effort appears to target in particular news aggregators that

index stories and allow users to more conveniently find and access such content by the inclusion in search

results of headlines or other extracts of the stories that the underlying publisher typically offers, without

charge (e.g., supported by advertising) on its own website. Aggregators, including but not limited to U.S.

service suppliers, have pushed back against such requirements, arguing that that they help drive traffic to

publishing sites, and therefore help increase viewership and revenue, and should not be required to pay for

a valuable service they provide. After Belgium and Germany attempted to impose such requirements, some

aggregators simply dropped links to sites seeking additional compensation, causing publishers in those

countries to opt out of requiring such payments after they evaluated the economic impact. In late 2014,

however, Spain passed a similar measure called “Canon AEDE,” which, unlike in Germany and Belgium,

made such payments mandatory (i.e., publishers could not opt out of requiring payments for links). As a

result of this new law, many aggregators, including from the United States, simply pulled out of the Spanish

market. A 2015 study by the Spanish Association of Publishers of Periodical Publications (AEEP) revealed

that publishers’ revenue decreased and that many smaller publishers, which had depended on aggregators,

were disproportionately affected. Since parts of the EU publishing industry are advocating adopting similar

measures EU-wide, which will likely have a negative effect on many U.S. stakeholders, this issue bears

careful monitoring, as well as stepped-up engagement with the EU to ensure that innovative business

models are beneficial to EU content suppliers themselves.

Data Flows and the Privacy Shield

The U.S.-EU Safe Harbor Framework, or “Safe Harbor,” was negotiated between the U.S. Department of

Commerce and the Commission in 2000 to enable U.S.-based companies across many sectors of the

economy to receive personal data of EU citizens in compliance with the EU’s 1995 Data Protection

Directive (1995/46). The framework, administered by the Department of Commerce and enforced by the

Federal Trade Commission, allowed U.S. companies that self-certified to the program to move personal

data from the EU to the United States. On October 6, 2015, the CJEU struck down the Commission decision

that had found the U.S.-EU Safe Harbor Framework adequate under EU Directive 95/46. The CJEU ruling

has created tremendous legal uncertainty for both U.S. and European businesses dependent on the

framework (i.e., certified companies and at times their subsidiaries, clients, and suppliers).

Following the CJEU ruling, the United States and the EU continued to discuss enhancements to the

framework that would be the basis for a new adequacy finding by the Commission. On February 2, 2016,

the United States and the EU reached agreement on renamed new framework to be known as the Privacy

Shield, which contains a new set of enhanced commitments and an explanations of U.S. laws. The

Commission is now in the process of consulting with the European Parliament and the Article 29 Working

Party. The Commission is expected, by mid-2016, to formally adopt a decision finding the Privacy Shield

Framework essentially equivalent to EU privacy requirements, which would allow U.S. and EU companies

to continue to transfer data across the Atlantic.

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GHANA

TRADE SUMMARY

The U.S. goods trade surplus with Ghana was $578 million in 2015, a 36.8 percent decrease ($337 million)

over 2014. U.S. goods exports to Ghana were $887 million, down 25.2 percent ($299 million) from the

previous year. Corresponding U.S. imports from Ghana were $309 million, up 13.9 percent. Ghana was

the United States' 82nd largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Ghana (stock) was $3.1 billion in 2013 (latest data available).

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Ghana issues its own standards for most products under the auspices of the Ghana Standards Authority

(GSA). The GSA has promulgated more than 500 Ghanaian standards and adopted more than 2000

international standards for certification purposes. The Food and Drugs Authority is responsible for

enforcing standards for food, drugs, cosmetics, and health items.

Some imports are classified as “high risk goods” (HRG) that must be inspected by GSA officials at the port

to ensure they meet Ghanaian standards. The GSA classifies these high risk goods into 20 broad groups,

including food products, electrical appliances, and used goods. U.S. stakeholders have found this

classification system vague and confusing. For example, the category of “alcoholic and nonalcoholic

products” could include anything from beverages to pharmaceuticals to industrial products. According to

GSA officials, these imports are classified as high risk because they pose “potential hazards,” although that

phrase remains undefined.

Importers of high risk goods must register and obtain approval from GSA prior to importing any of these

goods. In particular, the importer must submit to GSA a sample of the good, accompanied by a certificate

of analysis (COA) or a certificate of conformance (COC) from an accredited laboratory in the country of

export. Frequently, GSA officials will conduct a physical examination of the goods and check labeling and

marking requirements to ensure that they are released within 48 hours. Currently, the fee for registering

the first three high risk goods is GHS 100 (about $26) and GHS 50 (about $13) for each additional product.

Any such good entering Ghana without a COC or COA from an accredited laboratory is detained and

subjected to testing by the GSA. The importer is required to pay the testing fee based on the number of

products and the parameters tested.

Expiration Date and Fat Content Requirements

The GSA requires that all food products carry expiration and shelf life dates. Expiration dates must extend

at least to half the projected shelf life at the time the product reaches Ghana. Goods that do not have half

of their shelf life remaining are seized at the port of entry and destroyed. The United States has raised this

issue with Ghana in recent years and questioned its consistency with the Codex Alimentarius (Codex)

Commission General Standard for Labeling of Pre-packaged Foods.

To address human health risks, Ghana prohibits the importation of meat with a fat content by weight greater

than 25 percent for beef, 25 percent for pork, 15 percent for poultry, and 30 percent for mutton. Imported

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turkeys must have their oil glands removed. Ghana also restricts the importation of condensed or

evaporated milk with less than 8 percent milk fat by weight, and dried milk or milk powder containing less

than 26 percent by weight of milk fat, with the exception of imported skim milk in containers.

IMPORT POLICIES

Tariffs

According to the WTO, Ghana’s average unweighted most favored nation (MFN) applied tariff rate in 2013

(most recent available) was 12.9 percent. For agricultural goods, the average applied tariff was 17 percent,

and for non-agricultural products, it was 12 percent. The Economic Community of West African States

(ECOWAS), of which Ghana is a member, has proposed that all members adopt a five-band common

external tariff (CET). CET rates went in effect in Ghana on February 1, 2016. Once in force, the CET will

consist of the following five tariff bands: zero duty on essential social goods (e.g., medicine, publications);

five percent duty on imported foods of primary necessity, raw materials and specific inputs; 10 percent duty

on intermediate goods; 20 percent duty on final consumption goods; and 35 percent duty on goods in certain

sectors that the government seeks to protect, such as poultry and rice. Ghana currently maintains tariffs on

190 products that do not align with the CET.

Ghana has bound all agricultural tariffs in the WTO at an average of 96.5 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

its WTO commitments, which contributes to uncertainty for importers and exporters.

Nontariff Measures

Importers are confronted by a variety of fees and charges in addition to tariffs. Ghana levies a 15 percent

value-added tax (VAT) plus a 2.5 percent National Health Insurance levy on the duty-inclusive value of all

imports and locally-produced goods, with a few selected exemptions. Since 2014, Ghana levies a 17.5

percent VAT-like tax to all refined petroleum products. In addition, Ghana imposes a 0.5 percent ECOWAS

surcharge on all goods originating from non-ECOWAS countries and charges 0.4 percent of the free

onboard value of goods (including VAT) for the use of the Ghana Community Network (GCNet), an

automated clearing system.

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 one

percent processing fee on all duty-free imports. Ghana imposes a Special Import Levy of one percent on

the cost, insurance, and freight (CIF) value of goods under chapters 84 and 85 of the Harmonized System

schedule which covers, inter alia, boilers and certain types of machinery, electrical machinery, mechanical

appliances and recording devices, while the import levy applied to all other imports, except for some

petroleum products and fertilizers, is equal to two percent of the CIF value. Importers have complained

that the ad valorem fees are not based on the cost of the services rendered. The EDAIF Act was amended

in 2013 to expand the scope of exemptions.

A separate examination fee of one 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. This system is not transparent because the price list used for

valuation is not publicly available.

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At present, Ghana bans the importation of tilapia in order to protect local fishermen. The government

requires certificates for imports of food, cosmetics, and agricultural and pharmaceutical goods. The

government also requires permits for imports of poultry and poultry products. At present, poultry import

permits are used to limit the quantity of imports and to impose a domestic poultry purchase requirement.

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.

Customs Procedures

Ghanaian port practices continue to present major obstacles to trade. Port officials inspect all imports on

arrival, causing delays and increased costs. Importers report erratic application of customs regulations,

lengthy clearance procedures, and corruption. The resulting delays contribute to product deterioration and

result in significant losses for importers of perishable goods. Ghana Ports and Harbor Authority (GPHA)

is working to modernize both the Ports of Tema and Takoradi.

Additionally, Ghana’s ports suffer from congested roads and lack a functioning rail system to transport

freight, creating long queues for ships to berth at cargo terminals and containers waiting to be transported

out of the ports. Recognizing that port delays significantly increase the cost of doing business, in September

2015, the Government initiated the Single Window System. Through the Single Window, Ghana is

integrating import and export logistics and automating payments. The new system should increase

transparency and reduce the processing time. With its implementation, the Customs Division of the Ghana

Revenue Authority has taken the role once occupied by five licensed destination inspection companies

(DICs), who many believe were the source of the long clearance delays. The Single Window System allows

importers and exporters to electronically file documents (including customs declarations and certificates of

origin), track transaction status online, submit electronic payments, and access links to other regulatory

agencies.

GOVERNMENT PROCUREMENT

Some large public procurements are conducted with open tendering and allow the participation of non-

domestic firms; however, single source procurements are common on many government contracts. A

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.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Ghana maintains laws that pertain to copyrights, trademarks, patents, layout-designs (topographies) of

integrated circuits, geographical indications, and industrial designs. However, owners of intellectual

property rights file very few trademark, patent, or copyright infringement cases in local courts. Companies

that initiate cases continue to report prolonged waits for resolution, a possible factor in discouraging other

companies from filing cases. In addition, there continues to be virtually no government initiated

enforcement of intellectual property rights. However, the Copyright Office, which is under the Attorney

General’s Office, periodically initiates raids on physical markets for pirated works. The Customs Service

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has also collaborated in the past with concerned companies to inspect import shipments. Ghana customs

officials participated in U.S. sponsored IPR training sessions in 2014.

SERVICES BARRIERS

Telecommunications

The National Communications Authority (NCA), under the Electronic Communications Act of 2008,

regulates and manages the nation’s telecommunications and broadcast sectors. The NCA restricts licenses

in the 800 MHz band of spectrum to entities registered to operate in Ghana. Foreign investors seeking to

operate in Ghana must create a joint venture or consortium that includes a minimum of 35 percent

indigenous Ghanaian ownership in order to obtain a license. Applicants without the minimum 35 percent

Ghanaian ownership in place within 13 months from the effective date of the license risk severe penalties.

In 2013, a portion of Ghana’s 4G LTE bandwidth was auctioned under restrictions that prevented foreign-

invested enterprises (FIEs) from being directly involved; three successful bidders are now in varying stages

of building out 4G networks in Ghana’s larger cities.

Following legislation enacted in 2009, Ghana requires a minimum rate of $0.19 per minute for terminating

international calls into Ghana, significantly higher than the average rate prior to 2009. This rate increase

has correlated with a decrease in call volume from the U.S. to Ghana.

INVESTMENT BARRIERS

Ghana’s investment code excludes foreign investors from participating in eight economic sectors: petty

trading; the operation of taxi and car rental services with fleets of fewer than 25 vehicles; lotteries

(excluding soccer pools); the operation of beauty salons and barber shops; printing of recharge scratch cards

for subscribers to telecommunications services; production of exercise books and stationery; retail of

finished pharmaceutical products; and the production, supply, and retail of sachet water.

Mining

Ghana restricts the issuance of mining licenses based on the size of the mining operation. Foreign investors

are restricted from obtaining a Small Scale Mining License, that is, for mining operations that equal an area

less than 25 acres (10 Hectares). Non-Ghanaians may only apply for a mineral right in respect of industrial

minerals provided the proposed investment in the mineral operations is $10 million or above.

Oil and Gas

The oil and gas sector is subject to a variety of state ownership and local content requirements. All entities

seeking petroleum licenses in Ghana must create a consortium in which the state-owned Ghana National

Petroleum Company (GNPC) holds a 10 percent to 25 percent stake. GNPC and Parliament must issue and

approve all licenses. Further, local content regulations spell out targets for in-country procurement of

supplies, equipment, and services, as well as for local employment. The regulations also spell out

mandatory local equity participation for all suppliers and contractors. The Minister of Petroleum must

approve all contracts, sub-contracts, and purchase orders above $100,000. Non-compliance with these

regulations may result in a criminal penalty, including imprisonment for up to five years.

The Petroleum Commission applies registration fees and annual renewal fees on foreign oil and gas service

providers, which, depending on a company’s annual revenues, range from $70,000 to $150,000, compared

to fees of between $5,000 and $30,000 for local companies.

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Insurance

The National Insurance Commission (NIC) imposes nationality requirements with respect to the board and

senior management of locally-incorporated insurance and reinsurance companies. At least two board

members must be Ghanaians, and either the Chairman of the board or Chief Executive Officer (CEO) must

be Ghanaian. In situations where the CEO is not a Ghanaian, the NIC requires that the Chief Financial

Officer be Ghanaian. Minimum initial capital investment in the insurance sector is GHS15 million ($4

million).

Foreign Investment Projects

All foreign investment projects must register with the Ghana Investment Promotion Center. While the

registration process is designed to be completed within five business days, the process often takes

significantly longer. Foreign investments are also subject to the following minimum capital requirements:

$200,000 for joint ventures with a Ghanaian partner; $500,000 for enterprises wholly-owned by a non-

Ghanaian; and $1 million for trading companies (firms that buy or sell imported goods or services) wholly

owned by non-Ghanaian entities. Trading companies are also required to employ at least 20 skilled

Ghanaian nationals.

OTHER BARRIERS

Foreign investors experience difficulties and delays in securing required work visas for their non-Ghanaian

employees. The process for obtaining required work permits can be unpredictable and take several months

from application to delivery. Obtaining access to land may also be challenging for foreign investors. Non-

Ghanaians are only permitted to acquire interests in land on a long-term leasehold basis, and Ghana’s

complex land tenure system makes establishing clear title on real estate difficult.

Foreign investors in Ghana must also contend with a politicized business community and a 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 among government and business figures also remains a concern. Ghanaian law

enforcement and judicial bodies have robust legal powers to fight corruption in the country, but the

government does not implement anticorruption laws effectively.

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GUATEMALA

TRADE SUMMARY

U.S. goods exports in 2015 were valued at $5.9 billion, down 1.7 percent from the previous year. Guatemala

is currently the 40th largest export market for U.S. goods. Corresponding U.S. imports from Guatemala

were $4.1 billion, down 2.3 percent. The U.S. goods trade surplus with Guatemala was $1.7 billion in 2015,

a decrease of $3 million from 2014.

U.S. foreign direct investment (FDI) in Guatemala (stock) was $1.2 billion in 2014 (latest data available),

a 5.0 percent increase from 2013.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Sanitary and Phytosanitary Barriers

Guatemalan sanitary and phytosanitary import requirements change frequently, often without prior World

Trade Organization (WTO) notification. As a result, U.S. agricultural exports are sometimes detained at

port until a final permit or waiver is issued. Guatemala lacks a science-based risk analysis approach for

non-processed products, and imposes state-by-state certification requirements. Thus, U.S. exporters face

different phytosanitary attestation requirements on the Plant Health Certificate required by Guatemala. For

example, U.S. seed potato exports are denied market access if produced in 10 select U.S. states out of the

15 producing states, in spite of U.S. Government efforts to demonstrate to the Guatemalan Ministry of

Agriculture (MAGA) there is a national certification program in place.

Guatemala fumigates more than 90 percent of U.S. agricultural products entering Guatemala. In fact, even

though U.S. grain exports are fumigated while en route, almost all U.S. grain that entered Guatemala in

2013 and 2014 was re-fumigated in Guatemala. Guatemala’s extensive fumigation of U.S. agricultural

products results from the failure of the MAGA to implement adequately a science-based official quarantine

pest list. Guatemala published an official quarantine pest list for the first time in November 2015, but its

implementation is still pending. Fees generated by the fumigations are provided to the Organization for

Inter-Regional Agricultural Health (OIRSA), Guatemala’s inspection regulatory authority. USDA will

continue to engage with Guatemala regarding pest detection and fumigation issues.

In July 2014, MAGA implemented Regulation 382-2014 that requires exporters/importers to pay for

MAGA officials to inspect processing plants and storage facilities in the country of origin and country of

export. MAGA did not notify the regulation to the WTO and has not responded to inquiries by USDA

regarding its implementation. The regulation applies to U.S. seafood, lamb, and other products. MAGA

requires that the competent authority in the United States request the inspection. Neither federal nor state

agencies have a mechanism in place to comply with MAGA’s request. USDA will continue to address this

issue with Guatemala.

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IMPORT POLICIES

Tariffs

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 originating U.S. consumer and industrial goods enter Guatemala duty free as of January 1, 2015.

Nearly all textile and apparel goods that meet the Agreement’s rules of origin also enter Guatemala duty

free and quota free, promoting new opportunities for U.S. and regional fiber, yarn, fabric, and apparel

manufacturing companies.

In addition, more than half of U.S. agricultural exports enter Guatemala duty free under the CAFTA-DR.

Guatemala will eliminate its remaining tariffs on virtually all U.S. agricultural products by 2020 (2023 for

rice and chicken leg quarters and 2025 for dairy products). For certain products, tariff-rate quotas (TRQs)

permit 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

All CAFTA-DR countries, including Guatemala, committed to improve transparency and efficiency in

administering customs procedures. 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. Customs information for Guatemala is available at:

http://portal.sat.gob.gt/sitio/.

Guatemala’s denial of claims for preferential treatment for U.S. products under the CAFTA-DR continues

to be an occasional 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) is using

reference prices, such as prices from imports in previous months, to adjust invoice price declarations.

In addition, stakeholders report that Guatemalan customs authorities occasionally challenge declared tariff

classifications, including for products for which the tariff classifications should be straightforward, and

attempt to reclassify the products so that they are subject to a higher tariff. These practices raise concerns

that the customs administration might be denying U.S. products preferential treatment under the CAFTA-

DR and instead imposing tariffs and other retroactive charges as a means of increasing revenue. The United

States will continue to raise these concerns with Guatemala.

Guatemala eliminated its previous “consularization” requirement for the Certificate of Free Sale for

processed food products as of July 2015.

GOVERNMENT PROCUREMENT

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 in the CAFTA-DR apply inter

alia to government procurement.

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Reforms of Guatemala’s Government Procurement Law in 2009 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. Furthermore the Guatemalan Congress approved

reforms to the Government Procurement Law in November 2015 that will improve procurement

transparency and efficiency by barring government contracts for financers of political campaigns/parties,

members of Congress, other elected officials, government workers, and their family members. Recent

reforms will expand the scope of procurement oversight to include public trust funds and all institutions

(including NGOs) executing public funds and will also eliminate some of the special-purpose mechanisms

used to avoid competitive bidding processes. However, 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, highlighting

instances in which a Guatemalan government entity subject to CAFTA-DR obligations makes a direct

purchase without issuing a tender or when a CAFTA-DR covered entity does not provide the required

minimum 40 days from the notice of procurement for interested parties to prepare and submit bids. For

example, U.S. stakeholders have raised concerns with an increasing tendency by some government entities

to undertake major procurements through unusual special-purpose mechanisms, such as on an emergency

basis. The United States has engaged with Guatemala to raise these concerns, seek fair and transparent

treatment for U.S. companies, and continue to monitor Guatemala’s government procurement practices to

ensure they are applied in a manner consistent with Guatemala’s CAFTA-DR obligations.

Guatemala is not a signatory to the WTO Agreements on Government Procurement.

EXPORT SUBSIDIES

Guatemala currently employs an export incentive program in the “Law for the Promotion and Development

of Export Activities and Drawback.” Guatemala provides tax exemptions and duty benefits to companies

that import over half of their production inputs or 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

the 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.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Guatemala remained on the Watch List in the 2015 Special 301 Report as some problems continue.

Guatemala has a sound intellectual property rights (IPR) legal framework, but enforcement efforts are

hampered by limited resources and the need for better coordination among law enforcement agencies.

Pirated and counterfeit goods continue to be widely available, and Guatemala has reportedly become a

source of counterfeit pharmaceutical products. Trademark squatting and the government use of unlicensed

software were also noted as significant areas of concern. Guatemalan administrative authorities issued

rulings on applications to register geographical indications that appear sound and well-reasoned for

compound Geographical Indications (GI) names, but certain rulings on requests to register single-word GI

for certain cheeses have raised concern that U.S. exporters may not be able to export certain types of cheeses

to Guatemala.

In late 2014, the Guatemalan Congress reversed positive steps taken toward fulfilling Guatemala’s CAFTA-

DR obligation to join the International Convention for the Protection of New Varieties of Plants (UPOV

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Convention). It is unclear if the Guatemalan Congress will work on the creation of a new UPOV

implementing bill to comply with this obligation. The United States will continue to engage Guatemala on

these and other concerns, including through the Special 301 process and will continue to monitor

Guatemala’s implementation of its IPR obligations under the CAFTA-DR.

SERVICES BARRIERS

Professional Services

Public notaries must be Guatemalan nationals. Foreign enterprises may provide licensed professional

services in Guatemala only through a contract or other relationship with an enterprise established in

Guatemala.

Telecommunications

In April 2014, the Guatemalan Congress approved a new telecommunications law to strengthen the

country’s data transmission infrastructure. Some stakeholders have raised concerns that the conditions

imposed appear to discriminate against small and new suppliers. The Constitutional Court provisionally

suspended some provisions of the law in June 2014, but has not issued a final ruling as of November 2015.

The Guatemalan Telecommunications regulatory authority is currently implementing the provisions in the

law that have not been suspended.

INVESTMENT BARRIERS

Some U.S. companies operating in Guatemala have raised concerns that complex and unclear laws and

regulations constitute barriers to investment. Resolution of business and investment disputes through

Guatemala’s judicial system is extremely time-consuming, and civil cases can take many years to resolve.

Administrative and judicial decision-making can, at times, be inconsistent, nontransparent, and very time-

consuming. In addition, government institutions in Guatemala can be prone to third-party influence. U.S.

firms and citizens have found corruption in the government, including in the judiciary, to be a significant

concern and a constraint to investment.

Delays and uncertainty in obtaining licenses from relevant Guatemalan authorities for exploration and

operation in extractive industries have the effect of inhibiting current and potential investments from U.S.

firms.

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HONDURAS

TRADE SUMMARY

The U.S. goods trade surplus with Honduras was $480 million in 2015, a 63.6 percent decrease ($838

million) over 2014. U.S. goods exports to Honduras were $5.2 billion, down 12.1 percent ($722 million)

from the previous year. Corresponding U.S. imports from Honduras were $4.8 billion, up 2.5 percent.

Honduras was the United States' 42nd largest goods export market in 2015.

Sales of services in Honduras by majority U.S.-owned affiliates were $512 million in 2013 (latest data

available).

U.S. foreign direct investment (FDI) in Honduras (stock) was $754 million in 2014 (latest data available),

a 2.3 percent decrease from 2013. U.S. direct investment in Honduras is led by manufacturing,

finance/insurance, and wholesale trade.

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, for the Dominican Republic in 2007, and for Costa Rica in 2009. CAFTA-DR includes important

disciplines relating to customs administration and trade facilitation, technical barriers to trade, government

procurement, investment, telecommunications, electronic commerce, intellectual property rights,

transparency, labor, and environment.

IMPORT POLICIES

Tariffs

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, 100 percent of originating U.S. consumer and industrial goods enter Honduras duty

free. Nearly all textile and apparel goods that meet the Agreement’s rules of origin also enter Honduras

duty free and quota free, creating opportunities for U.S. fiber, yarn, fabric, and apparel manufacturers.

In addition, more than half of U.S. agricultural exports currently enter Honduras duty free. Honduras will

eliminate its remaining tariffs on virtually all U.S. agricultural products by 2020 (2023 for rice and chicken

leg quarters, and 2025 for dairy products). For certain products, tariff-rate quotas (TRQs) permit 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.

Honduras delayed issuing TRQ permits for imports of white corn and milled rice from the United States in

2015, reportedly to complete an audit of permit requests. Instead of making the permits available on

January 1 of each year, such that the TRQ would be available for the entire calendar year, Honduras issued

the white corn permits in its permitting system in July 2015 and the milled rice permits in its permitting

system in September 2015. The United States raised concerns with Honduras regarding this delay and

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pressed Honduras to issue the 2016 white corn and milled rice permits on schedule in January. The import

permits for white corn were issued at the beginning of March 2016. As of mid-March import permits for

milled rice have not been issued. The United States will continue to carefully monitor Honduran issuance

of these permits.

Nontariff Measures

Under the CAFTA-DR, all CAFTA-DR countries, including Honduras, committed to improve transparency

and efficiency in administering 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 Executive Tax Authority (DEI), the Honduran customs and tax agency, has responsibility for

verification of origin of imported goods. The DEI verifies that claims of origin comply with the

requirements of the CAFTA-DR and other international agreements. DEI has implemented a much stricter

and more rigorous approach to customs compliance since January 2014. Honduran importers are charged

a duty and fines whenever DEI does not accept the claim of origin. U.S. exporters and Honduran importers

report that DEI has also begun to charge fines for minor errors, and that DEI does not always make clear

which information in a claim of origin is in error.

GOVERNMENT PROCUREMENT

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 the procurements of most

Honduran government entities, including those of key ministries and state-owned enterprises, on the same

basis as Honduran suppliers. There is no requirement that U.S. firms act through a local agent to participate

in public tenders. The anticorruption provisions in the CAFTA-DR apply inter alia to government

procurement.

Information on public tenders frequently is not available in a timely fashion and official bidding processes

are not always followed. The U.S. Embassy continues to work with the Honduran government to increase

the transparency of government procurement and to ensure fair treatment for U.S. companies.

The U.S. Commercial Service/Global Markets (Department of Commerce) organized a workshop on

government procurement in Tegucigalpa in July 2015 for over 80 Honduran government purchasing

officials. The workshop highlighted the importance of transparency, openness, and efficiency in

government procurement. The Department of Commerce funded the event, which included the

participation of the Inter-American Development Bank, World Bank, Transparency International, the

Millennium Challenge Corporation, local government entities, and private sector associations.

Honduras is not a signatory to the WTO Agreement on Government Procurement.

EXPORT SUBSIDIES

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

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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.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

In 2015, the United States engaged Honduras on the pressing need to address ineffective IPR enforcement,

including the need for trained criminal IPR enforcement personnel and a dedicated investigative

unit. Primary concerns include cable signal theft and trade in counterfeit goods, especially in

pharmaceuticals.

INVESTMENT BARRIERS

Honduran law places certain restrictions on foreign ownership of land within 40 kilometers of the coastlines

and national boundaries. However, foreigners are allowed to purchase properties (with some acreage

restrictions) 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 owning

land in Honduras. Resolving disputes in court can be very time consuming. There have been claims of

widespread corruption in land sales and property registration and in the dispute resolution process, including

claims against attorneys, real estate companies, judges, and local officials. The property registration system

is highly unreliable, creating 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. An especially problematic

area has been the north coast, in particular the Bajo Aguan Valley.

OTHER BARRIERS

Some U.S. firms and citizens have reported that corruption in government, including in the judiciary, is a

significant concern and a constraint to successful investment in Honduras despite efforts by the Hernandez

administration to attempt to address the issue. These reports suggest that corruption is pervasive in

government procurement, issuance of government permits, real estate transactions (particularly land title

transfers), and the regulatory system. The telecommunications, health, and energy sectors appear to be

particularly problematic.

The Honduran government relies on its principal public-private partnership mechanism, the Commission

for the Promotion of Public Private Partnerships (COALIANZA), to enlist private financing in the

development of public infrastructure. A lack of transparency in COALIANZA’s processes, its omission

from the national budget, and alleged wrongdoing by its employees has tarnished the agency’s public

standing, raised concerns about its effectiveness and made it difficult for businesses to participate in its

projects. In response to these concerns, the Honduran National Congress passed reforms to COALIANZA’s

legal authorities that require greater oversight from the Ministry of Finance and clarify its authority to

generate its own revenue. Additionally, COALIANZA published a manual of processes and publishes its

monthly expenditures in the Honduran government’s Portal of Transparency website. However, it is still

difficult to determine which funds are appropriated for public-private partnership projects within the

national budget.

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HONG KONG

TRADE SUMMARY

The U.S. goods trade surplus with Hong Kong was $30.5 billion in 2015, a 12.9 percent decrease ($4.5

billion) over 2014. U.S. goods exports to Hong Kong were $37.2 billion, down 9.0 percent ($3.7 billion)

from the previous year. Corresponding U.S. imports from Hong Kong were $6.7 billion, up 14.2 percent.

Hong Kong was the United States' 9th largest goods export market in 2015.

U.S. exports of services to Hong Kong were an estimated $10.0 billion in 2014 (latest data available), and

U.S. imports were $7.6 billion. Sales of services in Hong Kong by majority U.S.-owned affiliates were

$33.8 billion in 2013 (latest data available), while sales of services in the United States by majority Hong

Kong-owned firms were $4.2 billion.

U.S. foreign direct investment (FDI) in Hong Kong (stock) was $66.2 billion in 2014 (latest data available),

a 10.4 percent increase from 2013. U.S. direct investment in Hong Kong is led by wholesale trade, nonbank

holding companies, and finance/insurance.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

The Hong Kong government published a draft Code of Marketing and Quality of Formula Milk and Related

Products and Food Products for Infants & Young Children (Code) in October 2012. If implemented as

currently drafted, stakeholders are concerned that the Code, together with related legislative proposals,

would pose significant trade barriers to manufacturers and distributors of imported infant and follow-up

formula. The United States is continuing to engage with the Hong Kong government on this measure,

including with respect to whether it is more restrictive than relevant international standards.

Sanitary and Phytosanitary Barriers

Hong Kong implemented a positive pesticide maximum residue limit list regulation in August 2014. Food

containing a pesticide not on the list will be prohibited from import or sale unless it is shown that

consumption of the food would not be dangerous or prejudicial to health. The United States continues to

work with the Hong Kong food safety authority to include additional U.S.-approved pesticides on the list.

IMPORT POLICIES

Hong Kong is a special administrative region (SAR) of the People’s Republic of China, and the Hong Kong

Basic Law provides for a high degree of autonomy in all matters but defense and foreign affairs. 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 both 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.

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COMPETITION POLICY

Hong Kong’s first comprehensive competition law – the Competition Ordinance (Ordinance) – was passed

by the Legislative Council in June 2012 and entered into effect on December 14, 2015. The Ordinance

contains rules to prohibit anticompetitive agreements, abuse of market power, and anticompetitive mergers

and acquisitions. The merger and acquisition rule applies only with respect to carrier license holders in the

telecommunications sector. 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.

The government established a Competition Commission (Commission) and a Competition Tribunal

(Tribunal) in 2013. The Commission is empowered to investigate anticompetitive conduct and promote

public understanding of the value of competition. The Tribunal is charged with adjudicating cases brought

before it following an investigation by the Commission. In October 2014, the Commission launched a two-

month public consultation on six draft regulatory guidelines under the Competition Ordinance. In

November 2014, Legislative Council (LegCo) passed amendments to the Ordinance, empowering the

tribunal to prohibit persons from leaving Hong Kong and to award interest on debts and damages for which

judgment is given. The Commission submitted the guidelines to the LegCo for discussions in early 2015

and published the final version of the guidelines in July 2015. In September 2015, the Commission

published, for public comment, a draft leniency policy under the Ordinance. The Commission considered

that it was in the public interest to induce cartel participants to cease participating in cartel conduct and to

report that conduct by granting them lenient treatment in exchange for providing evidence of the

infringement. The public consultation ended in October 2015, allowing the Commission to adopt a final

policy prior to full implementation of the Ordinance.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Hong Kong generally provides robust IPR protection and enforcement and has strong laws in place. Hong

Kong also maintains 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. On the other hand, Hong Kong’s failure to update its 1997 Copyright

Ordinance has made it vulnerable 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. An additional concern is that, 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 transit Hong Kong in significant quantities, destined for both the local market and

places outside of Hong Kong.

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INDIA



TRADE SUMMARY

In 2015, total (two-way) goods and services trade between the United States and India was $107.3 billion.

U.S. exports of goods and services to India were $38.9 billion, up 3.2 percent from 2014, and imports from

India were $68.7 billion, up 3.7 percent from 2014. As a result, the overall U.S. trade deficit with India

increased to $29.7 billion in 2015.

The U.S. goods trade deficit with India was $23.2 billion in 2015, a 1.8 percent decrease over 2014. U.S.

goods exports to India were $21.5 billion, down 0.4 percent from the previous year. Corresponding U.S.

imports from India were $44.7 billion, down 1.1 percent. India was the United States' 18th largest goods

export market in 2015.

U.S. exports of services to India were an estimated $17.2 billion in 2015, an increase of 13.3 percent from

2014. U.S. services imports from India were an estimated $23.7 billion, up 14 percent from 2014.

U.S. foreign direct investment (FDI) in India (stock) was $28.0 billion in 2014 (latest data available), a 11.7

percent increase from 2013. U.S. direct investment in India is led by prof., scientific, and tech. services,

manufacturing, and wholesale trade.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade



The United States discusses TBT matters with India during TBT Committee meetings at the World Trade

Organization (WTO), as well as on the margins of these meetings. U.S. Government officials also discuss

such matters with Indian officials under the United States-India Trade Policy Forum (TPF), which met at

the Ministerial level in October 2015.

Cosmetics - Registration Requirements

On December 31, 2014, India’s Ministry of Health (MoH) invited comments on a new draft of the Drugs

and Cosmetics (Amendment) Bill 2015. U.S. stakeholders provided comments to India expressing concern

with a new and vague category of “new cosmetics,” the proposed application of clinical trials requirements

to cosmetics, and what stakeholders deemed to be excessive damages provisions in the event of spurious

products. India has not yet published a revised draft of the bill.

India banned imports of animal-tested cosmetics on February 15, 2015, as a result of Rule 135-B of the

Drug and Cosmetics (Fifth Amendment) Rules, 2014, announced through the Central Drugs Standard

Control Organization (Office of Drugs Controller General India) Circular. India had previously banned

domestic cosmetic testing on animals in May 2014 (Gazette of India, Ministry of Health and Family

Welfare, “Notification” dated May 21, 2014). U.S. exporters have reportedly encountered difficulties

proving that cosmetics comply with the animal testing ban and have yet to receive guidelines from the

Indian government on how to do so.

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Food - Package Size and Labeling Requirements

The government of India mandated standard retail package sizes for 19 categories of foods and beverages

effective November 1, 2012, via amendment to the Legal Metrology (Packaged Commodities) Rules, 2011.

This rule has not been notified to the WTO, nor is there any reference to a specific comment period for

domestic stakeholders. As the United States does not impose specific standards for packaging size, and

U.S. package sizes tend to be in English rather than metric units, the list of package sizes effectively

prevents many U.S.-origin products from entering India. Attempts to import such U.S.-origin products

have resulted in rejection at the port of entry. These standards are having a negative effect on trade, with

numerous U.S. brands effectively excluded from the Indian market. The United States has repeatedly raised

concerns about these standards in various bilateral and multilateral fora and continues to work with India

to ensure that U.S. brands have access to the Indian market. During the October 2015 TPF, India and the

United States agreed that “[d]iscussion of mandatory package size requirements for pre-packaged foods

will continue in 2016.”

Other issues related to packaging and labelling requirements were advanced during the October 2015 TPF.

In the TPF joint statement, India noted its “change to allow stickering of maximum retail price at the port.”

In line with India’s 2014 commitment under the TPF, India’s Legal Metrology eliminated conflicting

labeling requirements on May 14, 2015 and noted in the 2015 TPF joint statement “that determination of

wholesale and retail labeling requirements are not dependent on the weight of imported food

consignments.”

Foods Derived from Biotechnology Crops

Soybean oil, derived from genetically engineered (GE) soybeans, remains the only biotech food or

agricultural product currently approved for import into the Indian market. Domestic importers or the

foreign exporter must have each biotechnology product approved by the Indian government before imports

may begin. Bt cotton is the only biotechnology crop approved for commercial cultivation in India. Despite

the resumption of the regulatory approval processes for biotech products during the first half of 2014,

India’s biotechnology approval processes remain slow, opaque, and subject to political influences. India’s

apex biotechnology regulatory body, the Genetic Engineering Appraisal Committee (GEAC), was generally

inactive in 2015. It met in September and December 2015 and reauthorized ongoing GE field trials and

granted permission for new GE field trials to be conducted in 2016/17. However, no new GEAC approvals

were granted for GE field crop trails during the January, February or March 2016 meetings. This slow and

uncertain process, mainly due to issues related to domestic cultivation, continues to negatively impact

product registrations needed to facilitate trade in biotechnology products. India has yet to submit any

notifications to WTO regarding biotechnology issues.

In the event that additional biotechnology products are approved for import in the future, the labeling

requirements for packages containing “genetically modified” foods remain unclear. Lack of clarity

regarding jurisdictional authority between the Food Safety and Standards Authority of India (FSSAI) and

the Ministry of Consumer Affairs could also have negative effects on U.S. biotechnology products entering

the Indian market.

Livestock Genetics

The Department of Animal Husbandry, Dairying, and Fisheries (DAHDF) of the Ministry of Agriculture

imposes restrictions on imports of livestock genetics, requires progeny testing, and establishes quality

standards. Importation of animal genetics also requires a “no objection certificates” (NOCs) from the state

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government, import permission from the Directorate General of Foreign Trade, and import permit from the

DAHDF. The entire procedure for obtaining import permission takes four months or longer. Neither the

burdensome progeny testing nor the NOC are required of domestic producers of animal genetics. The

United States discussed these requirements in technical animal health meetings held in September 2015

with the DAHDF, but has not received a substantive response.

Telecommunications Equipment - Security Regulations

In 2009 and 2010, India promulgated a number of regulations negatively impacting trade in

telecommunications equipment, including mandatory transfer of technology and source code, as well as

burdensome testing and certification requirements for telecommunications equipment. While India

removed most of these measures in response to international stakeholders’ concerns, India retains the

objective of testing all “security-sensitive” telecommunications equipment in India starting April 1, 2016.

However, the testing criteria have yet to be published or notified to the WTO, and India’s domestic security

testing capacity is currently very limited. It is unclear whether that capacity will increase sufficiently by

the deadline. U.S. stakeholders have urged the government of India to postpone the initiative until clarity

is provided through guidelines, and India issues appropriate timelines for implementation. U.S.

Government officials and U.S. stakeholders have continued to urge India to reconsider the domestic testing

policy and to adopt the use of the Common Criteria Recognition Arrangement. In 2015, the United States

raised issues related to telecommunications security testing requirements bilaterally under the TPF and in

the WTO TBT Committee.



Electronics and Information Technology Equipment - Safety Testing Requirements



Since 2012, the United States has been actively raising the concerns of the U.S. electronics and information

and communications technology (ICT) manufacturers regarding the Indian Department of Electronics and

Information Technology’s (DEITY) Compulsory Registration Order (CRO). The CRO prescribes safety

standards and in-country testing requirements for electronic and ICT goods. The policy, which entered into

force in January 2014, mandates that manufacturers register their products with laboratories affiliated or

certified by the Bureau of Indian Standards (BIS), even if the products have already been certified by

accredited laboratories. The government of India has never articulated how such a domestic certification

requirement advances India’s legitimate public safety objectives. In 2015, the coverage of the CRO

increased from 15 to 30 product categories. U.S. stakeholders have raised concerns with the government

of India that include delays in product registration due to the lack of government testing capacity, a

cumbersome registration process, and tens of millions of dollars in additional compliance costs, which

include factory-level and component–level testing.

The domestic testing requirement is particularly burdensome for Highly Specialized Equipment (HSE),

including servers, storage, printing machines, and ICT products that are installed, operated, and maintained

by professionals who are trained to manage the product’s inherent safety risks. These products pose little

risk to the general public consumer. U.S. companies have incurred significant expenses providing testing

samples, which were destroyed during the safety testing process in Indian laboratories. Indian laboratories

have also indicated that they do not have the capacity to test some products that require industrial power

supply, exceed household or office voltage, or are very large in size and weight. Moreover, U.S. exporters

are forced to leave their products in these laboratories for extended and undefined periods of time. To avoid

unnecessary and overly burdensome requirements, the United States has expressed that the government of

India should exclude the HSE from the scope; harmonize labeling requirements with global practices;

harmonize the validity period of test reports and certification; and eliminate re-testing requirements. The

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United States raised this issue bilaterally, including during technical exchanges under the TPF, and

multilaterally in the WTO TBT Committee in 2015.



Dairy Products



Since 2003, India has imposed unwarranted SPS requirements on dairy imports. Beginning in 2010, U.S.

and Indian technical experts engaged on the subject, eventually reaching agreement on most issues,

excluding cattle feed. It was hoped that President Obama’s visit to India in November 2010 would generate

the political will in India to open up trade. However, India declined the U.S. offer to certify that dairy cattle

were fed 100 percent vegetarian diets for up to 90 days prior to production, effectively impeding progress.

India continues to insist on religious and cultural grounds that dairy products be derived from animals who

have never received any non-vegetarian feeds. This stringent requirement continues to prevent market

access for U.S. milk and dairy product exports to India, one of the largest dairy markets in the world. The

United States and India restarted technical discussions on animal health issues, including dairy, in 2015 and

plan to continue these discussions in 2016. The United States will continue to seek market access for U.S.

dairy products in India during these discussions.

Alcoholic Beverage Standards

On December 1, 2015 India notified a draft standard on alcoholic beverages to the WTO. The United States

has a range of concerns, including on prohibitions on a number of additives that are standard industry

practice for alcohol and wine production. These prohibitions fall outside of the standards set in the Codex

Committee on Food Additives. In addition, several ingredient limits and production method specifications

place unnecessary restrictions on the formulations of alcoholic beverages. This new standard builds on

already onerous labeling and testing requirements. The United States views India as an important export

market for alcoholic beverages and continues to take every opportunity to express concerns on the

restrictive approach to the regulation of alcoholic beverages in India.

Sanitary and Phytosanitary Barriers

The United States has raised concerns about India’s SPS-related trade restrictions in bilateral and

multilateral fora including the TPF, the WTO SPS Committee, and Codex. The United States will continue

to make use of all available fora with a view to securing the entry of U.S. dairy, poultry, pork, and other

agricultural products, including alfalfa hay, cherries, strawberries, shrimp feed, pet food, and live animals

into the Indian market. As part of the TPF, the United States and India met for a plant health bilateral

meeting in March 2015, followed by an animal health bilateral meeting in September 2015. Both countries

agreed during the October 2015 TPF that these bilateral meetings would also be held in 2016; the plant

health bilateral meeting was held in February 2016. In addition, bilateral meetings on food safety and

technical issues will also be held in 2016 under the umbrella of the TPF.

Food - Product Testing

FSSAI’s Authorized Officer at the Mumbai Sea Port and Airport posted a notice in 2013 stating that “100

percent samples” will be drawn from all imported agricultural consignments effective from September 13,

2013. This notice broadens a 2004 Ministry of Commerce and Industry list of “high risk” food items,

imports of which are subject to 100 percent sampling. This change was never notified to the WTO.

Importers expressed concerns about both the increase in cost of testing and increased detention of cargoes

for indeterminate periods of time, which is particularly costly with respect to perishable products. In June

2015, India announced a plan to transition its imported food inspection protocol from batch-to-batch

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inspections and sampling to a risk-based approach. During discussions at the TPF, Indian officials noted

that they are actively working to develop and implement a risk-based inspection system and provided a

general overview of its approach. The United States is collaborating with India on developing more specific

guidance and a timeline to transition its inspections protocols.



Food - Product Approval



In May 2013, the FSSAI issued an advisory on new procedural guidelines for approval of food products,

effective immediately. These guidelines were not notified to the WTO and apply to both domestic and

imported foods. These guidelines supersede all preceding advisories and apply to approvals of food

products for which standards are not specified under the Food Safety and Standards Act, 2006. FSSAI’s

product approval process came under intense media and political scrutiny in 2015 following a series of

high-profile mistakes. In August 2015, the Supreme Court of India upheld an earlier decision by the High

Court of Bombay, which ruled that FSSAI did not have the legal authority to maintain its product approval

regime, as per the May 2013 advisory. FSSAI has stopped issuing product approvals in order to come into

compliance with the Supreme Court’s decision and is seeking a new approach to regulate new food and

beverage products. U.S. stakeholders report confusion over products that were not yet approved or rejected

under the old system and whether these products may now enter India.



Pork



The current Indian import certificate for pork requires that importers make an attestation that imported pork

does not contain any residues of pesticides, drugs, mycotoxins, or other chemicals above maximum residue

levels prescribed in international standards. However, this certificate fails to identify specific compounds

and their corresponding international limits. India also limits pork imports to meat derived from animals

that were never fed ruminant derived protein, requires attestations that are not consistent with international

requirements, and prohibits imports of pork products obtained from animals raised outside the United States

even if they were legally imported into the United States before slaughter. Further, veterinary certificates

are valid for only six months, and a separate import permit must be obtained for each imported lot.

On March 16, 2015, India notified to the WTO a draft veterinary certificate for the import of pork and pork

products for comment. On November 6, 2015, the Department of Animal Husbandry, Dairying, and

Fisheries published a new veterinary health certificate for pork and pork product imports. To date, this

veterinary health certificate has not been notified to the WTO. The primary concerns that the United States

identified in the veterinary certificate include: (1) requirement of meat exports from U.S.-origin animals

only; (2) separate processing facilities of meat from animals of differing species (i.e., no beef in pork

products); (3) veterinary drug residues; and (4) animal disease restrictions. In 2015, the United States and

India began technical discussions on animal health issues, including pork, and discussed U.S. concerns.

The United States will continue to seek market access for U.S. pork products in India under these

discussions in 2016.

Poultry



Since 2007, India has banned imports of U.S. poultry, swine, and related products due to the detection of

low pathogenic and highly pathogenic avian influenza in the United States. However, processed poultry

meat and pork products are purportedly exempted from this ban. The United States has repeatedly raised

concerns about India’s measures in the WTO SPS Committee, has discussed these concerns bilaterally with

India, and in 2012, filed a dispute settlement case at the WTO. Both the panel hearing the dispute and the

Appellate Body found that India’s avian influenza measures breach numerous provisions of the WTO SPS

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Agreement. On June 19, 2015, the WTO Dispute Settlement Body (DSB) adopted the Appellate Body and

panel reports. On July 17, 2015, India indicated it would bring its measures into compliance with the

adverse findings. The United States and India have agreed that India has until June 19, 2016, to comply

with the DSB’s recommendations and rulings. Separately in 2015, FSSAI notified a Draft Order on Meat

and Poultry to the WTO. The United States provided comments on the draft order and highlighted concerns

regarding: (1) the requirement that imported meat be derived from animals that were never fed ruminant

derived protein; (2) individual establishment approvals instead of the U.S. preference for a systems

approach; and (3) veterinary drug residues.

Plant Health



India maintains zero-tolerance standards for certain plant quarantine pests, such as weed seeds and ergot,

resulting in blocked U.S. wheat and barley imports. Bilateral discussions to resolve these issues, including

at the senior official level, have achieved little success to date.

The government of India’s requirement of methyl bromide (MB) fumigation at the port of origin as a

condition for the import of pulses is not feasible in the United States. This is due to the U.S. phase-out of

MB due to its demonstrated negative impact on the environment. In August 2004, the United States

requested India to permit entry of U.S. peas and pulses subject to inspection and fumigation at the port of

arrival. India has granted a series of extensions allowing MB fumigation on arrival, but has offered no

permanent solution. On February 24, 2016, India’s Ministry of Agriculture confirmed the extension of the

fumigation-upon-arrival waiver for U.S. peas and pulses, including chickpeas, until September 30,

2016. While these extensions have not blocked trade, they are frequently last-minute and create uncertainty

for U.S. exporters.

IMPORT POLICIES

The United States has actively sought bilateral and multilateral opportunities to open India’s market, and

the government of India has pursued ongoing economic reform efforts. Nevertheless, U.S. exporters

continue to encounter tariff and nontariff barriers that impede imports of U.S. products into 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,” a “special additional duty,” and an education assessment (“cess”).

The additional duty, which is applied to all imports except for wine, spirits, and 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 four percent ad valorem duty that applies to all

imports, including alcoholic beverages, except those imports 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 three percent education cess (surcharge) applied to most imports,

except those exempted from the cess pursuant to an official customs notification. India charges the cess on

the total of the basic customs duty and additional duty (not on the customs value of the imported product).

A landing fee of one percent is included in the valuation of all imported products unless exempted through

separate notification.

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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. However, as part of its computerization and electronic services drive, in 2009 India initiated a

web-based Indian Customs Electronic Commerce/Electronic Data Interchange Gateway, known as

ICEGATE (http://icegate.gov.in). It provides options 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. 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 the product, user, or specific export promotion

program, rendering India’s customs system complex to administer and open to administrative discretion.

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 latest WTO data, India’s average bound tariff rate was 48.6 percent, while

its simple MFN average applied tariff for 2014 was 13.5 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. India’s average WTO-bound tariff for agricultural products is 114 percent.

Applied rates are also relatively high since the average applied agricultural tariff is 33.5 percent. On a

trade-weighted basis, the average agricultural tariff is 52 percent. In addition, 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 systematically reduced the basic customs duty in the

past six years. India also maintains very high tariff peaks on a number of goods, including flowers (60

percent), natural rubber (70 percent), automobiles and motorcycles (60 percent to 75 percent), raisins and

coffee (100 percent), alcoholic beverages (150 percent), and textiles (some ad valorem equivalent rates

exceed 300 percent). Rather than liberalizing its customs duties, 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.

In 2014, India increased tariffs on certain categories of telecommunications equipment. U.S. companies

have raised significant concerns with this action.

In 2015, India increased duties on a variety of goods. In August 2015, it increased duties on certain iron

and steel products; Notification No. 46/2015-Customs, dated September 17, 2015, levied a 12.5-percent

basic tariff on crude palm oil and increased basic rates in most categories of other edible oil by 5 percent;

and Notification 51/2015-Customs, dated October 19, 2015, raised the basic customs duty on wheat from

the rate of 10 percent to 25 percent.

India maintains very high basic customs duties, in some cases exceeding 20 percent, on drug formulations,

including life-saving drugs and finished medicines listed on the World Health Organization’s list of

essential medicines (http://www.who.int/medicines/publications/essentialmedicines/en/index.html). India

also imposes a 7.5 percent basic customs duty, 12.5 percent additional duty, and a 4 percent special

additional duty for medical equipment and devices, such as pacemakers, coronary stents and stent grafts,

and surgical instruments; and for parts of medical devices, such as medical grade polyvinyl chloride

sheeting for the manufacture of sterile Continuous Ambulatory Peritoneal Dialysis bags for home dialysis.

The basic customs duty on specified inputs for manufacturing flexible medical video endoscope was halved

to 2.5 percent in March 2015, and the United States continues to urge India to reduce or eliminate high

tariffs in the healthcare and other sectors.

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Many of India’s bound tariff rates on agricultural products are among the highest in the world, ranging from

100 percent to 300 percent. While many Indian applied tariff rates are lower (averaging 33.5 percent on

agricultural goods in 2014), 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 quick-service restaurants). The large gap between bound and applied

tariff rates in the agriculture sector allows India to use tariff policy to make frequent adjustments to the

level of protection provided to domestic producers, creating uncertainty for importers and exporters. For

example, in January 2013, India issued a customs notification announcing an immediate doubling of the

tariff on imports of crude edible oils.

Imports are subject to state level value-added or sales taxes and the Central Sales Tax as well as various

local taxes and charges. 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 state level value-added taxes.

Importers report that the refund procedures are cumbersome and time consuming. In addition, U.S.

stakeholders have identified various state-level taxes and other charges on imported alcohol that appear to

be higher than those imposed on domestic alcohol. 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 will first require

amending the Indian Constitution. In 2015, India’s government introduced the GST Bill in Parliament, but

political hurdles have stalled prospects for its passage in the near term.



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 import timing and quantity. India, however, often

fails to observe transparency requirements, such as publication of timing and quantity restrictions in its

Official Gazette or notification to WTO committees.

For purposes of entry requirements, India has distinguished between goods that are new, and those that are

secondhand, remanufactured, refurbished, or reconditioned. India allows imports of secondhand capital

goods by the end users without an import license, provided the goods have a residual life of five years.

India’s official Foreign Trade Policy categorizes remanufactured goods in a similar manner to secondhand

products, without recognizing that remanufactured goods have typically been restored to original working

condition and meet the technical and safety specifications applied to products made from new 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 life, while refurbished computer parts from domestic sources are

not subject to this requirement. India requires import licenses for all remanufactured goods. U.S.

stakeholders report that meeting this requirement, like other Indian import licensing requirements, has been

onerous. Problems that stakeholders report include: excessive details required in the license application;

quantity limitations set on specific part numbers; and long delays between application and grant of the

license.

India subjects boric acid imports to stringent restrictions, including arbitrary import quantity approval

requirements and conditions applicable only to imports used as insecticide. Traders (i.e., wholesalers) of

boric acid for non-insecticidal use cannot import boric acid for resale because they are not end-users of the

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product and consequently 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 boric acid for

non-insecticidal use subject only to a requirement to maintain records showing they are not selling to end

users who will use the product as an insecticide. The United States urged India to eliminate its import

licensing requirements on boric acid in meetings of the WTO Import Licensing Committee and the TPF

during 2015, and the United States and India have committed to continue discussing the issue under the

TPF in 2016.



Customs Procedures



U.S. exporters have raised concerns regarding India’s application of customs valuation criteria to import

transactions. India’s valuation procedures allow Indian customs officials to reject the declared transaction

value of an import when a sale is deemed to involve a lower price than the ordinary competitive price,

effectively raising 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 of imports.

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 raises concerns about the potential

for 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, including the provision of multiple exemptions which vary according to product, user, or

intended use. While difficulties persist, India has shown improvement in this area through the automation

of trade procedures, including through the ICEGATE (http://icegate.gov.in) portal and other initiatives.

The government of India is increasing use of electronic forms and only three documents are now required

for importers and exporters for 13 separate government agencies, which has reduced wait times from weeks

to days. India is also integrating an “Indian Trade Portal” for one-stop import and export information. A

Customs Clearance Facilitation Committee was established in April 2015 at major ports, bringing together

representatives from each of the regulatory agencies commonly involved in clearing shipments (Central

Board of Excise and Customs, “Circular No 13/2015-Customs,” April 13, 2015).



GOVERNMENT PROCUREMENT



India lacks an overarching government procurement policy, and as a result, its government procurement

practices and procedures vary among the states, between the states and the central government, and among

different ministries within the central government. Multiple procurement rules, guidelines, and procedures

issued by multiple bodies have resulted in problems with transparency, accountability, competition, and

efficiency in public procurement. A World Bank report stated that there are over 150 different contract

formats used by the state owned Public Sector Units, each with different qualification criteria, selection

processes, and financial requirements. The government also provides preferences to Indian Micro, Small

and Medium Enterprises, and to state owned enterprises. Moreover, India’s defense offsets program

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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.

India has started the legislative process for enacting a new Procurement Bill. Comments were requested in

April 2015. Speaking to foreign investors in September 2015, Finance Minister Arun Jaitley stated that the

Procurement Bill is high on the government’s agenda and would be put forward for parliamentary approval

soon. The Indian Ministry of Defense also announced in August 2015 changes to its offset production

regulations for defense industry companies contracting with the Indian government, providing greater

flexibility in designating Indian offset production partners. These offset changes will apply to all current

and future contracts.

India’s National Manufacturing Policy calls for increased use of local content requirements in government

procurement in certain sectors (e.g., ICT and clean energy). Consistent with this approach, India issued the

Preferential Market Access notification, which requires government entities to meet their needs for

electronic products in part by purchasing domestically manufactured goods. India is not a signatory to the

WTO Government Procurement Agreement, but is an observer to the WTO Committee on Government

Procurement.

EXPORT SUBSIDIES

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The Indian government’s new Foreign Trade Policy (FTP) 2015-2020 announced on April 1, 2015 is

primarily focused on increasing India’s exports of goods and services to raise India’s share in world exports

from 2 to 3.5 percent. The FTP consolidated most of India’s existing export subsidies and other incentives

into two main export incentive schemes, namely the Manufactured Goods Exports Incentive Scheme

(MEIS) and the Service Exports Incentive Scheme (SEIS) that allow benefits on exports.

India maintains several export subsidy programs, including exemptions from taxes for certain export-

oriented enterprises and for exporters in Special Economic Zones. Numerous sectors (e.g., textiles and

apparel, 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.

India not only continues to offer subsidies to its 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.

India maintains a large and complex series of programs that form the basis of India’s public stockholding

program. India maintains stocks of food grains not only for distribution to poor and needy consumers but

also to stabilize prices through open market sales. India uses export subsidies to reduce stocks and has

permitted exports of certain agricultural commodities from government public-stockholding reserves at

below the government’s costs. In August 2013, for example, the government authorized the exportation of

two million tons of wheat from government-held stocks. It also lowered the minimum price at which those

stocks could be sold to $260 per ton FOB, significantly below the government’s acquisition cost of $306

per ton, plus storage, handling, inland transportation cost, and other charges for exports. In February 2014,

the Indian Cabinet Committee on Economic Affairs made 4 million metric tons of raw sugar eligible to

receive export subsidies under a new, two-year subsidy program. The United States, along with other

interested Member countries, has raised this issue in the WTO Committee on Agriculture.

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

Agriculture Programs



India provides a broad range of assistance to its agricultural sector, including credit subsidies, debt

forgiveness, and subsidies for inputs, such as fertilizer, fuel, electricity, and seeds. These subsidies, which

are of substantial cost to the government, lower the cost of production for India’s producers and have the

potential to distort the market in which imported products compete. In addition, producers of 24 agricultural

products benefit from the government program to sell to the government at minimum support prices

(MSPs). Rice and wheat account for the largest share of products procured by the government and

distributed through India’s public distribution system. However, in crop year 2014/2015, the Indian

government purchased 1.6 million tons of cotton through announced minimum support price operations, at

a cost of nearly U.S. $3 billion. Purchases made through these operations cost the government several

hundred million dollars over market prices, which had the effect providing a subsidy to the entire cotton

crop and distorting market prices and planting decisions. Moreover, much of the subsidized cotton that was

procured under minimum support price operations was later exported. High guaranteed minimum support

prices and extensive government procurement distorts domestic market prices and incentivizes over

production, which restricts demand for imports and distorts international markets.



INTELLECTUAL PROPERTY RIGHTS PROTECTION



India remained on the Priority Watch List in the 2015 Special 301 Report because of concerns regarding

weak protection and enforcement of intellectual property rights (IPR). Through the High-level Working

Group on Intellectual Property under the TPF, the United States and India have held numerous and regular

dialogues on the range of IPR challenges facing U.S. companies in India with the intention of creating

stronger IPR protection and enforcement in India.

Fostering an environment that stimulates innovation through, and not at the expense of, IPR is important

for improving U.S.-India trade and investment ties and for helping achieve important domestic initiatives

of the Modi government. India’s pending National IP Policy provides an important opportunity to usher in

important IPR-related reforms to support India’s domestic and international economic goals, particularly in

the important areas of copyrights, patents, trade secrets, and innovation. In October 2014 the Department

of Industrial Policy and Promotion (DIPP) constituted a six-member IPR Think Tank (Think Tank) to draft

the National IP Policy and to advise the Indian government on IPR issues. On December 24, 2014, the

Think Tank released a first draft National IPR Policy for public comment, which outlined recommendations

intended to improve the IPR environment in India. The Think Tank revised this draft based upon public

feedback and submitted a final set of recommendations to the government of India in 2015. The government

is currently reviewing these recommendations with the intention of issuing a final National IPR Policy in

the near future.

Comprehensive reform of India’s overall IPR regime is important, particularly in the areas of copyrights,

patents, trade secrets, and innovation-promotion. The United States commends Indian authorities for

conducting small- and large-scale raids surrounding the release of major films in 2015. The United States

also welcomed India’s positive statements on addressing copyright piracy at the 2015 TPF and urged the

government of India to expeditiously introduce the Indian Cinematograph Act to parliament. This act

contains important anti-camcording provisions that could further bolster enforcement efforts. Significant

additional action is necessary, however, as the effectiveness of copyright enforcement varies greatly among

the states and commercial-scale pirating operations are constantly adapting to evade new enforcement

methods. Additionally, India’s 2012 Copyright Law amendments have not effectively implemented the

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World Intellectual Property Organization Internet treaties, including with respect to protecting against the

circumvention of technological protection measures.

In the area of patents, there are a number of factors that negatively affect stakeholders’ perception of India’s

overall IPR regime, investment climate, and innovation goals. The United States recognizes the availability

of tools and remedies that support patent holders’ rights in India, noting, in particular, some court decisions

in 2015 that upheld patent rights. However, concerns remain over recent revocations and other challenges

to patents, particularly patents for pharmaceutical products. The United States also continues to monitor

India’s application of its compulsory licensing law, and has requested clarification from the government of

India on issues of concern. For example, current Indian law suggests that the lack of local manufacturing

in India may be considered in reviewing a request for a compulsory license, and India’s National

Manufacturing Policy recommends curtailing patent rights to facilitate technology transfer in the clean-

energy sector. Furthermore, in April 2013, the Indian Supreme Court stated that India’s Patent Law creates

a second tier of requirements for patenting certain technologies, like pharmaceuticals, an interpretation that

may have the effect of limiting the patentability of an array of potentially beneficial innovations. In

addition, while the United States welcomes India’s interest in reducing patent review times, the proposed

draft patent rules published in October 2015 raise serious concerns, particularly with respect to imposing

local manufacturing requirements in exchange for expedited review.

India currently lacks an effective system for protecting against unfair commercial use, as well as

unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for

pharmaceutical and agricultural products. The U.S. Government and stakeholders have also raised concerns

with respect to infringing pharmaceuticals being marketed without advance notice or opportunity for parties

to resolve their IPR disputes.

India currently lacks a specific law to enforce against trade secrets misappropriation. While other laws may

be used in certain circumstances to provide civil and criminal recourse, foreign and domestic Indian

companies would benefit from stronger and clearer protection in the market. Under the TPF, the United

States has urged India to consider taking steps to address this through standalone legislation.

India currently lacks a specific law to enforce against trade secrets misappropriation. While other laws may

be used in certain circumstances to provide civil and criminal recourse, foreign and domestic Indian

companies would benefit from stronger and clearer protection in the market. Under the TPF, the United

States has urged India to consider taking steps to address this through standalone legislation.

SERVICES BARRIERS



The Indian government has a strong ownership presence in major services industries such as banking and

insurance. Foreign investment in businesses in certain major services sectors, including financial services

and retail, is subject to limitations on foreign equity. Foreign participation in professional services is

significantly restricted, and in the case of legal services, prohibited entirely.

Insurance

In March 2015, India’s Parliament enacted the Insurance Laws (Amendment) Act, 2015, that allows up to

49 percent FDI in Indian insurance companies, a change long sought by U.S. and other foreign

companies. FDI was previously capped at 26 percent. However, the amendment was accompanied by a

new requirement that all insurance companies be Indian “controlled.” Responding to uncertainty about the

meaning of this term, the Insurance Regulatory Authority of India (IRDAI) promulgated guidelines on

October 19, 2015 that prescribe conditions for satisfying the “Indian control” requirement. The guidelines

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include: (1) a mandatory requirement that a majority of directors be nominated by Indian investors; (2)

limitations on the rights of foreign-nominated board members; (3) requirements for how “key management

persons” are to be appointed; and (4) requirements on the manner in which control over “significant

policies” of the enterprise must be exercised. Foreign investors have expressed concern that the new

requirements create a rigid structure that ignores operational realities and will dilute the rights of foreign

investors in Indian insurance companies, making additional FDI in the sector unattractive. As these

guidelines are intended to be applied retroactively, the requirements regarding “control” would apply to

existing companies with foreign investment regardless of whether foreign investors plan to increase their

equity, in addition to companies planning future investment.

The Insurance Laws (Amendment) Act, 2015, also allows foreign reinsurance companies to open branch

offices in India to engage in reinsurance business. The IRDAI promulgated draft regulations regarding

reinsurance and issued a revision of the draft regulations in late October 2015. In December 2015, the

IRDAI issued another revision to the draft, which gives local Indian reinsurers a mandatory first order of

preference (or right of first refusal) for reinsurance business in India. Such a requirement severely restricts

the business for which foreign reinsurers could compete, which may decrease the interest of foreign

reinsurers to establish branches, with resulting impacts to the supply and cost of reinsurance in the Indian

market.

Banking



Although India allows privately held banks to operate in the country, the banking system is dominated by

state owned banks, which account for roughly 72.1 percent of total market share and 84 percent of all Indian

bank branches. The market participation by foreign banks in India is largely controlled by the Reserve

Bank of India (RBI). As of March 2013, India had 26 public sector banks, 20 private Indian-origin banks,

43 foreign banks and over 100 smaller, regional banks and credit cooperatives, with a combined network

of over 100,000 branches. Foreign banks, with a combined 327 branch offices, constitute less than one half

of one percent of the total bank branches in India, including four U.S. banks with a total of 49 branches.

Under India’s branch authorization policy, foreign banks are required to submit their internal branch

expansion plans on an annual basis, and their ability to expand is hindered by nontransparent limitations on

branch office expansion.

Foreign banks also face restrictions on direct investment in Indian private banks. Unlike domestic banks,

foreign banks are not authorized to own more than five percent of an Indian private bank without approval

by the RBI. Total foreign ownership of any private bank from all sources (foreign direct investment, foreign

institutional investors, and nonresident Indians) cannot exceed 74 percent.

RBI released framework guidelines in 2013 governing the establishment of wholly-owned subsidiaries by

foreign banks in India. These guidelines contain several provisions that U.S. stakeholders have requested

the government of India to clarify. According to the guidelines, foreign banks present in India prior to 2010

will have the option to subsidize or continue to operate as branches. However, the guidelines incentivize

foreign banks to subsidize by offering Indian subsidiaries of foreign banks treatment similar to domestic

banks when it comes to opening branches.

The passage of certain amendments to the Banking Regulation Act allows Indian business conglomerates

and non-bank financial institutions to establish new private banks. In a much lauded move to introduce

differentiated licensing, the RBI issued two universal banking licenses, 10 small bank licenses, and 11

payment bank licenses in 2015. However, the RBI restricted total foreign shareholding in any bank

established by such entities to 49 percent for the first five years, after which the limit would be the same as

that applicable to foreign ownership of other private banks, i.e., 74 percent.

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

Audiovisual Services



U.S. companies continue to face difficulties with India’s “Downlink Policy.” Under this policy,

international content providers that transmit programming into India using satellite must establish a

registered office in India or designate a local agent. U.S. companies have reported that this policy is overly

burdensome and serves little practical purpose, other than ensuring the creation of a taxable presence in

India. India also requires that foreign investors have a net worth of Rs. 50 million (approximately $800,000)

in order to be allowed to downlink one content channel. A foreign investor must have an additional Rs. 25

million (approximately $400,000) of net worth for each additional channel that the investor is allowed to

downlink.

The Telecommunications Regulatory Authority of India has introduced new regulations on content

aggregation and distribution that eliminates bundling of channels and certain types of distribution

partnerships. Content aggregation is commonly used internationally as it allows niche and foreign content

to be bundled into and sold by domestic partners without a large local presence or sales force. The new

regulations are particularly difficult for small and international content providers, as the result is that these

companies must now interact with each of the 60,000 local cable operators, radio, and TV broadcasters that

they seek to target.

There are also a number of limits on foreign ownership in the audiovisual and media sectors: cable networks

(49 percent); FM radio (26 percent); head-end in the sky (74 percent); direct-to-home (DTH) broadcasting

(74 percent); teleports (74 percent); news broadcasting (26 percent); and newspapers (26 percent).

Additionally, pending litigation related to audiovisual services, including the acquisition of content and

telecasting rights and advertising revenue of foreign telecasting companies, is causing uncertainty for

companies considering market entry.



Accounting



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

accounting firms structured as partnerships under Indian law may supply financial auditing services, and

only Indian-licensed accountants may be equity partners in an Indian accounting firm.

Legal Services



At present, membership in the Bar Council of India (BCI), the governing body for the legal profession, is

mandatory “to practice law” in India and is limited to Indian citizens. Foreign law firms are not allowed to

open offices in India. The Advocates Act, which is administered by BCI, provides for foreign lawyers’ or

law firms to visit India on a reciprocal basis for temporary periods to advise their clients on foreign law and

diverse international legal issues.

Some in India, both in industry and in government, are reviewing the merits of liberalization of the legal

services market in India. An inter-ministerial committee led by the Ministry of Commerce is working with

BCI to draft a framework that will allow foreign legal firms into India based on reciprocal arrangements.

India would possibly implement phased entry for these firms over a period of five to seven years, with each

subsequent phase dependent upon the successful completion of the earlier phase. There are no indications

of possible timelines for implementation. The United States and India are continuing to discuss

liberalization of legal services under the TPF.

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

Architecture



Although Indian companies continue to demand high quality U.S. design for new buildings and

infrastructure development, foreign architecture firms are finding it difficult to do business in India due to

the legal environment. An uncertain Indian legal regime for architectural and related services has resulted

in court cases against foreign design firms seeking to perform work in India and harassment of their

potential clients, causing significant losses for U.S. companies.



Telecommunications

India eliminated a 74 percent cap on FDI in Indian wireless and fixed telecommunications providers in

August 2013, though government approval is required for FDI above 49 percent. U.S. companies note that

India’s one-time licensing fee (approximately $500,000 for a service-specific license, 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 of India continues to hold equity in multiple telecommunications firms. 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 set aside for Mahanagar

Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL), state-owned

telecommunications service providers in India, instead of being allocated through competitive bidding.

Although MTNL and BSNL did not pay a preferential price for their spectrum, they received their spectrum

well ahead of privately owned firms.

Satellite

India’s Ministry of Information and Broadcasting (MIB) has issued guidelines that establish a preference

for Indian satellites to provide capacity for delivery of Direct-to-Home (DTH) subscription television

services. In practice, authorized DTH licensees have not been permitted to contract directly with foreign

satellite operators and have encountered procedural and contracting delays when they have sought to do so.

Rather, DTH licensees must procure any foreign satellite capacity through the Indian Space Research

Organization (ISRO) which, in turn, only permits such procurements if it does not have available capacity

on its own system. This issue is compounded by a lack of transparency regarding ISRO’s plans for future

transponder capacity. If ISRO does permit the use of foreign satellite capacity, the foreign satellite operator

must sell the capacity to ISRO, which then resells the capacity to the end-user after adding a surcharge.

Foreign satellite operators are thus prevented from developing direct relationships with DTH licensees.

This is a particular concern to the United States, as it puts U.S. satellite operators at a competitive

disadvantage and prevents DTH licensees from offering a fuller range of services from U.S. satellites. The

United States continues to encourage India to adopt an “open skies” satellite policy to allow consumers the

flexibility to select the satellite capacity provider that best suits their business requirements and to promote

market access for foreign satellite service providers.

Distribution Services

India requires government approval for retailers selling a single brand of product if foreign ownership is

above 49 percent. Foreign investments exceeding 51 percent are also contingent on, among other things, a

requirement to source from Indian firms at least 30 percent of the value of products sold, preferably sourcing

from small and medium sized enterprises (although, DIPP’s Press Note No. 12 (2015 Series) of November

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2015 allows the government to relax the local sourcing requirement for “state of the art” or “cutting edge”

technology and where local sourcing is not possible).

India permits up to 51 percent foreign ownership in companies in the multi-brand retail sector, but leaves

to each Indian state the final decision on whether to authorize such FDI in its territory. In addition, where

such FDI is allowed, it is subject to conditions, including requirements for the foreign investor to: invest 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; open stores only in cities that have been identified as eligible by the respective

state government; and source from “Indian ‘small enterprises’ which have a total investment in plant and

machinery not exceeding” $2 million or at least 30 percent of the value of products sold.

Indian states have periodically challenged the activity of direct selling (the marketing and selling of

products to consumers away from fixed locations) as violations of the Prize Chits and Money Circulation

Schemes (Banning) Act of 1978 (Prize Chits Act), creating uncertainty for companies operating in the direct

selling industry. This central government legislation contains no clear distinction between fraudulent

activities and legitimate direct-selling operations. Enforcement of the Prize Chits Act is reserved to the

states, which have adopted varying implementation guidelines and taken unexpected enforcement actions

on the basis of the ambiguous provisions of the Act, including the arrest of a chief operating officer of a

direct selling company.

Stakeholders have asked DIPP to issue guidance establishing a definition of direct selling and clarifying

ambiguities, including uncertainty related to commissions earned in connection with the sale of products.

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 contained 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. As of October 2015, the Indian Institute of Corporate Affairs (IICA),

under the Ministry of Corporate Affairs, issued a white paper on direct selling. The IICA initiated

discussions with stakeholders and has received positive feedback from U.S. stakeholders. Under the TPF,

the United States encouraged India to move ahead with reforms outlined in the white paper, which include

efforts to distinguish legitimate direct selling from illegal pyramid schemes, including establishing a clear

legal definition of direct selling, a central regulatory body, and a mandatory registration process.

Education

Foreign suppliers 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 double-taxation;

and difficulties repatriating salaries and income from research.

ELECTRONIC COMMERCE

India allows for 100 percent FDI in business-to-business (B2B) electronic commerce, but largely prohibits

foreign investment in business-to-consumer (B2C) electronic commerce transactions. In practice, this has

meant that an inventory-led electronic retailing model cannot attract FDI whereas a market-place based

electronic retailing model can still attract FDI. The only exception allowing for B2C foreign investment in

electronic commerce was published in November 2015 by the Ministry of Commerce and Industry, DIPP,

Press Note No. 12 (2015 Series) and states that single brand retailers that meet certain conditions, including

the operation of physical stores in India, may undertake retail trading through electronic commerce. This

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narrow exception limits the ability of the majority of potential B2C electronic commerce foreign investors

to access the Indian market.

India’s 2011 Information Technology Rules govern the liability of internet intermediaries (internet service

providers (ISPs), hosting services, search engines, social networks, online forums, and other web platforms)

for content on their networks. U.S. stakeholders have raised concerns that these rules are vague and

inconsistently applied, and do not provide safeguards against abuse of the process. Any citizen can

complain that certain content is “disparaging” or “harmful,” and intermediaries must respond by removing

that content within 36 hours. Failure to act, even in the absence of a court order, can lead to liability for

the intermediary. Such strict rules encourage over-compliance with takedown notices, causing

intermediaries to remove content that may not be illegal. Foreign companies providing internet services in

India are forced to choose between needlessly censoring their customers and subjecting themselves to the

possibility of legal action.

India’s National Telecom M2M (“machine to machine”) Roadmap, issued in May 2015, recommends the

mandatory localization of certain hardware, and preferences for domestic Subscriber Identity modules

(SIMs) in devices to be used in India. The objective of the Roadmap appears to be to provide preference

for domestic manufacturing of goods with “security implications.” The Roadmap recommends requiring

that all M2M application servers and gateways serving customers in India be located domestically.

Likewise, the Roadmap recommends that foreign SIMs be permitted in devices to be used in India only if

they fulfill traceability criteria and that machines sold and manufactured in India should only be equipped

with SIMs of Indian telecom providers. The government of India has not yet implemented these

recommendations, and it is not clear how they would do so.

OTHER BARRIERS

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In 2010, India initiated the Jawaharlal Nehru National Solar Mission (JNNSM), which aims to bring

100,000 megawatts (MW) of solar-based electricity online by 2022, as well as promote solar module

manufacturing in India. Under the JNNSM, India imposes certain local content requirements (LCRs) for

solar cells and modules. Specifically, under the JNNSM, participating solar power developers must use

solar cells and modules made in India in order to enter into long-term power supply contracts and receive

other benefits from the Indian government.

On February 6, 2013, the United States requested consultations with India concerning India’s domestic

content requirements under “Phase I” of the JNNSM. On February 10, 2014, the United States requested

supplementary consultations concerning India’s domestic content requirements under “Phase II” of the

JNNSM. Under Phase II, the LCRs were expanded to cover solar thin film technologies, which comprise

the majority of the components made in the United States. Thin film technologies had been excluded from

the LCRs under Phase I. In May 2013, the WTO established a panel to examine the LCRs under Phase I

and II of the JNNSM. On December 21, 2015, the Panel issued a report finding the LCRs inconsistent with

India’s national treatment obligations under Article III:4 of the General Agreement on Tariffs and Trade

1994 (GATT 1994) and Article 2.1 of the Agreement on Trade-related Investment Measures (TRIMS

Agreement).

India has steadily increased export duties on iron ore and its derivatives. In February 2011, India increased

the export duty on both iron ore fines and lumps from 5 percent and 15 percent, respectively, to 20 percent

on both, and increased that export duty to 30 percent in January 2012. A 5 percent ad valorem export duty

on iron ore pellets has been in place since January 2014. Furthermore, a 10 percent export duty is levied

on iron ore containing Fe (iron) less than 58 percent since May 2015. In February 2012, India changed the

export duty on chromium ore from Rs. 3,000 per ton to 30 percent ad valorem, an increase at current

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chromium ore price levels. In recent years certain Indian states and stakeholders have increasingly pressed

the central government to ban exports of iron ore. India’s export duties impact international markets for

raw materials used in steel production.

Lack of transparency with respect to new and proposed laws and regulations affecting traders remains a

problem due to a lack of uniform notice and comment procedures and inconsistent notification of these

measures to the WTO. This in turn inhibits the ability of traders and foreign governments to provide input

on new proposals or to adjust to new requirements. In February 2014, India’s Ministry of Law and Justice

issued a policy on pre-legislative consultation, which was to be applied by all Ministries and Departments

of the Central Government before any legislative proposal was to be submitted to the Cabinet for its

consideration and approval. The policy also required central government entities to publish draft legislation

or a summary of information concerning the proposed legislation for a minimum period of 30 days.

Issuance through electronic media was also encouraged in the policy, as were public consultations.

However, despite U.S. requests, the Indian government has provided no information on the implementation

of the policy, other than to clarify it is only intended to apply to draft legislation, not regulations. U.S.

stakeholders continue to report new requirements that are issued with no or inadequate public notice and

consultation or without WTO notification. This lack of transparency imparts a lack of predictability in the

Indian marketplace, negatively affecting the ability of U.S. companies to enter or operate in the Indian

market.

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INDONESIA

TRADE SUMMARY

U.S. goods exports in 2014 were $8.3 billion, down 8.4 percent from the previous year. Indonesia is

currently the 35th largest export market for U.S. goods. Corresponding U.S. imports from Indonesia were

$19.4 billion, up 2.6 percent. The U.S. goods trade deficit with Indonesia was $11.0 billion in 2014, an

increase of $1.3 billion from 2013.

U.S. exports of services to Indonesia were $2.2 billion in 2013 (latest data available), and U.S. imports were

$692 million. Sales of services in Indonesia by majority U.S.-owned affiliates were $3.2 billion in 2012

(latest data available), while sales of services in the United States by majority Indonesia-owned firms were

$85 million.

The stock of U.S. foreign direct investment (FDI) in Indonesia was $12.8 billion in 2013 (latest data

available), down from $13.6 billion in 2012. U.S. FDI in Indonesia is led by the mining sector.

Overview

In recent years, Indonesia has enacted numerous regulations on imports that have increased the burden for

U.S. exporters. 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. In addition, the Indonesian government has adopted protectionist

measures as it pursues the objective of agricultural self-sufficiency. The United States will continue to

press Indonesia to resolve U.S. concerns with Indonesia’s restrictive trade and investment policies.

Numerous other measures have been adopted or are being considered in the context of draft legislation,

including food and quarantine laws. In January 2014, Indonesia’s legislature, the Dewan Perwakilan

Rakyat (DPR), passed an industry law (3/2014) outlining a master plan for national industrial development

and tariff and non-tariff measures to protect domestic industries, citing protection of natural resources,

national interest, and strategic importance. In February 2014, the DPR passed a comprehensive trade law

(7/2014), which outlines the government’s broad powers to oversee trade, including the ability to limit

exports and imports in order to protect domestic interests. To date, only some of the implementing

regulations have been published for both the trade and industry laws.

In late 2015 and early 2016, the Indonesian government released ten economic reform packages designed

to ease regulatory burdens and attract additional investment. Due to their limited scope and slow

implementation, these packages have not yet significantly altered the protectionist nature of Indonesia’s

trade and investment policies. Nonetheless, these reform packages, along with President Joko Widodo’s

statement that Indonesia intends to join the Trans-Pacific Partnership, may signal a renewed emphasis on

openness and reform in Indonesian economic policymaking.

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TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Toys – Standards and Testing Requirements

In April 2014, Indonesia began enforcing a new mandatory toy regulation (Ministry of Industry (MOI)

Regulation 24/2013). Under the regulation, Indonesia will accept test reports from foreign International

Laboratory Accreditation Cooperation-accredited laboratories for a two-year period, subject to further

registration and sampling requirements, after which the regulation will require a bilateral mutual

recognition agreement to avoid in-country testing.

U.S. stakeholders remain concerned about the frequency of testing requirements, which is on a per-shipment

basis for imports and every six months for domestic products. They also are concerned about burdensome

documentation requirements, as well as specific technical requirements, such as for formaldehyde, which

are not based on the latest International Organization for Standardization (ISO) standard. In addition, U.S.

stakeholders are concerned about a lack of coordination of Indonesia National Standard registration and

pre-shipment inspection. U.S. stakeholders have asked MOI to reduce the inspection frequency once an

importer demonstrates a history of compliance along the lines of the U.S. Consumer Product Safety

Commission’s post-market surveillance approach. Since the regulation came into effect, importers have

reported that the import testing and registration process has increased from 15 days to an average of 80 to

90 days. In mid-2015, Indonesia indicated that it was considering amending the regulation, but has not

done so to date. The United States has raised concerns over this regulation bilaterally and in the WTO

Committee on Technical Barriers to Trade and will continue to work to address concerns with Indonesia

on this issue.

Cell Phones, Handhelds, Tablets and Laptops

Indonesia has issued a number of measures that make it more difficult to import cellular and Wi-Fi-equipped

products. In late 2012, Indonesia issued Ministry of Trade (MOT) Regulation 82, which was subsequently

amended by MOT Regulation 38 in 2013, and MOI Regulation 108. Under this regime, in order to obtain

an import license, companies must provide product identification numbers for each imported item, and

receive: (1) an import certification from MOI; (2) a certification for telecommunication device and

equipment from the Ministry of Communication and Information Technology; and (3) approval of a label

written in Bahasa Indonesia. Companies are unable to provide identification numbers months in advance

and, as such, therefore often need to apply for this license, as well as the other import license required (as

discussed in the Indonesia Import Licensing Section of this report), on a per shipment basis.

Wireless Equipment Certification

The Ministry of Communication and Information Technology published Postel Regulation 5 in 2013, which

imposes strict testing requirements on cellular and Wi-Fi equipped products, as well as on notebooks and

personal computers. This measure requires that imported cell phones, tablets, handhelds, laptops, and other

equipment with Bluetooth or wireless LAN features be tested at the device level rather than the more

common modular level. While similar devices produced locally face the same testing requirements,

Indonesia requires that tests must be conducted in Indonesian test labs. Since full implementation began in

January 2014, U.S. companies have reported some delays in product testing due to testing capacity

constraints.

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Bahasa Indonesia Labeling Requirements

In September 2015, Indonesia issued Regulation 73/2015 on product labeling, replacing Regulation

67/2013. Pre-approved Bahasa Indonesia-language labels are still required on a wide range of products,

including various information and communications technology products, building materials, motor vehicle

goods, household products, and apparel and textiles, that are distributed or sold in Indonesia. However,

labeling can now be done in Indonesia before the product is distributed to the market. Previously, regulation

67/2013 required that food products must be labeled before entering Indonesia. The regulation also requires

that labels be “embossed or printed on the goods, or wholly attached to the goods”. In fall 2014, Indonesian

officials clarified that “permanent stickers” are permitted.

Halal Certification

In September 2014, Indonesia passed Law 33/2014 governing halal products. The law makes halal

certification mandatory for all food, beverage, pharmaceuticals, cosmetics, chemicals, and organic and

agricultural biotech products sold in Indonesia, as well as machinery and equipment used in processing

these products, subject to further implementing regulations. Companies have five years from October 2014

to comply with the new law. In the meantime, companies have been instructed to follow existing Indonesia

Ulama Council (MUI) halal-certification procedures. The law calls for the establishment of a new

institution called the Halal Product Assurance Agency to issue halal certificates. In September 2015, the

government issued Presidential Regulation 83, which established the structure of the new agency under the

Ministry of Religious Affairs. Its staffing and operational functions are yet to be determined. The law also

calls for a number of other implementing regulations, which the Ministry of Religious Affairs is reportedly

drafting. The United States will continue to monitor developments and engage with Indonesia on these

issues. (See Import Policies Section for information on the pharmaceutical market access requirements in

these regulations.)

In 2014, the Ministry of Agriculture issued meat import Regulation 139/2014, replacing Regulation

84/2013. Regulation 139/2014 requires all meat and poultry facilities wishing to export to Indonesia to

limit their production to 100 percent halal. The U.S. Embassy in Jakarta notes, however, that in practice

this rule has only been applied to poultry. Among the halal requirements, all poultry slaughter facilities in

the country of origin must meet the Indonesian halal standard in order for facilities to be eligible to export

to Indonesia. As a result, even poultry slaughter facilities in the United States that meet the halal standard

of a halal certification body in the United States are banned from shipping to Indonesia, as exports are only

allowed from countries with 100-percent halal poultry slaughter.

Prepackaged and Fast Foods – Labeling of Sugar, Salt and Fat Requirements

In September 2015, the government delayed implementation of Regulation 30/2013 on the inclusion of

sugar, salt, and fat content information on labels for prepackaged and fast foods. The regulation also

requires inclusion of a health message affixed to labels for processed and fast foods. Indonesia failed to

notify the regulation to the WTO TBT Committee until after it was finalized and effective. The United

States supports Indonesia’s regulatory and public health effort to improve nutritional literacy and raise

awareness among Indonesians about healthy lifestyle choices, but is concerned about the lack of an open

public consultation process regarding this measure. U.S. stakeholders have raised concerns regarding the

need for further technical clarification and implementing guidance – including acceptable methods for the

required nutrient conformity tests – and whether tests performed by foreign laboratories or by companies’

“in-house” laboratories would be acceptable. Indonesia’s strict testing procedure may not allow de minimis

variations between batches and would possibly lead to unnecessary shipment-by-shipment inspections for

label conformity. The United States submitted written comments on the regulation and raised the regulation

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at all three WTO TBT Committee meetings in 2014 and will continue to engage with Indonesia on it. As

much as $418 million in U.S. prepackaged food exports to Indonesia could be affected by the regulation.

Sanitary and Phytosanitary Barriers

Beef and Pork

Indonesia requires each U.S. meat establishment seeking to export to Indonesia to complete an extensive

questionnaire that includes proprietary information, and to be inspected by Indonesian inspectors before it

can ship meat to Indonesia. The United States has raised concerns about the establishment questionnaires

and approval system with Indonesia repeatedly, including at the WTO Committee on Sanitary and

Phytosanitary matters and at meetings of the United States-Indonesia Council on Trade and Investment,

and will continue to raise concerns in WTO and bilateral fora.

Animal-Derived Products

Indonesia’s animal health and husbandry law (Law 18/2009, as amended by Law 41/2014) requires

companies that export animal‐derived products, such as dairy and eggs, to Indonesia to complete a pre‐

registration process with the Indonesian Ministry of Agriculture. The law allows imports of these products

only from facilities that Indonesian authorities have individually approved. To date, Indonesia has not

notified the law to the WTO. After a 2011 audit of the U.S. food safety system as it applies to dairy

products, Indonesia agreed to a simplified questionnaire for U.S. dairy facilities seeking to pre-register for

review and approval. The United States is continuing to work with Indonesia to further improve the system

under which U.S. establishments become eligible to export dairy products to Indonesia.

Poultry

In December 2014, Indonesia banned all poultry imports from the United States due to the detection of

highly pathogenic avian influenza (HPAI) in backyard and commercial flocks in several U.S. states. The

U.S. Embassy in Jakarta notes that in practice, the ban is only relevant to day-old chicks, as poultry meat

exports to Indonesia are hindered by other trade barriers. The United States will continue to urge Indonesia

to apply its HPAI-related measures on a regionalized basis.

Horticulture

Under Ministry of Agriculture Regulation 88 “Food Safety Control Over Import and Export of Fresh Food

of Plant Origin,” to export a covered horticulture product to Indonesia, an exporting country must have a

food safety control system that has been recognized by Indonesia or registered food safety testing

laboratories. In 2014, the Ministry of Agriculture notified the WTO SPS Committee of an amendment to

Regulation 88, which retained this requirement. Indonesia recognizes that the United States meets this

requirement. Nonetheless, this rule has the potential to restrain trade with Indonesia in these products. (See

Customs Barriers section for more information.)

IMPORT POLICIES

Tariffs

In 2013, Indonesia’s average MFN applied tariff rate was 6.9 percent. Indonesia periodically changes its

applied rates. Since December 2011, the average tariff rate for oilseeds have fluctuated between zero and

5 percent. In 2009, 2010, 2011, and 2015, Indonesia increased its applied tariff rates for a range of goods

that compete with locally manufactured products, including electronic products, electrical and non-

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electrical milling machines, chemicals, cosmetics, medicines, wine and spirits, iron wire and wire nails, and

a range of agricultural products including milk products, animal and vegetable oils, fruit juices, coffee, and

tea.

Indonesia’s simple average bound tariff rate of 37 percent is much higher than its average applied tariff.

Most Indonesian tariffs on non-agricultural goods 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.

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. Currently, however, there are no luxury goods subject to the 200

percent rate, and the applied luxury tax rates generally range from 10 to 75 percent, depending on the

product. Finance Ministry Regulation 106, issued in June 2015, updated luxury tax rates for certain non-

motor vehicle luxury goods, including yachts, aircraft, firearms, and certain types of housing.

Pursuant to Government Regulation 22/2014, issued in March 2014, the current highest tax rate applied is

125 percent for special luxury cars. However, under Regulation 41/2013, the luxury goods sales tax base

rates are lowered for motor vehicles that meet certain environmental requirements. Luxury sales taxes are

reduced by up to 100 percent for motor vehicles with an internal combustion engine with a cylinder capacity

up to 1,200 cc and a fuel consumption rate of at least 20 kilometers per liter of fuel, or a compression

ignition engine (diesel or semi-diesel) with a cylinder capacity of up to 1,500 cc and a fuel consumption

rate of at least 20 kilometers per liter of fuel. A luxury tax reduction of 50 percent is granted for motor

vehicles using advanced technology diesel or petrol engines, biofuel engines, hybrid engines, or compressed

natural gas (CNG) or liquefied gas for vehicles (LGV) dedicated engines, with fuel consumption of more

than 28 kilometers per liter of fuel or other equivalent. A luxury tax reduction of 25 percent is granted for

motor vehicles that use advanced technology diesel or petrol engines, dual petrol-gas engines (CNG kit

converter or LGV), biofuel engines, hybrid engines, or CNG or LGV dedicated engines, with fuel

consumption ranging from 20 kilometers per liter to 28 kilometers per liter of fuel.

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. In July 2015, the excise tax was

increased to 150 percent on spirits and to 90 percent on wine.

Import Licensing

Indonesian importers must comply with numerous and overlapping import licensing requirements that

impede access to Indonesia’s market. Several of these regulations are currently being reviewed or revised.

MOT Regulation 70/2015 came into effect in January 2016, replacing MOT Regulation 27/2012 as

amended by Regulation 59/2012. The new regulation requires all importers to obtain an import license as

either importers of goods for further distribution (API-U) or as importers for their own manufacturing (API-

P), but they cannot obtain license for both activities. In response to stakeholder concerns, in November

2015, MOT issued a draft regulation on complementary goods that would allow companies that operate

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under an API-P import license to import finished products for “market test” and for after sales service

purposes, as long as the goods are new, consistent with the company’s business license, and produced by

an affiliated firm, subject to reporting requirements.

In October 2015, MOT issued Regulation 87/2015 on the Import of Certain Products (replacing Decree

56/2009, which had been extended through MOT Regulation 83/2012). Like its predecessors, Regulation

87/2015 requires pre-shipment verification by designated companies (known in Indonesia as “surveyors”)

at the importer’s expense and limits the entry of imports to designated ports and airports. In addition,

Regulation 87/2015 maintains non-automatic import licensing requirements on a broad range of products,

including electronics, household appliances, textiles and footwear, toys, food and beverage products, and

cosmetics. However, for holders of an API-U license, Regulation 87/2015 appears to eliminate the

additional requirement to apply or register as an importer of certain products.

MOT Regulation 82/2012, as amended by Regulations 38/2013 and 68/2015, and MOI Regulation

108/2012, in effect since January 2013, imposes burdensome import licensing requirements for cell phones,

handheld computers, and tablets. Under Regulation 82/2012, importers of cell phones, handheld computers,

and tablets can no longer sell directly to retailers or consumers. Importers must have at least three years of

experience and must use at least three distributors to qualify for a MOT importer license. In addition, an

amendment issued in 2013 (MOT Regulation 38/2013) requires an importer to commit to establish an

“industry” (e.g., manufacturing) within three years of obtaining an import permit. U.S. companies have

reported that, in some cases, MOI is informally limiting imports under existing licenses (issued under MOI

Regulation 108/2012) to protect locally manufactured cell phones, handheld computers, and tablets. (See

above TBT section for related information.)

Import Licensing for Agricultural Products

Import licensing requirements also apply to horticultural products. In August 2013, Indonesia adopted

Ministry of Agriculture (MOA) Regulation 86/2013 (replacing MOA Regulations 47/2013, 60/2012, and

3/2012) on horticultural imports. MOT Regulation 71/2015 was also adopted, replacing MOT Regulation

47/2013. The regulations require Indonesian importers to obtain the following import recommendations

and permits in order to import horticultural products: (1) an Import Recommendation of Horticultural

Products (RIPH) from MOA; and (2) an Import Approval (SPI) from MOT. Additionally, importers must

obtain an Importer Identification Number (General or Producer) and must prove that they have met certain

criteria set by MOT.

Importer designations and approvals are issued on a biannual basis and are valid for one six-month period.

RIPHs specify, inter alia, the product name, HS code, country of origin, manufacturing location (for

industrial materials), and entry point for all horticultural products the applicant wishes to import. After

securing an RIPH, an importer must obtain an SPI from MOT before importing horticultural products. An

SPI specifies the total quantity of a horticultural product (by tariff classification) that an importer may

import during the period for which the SPI is valid. Importers cannot amend existing SPIs or apply for

additional ones outside the application window.

Indonesia adopted similar rules for the importation of animals and animal products (MOA Regulation

139/2014 (replacing Regulations 84/2013, 96/2013, and 110/2014), MOA Regulation 58/2015, and MOT

Regulation 46/2013 (replacing Regulation 22/2013)). These regulations require importers seeking to import

animals or animal products to obtain: (1) a Recommendation from MOA; and (2) an Import Approval from

MOT. Indonesia requires importers of beef to purchase local beef in order to obtain an import

Recommendation from MOA.

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Recommendations and SPIs for animals and animal products are issued quarterly. Recommendations may

be valid for up to the remainder of the current year. SPIs are valid for a fixed term of three months, which

restricts exports of U.S. beef products, as shipping times from the United States to Indonesia are long. The

Directorate of Veterinary Public Health and Postharvest issues Recommendations, and importers may apply

for SPIs only after obtaining a Recommendation for a given product. Recommendations specify, inter alia,

the name, tariff category, entry point, country of origin, and intended use (which the regulations limit to

certain sectors) of the products to be imported. SPIs specify the quantity of each product that may be

imported. Importers must demonstrate actual importation of at least 80 percent of the quantity specified in

their SPI from the previous year or risk losing their Registered Importer designation.

Similar to the prior import regulations, the new import regulations restrict the import of poultry and poultry

products. The regulations governing animals and animal products maintain a positive list of products that

may be imported with a permit. The regulations provide for the import of whole fresh or frozen poultry

carcasses (chicken, turkey, or duck) but not for the import of poultry parts, effectively resulting in a ban on

the import of poultry parts. Additionally, although the regulations provide for the import of whole chicken

carcasses, Indonesia in practice does not issue import permits covering these products. This practice was

expanded to whole duck and turkey carcasses as Indonesia has not issued import permits for these products

since December 2013.

The licensing regimes for horticultural products and animals and animal products have significant trade-

restrictive effects on imports, and the United States has repeatedly raised its concerns with Indonesia

bilaterally and at the WTO. Indonesia has failed to address these concerns. As a result, in January 2013,

the United States requested consultations with Indonesia under the WTO’s dispute settlement procedures.

After the consultations failed to resolve the concerns, the United States requested establishment of a WTO

dispute settlement panel, and a panel was established in April 2013. In August 2013, New Zealand joined

the dispute by filing its own request for consultations to address Indonesia’s measures. At the same time,

the United States filed a revised consultations request to address recent modifications to Indonesia’s

measures and to facilitate coordination with co-complainant New Zealand. A panel was established in May

2015.

Pharmaceutical Market Access

The United States continues to have serious concerns about barriers to Indonesia’s market for

pharmaceutical products. Ministry of Health Decree 1010/2008 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. Among its requirements, Decree 1010/2018 mandates

local manufacturing in Indonesia of all pharmaceutical products that are five years past patent expiration.

It also contains a technology transfer requirement. A subsequent pair of regulations, Regulation 1799/2010

and an updated regulation on drug registration from the Indonesian Food and Drug Regulatory Agency

(BPOM) (most recently revised in Regulation 27/2013), provide additional information about the

application of the local manufacturing requirements and applicable exceptions. The United States remains

concerned by Indonesian government statements indicating that Indonesia failed to abide by domestic legal

procedures in issuing a compulsory license decree in 2012 and indicating that Indonesian patent law does

not require individual merits review in connection with the grant of compulsory licenses. The United States

will continue to monitor the implementation of these regulations.

U.S. stakeholders have also expressed concerns regarding a proposed Regulation on Foods for Special

Medical Purposes that could prohibit the promotion, sale, and distribution of some nutritional products

directly to the customer and would instead require customers to access the products through their

pediatrician.

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The Indonesian Parliament passed a bill in September 2014 requiring halal certification of pharmaceuticals

as well as other products. The United States will continue to monitor the status of the implementing

regulations for this bill, including the potential impact on market access for affected products. (See TBT

Section for related information on the Halal Law.)

The innovative pharmaceutical industry has also raised concerns regarding the transparency of and

opportunity for meaningful stakeholder engagement within the Indonesian pricing and reimbursement

system. In particular, stakeholders report a lack of clarity and certainty regarding how pharmaceutical

products are selected for listing on the Indonesian National Formulary (FORNAS) and whether and for how

long such products will remain on the FORNAS. The United States will continue to follow this issue and

request that the Ministry of Health have quarterly meetings with U.S. stakeholders to discuss these issues.

Quantitative Restrictions on Imports

MOT recently issued Regulation 71/2015, updating Indonesia’s import rules on horticultural products. The

new import rules outlined in this regulation supersede MOT Regulations 16/2013, 47/2013, and 40/2015,

but make few substantial changes. Import licenses are still required and quantities will be allocated subject

to the importer’s cold storage capacity. MOT eliminated the 80 percent rule for horticultural products,

which imposed punitive measures on importers that used less than 80 percent of the quota allotted under

their import permits. The new regulation also specifies that the total import allocation will be set annually

and that importers are no longer required to register as horticultural product importers.

Importers also report that MOA is enforcing an unofficial regulation, limiting citrus imports to February,

March, September, and October. Importers report that this practice is intended to limit imports to periods

outside of Indonesia’s citrus harvest.

There has been no written change to meat import rules, implying that the 80 percent rule is still in effect

for beef products. Exporters report that meeting the 80 percent import requirement is burdensome and adds

unnecessary risk. For example, the Indonesian government has shown little flexibility in accommodating

importers that were unable to import their required volume within the duration of the Import

Recommendation due to acts beyond their control, such as shipping delays and production shortages in the

country of origin.

The Indonesian government has also stated that the import of many agricultural products, including meat

and some horticultural products, will be subject to a reference price system, whereby imports will be

permitted as long as domestic prices are above a set target price. In the event that prices fall below a set

target price, the Indonesian government reserves the right to “postpone” imports. As of December 2015,

Indonesia has not yet suspended imports under this provision.

Indonesia imposes an “unofficial” restriction on corn imports. Since 2012, only feed millers can import

corn. They must apply for an import permit from MOA. The import permit specifies the volume of corn

that can be imported. The import volume is set based on the level of domestic feed production.

Indonesia bans salt imports during the agricultural 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 bans exports of raw and semi-processed rattan.

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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 MOT.

Product Registration

BPOM reportedly has improved the efficiency of its product registration system through the implementation

of an e-registration system for low-risk products. Still, concerns remain about proposed changes to the

registration requirements and submission process that can further complicate product registration. U.S.

stakeholders continue to express concern about the process to obtain product registration numbers (known

as ML registration numbers). The United States will continue to monitor developments in this area.

Product Testing

BPOM sets out requirements for testing of heavy metals in food, drugs and cosmetics in BPOM Regulation

17/2014. A new regulation, BPOM 12/2015, provides further guidance on this requirement, which is

fulfilled via a certificate of analysis that is valid for six months. In practice, Indonesian customs is requiring

each shipment to provide a separate test in addition to the certificate. This measure appears targeted at

limiting exports and adds unnecessary costs. In addition, in the case of cosmetics, U.S. and other

stakeholders have expressed concern that the pre-market testing requirement goes against the intent of the

ASEAN Cosmetics Directive, which stipulates that monitoring of heavy metals should be undertaken via

post-market surveillance.

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 transactions as required by the WTO Agreement on Customs

Valuation. Indonesia’s Director General of Customs and Excise 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.

U.S. horticultural exports continue to use Tanjung Priok port, based on Indonesia’s recognition of the U.S.

food safety system for fresh foods of plant origin (FFPO). Australia, New Zealand, and Canada have also

received FFPO recognition and have access to Tanjung Priok. In December 2015, MOA renewed the U.S.

FFPO status for two years.

State Trading

The National Logistics Agency maintains exclusive authority to import standard unbroken rice (medium

grain, medium quality). Indonesia cited “food security” and price management considerations as the

principle objectives of the authorization, but the Indonesian government separately cited its aspirations for

food self-sufficiency. The National Logistics Agency is not allowed to import rice before, during, or

immediately after the main harvest period. Private firms are only allowed to import broken rice for

processing and specialty rice varieties, such as basmati and jasmine rice for retail or food service. Importers

of broken and specialty rice must obtain a special importer identification number from MOA. Since mid-

2014, Indonesia has refused to issue import recommendations to private traders for the import of sushi-

grade rice. According to government sources, sushi rice falls under the same category as standard unbroken

rice.

In December 2014, MOA issued Regulation 139/2014, which it then amended in January 2015 through

Regulation 2/2015. Regulation 2/2015 stipulates that state-owned companies are allowed to import

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carcasses and secondary meat cuts in order to ensure food availability, to anticipate price volatility and

inflation, and in case of natural disaster. Per these regulations, private importers are no longer allowed to

import secondary meat cuts, which has not been defined (but excludes beef offals).

EXPORT RESTRICTIONS AND TAXES

Indonesia’s 2009 mining law requires companies to process ore locally before shipping it abroad. Indonesia

has implemented this law through a series of regulations, including January 2014 regulations that ban the

export of over 200 types of mineral ore, including nickel and bauxite. U.S. stakeholders have expressed

serious concern about the potential impact of these measures.

Indonesia provisionally allows the export of eight concentrates associated with these mineral ores

(including copper, lead and iron), subject to a prohibitive export tax that increases every six months through

the end of 2016, at which time the export of the mineral ore concentrate will be banned altogether. Under

a regulation issued in July 2014, if a company makes certain commitments with respect to the construction

of a smelter in Indonesia, it will be assessed significantly reduced duties during this transition period. Once

the smelter achieves an advanced stage of construction, these duties will be eliminated. In addition to these

measures, Indonesia has put in place certain verification and inspection procedures with respect to the

export of mineral ores. The United States will continue to raise concerns about these issues with the

Indonesian government.

Indonesia imposes a progressive export tax on cocoa and palm oil exports. The cocoa export tax rate ranges

from 5 percent to 15 percent and is calculated based on a monthly average of export prices. As of October

2014, the prices of crude palm oil dropped below the level at which export taxes are applied. However in

July 2015 the government introduced a new minimum levy of US 50/metric ton for crude palm oil and USD

30/metric ton for processed palm oil. Indonesia also effectively bans the export of steel scrap and bans

exports of raw and semi-processed rattan. The Indonesian government is considering imposing export taxes

on other products, including coconut, base metals, and coal.

GOVERNMENT PROCUREMENT

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 subcontractors 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.

Indonesia’s 2012 Defense Law mandates priority for local materials and components and requires defense

agencies to use locally produced defense and security goods and services whenever available. In addition,

when an Indonesian government entity procures from a foreign defense supplier due to lack of availability

from an Indonesian supplier, there is a requirement for trade balancing, incorporation of local content,

and/or offset production. The amount of domestic value or local content required starts at 35 percent, and

increases by 10 percent increments every five years until the value of local content is equal to 85

percent. The 35-85 percent domestic value must then be compensated by “counter-trade agreements,”

incorporation of local content, or offset production. Forthcoming implementing regulations will also

include a series of “multipliers” that will increase the calculated final value of a given offset component on

the basis of a determination from the Defense Industry Policy Committee. The implementing regulations

for the 2012 Defense Law are contained in Presidential Decree 76/2014, but numerous details, including

specifics for multiplier values, remain undetermined. Calculations for the value of local content can include

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design, engineering, IPR, raw materials, facilities/infrastructure costs, education and training, labor costs,

and after-sales service.

Indonesia is an observer but not a member of the WTO Agreement on Government Procurement.

SUBSIDIES

Indonesia has not filed a subsidy notification under the WTO Agreement on Subsidies and Countervailing

Measures (Subsidies Agreement) since March 1998, a fact the United States noted in comments regarding

Indonesia’s last Trade Policy Review (TPR) in 2013. In response to questions regarding its 2013 TPR,

Indonesia indicated that it was pursuing support policies to, inter alia, improve export performance and

develop downstream industries, but provided few details regarding specific measures. According to the

Secretariat Report on the 2013 TPR, Indonesia provides fiscal and non-fiscal incentives for manufacturing

and exports in connection with its export processing zones and special economic zones programs. These

include incentives related to corporate income tax, property tax, import duty, value-added tax, excise and

luxury taxes, and local taxes, as well as assistance on land acquisition, licensing, investment and manpower.

Additionally, Indonesia provides various forms of official export financing, insurance, and guarantees

through the state-owned Indonesia Eximbank and the Asuransi Ekspor Indonesia. In 2013, Indonesia

became subject to the WTO rule against export subsidies under Article 3.1(a) of the Subsidies Agreement

when it graduated from the Annex VII(b) list of developing countries exempted from the rule.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Indonesia remained on the Priority Watch List in the 2015 Special 301 Report. Key concerns in Indonesia

include continuing widespread copyright piracy, trademark counterfeiting, an inadequate number of

criminal prosecutions, and non-deterrent penalties for convicted offenders. Counterfeiting activity extends

to products that present serious risks to human health and safety, such as pharmaceutical products. U.S.

stakeholders report that one of its most significant frustrations remains the nontransparent court system,

which impedes the ability of rights holders to obtain information about cases directly affecting their

interests. Amendments to the 2002 Copyright Act (Law 28/2014) made duplication by video camera in

movie theaters explicitly illegal, provided for the criminalization of illegal uploading and downloading of

copyrighted material for commercial purposes, and introduced landlord liability for knowingly allowing

the sale of copyright-infringing materials. However, the legislation removed certain key legal authorities

that had previously been available to enforcement officials in favor of a complaint-based system. Indonesia

is currently finalizing updates to its Trademark and Patent Laws. The United States is working with the

Indonesian government to develop a mutually agreed upon intellectual property action plan to address

deficiencies in IPR protection and enforcement, as well as public education and outreach.

SERVICES BARRIERS

Legal Services

Only Indonesian citizens may be licensed as lawyers in Indonesia. Foreign lawyers may work in Indonesia

as legal consultants with the 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

Indonesia maintains restrictions on the provision of postal services, broadly defined to include courier,

express delivery, and other logistics services. The law requires that postal service suppliers be majority-

owned by Indonesians and that foreign suppliers limit their activities to provincial capitals with

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international airports and seaports. Under Regulation 15/2013 and Regulation No. 32/2014, only an

Indonesian legal entity can apply for a license and foreign ownership of a company offering postal services

may not exceed 49 percent.

Health Services

The negative list of foreign investment restrictions allow for up to 67 percent foreign ownership of private

specialist hospitals in all regions of Indonesia. However, foreign ownership is prohibited for health research

centers, private maternity hospitals, and general or public hospitals.

Financial Services

A single entity, either foreign or Indonesian, may own no more than 40 percent of an Indonesian bank. The

Financial Services Authority (OJK) may grant exceptions and allow an entity to own more than 40 percent

ownership of an Indonesian bank in certain cases. Indonesia’s financial authorities announced in November

2015 that a foreigner will be able to hold a majority stake in a bank provided that they buy two banks and

merge them. However, this change will only apply for small banks that have capital of less than IDR 1

trillion (approximately $73 million). Separately, the DPR is debating a draft banking law that would lower

the overall foreign ownership cap on locally incorporated banks, which is currently 98 percent.

In December 2013, Bank Indonesia adopted a regulation, No. 15/49/DPKL, restricting foreign ownership

in private credit reporting firms to 49 percent.

In September 2014, the DPR passed the Insurance Law. The law requires all insurance companies to

incorporate locally as Indonesian corporate entities (Perseroan Terbatas or “PT”). All foreign investment

in PT insurance companies will be by publicly traded shares, so there will be no direct foreign purchase of

corporate assets. The Negative Investment List limits foreign ownership of an insurance company to 80

percent. Previously OJK allowed foreign owners to inject capital if needed, subject to approval, which in

some cases diluted the ownership percentage of the local partner. OJK plans to enforce the equity cap, such

that companies with more than 80 percent foreign ownership are expected to reduce the foreign holding to

80 percent by November 2019 (five years after the effective date of the 2014 Insurance Law). The Insurance

Law does not contain an explicit cap on foreign equity ownership, but pursuant to the Law OJK must issue

a regulation clarifying the threshold for foreign investment in the future by April 2017.

Nonbank financial service suppliers may do business in Indonesia as a joint venture or be partially owned

by foreigner investors, but cannot operate in Indonesia as a branch of a foreign entity.

OJK regulation 14/2015 came into effect January 1, 2016, with certain transition periods. It requires, among

other things, domestic insurance companies operating in the Indonesian market to cede 100 percent (up

from the current 5 percent to 15 percent) of the reinsurance covering simple risks for certain products (such

as vehicle, accident, health, and life insurance, and minimum amounts on other lines of insurance) to

domestic reinsurance companies. The regulation also requires insurers writing other types of risks to cede

a minimum amount of reinsurance to domestic reinsurers, unless exceptions apply, such as if a reinsurer is

unwilling to provide reinsurance. The United States has noted concerns over these requirements for

reinsurance the last several years and will continue to engage with Indonesia.

Energy Services

Article 79 of Presidential Regulation 35/2004, which regulates contractor activities in the upstream oil and

gas sector, provides that contractors must “prioritize” the use of domestic services, including energy-related

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services, as well as technologies and engineering and design capabilities. (See Investment Barriers section

for more information)

Maritime Cabotage

Indonesia’s Law 17/2010 on Shipping requires all vessels operating in Indonesian waters to be Indonesian

flagged. In addition, it limits foreign ownership of Indonesian-flagged vessels to 49 percent. 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 or service undersea cables.

In response to concerns raised by the United States and other countries, the Ministry of Transportation

issued Regulation 48/2011 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 Ministry of Transportation issued Regulations 10/2014, 79/2014,

and 10/2015 to provide further exemptions to Law 17/2010 and extended the renewable waiver period to

one year for non-transport foreign vessels engaged in oil and gas surveying, drilling, offshore construction,

dredging, salvage, and other under water work. Under the regulation, treatment of other categories of

specialty foreign vessels will be decided on a case-by-case basis for waivers of up to one year. The United

States will continue to press Indonesia to provide a longer-term solution for foreign-flagged specialty ship

operators and their customers.

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 presentations and disclosures. Indonesia allows a maximum of 10 percent foreign national

staff for each level of management in the affiliated local accounting firm. In affiliated accounting firms,

the ratio of foreign audit signing partners to local signing partners cannot exceed one to four.

Film

The 2009 Law on Film imposes a 60percent local content requirement for local exhibitors and, to achieve

that quota, also includes the authority to implement unspecified import restrictions, prohibitions against the

dubbing of foreign films, and prohibitions against foreign companies distributing or exhibiting films. The

law also restricts vertical integration across segments of the film industry, but the local content requirement

and integration restriction have not been fully implemented.

Firms have raised concerns with 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. Its

full implementation continues to be postponed under annual one-year suspensions, the most recent in

January 2015. The Indonesian Government has said that film policy will move from the Ministry of

Tourism. However, it remains unclear whether it will fall under the Ministry of Education and Culture, the

newly formed Creative Economy Agency, or some combination of both. The United States continues to

advocate for the permanent suspension and repeal of this regulation.

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Construction, Architecture, and Engineering

Prior to November 2014, foreign construction firms were only allowed to be subcontractors or advisors to

local firms in areas where the Indonesian government believed that local firms are unable to do the work.

Government Regulation 10/2014 now permits the reverse relationship, i.e., if the Indonesian government

determines that a local firm is not capable of managing an entire project on its own, the local firm may now

serve as subcontractor or advisor to a foreign construction firm. The foreign firm would work together with

a 100 percent locally owned firm, or if it is a joint venture, the local ownership should be at least 65 percent.

There are a number of conditions to this regulation, including that the construction project should be worth

at least Rp100 billion (or a minimum of Rp20 billion for a consultation project), that it should be a high-

tech construction project, and that the risk ratio should be high. Beginning in 2015, the National

Construction Services Development Board (LPJK) certifies foreign entities as construction companies,

consulting companies, or integrated (engineering, procurement, and consulting) companies. An entity may

have only one of these designations.

Education

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. A foreign national

may provide educational services at the tertiary level only if 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 also issued a regulation overseeing the classification of schools. In May 2014, the Ministry of

Education and Culture issued Regulation 31/2014 which provides that, starting December 1, 2014, every

international school and National Plus School must become a “Satuan Pendidik Kerjasama” (SPK –

‘Education Unit Partnership’), which prohibits independent international schools. International schools

must now be administered by partner institutions from overseas

(or Foreign Educational Institutions already

accredited or recognized in Indonesia) and can no longer use the word “international” in their names, among

other requirements.

Franchising

Indonesia’s MOT made three major regulatory changes in the franchising sector in recent years that threaten

to have a significant chilling impact on future operations of foreign franchisors. In August 2012, Indonesia

promulgated MOT Regulation 53/2012, which establishes a local content requirement obliging an

Indonesian franchisee to source 80 percent of its equipment and inventory domestically, 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.

In October 2012, MOT issued Regulation 68/2012 restricting the number of outlets that can be owned by a

modern retail franchisee, such as supermarkets, to 150 before it must sub-franchise additional units to

another local entity. In February 2013, MOT issued Regulation 7/2013 restricting the number of outlets

that can be owned by a food and beverage franchisee to 250. In 2014, MOT issued amendments –

Regulations 57/2014 and 58/2014 – to the existing franchising requirements. These revised regulations

grandfather franchisors or franchisees of restaurants, cafés, and bars that already have more than 250 outlets,

but the existing requirements will still apply to newcomers or those that do not already have more than 250

outlets.

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In December 2013, MOT issued Regulation 70/2013 requiring modern retail establishments, such as

shopping centers, minimarkets, and hypermarkets, to sell 80 percent domestic product. The regulation also

limits the stock of these establishments to a maximum of 15 percent private label products. Retailers must

comply with these regulations by June 2016. For stand-alone brand or specialty stores, MOT may provide

exceptions to the requirement that retailers sell 80 percent domestic products based on the following criteria:

(1) products requiring uniformity of production and sourcing from a global supply chain; (2) products with

“world famous” or premium branding that are not yet produced in Indonesia; or (3) products from certain

countries sold to meet the needs of their citizens living in Indonesia.

Telecommunications Services and Equipment

Telecommunications suppliers face myriad investment restrictions in a regime notable for its confusing

system for classifying services and a track record of backsliding from steps toward liberalization. The

Negative Investment List, updated through Decree 39/2014, caps foreign ownership at 65 percent for fixed

and wireless network services and 49 percent for Internet and multimedia-based communication service

suppliers (down from 65 percent). Previously, the foreign-ownership limitation on suppliers of fixed

services was 95 percent.

Local content requirements are also a significant concern. KOMINFO Regulations 07/2009 and 19/2011

requires that equipment used in certain wireless broadband services contain local content of at least 30

percent for subscriber stations and 40 percent for base stations, and that all wireless equipment contains 50

percent local content within five years. Indonesian telecommunication operators are also required, pursuant

to Decree 41/2009, to expend a minimum of 50 percent of their total capital expenditures for network

development on locally sourced components or services. In 2015, the Ministry of Communication and

Information Technology issued Regulation 27/2015, which requires all 4G enabled devices to contain 30

percent local content, and all 4G base stations to contain 40 percent local content by January 2017. MOI

Regulation 68/2015 sets forth a formula for calculating local content, including assigning weights to both

manufacturing value and development value, which can include research and development, design, software

development, and other values. The U.S. Government continues to engage the Indonesian government on

these issues.

INVESTMENT BARRIERS

Indonesia’s decentralized decision-making processes, legal uncertainties, and powerful domestic vested

interests contribute to Indonesia’s complex and difficult investment climate. Indonesian government

requirements often compel foreign companies to do business with local partners and to purchase goods and

services locally.

Indonesia’s 2007 Investment Law significantly increased the number of sectors in which foreign investment

is restricted and increased foreign equity limitations in a number of sectors, including telecommunications,

pharmaceuticals, film and creative industries, and construction.

An April 2014 revision to the Investment Law eased foreign investment restrictions in several sectors,

including land transportation, pharmaceutical manufacturing, and infrastructure investments made under

public-private partnership agreements, while further closing other sectors, including e-commerce,

distribution and warehousing, and various areas of oil, gas, and mining services. Following a review

initiated in September 2015, the Investment Coordination Board announced changes to the Negative

Investment List in early March, but as of March 14 the revised regulation has not been issued.

In early 2014, Indonesia announced it would terminate its bilateral investment treaties (BITs) by permitting

the more than 60 agreements to expire as soon as the agreements allow, apparently in response to ongoing

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and potential investor-state dispute settlement (ISDS) cases against the government. The United States

does not have a BIT with Indonesia.

Energy and Mining

Over the past several years, the Indonesian government has introduced regulatory changes to increase

government control and local content levels in the energy and mining sectors. The regulatory changes have

raised costs for foreign businesses, and raised questions about the sanctity of contracts already in force with

the Indonesian government.

In the oil and gas sector, for example, Regulation 79/2010 allows the Indonesian government to change the

terms of certain existing production sharing contracts, eliminate the tax deductibility of certain expenses,

change the terms and criteria for cost recovery, and place limits on allowable costs for goods, services, and

salaries. In 2013, criminalization of the civil production sharing contract added to uncertainty, as U.S.

company contractors and employees were convicted, fined, and imprisoned for doing work that was

approved and defended in court by relevant government regulators. In 2014, the Indonesian Supreme Court

heard appeals of several of these cases; rather than overturning the lower courts’ decisions, the Supreme

Court lengthened the defendants’ prison sentences.

Article 79 of Presidential Regulation 35/2004, which regulates contractor activities in the upstream oil and

gas sector, provides that contractors must “prioritize” the use of domestic services, including energy-related

services, as well as domestic technologies and engineering and design capabilities. Foreign energy and

energy services companies have noted that these local preference policies severely undermine their ability

to efficiently and profitably operate in the Indonesian market.

In 2011, Indonesia’s oil and gas regulator tightened rules relating to how local content is measured with

respect to oil and gas projects. Once fully implemented, the new criteria are intended to achieve an average

of 91 percent local content by 2025, up from 61 percent in 2012. Moreover, under the new rules, the goods

and services of companies without majority Indonesian shareholding can no longer qualify as local content.

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. The Indonesian House of Representatives continues

to pressure the oil and gas regulator to maintain or increase the local content requirements, leading to

increased uncertainty in the market. The United States will continue to monitor developments in this area.

Since 2013, upstream oil and gas regulator SKK Migas, through policy PTK 51 of 2013, has ceased cost

recovery reimbursement to oil and gas companies engaged in disputes with respect to reimbursement

amounts. At the same time, the Indonesian government increased pressure on oil and gas companies to

repatriate export earnings into Indonesian state-owned banks, per Bank of Indonesia Regulation 13/2011

as amended by Regulation 14/2012, subjecting such earnings to Indonesian banking law and regulations

despite production sharing contracts that allow companies to retain such earnings abroad. In addition,

Regulation 31/2013, promulgated by the Ministry of Energy and Mineral Resources, limits the amount of

time expatriates may work in Indonesia’s oil and gas sector to four years, and prohibits expatriates from

working past the age of 55. U.S. companies believe these requirements will significantly affect staffing

patterns and technical capacity.

Indonesia’s 2009 Mining Law created a system for granting mining concessions based on licenses, though

some companies still operate on existing contracts of work. While the law gives local governments

authority to issue mining licenses, Regulation 24/2012 returned authority to the central government for

issuing licenses to companies with any foreign ownership. The law and its implementing regulations

impose onerous requirements on companies doing business in the mining sector, including local content

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requirements, domestic sale requirements, and a requirement to process raw materials in Indonesia prior to

export. Because the mining licenses are subject to future regulatory requirements, permitting, and tax

changes, they provide significantly less certainty than the contract of work system. In some cases, U.S.

firms seeking to extend their mineral export licenses have been subjected to gradually escalating

requirements. Additionally, the Indonesian government is requiring companies with contracts of work to

renegotiate those existing contracts in order to increase government royalty rates, increase local content

requirements, require domestic smelting of minerals, decrease the size of mining areas, and make other

changes that significantly alter the economic potential of these projects. An implementing regulation of the

law also restricted foreign ownership in the sector to 49 percent within 10 years of the start of production.

In October 2014, Regulation 77/2014 eased the foreign ownership restrictions to 60 percent for companies

that smelt domestically, and 70 percent for companies that operate underground mines. The United States

will continue to press Indonesia on this range of issues.

In September 2014, the Indonesian legislature passed the Provincial Administration Law. The law greatly

reduces the authority of the regional governments in tendering concessions, and issuing licenses and

approvals in the mining and oil and gas sectors, and, thus, has the potential to streamline various processes.

Several provisions of the law, however, are inconsistent with or contradict the 2009 Mining Law. Until

amendments are enacted or other measures are taken to clarify these discrepancies, the coexistence of the

two laws contributes to regulatory uncertainty for investment in the mining sector.

ELECTRONIC COMMERCE

Data localization requirements are a serious concern in Indonesia. Under Article 17 of Government

Regulation 82/2012, Indonesia requires providers of a “public service” to establish local data centers and

disaster recovery centers in Indonesia. Indonesian officials have indicated that “public service” means any

activity regulation that provides a service by a public service provider, consistent with the definition in the

implementing regulations to the 2009 Public Service Law. This circular definition creates uncertainty for

service suppliers across sectors with respect to the scope of the localization requirement. There has been

little information to date on how this requirement has been implemented.

The Indonesian government has signaled plans to enact a personal data protection regulation under

Regulation 82/2012, and may pursue national legislation on personal data protection in 2016, both of which

could further define requirements for data localization. A local data center requirement could prevent

service suppliers from fully leveraging the economies of scale from existing data centers and discourage

future investment in Indonesia. Furthermore, such a requirement could inhibit the cross-border data flows

that are essential to electronic commerce. The U.S. Government continues to engage the Indonesian

government on this issue.

OTHER BARRIERS

Although 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

doing business in Indonesia. Other barriers to trade and investment include poor coordination within

government, the slow pace of land acquisition for infrastructure development projects, poor enforcement

of contracts and the criminalization of contractual disputes, an uncertain regulatory and legal framework,

restrictive labor laws, arbitrary tax assessments, and lack of transparency in the development of laws and

regulations. The ongoing process of transferring investment-related decisions from central to provincial

and district governments, while helping reduce some bureaucratic burdens, has led to inconsistencies

between national and regional or local laws. U.S. companies seeking legal relief in contract disputes have

reported that they are often forced to litigate spurious counterclaims and report growing concern about

criminalization of contract issues.

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ISRAEL

TRADE SUMMARY

The U.S. goods trade deficit with Israel was $10.9 billion in 2015, a 38.2 percent increase ($3.0 billion)

over 2014. U.S. goods exports to Israel were $13.6 billion, down 10.1 percent ($1.5 billion) from the

previous year. Corresponding U.S. imports from Israel were $24.5 billion, up 6.5 percent. Israel was the

United States' 23rd largest goods export market in 2015.

U.S. exports of services to Israel were an estimated $5.1 billion in 2014 (latest data available), and U.S.

imports were $5.6 billion. Sales of services in Israel by majority U.S.-owned affiliates were $3.1 billion in

2013 (latest data available), while sales of services in the United States by majority Israel-owned firms were

$2.0 billion.

U.S. foreign direct investment (FDI) in Israel (stock) was $10.8 billion in 2014 (latest data available), a

10.7 percent increase from 2013. U.S. direct investment in Israel is led by manufacturing, information, and

professional, scientific, and technical services.

The United States-Israel Free Trade Agreement

Under the United States-Israel Free Trade 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 tariffs on non-agricultural goods traded 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 second ATAP has been extended eight

times, most recently through December 31, 2016, to allow time for the negotiation of a successor agreement.

That 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.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Israeli regulatory bodies, such as the Ministry of Economy (Standards Institute of Israel), Ministry of Health

(Food Control Services), and the Ministry of Agriculture (Veterinary Services and the Plant Protection

Service), often adopt standards developed by European standards organizations rather than international

standards, which results in added costs to U.S. exports to Israel.

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Sanitary and Phytosanitary Barriers

Negotiations continue on a mutually-agreed protocol that would allow U.S. beef and beef products access

to the Israeli market. In July 2015, inspectors from Israel’s Veterinary Service travelled to the United States

to audit two slaughterhouses and one processing plant for compliance with Israeli food safety standards.

Even after the United States and Israel agree on a protocol, however, slaughterhouses interested in exporting

to Israel will still need to obtain kosher certification from Israeli rabbinical authorities. Israel does not

currently recognize U.S.-based kosher certifying bodies.

IMPORT POLICIES

Agriculture

U.S. agricultural exports that do not enter duty free under WTO, FTA, or ATAP provisions face barriers,

such as high tariffs and a complicated TRQ system. 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 tariffs on dried fruits could result in an

increase in sales by U.S. exporters of up to $12 million. U.S. producers of apples, pears, cherries, and stone

fruits estimate that the elimination of Israeli trade barriers would lead to an increase of up to $15 million in

export sales of these products. Stakeholders estimate that full free trade in agriculture could also result in

U.S. cheese exports to Israel increasing significantly. Similarly, stakeholders estimate that removing tariffs

on food product inputs used by U.S.-based restaurant chains operating in Israel could save these chains

millions of dollars annually and lead to their expansion in Israel.

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. The

U.S. Government continues to engage in discussions with Israel to clarify and resolve this issue.

GOVERNMENT PROCUREMENT

Israel has offset requirements that it implements through international cooperation (IC) agreements. Under

IC agreements, foreign companies that have been awarded government contracts are required to offset

foreign goods or services provided under the contracts by agreeing to localization commitments 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 party 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,

the offset is 35 percent, and for military procurements the offset is 50 percent.

U.S. suppliers suspect that the size and nature of their offset proposals can be a decisive factor in close

tender competitions, despite an Israeli court decision that prohibits the consideration of offset proposals in

determining the award of a contract. Small and medium sized U.S. exporters are often reluctant to commit

to make purchases in Israel in order to comply with the IC agreements, and, as a result, their participation

in Israeli tenders is limited. As part of the revised GPA, which entered into force in 2014, Israel committed

to phase out its offsets on procurement covered by the GPA.

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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. 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 Ministry of Defense (MOD) procurements funded by Israel.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

The United States removed Israel from the Special 301 Report in 2014. Israel has passed patent legislation

that satisfies the remaining commitments Israel made in a Memorandum of Understanding from 2010

concerning several longstanding issues regarding Israel’s intellectual property rights regime for

pharmaceutical products. These issues included data protection, the terms of patents for pharmaceutical

products, and Israeli practices with respect to the publication of patent applications.

The United States remains concerned with the limitations of Israel’s copyright legislation, particularly

related to digital copyright matters, and Israel’s interpretation of its commitments for protection of

confidential test and other data related to marketing approval of biologic pharmaceuticals.

SERVICES BARRIERS

Telecommunications

The Ministry of Communications is the lead agency for most telecommunication issues. The primary

telecommunications provider is Bezeq, which was founded in 1984 as a government-owned corporation

and took over the provision of telephone services from the Ministry of Communications.

Israeli law largely prohibits broadcast TV channels and radio stations, both public and private, from

carrying advertisements. Only two selected private Israeli broadcast TV channels and a few private radio

stations are allowed to do so. A few additional broadcast TV channels have received broadcast licenses

and advertising privileges in exchange for local investment commitments. Foreign channels that are

distributed through the country’s cable and satellite networks are permitted to carry advertising directed at

a foreign audience.

ELECTRONIC COMMERCE

Israel has two laws which govern consumer contracts, including the Standard Form Contract Law and the

Consumer Protection Law, however, electronic signatures are regulated by Israel’s Electronic Signature

Law. Because Israeli law allows the consumer to decline to pay for any merchandise for which he or she

did not physically sign, there is a significant disincentive to the establishment of online consumer e-

commerce businesses.

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JAPAN

TRADE SUMMARY

The U.S. goods trade deficit with Japan was $68.6 billion in 2015, a 2.2 percent increase ($1.5 billion) over

2014. U.S. goods exports to Japan were $62.5 billion, down 6.5 percent ($4.4 billion) from the previous

year. Corresponding U.S. imports from Japan were $131.1 billion, down 2.2 percent. Japan was the United

States' 4th largest goods export market in 2015.

U.S. exports of services to Japan were an estimated $46.7 billion in 2014 (latest data available), and U.S.

imports were $31.2 billion. Sales of services in Japan by majority U.S.-owned affiliates were $71.6 billion

in 2013 (latest data available), while sales of services in the United States by majority Japan-owned firms

were $146.5 billion.

U.S. foreign direct investment (FDI) in Japan (stock) was $108.1 billion in 2014 (latest data available), a

10.3 percent decrease from 2013. U.S. direct investment in Japan is led by finance/insurance,

manufacturing, and wholesale trade.

Overview

Trans-Pacific Partnership -- Japan is a U.S. partner in the Trans-Pacific Partnership (TPP) Agreement, with

10 other countries (Australia, Brunei Darussalam, Canada, Chile, Malaysia, Mexico, New Zealand, Peru,

Singapore, and Vietnam); the 12 TPP partners together represent 40 percent of the global economy. The

TPP Agreement, which was concluded in October 2015 and signed in February 2016, will significantly

advance U.S. economic interests in some of the fastest-growing economies in the world, promoting U.S.

exports of goods and services, and benefit American workers, farmers, businesses, and consumers. Under

the TPP Agreement, our TPP partners will cut over 18,000 import taxes imposed on Made-in-America

products. The TPP Agreement will also open new markets for U.S. service suppliers; address non-tariff

barriers that unfairly block U.S. exports; promote digital trade and strong and balanced intellectual property

rules for America’s globally competitive IP-intensive industries; level the playing field for U.S. companies

by fostering fair competition and good governance; establish high enforceable labor and environmental

standards; help ensure fair and transparent regulatory policies that promote trade by U.S. innovators and

exporters while helping to ensure consumer safety and privacy; and promote inclusive growth, including

by supporting U.S. small businesses. The TPP Parties are now focused on completing their respective

domestic approval processes so they can bring the agreement into force and so that their workers, farmers,

businesses, and consumers can begin benefitting from the agreement as soon as possible.

In addition to TPP, the United States will continue to address trade-related concerns and issues with Japan

through bilateral and other fora.

Trade in Services Agreement -- Japan is also participating in the Trade in Services Agreement (TiSA)

negotiations, which are aimed at promoting fair and open trade in services while taking on new issues

arising from the rapid growth of digital trade. The 23 economies participating in TiSA represent 75 percent

of the world’s $44 trillion services market.

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TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Sanitary and Phytosanitary Barriers

Food Safety

Beef and Beef Products

In December 2003, Japan banned U.S. beef and beef products following the detection of an animal positive

for bovine spongiform encephalopathy (BSE) in the United States. Following steps taken by Japan in July

2006, February 2013, and January 2015 that expanded U.S. access to the Japanese market for beef and beef

products, the United States is currently eligible to export all beef and beef products from cattle less than 30

months of age slaughtered in the United States.

U.S. beef exports to Japan have grown significantly since the 2013 expansion of U.S. access to the Japanese

market, reaching $1.3 billion in 2015. The United States continues to urge Japan to fully open its market

to U.S. beef and beef products from animals of all ages, consistent with recognition by the World

Organization for Animal Health (OIE) of the United States as a country with negligible risk for BSE.

Gelatin and Collagen

Japan banned the importation of U.S. ruminant-origin gelatin and collagen for human consumption (along

with the importation of most other ruminant-origin tissues from the United States) following the detection

of a BSE-positive animal in the United States in December 2003. In November 2014, Japan revised its

regulations to allow importation of pharmaceutical-grade gelatin made from cattle bones. On March 27,

2015, Japan revised its regulations on imported ruminant-origin gelatin and collagen for human

consumption as well as ruminant-origin raw materials (including bone chips and hides) for the production

of gelatin and collagen for human consumption (including for both food and pharmaceutical uses).

Following these regulatory revisions, requests from the United States that Japan re-establish U.S. market

access, and subsequent intensive technical discussions, Japan has opened its market to all but two U.S.

ruminant-origin gelatin, collagen, and raw material products consistent with science and OIE guidelines.

The United States will continue efforts with Japan to achieve market access for remaining products in 2016.

Food Additives

Japan’s regulation of food additives has restricted imports of several U.S. food products, especially

processed foods. Many additives that are widely used in the United States and other markets are not

permitted in Japan. In addition, U.S. manufacturers have raised concerns about the length of Japan’s

approval process for indirect food additives (i.e., additives that are no longer present in the food product

when consumed, such as solvents). Based on the Japanese government’s assessment that the greatest hurdle

to regulatory approval of food additives is the preparation of the application, in July 2014 it created the

Food Additive Designation Consultation Center (FADCC) to assist applicants. The FADCC’s services are

free of charge, but communication with the center must be conducted in Japanese. It is unclear how

effective the FADCC has been since its inception.

In 2002, Japan created a list of 46 food additives that would be subject to an expedited approval process. All

have been approved with the exception of four, which the United States understands Japan to be currently

reviewing. The United States has urged Japan to complete the reviews.

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Pre- and Post-Harvest Fungicides

Japan classifies fungicides that are applied pre-harvest as pesticides, and fungicides that are applied post‐

harvest as food additives. Japan’s requirement that post-harvest fungicides be classified as food additives

does not have a significant impact on domestic producers, as Japanese farmers do not generally apply

fungicides after harvest. However, it affects U.S. producers in various ways.

Japan has historically required a separate risk assessment and application process. Based on U.S. requests,

Japan will streamline the review process for agricultural chemicals, including fungicides, applied both as

pesticides (pre-harvest application) and as food additives (post-harvest application). The United States also

remains concerned that Japan requires products that are treated with a post-harvest fungicide to be listed

with each chemical and labeled at the point of sale with a statement indicating that they have been so treated,

which dampens demand for the products. The United States will continue to work with the Japanese

government on these issues.

Maximum Residue Limits

Japan has historically maintained burdensome application requirements for pesticide maximum residue

level (MRL) approvals that hinder the use of newer and safer crop protection products on crops to be

shipped to Japan. In addition, the United States remains concerned that Japan’s procedures still require

industry-wide enhanced surveillance of shipments of a product after a single MRL violation by a single

shipper. While there has been improvement in how Japan handles MRL violations, the United States

continues to work with the Japanese government and U.S. producers to address both of these concerns.

Plant Health

Chipping Potatoes

Chipping potatoes from 16 U.S. states are eligible for importation. Shipments may be made during a six-

month window (February to July) and may only be sent to two chipping facilities in Japan. In March 2015,

Japan approved overland transportation of chipping potatoes to the approved chipping facility that lacks a

port capable of receiving transnational cargo ships. However, negotiations between Japan and the importer

regarding risk mitigation requirements during overland transportation limited the volume of chipping

potatoes moving overland during the 2015 shipping season. The United States will continue to monitor

developments ahead of the 2016 shipping season.

IMPORT POLICIES

Japan is already the fourth largest market for U.S. agricultural products, with U.S. exports valued at over

$11.1 billion in 2015, despite the existence of substantial market access barriers. The TPP agreement covers

all agricultural products, and, once implemented, will deliver new and expanded access to Japan’s market

through a variety of actions and mechanisms.

Rice Import System

Japan’s highly regulated and nontransparent importation and distribution system for imported rice limits

meaningful access to Japan’s consumers. Japan has 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

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exclusively for non-table rice uses, such as industrial food processing or feed sector and for re-export as

food aid. U.S. rice exports to Japan in 2015 were valued at nearly $278 million, totaling 360,000 metric

tons. Only a small amount 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.

Under the TPP, U.S. rice exports will achieve significantly improved access through the establishment of a

new country-specific quota (CSQ), and modifications to Japan’s quota administration procedures. The

United States continues to monitor Japan’s rice import system in light of its WTO import commitments.

Wheat Import System

Japan requires wheat to be imported through the Grain Trade and Operations Division of MAFF’s Crop

Production 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 its wheat import regime to allow more frequent adjustment to the

resale price so that prices more closely reflect international price movements. The United States continues

to carefully monitor the operation of Japan’s state trading entity for wheat and its potential to distort trade.

Under the TPP, Japan will develop a new country-specific quota for food wheat that will grow over a period

of years and offer new duty-free access for feed wheat outside of the current WTO tariff-rate quota

mechanism. The TPP will also improve access for a range of wheat products, including food preparations

(mixes/doughs), and high value consumer products like biscuits, cookies, crackers, and pasta.

Pork Import Regime

Japan is the largest export market for U.S. pork and pork products on a value basis, with shipments valued

at nearly $1.6 billion (406,187 metric tons) in 2015, accounting for 28 percent of the value of total U.S.

shipments to all destinations. The import tariff for chilled and frozen 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 the reference price, the

importer pays an additional specific duty equal to the difference between the import value and the reference

price. Under TPP, fresh, chilled, and frozen cuts will benefit from the elimination of the applied ad valorem

tariff and the sharp reduction in the specific duty applied to lower-cost cuts of pork, the latter resulting in a

significantly less restrictive gate price system. Tariffs on a wide range of processed pork products,

including ground seasoned pork, will be eliminated over time.

Beef Safeguard

In 2015, Japan remained the largest export market for U.S. beef and beef products on a value basis.

Shipments to Japan were valued at $1.3 billion, totaling 204,927 metric tons. In 1995, as part of the results

of the Uruguay Round, Japan was allowed to institute a beef special safeguard (SSG) to protect domestic

producers in the event of an import surge. The SSG 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 rise to 50 percent from 38.5 percent for the rest of the Japanese fiscal year.

Although U.S. exports have increased significantly since further market opening at the start of 2013, the

safeguard has not been triggered. Under the TPP, fresh, chilled, and frozen cuts of beef will benefit from

a sharp reduction in the current ad valorem tariff of 38.5 percent, which includes a deep cut upon entry into

force. Tariffs on a wide range of processed beef products will be eliminated over time. A TPP safeguard

will replace Japan’s existing WTO safeguard, and will be phased out over time.

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Fish and Seafood Products

Total U.S. fish and seafood exports to Japan in 2015 were valued at $822 million, an 11 percent increase

over 2014. However, tariffs on several fish and seafood products remain an impediment to U.S. exports

and also pose an impediment for importers who rely on U.S. raw product for their processing operations.

Other market access issues include Japan’s import quotas on Alaska pollock, cod, Pacific whiting,

mackerel, sardines, squid, and Pacific herring, as well as on specific products such as pollock roe, cod roe,

and surimi. Although Japan has reduced tariffs, increased import quota volumes, and eased the

administrative burdens associated with those quotas, the import quotas continue to present barriers to U.S.

exports. The United States is urging Japan to take further action to eliminate tariffs on, and remove nontariff

obstacles to, U.S. exports of fish and seafood.

High Tariffs on Citrus, Dairy, Processed Food, and Other Agricultural Products

Japan maintains high tariffs that hinder U.S. exports of agricultural and other food products, including

grains, sugar, citrus, wine, dairy, and a variety of processed foods. Examples of double digit import tariffs

include tariffs of 32 percent on oranges imported during the period of December to May, 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 during the period of March to October, 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. Under the TPP, Japan has committed to eliminate tariffs on a wide range

of agricultural products, including cherries, apples, grapes, grape juice, walnuts, almonds, oranges,

grapefruit, raisins, dried prunes, strawberries, raspberries, cranberries, potatoes, frozen French fries, eggs

and egg products, and wine. Addressing tariffs and improving market access for these and other products

remains a high U.S. priority.

Wood Products and Building Materials

The United States remains concerned that Japan maintains numerous localization barriers at the national,

prefectural, and municipal levels in the form of domestic content subsidy programs that may favor domestic

wood products.

Leather/Footwear

Japan continues to apply a leather footwear TRQ that substantially limits imports into Japan’s market,

negatively impacting market access for U.S. made and U.S. branded footwear. Under the TPP, tariffs and

quotas on leather goods will be eliminated.

Customs Issues

The United States continues to urge Japan to improve customs processing and to facilitate expedited

treatment of goods at the border. The United States has encouraged Japan to raise the Customs Law de

minimis ceiling from ¥10,000 (approximately $84) to a higher level. Strengthening Japan’s system for

advance rulings would also improve transparency and predictability for U.S. exporters.

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SERVICES BARRIERS

Japan Post

The government of Japan has committed to privatize the non-postal elements of Japan Post Holdings (JP

Holdings). The sale of a first tranche of shares in JP Holdings and two financial subsidiaries, Japan Post

Bank (JP Bank) and Japan Post Insurance (JP Insurance), in an initial public offering (IPO) in November

2015 began the final phase of the privatization process. The United States continues to monitor carefully

the Japanese government’s postal reform efforts 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.

In the area of express delivery services, the United States remains concerned by unequal conditions of

competition between Japan Post and international express delivery suppliers. The United States continues

to urge Japan to take action to enhance fair competition by leveling the playing field, including by

equalizing customs procedures and requirements and prohibiting the subsidization of Japan Post’s

international express service with revenue from non-competitive (monopoly) postal services. Under the

TPP, Japan would undertake new obligations in these areas, including non-discriminatory treatment in

delivery of parcels, packages, and goods.

The United States 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 documents.

The IPO sold 11 percent of available shares in three of four Japan Post entities. The final entity, the postal

service subsidiary Japan Post Co., will remain a wholly owned subsidiary of JP Holdings. Follow-on sales

of shares in the three companies will take place over time, as the Postal Privatization Law requires the

government to sell a majority share (up to two-thirds of all shares) in JP Holdings, and all shares of JP Bank

and JP Insurance, as soon as possible. Timing for additional sales has not yet been determined. The United

States will continue to monitor developments and urge that the IPO process proceed in a fully transparent

manner.

Insurance

Under the TPP, Japan and all TPP Parties agreed that postal entities supplying insurance products would

operate on a level playing field in accordance with relevant laws and regulations applicable to all other

insurance market participants. In addition, the Government of Japan made commitments to the United

States regarding access for U.S. insurance companies to Japan Post’s distribution network and committed

to allow U.S. companies to operate under equivalent conditions of competition as Japan Post undergoes

privatization.

Japan’s private insurance market is the second largest in the world, after that of the United States, with

direct net premiums of ¥40,598 billion (approximately $338.3 billion based on a ¥120 per U.S. dollar

exchange rate). In addition to the offerings of Japanese and foreign private insurers, insurance cooperatives

(kyosai) and JP Insurance, a majority government-owned entity of JP Holdings, also provide substantial

amounts of insurance to consumers. Given the size and importance of Japan’s private insurance market,

the United States continues to place a high priority on ensuring that the Japanese government’s regulatory

framework fosters an open and competitive insurance market.

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Postal Insurance

Japan’s postal life insurance system retains a substantial share of Japan’s insurance market. At the end of

Japanese fiscal year 2014, there were approximately 37.7 million postal life and postal annuity insurance

policies in force. In comparison, approximately 157.4 million life and annuity policies were in force with

all other life insurance companies combined. The United States has long standing concerns about the postal

insurance company’s negative impact on competition in Japan’s insurance market and continues to closely

monitor the implementation of reforms.

The United States continues to urge the Japanese government to take steps to address a range of level

playing field concerns in the insurance sector, including differences in supervisory treatment between JP

Group’s financial institutions and private sector companies, access to the postal network for private

suppliers (including the process of selection of financial products), and cross-subsidization among the JP

businesses and related entities. In regard to private suppliers’ access to the postal network, there has been

significant progress since 2013. For example, in July 2013, JP Holdings concluded a comprehensive tie-

up agreement with a U.S. insurance company, American Family Life Assurance Company of Columbus

(Aflac), to increase the number of JP outlets that distribute Aflac’s cancer insurance products. As a result,

by July 2015, the number of postal outlets selling Aflac’s cancer insurance products increased from 1,000

to more than 20,000.

The United States continues to urge the Japanese government not to allow the JP 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 JP Group operations – including the cap on the amount of insurance coverage and

limits to the types of financial activities and products JP entities can offer – have helped to limit the extent

to which the uneven playing field harms private insurance companies. The U.S. Government welcomed

the statement by Deputy Prime Minister Taro Aso on April 12, 2013, that the Japanese government will

refrain from approving new or modified cancer insurance or stand-alone medical products of JP Insurance

until it determines that equivalent conditions of competition with private sector insurance suppliers have

been established, and that JP Insurance has a properly functioning business management system in place,

which Japan expects will take at least several years to achieve. 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.

Kyosai

Insurance businesses run by cooperatives (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 (MAFF) or the Ministry of Health, Labor and Welfare (MHLW)) instead of by the

Financial Services Agency (FSA), which regulates all private sector insurance and financial services

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 remains concerned about limited FSA supervisory authority over kyosai.

Bank Sales of Insurance

Japanese consumers increasingly turn to banks to meet their insurance needs. As a result, banks have

become an important distribution channel for the sale of insurance products. In December 2007, the

Japanese government fully liberalized the range of insurance products eligible for sale through banks. In

July 2011, the Japanese government carried out a follow-up review of the bank sales channel based on the

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changes in 2007, yet there were concerns about the transparency and results of that review. Limits continue

to remain on the sales of some products, there are different rules for the treatment of customer data in some

cases, and sales restrictions on insurance are applied to certain categories of customers (for example,

customers who work for small or medium sized corporate borrowers). The U.S. Government continues to

call on the Japanese government to conduct in the near term a fact-based and transparent review of the bank

sales channel that includes meaningful opportunities for input from interested stakeholders and that takes

into account global best practices to further enhance policyholder protection and improve consumer choice.

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. In March 2012, the

Japanese government extended the existing system of government pre-funding of the PPCs for an additional

five years, until March 2017. The United States 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.

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 United States continues to urge reforms in the areas of

defined contribution pensions, sustainable lending practices, and sharing of customer information. The

FSA continues to enhance its engagement and outreach with both domestic and foreign financial firms

operating in Japan, but more improvement in this sector is needed, particularly with respect to transparent

practices such as enhancing the effectiveness of the no-action letter and providing written interpretations

of Japan’s financial laws.

Telecommunications

The United States continues to focus on ensuring fair market opportunities for emerging technologies and

business models in Japan, and ensuring a regulatory framework appropriate for addressing converged and

Internet-enabled services, and competitive safeguards on dominant carriers. The United States also

continues to urge Japan to improve transparency in rulemaking and ensure the impartiality of its regulatory

decision-making.

Dominant Carrier Regulation

The Nippon Telegraph and Telephone Corporation (NTT) continues to dominate Japan’s fixed-line market

through its control over almost all “last-mile” connections. Although NTT’s market share declined by 1

percentage point from the previous year, it still holds a 70.1 percent share as of the end of June 2015 in the

fiber-to-the-home (FTTH) market. NTT’s authority to bundle its fixed-line services with mobile phone

operator NTT Docomo’s mobile service is also of concern, as it appears to undermine the rationale for

structurally separating the companies. NTT began wholesaling its fiber-optic fixed-line services to other

companies, including NTT Docomo, in February 2015, claiming that it does not violate the

Telecommunications Business Act if it treats all customers equally. However, mobile carriers and CATV

companies have expressed concerns that this could result once again in NTT obtaining a dominant market

share. The United States will continue to monitor developments.

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New Mobile Wireless Licenses

Unlike most advanced economies, Japan does not use auctions to allocate spectrum, and the factors the

Ministry of Internal Affairs and Communication (MIC) uses to determine how to evaluate applications have

raised questions related to the fairness of the allocation process. In March 2012, Softbank was awarded

900MHz frequencies, and in June 2012, NTT Docomo, telecommunications operator KDDI, and eAccess

(acquired by Softbank in January 2013) were awarded 700MHz spectrum. While Softbank launched its

900MHz networks in 2013, the 700MHz frequencies will not be used until 2016. In July 2013, MIC

awarded additional frequencies in the 2,625 MHz to 2,645 MHz bands to UQ Communications, a subsidiary

of KDDI, to provide advanced Broadband Wireless Access systems. Although the Japanese government

has previously considered introducing legislation that allows for auctions as an option to assign commercial

spectrum, it remains unclear whether such legislation will be introduced.

Information Technologies (IT)

Health IT

The United States has urged Japan to improve the quality and efficiency of health care 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. Engagement between U.S.

and Japanese government health IT experts continues to address health IT issues of mutual interest.

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 United States 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. In September 2015, the Japanese Diet passed an amendment to the Personal

Information Protection Act, seeking to “enhance the use of personal data for business purposes while

protecting privacy.” The amendment creates new rules for the protection of personal data including the

transfer of personal data over the Internet, and establishes a third party authority similar to the EU’s Privacy

Commissioner as regulator. The Specific Personal Information Protection Commission (the Commission)

plans to issue its guidelines for personal information protection in the spring of 2016. While the process of

drafting the new law incorporated several useful suggestions from stakeholders, problematic elements, such

as a mandate for the Commission to evaluate countries as acceptable destinations for information, remained

intact, and details on how the law will be implemented will bear careful monitoring.

Consumption Tax on Online Content from Abroad

March 2015 legislation amending the Income Tax Act extended Japan’s consumption tax to electronic

commerce products (such as digital books, music, and advertisements) sold by foreign businesses without

a physical presence in Japan. Such products offered by firms with a physical presence in Japan had already

been subject to a consumption tax. Any future increases to the consumption tax, currently eight percent,

would also apply to online content from abroad.

Legal Services

Japan imposes cumbersome and time-consuming procedures for the registration of foreign lawyers to

provide international legal services in Japan, and prohibits foreign lawyers from establishing branch offices

in Japan (except for one type of firm which is first required to corporatize locally). The United States

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continues to urge Japan to further liberalize the legal services market. For example, the United States urges

Japan to eliminate the requirement that two years of post-admission practice of home country law take place

outside Japan; ensure that legal or bar association rules do not impede Japanese lawyers becoming members

of international legal partnerships; and significantly simplify and accelerate the registration process for new

foreign legal consultants.

Educational Services

The United States continues to urge the Japanese government to work with foreign universities to find a

nationwide solution that grants tax benefits to foreign universities operating in Japan comparable to those

provided to Japanese schools and allows foreign universities to continue providing their unique

contributions to Japan’s educational environment.

In its Economic Revitalization Strategy first issued in June 2013, the government of Prime Minister Abe

committed to promoting an educational system that more effectively provides the Japanese people with the

skills to compete in the global economy. Consistent with that commitment, in 2014 Japanese authorities

actively engaged with American universities operating satellite campuses or extension facilities in Japan to

seek a way forward on taxation and other issues. American universities have reported success in being

recognized as educational institutions eligible for issuance of visas to foreign students to study at their

campuses in Japan. However, despite extensive consultations with authorities, no American university has

been able to satisfy all the legal requirements to be granted “educational corporation” (gakkou houjin)

status, which would confer the same tax benefits enjoyed by Japanese universities. The requirement that

such corporations be “independently administered” (i.e., not subject to direct administration by the parent

university in the home country) is a particularly difficult legal hurdle to overcome. Lack of gakkou houjin

status means foreign satellite universities are also excluded from participation in new Japanese government

grant programs that promote international exchange and provide financial support for students wishing to

study abroad.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Japan generally provides strong intellectual property rights protection and enforcement. The United States,

however, 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.

The United States also has urged Japan to continue to reduce piracy rates, including by adopting methods

to protect against piracy in the digital environment. Police and prosecutors generally lack ex officio

authority to prosecute IPR crimes on their own initiative, without a complaint from a rights holder. The

United States also seeks improvements to Japan’s Internet service provider liability law to promote

cooperation between rights holders and Internet service providers.

In addition, the United States continues to urge Japan to 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, as well as effective criminal and civil remedies against the

trafficking in tools used to circumvent such technological protection measures. Furthermore, although

Japan provides a 70-year term of protection for cinematographic works, it provides only a 50-year term for

other works protected by copyright and related rights. The United States 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. Also, while the United States welcomed clarifications to Japan’s Copyright Law in

2010 that made clear 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, the United States

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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 its June 2013 Economic Revitalization Strategy, the Cabinet announced that Japan would undertake

revisions to the Patent Act, Design Act, Trademark Act, and Patent Attorney Act in order to promote the

creation, protection, and strategic use of intellectual property. Legal revisions in support of the economic

revitalization strategy took effect in 2015 and included amending the Trademark Act to grant legal

protection to non-traditional trademarks and regional collective trademarks. In addition, in July 2015 Japan

revised the Unfair Competition Prevention Act with the goal of strengthening deterrence against the theft

of trade secrets. The amendment, which took effect in January 2016, will increase fines and other penalties,

enable criminal charges for theft without a formal complaint from the rights holder, and expand the scope

of punishable activities to include attempted infringements. The amendment also reduces the burden of

proof for wrongful use and extends the statute of limitations to 20 years.

The “Act for Protection of Designated Agricultural, Forestry and Fishery Products and Foodstuff” (GI Act)

entered into force on June 1, 2015. As of December 22, 2015, seven geographic indications – including

Kobe beef and Yubari melon – have been registered, and eight additional applications have been announced

on MAFF’s website. The seven geographic indications registered to date all include the geographic place

name plus the product name. The United States continues to monitor implementation of the GI Act to

ensure consistency with core transparency and due process principles, in particular with respect to the

protection of existing trademarks, the safeguarding of the use of generic terms, and the effective operation

of objection and cancellation procedures.

Under the TPP Agreement, which sets strong and balanced standards on IPR protection and enforcement,

Japan has committed to strengthen its IPR regime. The United States continues to work with Japan to

address IPR issues through TPP implementation as well as through bilateral engagement.

GOVERNMENT PROCUREMENT

Japan is a signatory to the WTO Agreement on Government Procurement (GPA), which obligates Japan to

open its government procurement to suppliers from the United States and other GPA members. Japan has

also made commitments to the United States under bilateral agreements.

The United States continues to monitor Japan’s implementation of these agreements to ensure the greatest

possible transparency in tendering processes and opportunity for participation by qualified bidders. The

U.S. Government is paying special attention to government procurement associated with construction

projects for the Tokyo 2020 Olympics; major expressway projects; major public buildings; railroad and

railroad station projects; urban development and redevelopment projects; planned port facilities expansion

projects; major private finance initiative projects; and the projects covered under the 1988 United States-

Japan Major Projects Arrangements (MPA, updated in 1991) that have yet to be undertaken or completed.

The U.S. Government is also monitoring developments related to environmental remediation and “green”

building and design.

Under the TPP Agreement, Japan will make government procurement commitments similar to its GPA

commitments to the United States and other TPP partners. In addition, under the United States-Japan

Parallel Negotiations on Non-Tariff Measures conducted in tandem with TPP, Japan has agreed to take

steps on government procurement to prevent bid-rigging and to provide for greater transparency and

participation in the bidding process (such as maintaining an open data portal website that makes information

on prior government procurements publicly available).

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INVESTMENT BARRIERS

Despite being the world’s third largest economy, Japan continues to have the lowest inward FDI as a

proportion of total output of any major OECD country. According to OECD statistics, FDI stock at the end

of 2013 was only 3.5 percent of GDP in Japan, compared to 32.1 percent on average for all OECD members

(latest data available). Inward foreign merger and acquisition (M&A) activity, which accounts for a large

portion of FDI in other OECD countries, also lags in Japan.

While the Japanese government recognizes 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 2013, the government of Prime Minister Abe announced its goal of doubling Japan’s

inward 2012 year-end FDI stock by 2020, and it reconfirmed this commitment in its revised growth strategy

issued in June 2014. The government is pursuing a range of policies intended to promote this target.

Prior to the Abe administration, the Japanese government had done little to explicitly encourage inward

investment through M&A as a policy priority. However, the number of annual inbound M&A deals has

remained relatively flat and low for an economy the size of Japan, raising questions about the adequacy of

the government’s measures if its 2020 target is to be achieved. A variety of factors make inbound 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 Commercial Law section), and a relative lack of financial

transparency and disclosure.

ANTICOMPETITIVE PRACTICES

Improving Anti-Monopoly Compliance and Deterrence

Japan’s Anti-Monopoly Act (AMA) provides for both administrative and criminal sanctions against cartels

and administrative sanctions for non-cartel conduct. Criminal prosecutions, which have the strongest

deterrent effect against anticompetitive behavior in other countries, have been few, and penalties against

convicted company officials have been weak. While the Japanese government has taken some steps to

address these concerns, particularly through amendments to the AMA enacted in June 2009 that increased

fines for cartel violations, the United States has continued to urge Japan to take steps to maximize the

effectiveness of enforcement against cartel violations of the AMA.

Improving Fairness and Transparency of JFTC Procedures

Japan recently amended the procedures for Japan Fair Trade Commission (JFTC) hearings and appeals

from JFTC orders to address concerns as to whether the preexisting system provided sufficient due process

protections. The Diet enacted an AMA amendment in 2013, which took effect in April 2015, to eliminate

the ex post hearing system and to allow appeals of JFTC orders to go directly to the Tokyo District Court.

JFTC also adopted in April 2015 the “Regulation on Opinion Hearings Pertaining to Cease-and-Desist

Orders and Other Measures,” which includes detailed provisions on how parties subject to a cease-and-

desist or surcharge payment order may review evidence relied upon by the JFTC and submit evidence and

arguments in their defense to a JFTC hearing officer prior to issuance of a final order by the JFTC.

In connection with the amendments, Japan established a cabinet office advisory panel to study additional

ways that the JFTC might change its procedures to enhance the transparency and fairness of enforcement

proceedings. In December 2014, the advisory panel recommended that the JFTC issue guidelines regarding

administrative procedures to enhance the transparency of enforcement proceedings. The panel’s report

examined JFTC investigation procedures regarding on-the-spot inspections, depositions, and attorney-

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client privilege. It recommended that the JFTC clarify its procedures on issues related to on-the-spot

inspections (for example, the ability of a firm to make copies of its seized documents) and depositions (for

example, the ability of a defense attorney to attend a deposition). On the issue of whether to recognize the

right to assert the attorney-client privilege (a privilege that is not recognized in Japan) in JFTC

investigations, while acknowledging the merits of the privilege and that certain panel members supported

the privilege, the panel recommended further examination of the privilege in the future.

In December 2015, in response to the advisory panel recommendations, and in an effort to promote the

transparency of JFTC investigative procedures, the JFTC published new “Guidelines on Administrative

Investigation Procedures under the Antimonopoly Act (Guidelines).” These new Guidelines also were

addressed in the United States-Japan Parallel Negotiations on Non-Tariff Measures conducted in tandem

with TPP. The Guidelines outline JFTC procedures for on-the-spot inspections, treatment of items seized

during inspections, and JFTC procedures during depositions. The Guidelines also detail a new complaint

system that allows formal objections to the JFTC’s comportment and handling of inspections and

depositions. The JFTC plans to review the Guidelines after two years and will examine issues, such as the

attorney-client privilege, at that time.

Broadening Measures to Combat Bid-Rigging

The United States continues to raise concerns with the problem of bid-rigging in Japan, and urges that

further measures be taken to prevent conflicts of interest in government procurement and improve efforts

to eliminate involvement in bid-rigging by government officials.

OTHER SECTORAL AND CROSS-SECTORAL BARRIERS

Transparency

Advisory Groups

Advisory councils and other government-commissioned study groups are accorded a significant role in the

development of regulations and policies in Japan. However, the process of forming these groups can be

opaque, and too often non-members are not uniformly offered meaningful opportunities to provide input

into these groups’ deliberations. The United States continues to urge Japan to ensure transparency with

respect to the formation and operation 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 groups.

As addressed in the United States-Japan Parallel Negotiations on Non-Tariff measures conducted in tandem

with TPP, government-established advisory councils will be subject to greater transparency requirements.

Public Comment Procedure

Many U.S. companies remain concerned by inadequate implementation of the public comment procedure

by Japanese ministries and agencies. For example, in some cases comment periods appear unnecessarily

short, and in some cases comments do not appear to have been adequately considered given the brief time

between the end of the comment period and the issuance of a final rule or policy. The United States has

stressed the need for Japan to make revisions to improve the system, such as lengthening the standard public

comment period for rulemaking. TPP contains commitments to provide “a reasonable opportunity to

comment” on all proposed measures, and obligates parties to endeavor to publish draft proposed regulations

60 days in advance of the date on which comments are due.

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Commercial Law

Foreign investment into Japan remains constrained by a range of issues, including conditions for using tax-

advantaged merger tools for inward-bound investment in Japan, securities law and capital market issues

inherent in cross-border stock-for-stock transactions, and corporate governance systems that have not

adequately reflected the interests of shareholders. The United States 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 United States also continues 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. Areas ripe for

improvement include facilitating and encouraging active and appropriate proxy voting, and strengthening

protection of minority shareholders by clarifying fiduciary duties of directors and controlling shareholders.

The Abe government has committed to improving corporate governance as part of its economic growth

strategy. The revised Companies Act that took effect on May 1, 2015, establishes a “comply or explain”

rule that requires companies to appoint at least one outside director to their boards or publicly explain why

such an appointment is inappropriate. Alternatively, companies may institute an audit and supervisory

committee whose members do not serve as directors.

Taking corporate governance a step further, the Financial Services Agency (FSA) and Tokyo Stock

Exchange (TSE) drafted Japan’s first Corporate Governance Code, modeled on OECD and UK principles.

The new code, which took effect in June 2015, applies to more than 2000 listed companies, and aims to

increase corporate transparency and management accountability in five broad areas, to encourage a stronger

management focus on earnings and shareholder value. The Code requires at least two independent directors

and encourages firms to implement a roadmap to ensure that at least one-third of the board is comprised of

independent directors. It also has a “comply or explain” requirement for cross-shareholdings and for cases

where a company has fewer than two independent directors. The new Corporate Governance Code

complements the Stewardship Code for institutional investors launched by the FSA in April 2014, and

together these codes are expected to encourage companies to increase investment, raise dividends, and take

on more “smart risk” that can boost Japan’s overall growth.

Automotive

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

United States has expressed strong concerns with the overall lack of access to Japan’s automotive market

for U.S. automotive companies. Barriers include certain issues relating to standards and certification; a

lack of transparency, including the lack of sufficient opportunities for input by interested persons in the

development of regulations; hindrances to the development of distribution and service networks; and the

lack of equivalent opportunities for U.S. vehicle models imported under the preferential handling procedure

(PHP) certification program to benefit from financial incentive programs. In a positive development, the

TPP and the U.S.-Japan bilateral agreement on motor vehicle trade address a wide range of nontariff

measures, including transparency in regulations, standards, certification, financial incentives, and

distribution. Also, the provisions in the bilateral agreement include long U.S. tariff staging, strong rules of

origin, and robust dispute settlement requirements. In July 2014 Japanese authorities eased restrictions on

maintenance procedures for vehicles using a particular type of air conditioner refrigerant, allowing for

importation of new models in which the refrigerant is installed. Also, in 2013, Japan more than doubled

(from 2,000 to 5,000) the number of imported vehicles per type that may use the simplified certification

method of PHP.

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Medical Devices and Pharmaceuticals

Japan continues to be one of the most important markets for U.S. medical device and pharmaceutical

exports. According to Business Monitor International, the Japanese medical device market had an

estimated value of $28.1 billion in 2014 and is projected to expand to $29.6 billion by 2018. Foreign

suppliers have approximately 40 percent of the market. According to the American Medical Devices and

Diagnostics Manufacturers’ Association, approximately 60 percent of “new medical devices” approved in

Japan were from its member companies. The pharmaceuticals market in Japan had an estimated value of

$112.2 billion in 2014; it is projected to contract to $102.7 billion in 2019. The total market share of U.S.-

origin pharmaceuticals in Japan is estimated to be approximately 20 percent if local production by U.S.

firms and compounds licensed to Japanese manufacturers is included.

Prime Minister Abe continues to call for increased promotion of Japan’s pharmaceutical and medical device

industries. Japan has recently made progress in several areas, including the reduction of lengthy approval

periods for medical devices and pharmaceuticals. For medical devices, the New Collaboration Plan to

Accelerate Review of Medical Devices, implemented in April 2014, contains performance goals that, if

met, will lead to speedier approvals by the end of the program (March 2019). The U.S. Government

continues to urge Japan to improve performance goals for product reviews by meeting performance targets

and ensuring that Quality Management System audits are completed within the standard review period. For

pharmaceuticals, Japan has brought its approval periods in line with, or even faster than, U.S. and European

norms. The U.S. Government continues to urge Japan to further harmonize efforts of its key regulatory

agencies on international standards in clinical development, multiregional clinical trials, and risk

management.

In order to accelerate development of medical drugs and devices, the Japanese government established the

Japan Agency of Medical Research and Development (AMED) in April 2015. AMED controls medical-

related research projects that were previously handled within different ministries. In a more sweeping

effort, the Japanese government revised and renamed the Pharmaceutical Affairs Law as the Pharmaceutical

and Medical Devices Law (PMDL), which took effect in November 2014. The PMDL includes

improvements to the regulatory review process. Based on the PMDL, the Japanese government expedited

the approval of two regenerative medical products in 2015, although additional data will have to be

submitted within five years.

The United States has urged Japan over the past decade 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 and pharmaceuticals. The level of transparency in Japan’s

drug and medical device reimbursement decision-making processes has improved in recent years, and the

United States looks forward to Japan building further on recent improvements in order to foster more open

and predictable reimbursement policies.

U.S. stakeholders have expressed concerns, including with respect to the potential change from a biennial

to an annual price revision cycle, the Foreign Average Price rule for medical devices, and the Pricing for

Market Expansion scheme, including the new “Huge Seller” rule, for pharmaceutical products. The United

States urges the government of Japan to follow transparent processes in the development of any regulations

or measures related to these policies and to provide all stakeholders, including U.S. stakeholders,

meaningful opportunities for input.

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Nutritional Supplements

The latest estimated figure for Japan’s nutritional or dietary supplements market shows a retail sales volume

of ¥1.17 trillion (approximately $11 billion), according to UBM Media. Japan has taken steps to streamline

import procedures and to open this market, although many significant market access barriers remain.

Pursuant to the Abe government’s Economic Revitalization Strategy issued in June 2013, Japan’s

Consumer Affairs Agency (CAA) started implementing a new Food with Functional Claim (FFC) system

effective as of April 1, 2015. This FFC system is a third food-related category under the Food with Health

Claims system, parallel to other premarket government approval systems Foods for Specified Health Uses

(FOSHU) and Foods with Nutrient Function Claims (FNFC). However, the FFC system excludes vitamins

and minerals, does not provide clear guidance on processing time, and limits the allowable additives. In

addition, only products approved under the FOSHU or FNFC system 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 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; difficulties associated with using

unregistered food additives (including organic solvents) as processing ingredients for use in nutritional

supplements; high import duties for nutritional supplements compared to duties on pharmaceuticals

containing the same ingredients; lack of transparency in new ingredient classifications; and lack of

transparency in the development of health food regulations.

Cosmetics and Quasi-Drugs

Based on the latest publicly available information as projected by Euromonitor International, Japan is the

world’s fourth largest market for beauty and personal care products, after the United States, China, and

Brazil. The United States has consistently been the second largest source of cosmetics and personal care

products imported into Japan. In 2014, U.S. exports were estimated at 40.3 billion yen (approximately

$300 million), or 18.6 percent of the total import market. Unlike the over-the-counter drug monograph

system in the United States, Japan requires pre-market approval for certain products such as “medicated

cosmetics” that are classified as quasi-drugs under Japan’s Pharmaceutical Affairs Law. The quasi-drug

approval process 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 reportedly prevent companies from informing customers of product benefits necessary for

making informed choices. Enhanced communication between the U.S. and Japanese governments and

industries has led to some improvements in the Japanese regulatory system, such as implementation of an

online customs clearance system effective November 2014. Some recent further simplification of import

processes, and improvements in customs clearance and product registration procedures, including the

development of approval standards for “medicated cosmetics,” among others, are expected to help create a

more open, competitive market. The United States will closely monitor developments.

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 such products include a list of all ingredients and food additives by name, along with content

percentages and a description of the manufacturing process. In addition to being burdensome, this process

risks the release of proprietary information to competitors.

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Aerospace

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 United States 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

production, even when a foreign option exists that could fulfill the requirements more efficiently, at a lower

cost, and with better interoperability 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 regional navigation

satellite system known as the “quasi-zenith” satellite system, or QZSS, as well as high-performance

Advanced Satellite with New System Architecture for Observation systems. At the conclusion of the third

meeting of the United States-Japan Comprehensive Dialogue on Space on September 11, 2015, the United

States and Japan released a joint statement welcoming initiatives to enhance bilateral space situational

awareness information sharing. The statement also reaffirmed interest in collaboration on evaluating the

operational and economic benefits from the use of space for maritime domain awareness.

Japan has been taking steps to bolster aviation operations through the liberalization of regulations and

investment in infrastructure. Japan is the United States’ largest aviation partner in the Asia-Pacific region,

and a bilateral open skies regime has been in place since 2010. Operations between the United States and

Tokyo’s Haneda Airport, however, are limited due to the fact that Haneda is an operationally-constrained

airport with a limited number of slots for international services. In February 2016, the United States and

Japan reached agreement on increased access to Haneda for U.S. carriers, which is expected to be realized

as early as the start of the International Air Transport Association 2016/2017 winter traffic season.

In the general aviation sector, the United States and the APEC member economies, including Japan, have

reached consensus on best practices for the treatment and regulation of international business aviation

operations. The U.S. Government will continue to work closely with the government of Japan to promote

greater liberalization in the business aviation sector through APEC’s Transportation Working Group.

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JORDAN

TRADE SUMMARY

The U.S. trade balance with Jordan shifted from a goods trade surplus of $650 million in 2014 to a goods

trade deficit of $125 million in 2015. U.S. goods exports to Jordan were $1.4 billion, down 33.3 percent

($682 million) from the previous year. Corresponding U.S. imports from Jordan were $1.5 billion, up 6.6

percent. Jordan was the United States' 69th largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Jordan (stock) was $249 million in 2014 (latest data available), a

14.7 percent increase from 2013.

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 exceptions for alcoholic

beverages and mature subject materials. Following consultations under the United States-Jordan Joint

Committee, Jordan endorsed the United States-Jordan Joint Principles on International Investment and

Joint Principles for Information and Communication Technology (ICT) Services.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Jordan recognizes and accepts U.S. standards and specifications. However, Jordan has required that imports

meet additional product standards. In July 2014, for example, Jordan applied a new energy-saving labeling

requirement for household appliances above and beyond that required by international standards. The

United States and Jordan have agreed that appropriate U.S. labeling and testing will fulfill this requirement.

Some measures with the potential to be viewed as barriers to trade are imposed periodically, such as a 2014

restriction imposed on packaging sizes for poultry available for retail resale.

Sanitary and Phytosanitary Barriers

Some sanitary and phytosanitary (SPS) measures with the potential to be viewed as barriers to trade are

imposed periodically without scientific justification and may take time to resolve with the concerned

authorities. Jordan does not notify these measures to the WTO as required under the SPS Agreement. The

United States has an ongoing dialogue with Jordan on SPS issues.

IMPORT POLICIES

Other Charges

Jordan’s General Sales Tax law allows the government to impose a “Special Tax” at the time of importation

in addition to the general sales tax. Over the past several years, Jordan increased special taxes on certain

goods, changes to which can be unpredictable.

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Agriculture

Import licenses, or advance approvals for importation, are required for specific food products by the

Ministry of Health and raw agricultural goods by the Ministry of Agriculture. The ministries are the

authorities charged with granting these licenses and approvals. The approvals process can be time

consuming and, at times, lacks transparency, an issue the United States continues to engage Jordanian

authorities to address.

Import Licenses

In addition to the 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. The government of

Jordan requires a special import license prior to the importation of telecommunications and security

equipment.

GOVERNMENT PROCUREMENT

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 continue.

EXPORT SUBSIDIES AND TAXES

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 tax exemption was initially

set to expire on December 31, 2015, subject to an annual review. In November 2015, Jordan extended this

tax exemption to December 2018. The United States is working with Jordan to develop a WTO-compliant

alternative to this program.

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.

Jordan imposes a $50 per ton tax on exports of steel scrap, discouraging its exportation.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Jordan was not listed in the 2015 Special 301 Report. The Jordanian government continues to take steps to

provide more comprehensive protection of intellectual property rights. Despite past efforts by law

enforcement officials to crack down on unauthorized products, prosecution efforts should be strengthened,

particularly with respect to utilizing ex officio authority to bring charges in criminal cases.

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KAZAKHSTAN

TRADE SUMMARY

The U.S. goods trade deficit with Kazakhstan was $290 million in 2015, a 27.9 percent decrease ($112

million) over 2014. U.S. goods exports to Kazakhstan were $509 million, down 49.6 percent ($500 million)

from the previous year. Corresponding U.S. imports from Kazakhstan were $798 million, down 43.4

percent. Kazakhstan was the United States' 95th largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Kazakhstan (stock) was $15.6 billion in 2014 (latest data available).

WTO Accession

Kazakhstan’s accession package was approved by the WTO General Council on July 27, 2015. Effective

November 30, 2015, Kazakhstan became a Member of the WTO. Kazakhstan’s accession is the

culmination of approximately 20 years of negotiations and preparatory work.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Sanitary and Phytosanitary Barriers

Systemic Issues

In addition to adopting the import requirements of the Eurasian Economic Union (EAEU) and the Russia-

Kazakhstan-Belarus Customs Union (the Customs Union or CU), Kazakhstan now requires any importer

or domestic producer of certain types of goods to obtain a Certificate of State Registration before the

product can be sold in Kazakhstan. The Ministry of National Economy’s Committee of Consumer Rights

Protection is responsible for issuing these certificates. Goods subject to this certification requirement

include:

• biologically active supplements, including baby food and formula;

• equipment and devices for water supply systems;

• items for intimate hygiene;

• products for disinfection (except of those used in veterinary services); and

• items designated for contact with food products (except dishes, table amenities, and microwave

ovens).

The United States continues to work with Kazakhstan to encourage improvements in the EAEU SPS regime

and to ensure that Kazakhstan’s implementation of the EAEU’s SPS measures is consistent with its WTO

obligations and minimally disruptive to bilateral trade. (See Import Policies section below for more

information on the EAEU and CU.)

Agricultural Biotechnology

The Kazakhstani law “On Seeds Farming” appears to permit field testing of agricultural biotech crops,

though the field testing approval process has not yet been codified into law. A draft law regarding the

approval process has been pending in the Kazakhstani Parliament since early 2011. The draft law may

come up for discussion again in 2016.

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CU regulations covering agricultural biotech products have recently come into force and Kazakhstan is

enforcing them. These regulations require the labeling of both imported and domestically-produced

agricultural biotech products. As Kazakhstan continues to integrate into the EAEU, it is expected that the

policies and views of other EAEU countries will play a greater role in shaping the regulation of agricultural

biotechnology in Kazakhstan.

Pork

Kazakhstan requires imported pork to be shipped frozen to mitigate the risk of trichinae. The United States

does not consider this mitigation measure to be necessary for U.S. pork, as U.S. producers maintain

stringent biosecurity protocols that serve to limit the prevalence of trichinae in commercial swine. The

United States will continue to work with regulatory authorities in Kazakhstan and the EAEU to resolve this

trade concern.

IMPORT POLICIES

Russia-Kazakhstan-Belarus Customs Union and the Eurasian Economic Union

On January 1, 2010, the Customs Union was formed when Russia, Kazakhstan, and Belarus adopted a

common external tariff (CET), with the majority of its tariff rates established at the level that Russia applied

at that time. (When Russia joined the WTO in 2012, the CU adopted Russia’s WTO schedule of tariff

bindings.) On January 1, 2015, Russia, Kazakhstan, and Belarus continued their move toward regional

economic integration with the establishment of the EAEU, the successor to the CU. Armenia joined the

EAEU on January 2, 2015, and Kyrgyzstan joined the EAEU on August 12, 2015.

The Eurasian Economic Commission (EEC) is the supranational body charged with implementing external

trade policy for Member States and with coordinating economic integration among Member States. A

common Customs Code applies to the EAEU Member States, and the Member States ended customs

formalities on their internal borders, allowing for the free flow of most goods among the EAEU members.

As a consequence of its membership in the EAEU, Kazakhstan’s import tariff levels, trade in transit rules,

nontariff import measures (e.g., tariff-rate quotas (TRQs)), import licensing, and trade remedy procedures,

and customs policies (e.g., customs valuation, customs fees, and country of origin determinations) are based

on CU/EAEU legal instruments. On these and other issues involving goods, CU agreements and CU/EEC

decisions establish the basic principles that are implemented at the national level through domestic laws,

regulations, and other measures. CU agreements and CU/EEC decisions also cover issues such as

enforcement of intellectual property rights, trade remedy determinations, establishment and administration

of special economic and industrial zones, and the development of technical regulations and sanitary and

phytosanitary measures. The Treaty on the Functioning of the Customs Union in the Framework of the

Multilateral Trading System of May 19, 2011 establishes the priority of WTO rules in the CU/EAEU legal

framework.

Kazakhstan has not duplicated Russian sanctions with respect to U.S., EU, and Turkish goods. However,

the Russian sanctions regime has complicated the transit of goods from third countries to Kazakhstan

through Russian territory.

Tariffs and Quotas

With the implementation of the CET with Belarus and Russia, Kazakhstan increased the tariff rate on more

than 5,000 tariff lines. However, under its WTO commitments, Kazakhstan will gradually lower 3,512

tariff rates to an average of 6.1 percent by 2020. On January 1, 2016, Kazakhstan began applying a lower-

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than-CET tariff rate to food products, automobiles, airplanes, railway wagons, lumber, alcoholic beverages,

pharmaceuticals, freezers, and jewelry.

In 2015, the average import tariff for Kazakhstan was estimated at 9.2 percent. Kazakhstan applies a zero

rate on 1,826 tariff lines, including livestock, pork, fish products, chemical and pharmaceutical products,

cotton, textiles, machinery and equipment, and furniture.

Although deviations are permitted within the framework of the EAEU, Kazakhstan’s deviation from CET

tariffs is significant. EAEU countries have obliged Kazakhstan to enact measures to prevent re-export of

goods released at its bound tariff rates to the markets of Russia, Belarus, Armenia, or Kyrgyzstan. In 2015,

Kazakhstan will begin negotiations on tariff alignment with EAEU partners.

By EAEU regulations, Member States are permitted to increase or reduce tariffs for up to six months on

selected goods in exceptional cases and with the permission of the EEC.

In 2010, Kazakhstan established TRQs on imports of poultry, beef, and pork to meet its obligations under

the CU. In 2012, U.S. exporters raised concerns about the trade-limiting effects of these TRQs and the

manner in which they were calculated and allocated. For the past five years, Kazakhstani TRQ allocations

have not been made in a timely manner, which has further limited market access for U.S. goods such as

poultry.

Under a September 2013 EEC decision, Kazakhstan introduced an import quota for combine harvesters

from third countries. In contrast with Russia, Kazakhstan did not introduce a special 26.7 percent import

duty, but allows importation of a limited number of combine harvesters from third countries at the

previously established five percent tariff. Kazakhstan’s quota allowed importation of 309 units in 2015 and

204 units in 2016 (through August 21).

Other EAEU/CU safeguard measures apply in Kazakhstan, including special duties for steel dishware (15.4-

27.16%, valid until June 2020), cast iron baths from China (51.87%, valid until January 2018), and steel

pipe (18.9-37.8%, valid until July 2016).

Licensing

In connection with its membership in the CU, Kazakhstan increased the number of goods subject to import

or export licensing. Precious metals and stones, documents from national archives, and items of cultural

value were made subject to export licensing. However, the EEC removed precious metals and stones,

service and civilian weapons from this list in May 2015. Products with cryptographic functionalities,

including certain commonplace consumer electronic products, are subject to import and export licensing

procedures or a one-time notification requirement. (See the Trade Estimate for the Russian Federation for

more information on the CU’s import licensing regime for products with cryptographic capabilities.)

Customs Administration

Customs administration practices remain a substantial barrier to trade. Importers report high costs for

customs clearance, a lack of transparency and information from customs authorities, and arbitrary

interpretation of customs clearance requirements at the border.

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EXPORT POLICIES

Kazakhstan maintains a ban on the export of light distillates, kerosene, gasoline, and lumber. Bans on the

export of ferrous scrap, gold bearing rock, and unprocessed precious metals were introduced in 2013 and

will remain in force until at least January 1, 2016.

GOVERNMENT PROCUREMENT

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 non-

resident companies (if they are registered in Kazakhstan and maintain a physical presence) may participate

in electronic tenders once they receive an electronic signature from the Ministry of Justice. The system’s

performance to date has been spotty.

Kazakhstan intends to join the WTO Agreement on Government Procurement (GPA) in 2018. Prior to this,

the government has indicated that it plans to bring government procurement rules and procurement of quasi-

sovereign companies into compliance with the GPA.

In December 2015, President Nazarbayev signed a new law on government procurement designed to make

tender processes more transparent. The procurement rules under this law are expected to be developed by

mid-2016. Pursuant to the law, potential suppliers will be able to read and discuss technical statements

before a tender and see the documentation and bids of other suppliers. In addition, the law will toughen

requirements for purchasing from a single vendor and will prohibit transfer of services to subcontractors.

However, the law still requires pre-qualification for potential suppliers.

Assets of the National Welfare Fund and the government-owned holding company, Samruk-Kazyna,

account for about 40 percent of Kazakhstan’s GDP. Through share ownership, Samruk-Kazyna manages

some of Kazakhstan’s largest national companies, including Kazakhstan TemirZholy (the national railway),

KazMunaiGas (the national oil and gas company), KEGOC (the electrical utility), and their subsidiaries.

These enterprises are subject to Samruk-Kazyna’s rules for procurement of goods and services, which

stipulate criteria for the evaluation of bids and provide for price preferences of up to 1 percent for locally

produced goods and services. Potential suppliers must receive a certificate from the National Chamber of

Entrepreneurs confirming local content of goods or services.

On January 28, 2016, Samruk-Kazyna approved new rules on procurement in order to comply with the

GPA. These rules cancel bill-back allowances and other forms of preferential treatment given to locally

produced goods and services, which are inconsistent with WTO requirements. According to the new rules,

however, only qualified suppliers would be eligible to participate in Samruk-Kazyna tenders, and a

designated Samruk-Kazyna subsidiary would rank potential bidders in order to include them on a list of

qualified suppliers.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

To facilitate its WTO accession and attract foreign investment, Kazakhstan took steps in 2015 to continue

modernizing its legal regime for protecting IPR, including through the introduction of amendments to its

trademark legislation to address obligations under the TRIPS Agreement. Further, Kazakhstan continues

to examine ways to simplify procedures for issuing patents and to expand patent protection for utility

patents, drugs, and fertilizers. In October 2015, Kazakhstan enacted a law that extends the regulatory data

protection period for up to six years for innovative medicines. Although the United States acknowledges

the efforts Kazakhstan has taken on IPR enforcement, customs controls need to be applied more effectively

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against imported IPR-infringing counterfeit and pirated 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.

SERVICES BARRIERS

Telecommunications

Kazakhstani law restricts foreign ownership to 49 percent of 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 regarding its WTO accession. Kazakhstan agreed that, after a two-and-a-half year

transition period from the date of accession, 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. As part of its WTO

accession commitments, Kazakhstan has agreed not to restrict services provided by foreign satellite

operators to companies that hold a license for telecommunication services.

Other

Foreign banks and insurance companies must operate 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 five 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.

INVESTMENT BARRIERS

Local Content Requirements Before Kazakhstan’s Accession to the WTO

Despite low oil prices and the corresponding delay of oil-related projects, approximately 70 percent of

foreign direct investment in Kazakhstan is still in the oil and gas sector. Although local content

requirements in this sector continue to pose a challenge for foreign operators, the situation is expected to

improve thanks to Kazakhstan’s accession to the WTO and the planned abolition of these requirements.

The 2010 Subsoil Law established strict local content requirements and harsh penalties for failure to meet

them, including the potential cancellation of contracts. 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 the oil and gas sector. As a result, in times of better oil

prices, foreign companies found it difficult to comply with the government’s local content requirements,

and they reported that local administrators took an increasingly inflexible approach to these regulations.

The 2010 Subsoil Law also introduced a requirement on companies operating in the extractive sector to

draft and seek approval for “project documents” that contained performance indicators and assessments of

the economic feasibility of the project, which had to take into account potential Kazakhstani suppliers of

goods and services, i.e., the willingness of the investing firm to localize its procurements.

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The November 2014 amendments to the 2010 Subsoil Law required new subsoil use contracts to quantify

a firm’s local labor content obligations in definitive numerical terms. The 2010 Subsoil Law previously

required all new contracts to contain local content provisions, although the obligations could be unspecified.

While the government has long pursued a policy of incorporating numerical local labor content obligations

into subsoil contracts, this amendment codified the practice.

Local Content Requirements After Kazakhstan’s Accession to the WTO

On November 9, 2015, Kazakhstan introduced amendments to the subsoil use legislation that significantly

altered existing local content requirements to meet the country’s WTO accession requirements. Subsoil

use contracts concluded after January 1, 2016, will no longer contain local content requirements for goods

or requirements to support local producers (i.e., the requirement to reduce the stated (not actual) value of

bids from Kazakhstani producers of goods by 20 percent to increase their likelihood of winning the tender).

These requirements, however, will still apply until January 1, 2021, to subsoil use contracts signed before

January 1, 2016.

Although from January 1, 2012, the amendments to the Expatriate Workforce Quota and Work Permit Rules

allowed only 30 percent of company executives and 10 percent of engineering and technical personnel to

be foreign nationals, the terms of Kazakhstan’s accession to the WTO require that Kazakhstan relax these

limits on foreign nationals by increasing the “quota” to 50 percent for both categories of personnel.

The November 2015 amendments to the migration and employment law were also meant to liberalize

foreign workers’ access to the local labor market by waiving quotas and work permit requirements for

expatriates coming to Kazakhstan on their own looking for work. Local branches of the Ministry of Labor

must certify that foreign workers meet required qualifications and assess expatriate workers on a graded

system. The amendments will also allow electronic work permit applications to be processed at e-service

centers, which are being used for an increasing number of licensing and payment transactions with the

government. The move toward e-service centers is expected to speed up processing from 40 to five days,

improve transparency, and reduce opportunities for corruption. Under the new system, employers will

directly pay the local government for expatriate work permits, creating a monetary incentive not to impose

bureaucratic obstacles on the issuance process, which previously was one of the main barriers to employing

foreign workers. In order to encourage the employment of highly skilled foreign workers, the fees for work

permits will vary based on worker qualifications; the higher the qualifications, the lower the fee. These

changes will come into effect on January 1, 2017.

Under the current system, the foreign workforce quota for 2015 is 63,000 workers, or 0.7 percent of

Kazakhstan’s economically active population. As of October 1, 2015, there were 35,813 expatriates

working in Kazakhstan, 64 percent as top and mid-level managers and specialists, 36 percent as skilled

(e.g., welders) and seasonal workers. The changes to the quota definition pursuant to the November 2015

amendments may not have an immediate effect, as international companies generally do not use their

assigned quota as it is.

Sale of Investments

The 2010 Subsoil Law also 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, although this right was limited in

the December 2014 amendments to the law to a smaller category of “strategically significant” projects.

Previously, the government used its discretionary powers to designate subsoil deposits and areas as

“strategic.” The December 2014 amendments obligate the government to compile the list of such projects

based on “strategic” criteria, rather than making determinations on a case-by-case basis. The Ministry of

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Energy exercised this right in 2013 when it decided to buy ConocoPhillips’ stake in the Kashagan oil field

that the company had sought to sell to another foreign company.

Contract Issues

The 2010 Subsoil Law authorized the government to terminate contracts unilaterally if a subsoil user failed

to correct more than two previously committed breaches of obligations under a subsoil use contract or

project documents. According to the December 2014 amendments, the mere breach of obligations under

project documents is no longer a sufficient ground for unilateral termination of a subsoil use contract. The

December 2014 amendments introduced new grounds for unilateral termination – breaching financial

obligations under a subsoil use contract by more than 70 percent for two consecutive years.

OTHER BARRIERS

Kazakhstan has a burdensome tax monitoring system, which companies report requires them to employ

significant resources to comply with cumbersome rules and frequent inspections. The actions of tax and

regulatory authorities can be unpredictable.

Corruption at many levels of government is also seen as a barrier to trade and investment in Kazakhstan,

reportedly affecting nearly all aspects of doing business in Kazakhstan, including customs clearance,

employment of locals and foreigners, payment of taxes, and the judicial system.

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KENYA

TRADE SUMMARY

The U.S. goods trade surplus with Kenya was $371 million in 2015, a 64.6 percent decrease ($679 million)

from 2014. U.S. goods exports to Kenya were $937 million, down 42.9 percent ($704 million) from the

previous year. Corresponding U.S. imports from Kenya were $565 million, down 4.3 percent. Kenya was

the United States' 80th largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Kenya (stock) was $383 million in 2014 (latest data available), a

5.7 percent decrease from 2013.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Sanitary and Phytosanitary Barriers

Agricultural Biotechnology

Pursuant to a Kenyan Cabinet and Presidential decree, on November 21, 2012, the Kenyan Ministry of

Public Health ordered public health officials to remove from the market all foods, feed, and seeds derived

from agricultural biotech and to enact a ban on agricultural biotech food and feed imports. In August 2015,

Deputy President William Ruto announced that the Kenyan government would lift the import ban on

genetically modified products in two months. Although the announced implementation date has passed,

the government continues to maintain the ban.

The ban contravenes Kenya’s National Biosafety Law, was implemented with little warning or stakeholder

consultation, and was not notified to the WTO. Since the ban was imposed, key stakeholders in Kenya—

scientists, universities, some non-governmental organizations, and policy makers, including influential

governors and legislators—have launched educational and outreach programs to encourage the government

to rescind the decision. Both food aid and commercial U.S. agricultural exports derived from agricultural

biotech products have been kept out of the Kenyan market because of the ban. In January 2016, Kenya

approved environmental release of biotech corn and is moving towards commercialization. The restriction

does not affect fully processed products such as edible oils; however, it does impact U.S. exports of semi-

processed foods, such as soy for feed and high-value soy products. As the demand for feed inputs rises, the

ban is hampering potential U.S. exports of feed ingredients, including soy, feed corn and distiller dried

grains.

The United States supports outreach efforts by Kenyan research scientists and private sector stakeholders

to disseminate factual information about agricultural biotechnology.

Meat and Meat Products

Kenya maintains complex, non-transparent, and costly requirements for importation of all meat, dairy, and

poultry products. These procedures, which have been in place for at least two decades, are based on more

than 20 separate statutes implemented by numerous government agencies and include a shipment-by-

shipment import permit requirement. Imported products must arrive with a standardized sanitary

certification and a “Letter of No Objection to Import Permit” (no-objection letter) from the Department of

Veterinary Services (DVS) under the Ministry of Agriculture, Livestock, and Fisheries. Before DVS issues

the no-objection letter, the importer must explain the reason for importation through a “Letter of

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Application to Import” and specifically address the market need the import would meet. DVS issues the

no-objection letter for meat, dairy, and poultry products at its discretion. Although the Government of

Kenya purports to prohibit imports only on sanitary grounds, in practice the exercise of discretion by DVS

appears to be focused on protecting the domestic industry, not on scientifically-based animal or human

health concerns. A common reason for DVS denial is that the proposed imports are locally available.

Plants and Plant Products

Since 2006, Kenya has banned wheat from the U.S. Pacific Northwest due to concerns over the flag smut

fungus that has low risk due to the precautionary measures that the United States has taken to ensure that it

is mitigated appropriately.

Kenya subjects imported and domestically produced corn to a total aflatoxin limit of 10 parts per billion

(ppb) and a 13.5 percent maximum moisture content. The scientific basis for the 10 ppb aflatoxin limit is

unclear; the Codex Alimentarius and U.S. standard is 20 ppb. Most U.S. corn has a moisture content higher

than 13.5 percent and is, therefore, prevented from importation. However, the United States accepts these

restrictions due to specific aflatoxin and grain storage concerns in Kenya. Under special circumstances

such as food shortages, Kenya has allowed higher moisture content for imported corn, which must then be

dried and milled immediately upon arrival to reduce the risk of aflatoxin contamination.

Kenya also restricts popcorn imports to a six percent maximum moisture requirement. The U.S. limit is

12.5 percent to 15 percent.

Kenya does not permit whole pea imports due to concerns about the pseudomonas pisi fungus, but permits

the import of split peas. Kenya also bans bean imports due to the occurrence of corynebacterium

flaccumfasciens bacteria in some parts of the United States and lentils are banned due to the threat of darnel

weed. However, darnel weed already exists in Kenya.

IMPORT POLICIES

Tariffs

Kenya has a mostly liberalized economy with no price controls on major products. Quantitative import

restrictions, as drafted, appear limited to products for which environment, health or safety concerns exist;

however, officials exercise discretion to apply these restrictions at times seemingly to protect domestic

industries. Kenya maintains high ad valorem import tariffs, a value-added tax (VAT), and a 1.5 percent

Railway Development Levy (RDL) imposed on shipments of imported goods. The government of Kenya

sometimes waives these tariffs when domestic agricultural prices exceed certain levels and there is a need

to stabilize prices. According to the WTO, Kenya’s average applied tariff rate for all products was 12.8

percent in 2014.

Kenya applies the East African Community (EAC) Customs Union’s Common External Tariff, 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. For “sensitive” products and commodities, comprising 58

tariff lines, the EAC has applied ad valorem rates above 25 percent. This includes rates of 60 percent 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.

The current VAT Act, adopted in 2013, reduced the number of VAT-exempt items from 400 to 27,

purportedly to simplify tax administration, enhance tax compliance and eradicate a backlog of refunds. The

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2013 Act went into effect with few specific guidelines, however, resulting in uncertainty surrounding the

application of VAT rules.

Kenya amended and clarified VAT related rules in 2015. The 2015 amendments clarified some items that

are VAT exempt, including: aircraft engines, aircraft parts, plastic bag biogas digesters, parts for the

assembly of primary school laptop tablets, and goods for use by the Kenya Film Commission or in the

construction of industrial and recreational parks subject to specified conditions. These amendments also

made clear that VAT refund claims must be submitted within 12 months of purchase.

VAT-exempt companies, including importers, still experience lengthy wait times in receiving their VAT

refunds. In September 2014, the Kenyan government commissioned an audit of ballooning VAT refund

claims. The audit has not been completed, and backlogged VAT refund claims have not been paid.

Remaining contentious issues regarding VAT are expected to be addressed through subsequent financial

bills.

Disputes over tariffs and taxation are resolved through the judicial system, which is subject to delays and

uncertainty. In June 2014, the Kenya Revenue Authority (KRA) launched an Alternative Dispute

Resolution (ADR) mechanism aiming to provide taxpayers with an alternative, fast-track avenue for

resolving tax disputes. Once operational, the KRA claims the ADR mechanism will provide a cheaper

alternative for foreign investors and also provide an alternative to the lengthy court processes in Kenya.

Nontariff Measures

Kenya requires all importers to pay an import declaration fee of 2.25 percent of the customs value of imports

and to meet other document requirements or have their goods subject to enhanced inspection. For example,

importers must obtain a Certificate of Conformity (CoC) or have their goods inspected at the port of entry,

which costs approximately 15 percent of the value of imported goods, and poses a risk of the goods being

rejected after the payment of shipping costs. Importers that choose to obtain a CoC must apply for an export

certification from a pre-shipment inspection company (SGS or Intertek International) that has a contract

with the government. Following inspection or obtaining a CoC, the importer must seek an Import

Standardization Mark, a stick-on label to be affixed to each imported item, from the Kenya Bureau of

Standards (KEBS). Other required import documents include valid pro forma invoices, a Bill of Lading or

Airway Bill, and a Packing List from the exporting firm. Kenya asserts that its import controls are necessary

to address health, environmental, and security concerns.

GOVERNMENT PROCUREMENT

U.S. firms have had limited success bidding on government tenders in Kenya. Reportedly, corruption often

influences the outcome of public tenders. Foreign firms, some without proven track records, have won

government contracts when partnered with well-connected Kenyan firms.

The Public Procurement and Disposal Act allows for exclusive preferences for Kenyan citizens if the

funding for the procurement is 100 percent from the government or a state-related entity, and if the amounts

are below KES 50 million (approximately $575,000) for goods or services or KES 200 million

(approximately $2.3 million) for public works. The Act 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

Kenyan nationals 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

shareholdings. The Public Procurement (Preference & Reservations) Amendment Regulations of 2013 call

for at least 30 percent of government procurement contracts to go to women, youth, and persons with

disabilities.

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In 2014, the government inaugurated the Integrated Financial Management Information System (IFMIS),

which the government claims will improve transparency and accountability in government financial

management through the automation of budget, accounting, procurement, and revenue management

functions. As part of the IFMIS, the government launched an eProcurement system to automate

procurement tenders. In July 2015, the government made use of the eProcurement system mandatory for

the national and local governments. The National Treasury has allocated $19 million for the continued

implementation of the IFMIS. Lack of adequate IT support mechanisms and opposition by some

government officials has hindered its implementation.

Kenya is neither a party nor an observer to the WTO Agreement on Government Procurement.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Kenya was not listed in the 2015 Special 301 Report. Kenya has a legal and institutional framework to

protect Intellectual Property Rights (IPR), however, lax enforcement and poor coordination among agencies

continues to be a challenge for U.S. firms. Pirated and counterfeit products in Kenya present a major

impediment to U.S. business interests in the country, as well as health and safety hazards for consumers.

The prevalence of “gray market” products – genuine products that enter the country illegally without paying

import duties – also presents a challenge to U.S. companies, especially in the mobile phone and computer

sectors. The Kenya Bureau of Standards (KEBS), the Pharmacy and Poisons Board, the Kenya Copyright

Board, and the Anti-Counterfeit Agency (ACA) are the government agencies tasked to maintain product

standards and combat counterfeit products. The ACA reports an influx of counterfeit products to Kenya,

especially electronics such as phones, television sets, and phone batteries, and a surge in the counterfeiting

of pharmaceuticals, pesticides, and soft and alcoholic drinks. U.S. companies operating in Kenya have

expressed concerns about the lack of political will to enforce intellectual property laws and to prevent

government corruption related to intellectual property matters.

Kenyan authorities are taking steps to improve IPR enforcement including empowering enforcement

officers and magistrates. In December 2014, the ACA opened an office in Mombasa, the main entry point

for counterfeit goods. Despite an increase in enforcement and police officers, overall resourcing of ACA

remains inadequate to completely address the flow of counterfeit goods.

SERVICES BARRIERS

The Kenyan government wholly owns the National Oil Corporation and the Kenya Pipeline Corporation,

and competition with these companies is limited. State owned enterprises, including Kenya Electricity

Generating Company, Kenya Power and Lighting and the Geothermal Development Company dominate

the electricity generation, transmission, and distribution portions of the energy sector, although there are a

number of independent power producers active in the sector.

INVESTMENT BARRIERS

In 2015, the Kenyan government repealed regulations that imposed a 75 percent foreign ownership

limitation for firms listed on the Nairobi Securities Exchange, allowing such firms now to be 100 percent

foreign-owned.

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 of 80 percent and 66.7 percent in the telecommunications and insurance sectors,

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respectively. The government allows telecommunications companies a three-year grace period to find local

investors to achieve the local ownership requirements.

The 2010 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 acquire

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 state-

owned companies that control infrastructure as “strategic” enterprises. As a result, reform and partial

privatization of the telecommunications, power, and rail sectors are not progressing very quickly.

When making their initial investment, foreign investors with foreign staff are required to submit plans for

the gradual phasing out of non-Kenyan employees. In considering an application for investment, the Kenya

Investment Authority considers the extent to which such investment or activity will contribute to

employment creation, acquisition of new skills or technology, and government revenues.

In 2015, the Department of Immigration introduced a new directive making it more difficult for non-

Kenyans to obtain work permits. Under the new rules, foreign nationals must apply for alien registration

before a work permit can be formally endorsed. These rules have led to long delays in the processing of

work permits for non-Kenyans.

OTHER BARRIERS

Corruption

Corruption remains a substantial trade barrier in Kenya. U.S. firms continue to report that they find it

difficult to succeed against competitors willing to ignore legal standards or engage in bribery and other

forms of corruption. Corruption is widely reported to affect government procurement tender processes at

both the national and the county level. The government has not always implemented anticorruption laws

effectively, and officials often engage in corrupt practices with impunity. While judicial reforms are

moving forward, bribes, extortion, and political considerations continue to influence outcomes in civil

cases.

Despite efforts to increase efficiency and public confidence in the judiciary, a backlog of cases and

continuing corruption – both perceived and real – burden and reduce the credibility of Kenya’s judicial

system. Companies cite these deficiencies as obstacles to investment because they discourage lending and

result in higher interest rates when financing is provided. An industrial court exists in Kenya, but it is

plagued by long delays in rendering judgments. As such, foreign and local investors are subjected to

lengthy and costly legal procedures.

Export Barriers

In March 2014, Kenya enacted the Scrap Metal Act 2014, which prohibits the export of any form of scrap

metal absent authorization.

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KOREA

TRADE SUMMARY

The U.S. goods trade deficit with Korea was $28.3 billion in 2015, a 13.1 percent increase ($3.3 billion)

over 2014. U.S. goods exports to Korea were $43.5 billion, down 2.2 percent ($973 million) from the

previous year. Corresponding U.S. imports from Korea were $71.8 billion, up 3.3 percent. Korea was the

United States' 7th-largest goods export market in 2015.

U.S. exports of services to Korea were an estimated $20.7 billion in 2014 (latest data available), and U.S.

imports were $10.4 billion. Sales of services in Korea by majority U.S.-owned affiliates were $12.6 billion

in 2013 (latest data available), while sales of services in the United States by majority Korea-owned firms

were $17.6 billion.

U.S. foreign direct investment (FDI) in Korea (stock) was $34.9 billion in 2014 (latest data available), a 5.6

percent increase from 2013. U.S. direct investment in Korea is led by manufacturing, finance/insurance,

and wholesale trade.

United States-Korea Free Trade Agreement

On March 15, 2012, the United States-Korea Free Trade Agreement (KORUS, or the Agreement) entered

into force. In the four years that this landmark agreement has been in effect, Korea has become the sixth-

largest trading partner of the United States, and exports of U.S. manufactured goods, services, and

agricultural products have seen significant gains. The Agreement has also improved Korea’s investment

environment through strong provisions on intellectual property rights, services, investment, labor, and

environment. The Agreement supports U.S. exports, while helping to strengthen and expand ties with an

important strategic partner in Asia.

Since the Agreement’s entry into force, the United States and Korea have carried out four rounds of tariff

cuts and eliminations, creating significant new market access opportunities for U.S. exporters. The

Agreement has also expanded opportunities for the growing U.S. trade in services, improved transparency

in Korea’s regulatory system, strengthened intellectual property protection, leveled the playing field for key

U.S. exports, including autos, and enhanced market access for U.S. exporters of all sizes including small

and medium businesses. Overall, U.S.-Korea goods and services trade has risen from $126.5 billion in

2011 to $145.2 billion in 2014.

Year-on-year goods exports to Korea for 2014 were up 6.8 percent compared to 2013. This brought goods

exports to a record level of $44.5 billion. Manufactured goods account for most of this total at $37.4 billion.

This reflects growth of 5.6 percent in 2014 – nearly four times faster than manufacturing export growth to

the world at large – and a total that is now 8.7 percent above pre-FTA levels. This growth has been strong

across high-technology manufacturing, autos, heavy industry, and consumer goods.

Through a combination of tariff elimination and expansion of tariff rate quotas, nearly two-thirds of U.S.

agricultural exports have had duty-free treatment since the Agreement entered into force. U.S. exports of

key agricultural products benefiting from tariff cuts and the lifting of other restrictions under KORUS

continued to post significant gains. Last year’s 31.2 percent growth in farm exports to Korea was nearly

seven times faster than U.S. agricultural export growth to the world at large. For agricultural goods that

benefited from tariff elimination or reduction, there have been dramatic increases in exports in 2015

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compared to 2011, including some particularly striking examples such as fresh cheese (nearly 400 percent),

cherries (177 percent), shelled almonds (141 percent), and wine and beer (86 percent).

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. Korea is in the process of opening its legal

services market, and over a dozen U.S. law firms are now offering their services to Korea’s increasingly

global businesses. The Agreement also 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.

U.S. services exports to Korea are particularly strong, up 24.4 percent to an estimated $20.7 billion in 2014

as compared to $16.7 billion in 2011. This rate of growth nearly doubled the overall 13.1 percent growth

of U.S. services exports to the world.

TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS

Technical Barriers to Trade

Chemicals – Act on the Registration and Evaluation of Chemicals

The Registration and Evaluation of Chemicals (K-REACH) Act was enacted in 2013 and came into force

on January 1, 2015. K-REACH requires manufacturers and importers of chemical substances to register

and comply with annual reporting requirements. The Korean government released a draft Ministerial

Decree to implement the law on July 9, 2015, asking for comments by August 20, 2015. The Korean

government published a revised Ministerial Decree, based on comments received, on October 30, 2015.

The United States raised a number of concerns, mainly with the lack of clarity regarding how K-REACH

would be implemented, Korea’s lack of transparency during the development of K-REACH’s rules and

requirements, insufficient time for companies to implement new requirements, and the lack of protection

for confidential business information. The U.S. Government has raised these concerns numerous times

bilaterally and at the WTO Committee on Technical Barriers to Trade. The U.S. Government has made

significant progress in addressing concerns and will continue to monitor implementation.

On November 16, 2015, the Ministry of Environment announced its requirement under Korea’s Chemical

Control Act that companies make information on chemical products, such as the name and quantity of

chemical products in production facilities, publicly available. This includes publicizing the information on

the Internet. U.S. companies have concerns that the requirement will involve disclosing confidential

business information that could end up in the hands of competitors. The Ministry of Environment accepted

comments on the requirement until December 3, 2015, and announced that the new regulation had been

implemented on January 1, 2016. The United States remains concerned that guidance documents are not

sufficiently detailed, and that implementation timeframes have been too short to enable sufficient

consideration of stakeholder input, and will engage Korean authorities as appropriate.

Information Technology Equipment – Electrical Safety Regulations

U.S. stakeholders have been working closely with the Korean Agency for Technology and Standards

(KATS) and the Radio Research Agency on Korea’s reorganization of safety regulations for information

technology equipment. The United States and U.S. stakeholders have advocated for streamlined procedures

that reflect the realities of contemporary manufacturing and provide an appropriate level of safety

certification for low risk information technology equipment, such as printers and computers. KATS

released its final Safety Regulations rule for information technology equipment, effective July 1, 2013.

These regulations addressed many long-standing U.S. concerns, including by expanding the scope of

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products subject to a supplier’s declaration of conformity and adopting the most current International

Electrotechnical Commission (IEC) standard. However, some concerns continue to be outstanding. For

example, the regulation requires separate safety certification with respect to each factory’s products, even

for identical products produced by the same company but in a different factory, and does not establish a

certificate renewal process. Furthermore, despite being a member of the IEC System for Conformity

Testing and Certification of Electrical and Electronic Components, Equipment and Products Certification

Bodies’ Scheme (CB), KATS does not accept CB reports without additional testing. Finally, the rule

imposes burdensome labeling requirements for information that could be disclosed instead in an insert or

manual. Such an adjustment is particularly appropriate for products that have small physical sizes such as

cell phones. In 2016, the United States will continue to monitor implementation of the regulation and urge

Korea to allow adequate implementation time for new products as its scope increases.

Solar Panels – Testing Requirements

Korea requires solar panels to be certified by the Korea Management Energy Corporation (KEMCO) before

they can be sold in Korea for projects receiving government support (which comprise the vast majority of

solar projects in Korea). KEMCO’s certification standards effectively prevent certain types of thin film

solar panels manufactured in the United States from entering the Korean marketplace. For example,

KEMCO has established a standard for thin-film solar panels that can be satisfied only by panels

manufactured from amorphous silicon and copper indium gallium selenide. As a result, other leading types

of thin-film solar panels, including types made principally by U.S. firms such as cadmium telluride (CdTe)

panels, cannot be tested or certified under the Korean standard. The United States has consistently urged

Korea in bilateral trade consultations and at the WTO TBT Committee meetings in recent years to adopt in

full the relevant international standard, IEC 61646, without limiting its application solely to the type of

thin-film solar panel its industry produces. Korea conducted an environmental impact review in March

2014 on the use of cadmium in solar panels and determined that a hazard existed for using CdTe. U.S.

stakeholders have raised methodological concerns with the studies Korea used to disqualify CdTe. The

United States will continue to discuss this issue with Korea in 2016.

Repair History Reporting

Pursuant to an amendment of the Motor Vehicle Management Act, Korea requires, as of January 8, 2015,

that all automobile manufacturers or dealers report vehicle repair histories to vehicle purchasers to account

for any damage taking place between the manufacturing site and customer delivery. (While not regulated

at the federal level in the United States, 36 states have some type of damage reporting requirement, though

these differ in important ways from the new Korean requirement, such as by exempting certain types of

damage and establishing de minimis levels of damage that would not need to be reported). U.S. stakeholders

raised concerns that this new reporting requirement discriminates against automobile importers because

local automobile manufacturing sites are co-located with pre-delivery inspection (PDI) facilities and thus

vehicles are unlikely to require any reportable reconditioning. Since imported vehicles routinely undergo

some kind of reconditioning that would require reporting under this law, consumers’ perception of imported

vehicles could be harmed.

U.S. stakeholders have requested that Korea’s Ministry of Land, Infrastructure, and Transportation

(MOLIT) draft subordinate implementing regulations that would clarify the underlying law so that Korea

would recognize Korean PDI facilities as the conclusion of the manufacturing process, and requested that

Korea consider establishing a de minimis rule on what repairs require reporting. MOLIT has not accepted

this request, but met with foreign industry representatives in January 2015 to clarify definitions and

technical details that addressed some stakeholder concerns. As an implementing guideline has not yet been

created for this reporting requirement, MOLIT has not yet started enforcing the regulation. Instead, MOLIT

commissioned a study on the de minimus rule in November 2015 for use in drafting the implementing

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regulations. The U.S. Government has raised this issue with Korean authorities, and will continue to

address the issue in 2016.

“Right to Repair”

MOLIT proposed a revision to the Motor Vehicle Control Act on November 11, 2015, requiring automakers

to provide independent automobile repair shops training and access to diagnostic tools and security codes

so that repair shops can provide similar levels of service as car dealerships. MOLIT held a public comment

period, which ended on November 30, 2015, and the Korean government completed the regulatory review

process December 8, 2015. U.S. stakeholders requested numerous clarifications to the new requirements,

including in regard to the manner in which training could be delivered, and also raised concerns about

security-related reprogramming and protection of proprietary information. The announcement of the final

version of the requirement is expected in early 2016.

Information Technology Equipment – Cybersecurity Testing Requirements

Korea launched the Network Verification Scheme (NVS) on October 1, 2014. NVS sets forth new Korea-

specific requirements for network equipment such as routers or switches procured by Korean government

entities, and requires agencies to submit procured equipment to the National Intelligence Service (NIS) for

mandatory testing. Although Korea is a member of the Common Criteria Recognition Arrangement

(CCRA), which sets cybersecurity standards for government-procured IT equipment, NIS does not accept

CCRA certified equipment as compliant with NVS absent additional in-country testing. U.S. stakeholders

have raised concerns that NVS ignores Korean commitments in CCRA. The U.S. Government has also

raised such concerns as well as concerns that the implementation of NVS lacks transparency. The U.S.

Government will continue to monitor the situation in 2016.

Organic Products

On July 1, 2014, the United States and Korea adopted an equivalence arrangement for processed organic

food products. This arrangement allows processed products certified as organic in the United States or

Korea to be sold as organic in either country without having to go through a costly certification process

again under the importing country’s standards. Exports to Korea in this fast growing sector, worth $35

million annually based on U.S. industry analysis, includes products like organic condiments, cereal, baby

food, frozen meals, and milk. A bilateral Organics Working Group meets annually to review operations of

the arrangement, discuss the scope of the arrangement, assess progress on identified technical issues, and

discuss best practices and other issues related to organic food products. The United States is interested in

expanding the scope of products covered by the arrangement to include all food and agricultural products.

Sanitary and Phytosanitary Barriers

Agricultural Biotechnology

Korea’s regulatory system for agricultural biotechnology continues to present challenges to U.S. agriculture

exports. The approval process for new genetically engineered events is onerous and protracted due to

inefficiencies in the system. For example, approval of new events requires review by up to five different

agencies. Compounding the problem, Korea’s data and information requests are often redundant, leading

to delays in the approval of new products. The United States will continue to engage with Korea on

improving the approval process. The issue was discussed most recently at the KORUS Committee on

Sanitary and Phytosanitary Matters (SPS Committee) meeting held on in December 2015 in Korea.

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Beef and Beef Products

Prior to 2008, Korea restricted the importation of U.S. beef and beef products over BSE-related concerns.

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 U.S. beef and beef products imported into Korea will be derived from animals less than

30 months of age, as a transitional measure, until Korean consumer confidence improves. To date, this

agreement has operated smoothly. In 2015, the United States exported over $810 million in beef (including

variety meats) to Korea, making Korea the fourth-largest export market for U.S. beef.

Poultry and Poultry Products

In December 2014, Korea banned all poultry imports from the United States due to the detection of highly

pathogenic avian influenza (HPAI) in backyard flocks in Washington and Oregon. This action was

inconsistent with World Organization for Animal Health (OIE) guidelines, which recommend that countries

take regional approaches to imposing trade restrictions on poultry and poultry products from countries with

HPAI findings in commercial or backyard flocks. The ban was lifted in November 2015, following a period

of three months with no HPAI detections in the United States, but was re-imposed in January 2016

following another HPAI detection in the United States. The United States will continue to work with Korea

to allow trade from areas that are not affected by HPAI in case of future HPAI incidents. Because of the

ban, U.S. poultry exports to Korea in 2015 were valued at $19 million compared to $112.5 million in 2014.

Maximum Residue Limits

Korea is in the process of shifting to a new “positive list” system for agrochemical residues and veterinary

drugs and will no longer allow imports of food containing agrochemical residues unless the substance has

been approved for the commodity in question and a maximum residue level (MRL) has been established.

The positive list will be implemented in December 2016 for tropical fruits, oil seeds, and tree nuts, and will

be implemented in January 2018 for all other products.

In the process of making this shift, Korea is requiring the establishment of new import tolerances for

agrochemicals and veterinary drugs previously registered for use in Korea, as well as for new substances

not yet registered for use in Korea. This process may prove a significant challenge to U.S. exporters of

fruit and grain if import tolerances are not set at an appropriate level and in a timely manner. The issue was

most recently discussed at the KORUS SPS Committee meeting held in December 2015 in Korea, and the

United States will continue to encourage Korea to maintain MRLs for substances that are currently

approved.

Potatoes

In August 2012, Korea prohibited the importation of fresh potatoes from the states of Idaho, Oregon, and

Washington due to the presence of zebra chip in the region. Korea continues to prohibit the importation of

fresh table-stock potatoes from the Pacific Northwest even though Korea does not have an insect that can

carry zebra chip from one potato plant to another, the only way the disease spreads. Additionally, U.S.

potatoes exported to Korea are treated with sprout inhibitor and are destined for consumption or

processing—not propagation. The United States continues to engage with Korea to remove the import

prohibition on fresh table-stock potatoes from the Pacific Northwest. This issue was among those raised at

the KORUS SPS Committee meeting held in December 2015 in Korea

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IMPORT POLICIES

Origin Verification

KORUS permits each Party to perform origin investigations on originating goods and provides for customs

officials to enforce the Agreement. The United States generally approaches verifications by targeting

specific shipments, selected using a risk-based approach, and conducts verifications based on commercial

documents typically kept in the course of business.

U.S. exporters and producers have raised concerns that the Korea Customs Service (KCS) has been

conducting unduly onerous verifications. In several cases, KCS required documentation in excess of that

necessary to reasonably substantiate a rule of origin. Lack of coordination and inconsistent application of

rules of origin standards among customs offices were two other challenges raised by U.S. companies.

Further, U.S. companies state that certifications of origin have been rejected by KCS for minor errors and

that KCS has limited the ability of companies to make corrections to documentation.

Throughout 2013 and 2014, the United States worked closely with Korea to arrive at a common approach

to verification procedures that would facilitate legitimate trade under KORUS and ensure that importers,

exporters, and producers receive the benefits to which they are entitled. During 2014, a newly created ad-

hoc Origin Verification Working Group met several times, helping to facilitate the issuance of positive

determinations granting tariff benefits for U.S. exports, substantially resolving U.S. concerns on this issue.

During 2015, this Working Group met to stress the importance of transparency, share best practices,

interpret KORUS text on verification, and, as much as possible, align Korean and U.S. customs procedures.

The United States will continue to monitor developments in this area in 2016 and plans to address lingering

differences in understanding the rules of origin and proper verification practices.

Tariffs and Taxes

Under KORUS, Korean tariffs on almost two thirds of U.S. agricultural exports have been eliminated. U.S.

products now facing no tariff include wheat, corn, soybeans for crushing, whey for feed use, hides and

skins, cotton, cherries, pistachios, almonds, orange juice, grape juice, and wine. Other agricultural products

receive immediate duty-free access under new tariff-rate quotas (TRQs). These products include 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.

To increase the competitiveness of the domestic agricultural and livestock industries, in 2015 Korea

announced voluntary duty-free most-favored-nation TRQs on a wide range of agricultural commodities

including young eels, whey for feed, manioc pellets for feed, unhulled barley for feed, oats for feed, soybean

for oil crushing and oil cake for feed, cotton seed for feed, other sugar, wheat bran for feed, and over 15

other products.

Rice

During the Uruguay Round of multilateral trade negotiations, Korea negotiated a 10-year exception to

“tariffication” (the WTO obligation to convert quantitative restrictions to tariffs) for rice in return for

establishing a minimum market access (MMA) quota that was set to expire at the end of 2004. In 2005,

Korea negotiated a 10-year extension of its exception to the tariffication commitment, along with an

increase in its MMA commitment that called for Korea to increase its total annual rice imports over the

course of the 10-year extension, 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

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China, Thailand, and Australia. The arrangement operated smoothly and U.S. access to the Korean market

for rice improved significantly under the arrangement.

The MMA arrangement expired at the end of 2014, and on January 1, 2015, Korea initiated tariffication

under a process at the WTO that has not yet been finalized. Korea has an ongoing WTO obligation to

import 408,700 metric tons (on a milled basis) of rice annually, but it has eliminated country-specific

quotas, instead utilizing a global TRQ. Korea also terminated the MMA-mandated requirement to import

a set percentage of the total TRQ as table rice. The United States continues to work closely with Korea to

ensure that the new arrangement takes appropriate account of the strong U.S.-Korea trading relationship in

rice.

GOVERNMENT PROCUREMENT

Korea is a signatory to the WTO Agreement on Government Procurement (GPA) and has made additional

commitments related to government procurement under KORUS. Under KORUS, U.S. suppliers now have

the right to bid on the covered procurements of more than 50 Korean central government entities, nine more

than are covered under the GPA. KORUS also expands the scope of procurements to which U.S. suppliers

will have access by substantially reducing the threshold for eligible procurement contracts applied under

the GPA, from $191,000 (in 2016 and 2017) to $100,000 (for government procurements of goods and

services at the central government level). KORUS does not cover procurement by Korean sub-central

government entities 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 States. For central government procurements of

construction services, Korea uses the same threshold as the United States.

Encryption and Security Requirements for Public Procurement of Information and Communications

Technology Equipment

Korea and the United States are both members of the Common Criteria Recognition Arrangement (CCRA),

under which products certified at any CCRA-accredited laboratory in any member country should be

accepted as meeting the certification requirements in any other member country. However, the Korean

government requires network equipment such as routers and switches procured by government agencies to

undergo additional verification in Korea by Korean government authorities, even if the products received

CCRA certification outside Korea. Korea’s NIS has managed this process in a nontransparent fashion

without any public comment periods, and has broadly construed these requirements to apply to any

government entity, including schools, local governments, libraries, and museums. U.S. stakeholders have

also raised concerns that Korea is expanding the scope of these requirements (including the additional

verification) to products not normally considered “security” products, such as routers, switches, and IP-

PBXes. The U.S. Government has raised this issue with Korea in bilateral consultations and will continue

to work with Korea in 2016, including within the CCRA, to address concerns.

Korea requires network equipment being procured by public sector agencies (i.e., government agencies and

quasi-government agencies) to incorporate encryption functionality certified by NIS. NIS only certifies

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 has urged Korea to ensure that equipment based on widely used international

standards has full access to Korea’s public sector market.

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INDUSTRIAL SUBSIDY POLICY

Established under the Korea Development Bank Act of 1953, the Korea Development Bank (KDB) has

been one of the government’s main sources of policy-directed lending to favored industries. After the KDB

Act was amended in 2008, the government of Korea began privatizing KDB in October 2009 as part of its

reform of the financial sector. KDB split into two entities, the KDB Financial Group, which would continue

as a bank, and the Korea Finance Corporation, which would provide loans to small and medium sized

enterprises. In April 2013, the government launched a task force to consider the reorganization of the

financial policy roles of government owned banks and financial corporations, including the plan for the

privatization of the KDB. As the government decided that the KDB should be a policy lender to support

small and midsized enterprises and strategic industries, the KDB Act was amended in May 2014, to reverse

the privatization of the bank. Under the amended KDB Act, which became effective as of January 1, 2015,

the Korea Finance Corporation was merged back into KDB and the KDB’s role of providing public policy

financial support to Korea’s industries and companies was restored.

The U.S. Government has concerns with KDB as a state-owned enterprise providing government assistance

to local companies that could place their competitors at a disadvantage, and will continue to monitor the

lending policies of the KDB and other government owned or affiliated financial institutions.

INTELLECTUAL PROPERTY RIGHTS PROTECTION

Generally, Korea has a strong IPR protection and enforcement regime. Under KORUS, Korea and the

United States agreed to strong enforcement provisions for all types of intellectual property and to join key

multilateral IPR agreements. Moreover, the United States recognizes that the Korean government places

importance on IPR protection and that Korea is a significant creator of intellectual property. However,

problems remain. In addition to IPR-related concerns regarding competition law enforcement (discussed

separately), issues include 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.

With respect to unauthorized use of software in the public sector, the United States continues to urge the

Korean government to take further steps to ensure that all government agencies fully comply with the

Korean Presidential Decree mandating that government agencies use only legitimate, fully licensed

software. This includes taking action to investigate and ensure that a sufficient number of licenses have

been acquired to cover all users of the software in the respective agency. The U.S. Government continues

to work with Korea to seek improvements in this area.

SERVICES BARRIERS

Screen and Broadcast Quotas

In Korea, foreign programs may not exceed 20 percent of terrestrial TV or radio broadcast time or 50

percent of cable or satellite broadcast time determined 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 80 percent for cable and satellite broadcasts. Foreign animation is limited to

55 percent of all animation content for terrestrial broadcast and 70 percent of all animation content for cable

and satellite broadcasts. Foreign produced popular music is limited to 40 percent of all music content.

Another quota, applied 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.

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Korea maintains a screen quota for films, requiring that any movie screen show domestic films at least 73

days per year.

The Broadcasting Act contains restrictions on voiceovers (dubbing) and local advertising for foreign

retransmission channels. These prohibitions continue to be of concern to U.S. stakeholders, as they

diminish the value of such channels in the Korean market.

Legal Services

Under KORUS, Korea is in the process of opening its legal services market. The first step involved creating

a legal status for foreign legal consultants and allowing foreign law firms to open foreign legal consultant

offices (FLC 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, implemented as of March 15, 2014, allows FLC offices to enter into “cooperative agreements”

with Korean firms in order to be able to jointly deal with cases where domestic and foreign legal issues are

mixed. The third stage, to be implemented by March 15, 2017, will allow foreign-licensed lawyers and

firms to establish joint ventures and hire Korean-licensed lawyers. The United States looks forward to

consultations and the ability to provide input on new rules implementing these changes.

On August 4, 2015, the Ministry of Justice submitted a bill to amend the Foreign Legal Consultants Act

that would allow joint ventures in Korea with law firms from the United States and other countries with

similar provisions in their free trade agreements with Korea. However, the United States expressed concern

that the bill contains many requirements, unique to Korea that would discourage U.S. companies from

starting joint ventures. The bill would limit a foreign law firm’s ownership of the joint venture to 49

percent, require the firms comprising the joint venture to have been in operation for three years, and exclude

joint ventures from working on litigation, notarization, labor affairs, intellectual property rights, business

involving the Korean government, and cases on family relations or inheritance. While the bill would allow

foreign law firms to operate joint ventures in Korea for the first time, these provisions would undermine

the legislation’s purpose of facilitating trade in legal services between the two countries. On February 4,

2016, the bill was passed by the National Assembly. The U.S. Government will continue to urge Korea to

review its overall approach to opening the legal services market and to ensure Korea complies with its

international obligations.

Insurance and Banking

To implement its commitments related to the transfer of information under KORUS and the Korea-

European Union Free Trade Agreement, Korea adopted new regulations in 2013 governing the outsourcing

of data and IT facilities 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 by affiliates outside Korea.

However, U.S. stakeholders raised concerns that vague guidelines and a lengthy application review period

hampered Korea’s implementation of these data transfer commitments. To address these concerns, the

United States and Korea met on a quarterly basis with industry stakeholders to monitor Korea’s

implementation of the commitment. Stakeholders also raised concerns about strict new rules and enhanced

penalties governing data privacy under the May 2014 Act on Promotion of Information and

Communications Network Utilization and Information Protection. In June 2015, the Financial Services

Commission, taking into consideration most of industry concerns, revised its Regulations on Financial

Institutions’ Outsourcing of Data Processing Business and IT Facilities to eliminate the approval process

for the outsourcing of IT facilities, lift the restrictions on third-party outsourcing or re-outsourcing, establish

a broader application of post facto reporting requirements to processing consumer or corporate transaction

data, and abolish the Financial Supervisory Service Security review in the application process. The United

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States will monitor Korea’s implementation of these regulations and continue to work to ensure that

KORUS commitments are fully implemented in practice.

Credit and Debit Card Payment Services

U.S. stakeholders have raised concerns that the Financial Services Commission and the Financial

Supervisory Service appear to be exerting pressure on financial institutions to steer customers toward

domestic brand cards rather than international brands, as well as pursuing other policies that may

discriminate against U.S. branded credit and debit card services. The U.S. Government will closely monitor

developments in the credit and debit card services area and work with the Korean government to ensure

there is no discrimination against U.S. service providers.

Telecommunications

Korea 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 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. The

United States will raise this issue with Korea in 2016.

Express Delivery Services

While U.S. stakeholders report market access for U.S. express delivery services has increased since

KORUS went into force, concern is growing that new clearance infrastructure and associated policies being

implemented by Korea Customs Service (KCS) could disadvantage foreign express delivery carriers.

Korea Customs Service (KCS) is building a Common Express Terminal (CET) in Incheon to be completed

by the end of 2016. KCS proposes to require foreign but not domestic carriers to send shipments selected

for inspection to the CET, rather than continuing the practice of inspecting shipments on premises within

each foreign carrier’s own clearance facility. U.S. stakeholders have raised the concern that rerouting goods

for inspection (an estimated five percent of goods cleared, or over a million packages a year) will create

significant service delays and that anticipated user fees will add substantial costs. U.S. stakeholders also

report that KCS intends to disallow use of a single manifest in clearing express shipments and the advance

submission of customs clearance documents, raising further concerns about potential service delays. The

United States has raised this issue with Korea and will continue to monitor the issue in 2016.

In addition, according to KORUS, “under normal circumstances” formal entry documents are not required

for express shipments valued at $200 or less. The United States has raised this issue with Korea in the

KORUS Committee on Trade in Goods and will continue to urge Korea to adopt more trade facilitative

practices in this area.

Franchising Services

U.S. stakeholders have raised concerns for several years about the activities of the National Commission

on Corporate Partnership, now renamed the Korea Commission on Corporate Partnership (KCCP), which

imposed restrictions on the expansion of some U.S.-owned restaurant franchises and opened proceedings

looking into numerous other sectors as well. The KCCP is a partially government-funded organization,

created by Korea’s National Assembly, with a mandate to mediate complaints of unfair or unequal

competition between large and small businesses. KCCP’s mission, according to its government-appointed

chairman, is to level the playing field between large businesses and SMEs in two ways. First, it annually

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issues a “win-win scorecard” on how large businesses co-exist with SMEs. Second, and of most concern

for U.S. businesses, KCCP can “designate suitable industries for SMEs.”

In 2013, KCCP designated the family restaurant sector as reserved for SMEs, imposing restrictions that

affected U.S. franchising companies in the sector by forcing them to choose between significant geographic

restrictions on where they could open new stores or a limit of only five new stores a year nationwide for

the next three years. KCCP during 2014 also opened proceedings looking into U.S.-based restaurant chains

and systems integration businesses, potentially affecting significant U.S. investors in Korea. The United

States has raised concerns about KCCP’s activities and has urged Korea to consider carefully the effect that

KCCP has on Korea’s business climate and on foreign investors. The United States will continue to monitor

KCCP’s activities closely in 2016.

INVESTMENT BARRIERS

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 possible discrimination

and lack of transparency in investment-related regulatory decisions, including by tax authorities.

Foreign investment is not permitted in terrestrial broadcast TV operations. For both cable and satellite

broadcasting services, foreign participation is limited to 49 percent. As of March 15, 2015, U.S. investors

can own channels on a cable or satellite system, but foreign satellite retransmission channels are limited to

20 percent of the total number of operating channels. Although telecommunications services were also

limited to 49 percent foreign ownership, in line with its KORUS obligations, Korea now allows U.S.

investors to wholly own such service suppliers.

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 limits foreign investment in 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.

ANTICOMPETITIVE PRACTICES

The Korea Fair Trade Commission (KFTC) has continued to play an 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 SMEs, 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, the KFTC can levy sizeable administrative fines for violations or for failure to

cooperate with investigators. Decisions by the KFTC are appealable to the Korean judiciary. Pursuant to

KORUS implementation, the KFTC instituted a consent decree process in 2014, which it continues to

refine. The U.S. Department of Justice and the Federal Trade Commission signed a Memorandum of

Understanding with the KFTC in September 2015 to promote increased cooperation and communication

between the competition agencies in both countries.

On December 17, 2014, the KFTC issued, without a notice and comment period, amended Review

Guidelines on Unfair Exercise of Intellectual Property Rights (Guidelines). The Guidelines provide

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“general principles and specific criteria” to be applied in competition law-based reviews of the exercise of

IPR on a range of issues. The U.S. Government and members of industry expressed concern that the

amended Guidelines could result in unwarranted antitrust enforcement against the holders of patents that

had become widely used in an industry. The KFTC took note of these concerns and, on December 16,

2015, published for comment its proposed revisions to the Guidelines. U.S. Government entities have

engaged with Korea on the proposed revisions and have sought further clarification as to the circumstances

to which the revised Guidelines would apply.

During the past year, some U.S. firms have raised the concern that the KFTC has more aggressively

enforced its competition law against foreign companies and further expressed concern that KFTC

procedures limit their ability to defend themselves during KFTC investigatory proceedings. The U.S.

Government continues to monitor this situation and will raise concerns with Korea as appropriate.

ELECTRONIC COMMERCE

Restrictions on the export of location-based data (used in conjunction with online maps to provide

innovative interactive services such as traffic updates and navigation directions) have led to a competitive

disadvantage for international suppliers offering such services, since their locally based competitors

typically are not dependent on foreign data processing centers. New legislation passed in 2014 establishes

a more inclusive committee process for approving export of cartographic and other location-based data, but

Korea has yet to approve any such exports for foreign suppliers. U.S. stakeholders seeking approval to

export location-based data (in order to offer competitive mapping and navigation services) report that

Korean officials are linking such approval to individual companies’ willingness to blur satellite imagery of

Korea on their global mapping service sites. Korean officials have expressed an interest in limiting the

global availability of high-resolution commercial satellite imagery of Korea, currently available online from

numerous sources worldwide, including U.S. mapping service providers. The United States is sensitive to

Korea’s national security concerns and has offered to consult with Korea to explore avenues for addressing

those concerns with regard to the global availability of high-resolution satellite imagery of Korea. The

United States believes that access to Korea’s mapping service market, however, is a separate issue and will

continue to consult with Korea on opening that market to participation by foreign suppliers.

In 2014, the United States and U.S. stakeholders engaged with Korea on proposed legislation submitted to

Korea’s National Assembly by the Ministry of Science, Information and Communications Technology, and

Future Planning (MSIP) that would provide a jurisdictional basis for regulating cloud computing services.

Following extensive comments from U.S. and other foreign stakeholder groups, MSIP made changes to its

original draft to reflect many stakeholder concerns before submitting the bill to the National Assembly.

The National Assembly passed the Act on Promotion of Cloud Computing and Protection of Users in March

2015. The U.S. Government and industry will continue to monitor this issue closely, since the regulations

developed to implement the Act could impose additional unique regulations on this global technology in

Korea.

The 2011 Personal Information Protection Act imposes stringent requirements on service providers seeking

to transfer customer data outside Korea. The law requires data exporters to provide customers with

extensive information about the data transfer, including the destination of the data, any third party’s planned

use for the data, and the duration of retention. For data transferred to third parties within Korea, less

stringent requirements apply. These restrictions pose barriers to the provision of Internet-based services

that depend on third-party data storage and processing services, and effectively privilege Korean third-party

services over foreign services.

Under the Regulation on Supervision of Credit-Specialized Financial Business, electronic commerce firms

selling goods in Korean won have been prohibited from storing Korean customers’ credit card numbers in

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company information systems. (U.S. electronic commerce firms continue to sell legally into the Korean

market from abroad, setting prices in dollars, but are 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 appears to be unreasonable and unnecessary restrictions.

In November 2013, the Korean Financial Services Commission amended regulations to partially address

this issue, enabling online digital content stores operating in more than five countries and headquartered

abroad to receive “payment gateway” registrations, locate IT facilities offshore, store customer credit card

numbers, and allow one-click purchases from mobile devices. This amendment is a positive step that

incrementally advances Korean regulation in this area toward global norms. But U.S. stakeholders have

raised concerns regarding slow and unclear implementation of the changes, and some firms have expressed

concern that the changes only partially address the underlying issue of Korea’s variance from global norms

on electronic payments. The United States will continue to raise this issue with Korea in 2016.

OTHER BARRIERS

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, Korea immediately reduced the tariff on passenger vehicles

from 8 percent to 4 percent, and Korean tariffs on both passenger vehicles and light trucks were eliminated

on January 1, 2016. In addition, KORUS contains provisions designed to address nontariff barriers,

including provisions requiring Korea to allow U.S. exporters to market cars in Korea built to U.S. safety

standards rather than Korean standards, greatly reducing the cost of supplying U.S.-made cars to the Korean

market. Korea also modified its key motor vehicle taxes so that U.S. cars are now in the same tax brackets

as their Korean competitors. Finally, transparency provisions in the Agreement ensure that automakers

have sufficient opportunity to participate in the setting of new regulations and adequate time to adjust to

changes in new regulations. These tariff and nontariff provisions resulted in an increase in automobile

exports to Korea of 202 percent by value between 2011 and 2015, more than five times faster than U.S.

auto exports to the world (up 26 percent). Korea is now the tenth-largest export market for U.S.

automobiles, with annual exports exceeding $1 billion in 2015.

The 2016-2020 update of Korea’s CO2/Corporate Average Fuel Economy (CAFE) emissions and fuel

efficiency regulations were finalized and promulgated on December 30, 2014, mandating a CAFE emission

target of 97 g/km average carbon dioxide emissions by 2020. Korea reflected stakeholder comments related

to the small volume manufacturer threshold (sales of 4,500 or fewer vehicles in 2009), but will gradually

reduce the 19 percent leniency factor provided to small volume manufacturers to 8 percent by 2020. To

help meet Korea’s 2020 CAFE emission targets, industry requested that Korea recognize various off-cycle

and eco-innovation credits that are recognized in the United States and the European Union. After

consultations with the industry, the Ministry of Environment (MOE) revised and expanded its off-cycle and

eco-innovation credits, effective December 30, 2015. As MOE continues to clarify its automotive

emissions policies, the United States will continue to engage with Korea to ensure that these policies are

implemented in a fair, transparent, and predictable manner, consistent with KORUS.

Motorcycles

Korea’s longstanding ban on driving motorcycles on expressways continues, which U.S. stakeholders argue

constrains potential sales. Korea views this ban as a necessary safety measure, and has pointed to a 2011

study on the safety of motorcycles on highways commissioned by the Korean National Police, which

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

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United States maintains that fit-for-purpose heavy motorcycles riding on expressways do not pose the same

safety concerns as smaller, lighter motorcycles and continues to urge Korea to allow large motorcycles on

expressways.

Pharmaceuticals and Medical Devices

In response to pending KORUS implementation obligations, and pursuant to extensive discussions between

the U.S. and Korean governments, the Pharmaceutical Affairs Act was amended in March 2015 to create

an administrative procedure for pharmaceutical patent owners to temporarily prevent the sale of products,

including biologics, which may infringe a patent, so as to allow for judicial consideration of infringement

allegations. While this amendment was welcomed by the innovative pharmaceutical industry, a separate

proposed amendment to Korea’s National Health Insurance Act (NHIA), which was ultimately not

approved by the National Assembly, attracted industry concern. The proposed amendment would have

allowed the government to disgorge profits earned by a patent holder during the period that generic products

were prevented from being sold, in cases in which the patent holder is ultimately unsuccessful in a judicial

proceeding, even absent evidence of bad faith or similar conduct. The proposed amendment could have

discouraged innovators from exercising their legal remedies and could have potentially led to adverse

impacts on these companies’ investment decisions in Korea, undermining the benefits accruing to

innovative and generic producers. The United States will continue to monitor the issue.

Under KORUS, any new Korean regulations affecting general pricing and reimbursement of

pharmaceuticals and medical devices must be published in advance for notice and comment, and the Korean

government is required to respond to public comments in writing and explain any substantive revisions

made to proposed regulations. KORUS also contains provisions regarding the appropriate recognition of

the value of patented pharmaceuticals and medical devices. The United States has urged Korea to seriously

consider stakeholders’ concerns and ensure that pharmaceutical reimbursement pricing is conducted in a

fair, transparent, and nondiscriminatory manner that recognizes the value of innovation, as set forth in

KORUS. Nevertheless, the U.S. innovative pharmaceutical industry continues to report concerns regarding

the lack of transparency and predictability of the pricing and reimbursement policies and their underlying

methodology. These policies continue to generate considerable uncertainty for stakeholders, which depend

on long-term planning for the investment decisions that support research and development. To support the

global export of locally developed new drugs, a modified price volume agreement was introduced in May

2015. However, the domestic pharmaceutical industry in Korea is critical of the complex application

process for the refund policy, and U.S. companies are concerned that multinational corporations rarely meet

the eligibility criteria.

The U.S. medical devices sector continues to cite concerns regarding transparency and the availability of

opportunities for meaningful engagement regarding such regulation, including with respect to the October

2013 medical device reimbursement plan based on import pricing or manufacturing cost. The United States

has expressed its concern that the reimbursement pricing of medical devices should be determined in a fair,

nondiscriminatory, and transparent manner and urged MOHW to engage directly with stakeholders to

address their concerns. The United States will continue to monitor these issues closely.

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KUWAIT

TRADE SUMMARY

The U.S. goods trade deficit with Kuwait was $1.9 billion in 2015, a 75.2 percent decrease ($5.9 billion)

over 2014. U.S. goods exports to Kuwait were $2.8 billion, down 24.6 percent ($898 million) from the

previous year. Corresponding U.S. imports from Kuwait were $4.7 billion, down 59.0 percent. Kuwait

was the United States' 52nd largest goods export market in 2015.

U.S. foreign direct investment (FDI) in Kuwait (stock) was $315 million in 2014 (latest data available).