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United States WT/TPR/S/200Page 79

IV. TRADE POLICIES BY SECTOR

(1) OVERVIEW

1. The United States is one of the world's largest producers, exporters, and importers of agricultural products. As measured by the OECD, overall support to agriculture, including through border measures and government payments, accounted for 11% of gross farm receipts in 2006, down five percentage points from 2004. This decline largely reflects higher commodity prices. Certain commodities, including sugar and milk, continue to receive high levels of assistance. Moreover, payments under some commodity programmes (e.g., marketing assistance loans) provide incentives for resource use that may be inconsistent with market signals and may affect trade when supported output finds its way into world markets. Certain aspects of domestic support programmes were challenged under multilateral rules during the period under review. The expiration of the 2002 Farm Act, and the current environment of high commodity prices, would offer an opportunity to introduce policy changes aimed at further improving the market orientation of the agriculture sector in benefit of both consumers and taxpayers.

2. The United States is a major producer and consumer of minerals and energy. U.S. energy policy places emphasis on domestic energy production and provides tax and other incentives for the supply of alternative and renewable fuels. Assistance for domestic ethanol production includes tax incentives and import duties; these measures could have a significant impact on global production patterns. The Energy Policy Act of 2005 contains provisions to address shortcomings in the regulatory framework governing electricity markets. In computing fuel economy standards, NAFTA-produced automobiles are treated differently from other vehicles.

3. The United States is the world's leading producer of manufactured goods. Multifactor productivity and output in the sector have expanded but the sector's share in total U.S. value added and employment has declined. Manufacturing tariffs are generally low, but tariff peaks have sheltered a few industries from international competition, for example textiles, clothing, and footwear and leather.

4. The financial services sector accounts for some 8% of GDP and 12% of trade in services. During the period under review, there have been no major changes in U.S. legislation with respect to financial services. However, the sector has been considerably affected by the sub-prime mortgage turmoil (see Chapter I), suggesting the need for improvements in financial supervision. In this respect, changes to existing regulations are under consideration to restrict certain mortgage practices.

5. Initial entry into the U.S. market through the establishment or acquisition of a nationally chartered bank subsidiary by a foreign person is permitted in all states. U.S. bank subsidiaries of foreign banks are granted national treatment. However, foreign-owned banks, unlike domestic banks, are required to establish an insured banking subsidiary to accept or maintain domestic retail deposits of less than US$100,000. Branches and agencies of foreign banks have similar powers to banks but agencies may not accept deposits from U.S. citizens or residents. At the state level, there are limitations to the acquisition or establishment of a state-chartered bank, and for the establishment of branches or agencies.

6. Regulation for the insurance services sector is done primarily at the state level. Insurance companies, agents, and brokers must be licensed under the law of the state in which the risk they intend to insure is located, but U.S. states have taken steps to facilitate multi-state operations. Foreigners may acquire an insurance company licensed in any state, incorporate subsidiaries in 47 states, or operate as branches in 36 states and the District of Columbia. A federal tax on insurance

WT/TPR/S/200 Trade Policy ReviewPage 80

policies covering U.S. risks is imposed at a rate of 1% of gross premiums on all reinsurance but at 4% of gross premiums with respect to non-life insurance when the insurer is not subject to U.S. net income tax on the premiums.

7. The U.S. telecommunications market, the world's largest by revenue, is open to foreign participation and is highly competitive. During the period under review the Federal Communications Commission eliminated certain unbundling requirements to level the regulatory playing field between broadband internet access providers. A comprehensive intercarrier compensation reform plan is under consideration. The United States maintains several media ownership restrictions, with the objective of promoting competition, diversity, and "localism" in media production. The FCC approved a relaxation of one of these restrictions in late 2007. It has adopted rules to facilitate entry into the video services market.

8. No significant policy or legislative changes have taken place with respect to maritime transport since 2006. The Jones Act reserves cargo service between two points in the United States for ships that are registered and built in the United States and owned by a U.S. corporation, and on which 75% of the employees are U.S. citizens. Domestic passenger services are subject to similar requirements. However, waivers may be granted and foreign companies may establish shipping companies in the United States under certain conditions. In contrast, the U.S. international maritime transport market is generally open to foreign competition although some cargo preferences are in place. Cargo preference laws are estimated to have redirected significant volumes of cargo to U.S. ships although in practice the lion's share of international maritime transport is still carried out by foreign vessels.

9. No significant legislative changes have affected the air transport sector since 2006. The profitability of U.S. airlines has improved, and by end 2007 all major U.S. airlines had emerged from bankruptcy protection. Market access restrictions remain in the form of U.S. ownership and control requirements, with foreign ownership in a U.S. carrier limited by statute to 25% of the voting shares. The provision of domestic air services is permitted only by U.S. carriers. The Fly America Act generally requires government-financed transportation to be on U.S.-flag air carriers, but foreign participation is possible under international agreements. The United States has bilateral aviation agreements with 97 countries, of which 79 are open skies agreements. The U.S.-EU Air Transport Agreement, applied provisionally since 30 March 2008, introduced a number of liberalization measures. All public-use U.S. airports with commercial services are currently owned by state or local governments. A law was passed in 1996 establishing an Airport Privatization Pilot Program. So far, one airport has participated, but it was subsequently returned to public ownership.

10. There have been no major changes in professional services regulation in the past few years. States have responsibility for the regulation, licensing, and oversight of the professions practiced within their jurisdictions. The absence of a national regulatory regime creates different market access conditions among the states. Foreign market access in some states is affected by local presence, domicile, nationality, or legal form of entry requirements.


(2) AGRICULTURE

(i) Introduction

11. The United States is among the world's largest producers, exporters, and importers of agricultural products. The value of agricultural production was approximately US$292 billion in 2007.1 The value of crop production, which accounts for around 51% of the total value of agricultural production, is forecast to reach a record level in 2008 (US$176 billion), primarily as a result of higher commodity prices. Agricultural exports were US$90 billion in 2007, around 9% of total U.S. exports.2 Main exports were grains and feeds, soybeans, and red meats and their products. Agricultural imports were US$72 billion, around 4% of total imports. Main imports were vegetables, fruits, and grains and feeds.

12. The Agricultural Adjustment Act of 1938 and the Agricultural Act of 1949 constitute what is known as the "permanent" legal framework governing commodity price and income support in the United States. The U.S. Congress regularly enacts legislation that amends and suspends provisions of the permanent laws. The last such legislation was the Farm Security and Rural Investment Act of 2002 (the 2002 Farm Act), signed into law in May 2002. Additionally, Congress provides ad hoc emergency and supplementary assistance under separate legislation.

13. The 2002 Farm Act provided support for commodities harvested through 2007. For other programmes, the 2002 Farm Act provided support until September 2007, and was extended to 15 March 2008. In the absence of new farm legislation, payments for commodities harvested in 2008 will be made as provided under the permanent legal framework governing farm support. In early 2008, Congress was working on a new farm bill.

14. The OECD's Producer Support Estimate (PSE) is a broad measure of support that includes government payments to producers and price support. The average annual PSE for the United States was US$42.5 billion in 2004 and 2005.3 As a share of gross farm receipts, the PSE was 16% in both years, compared with around 30% for the OECD as a whole. Provisional data for 2006 suggest a sharp decrease in the PSE to US$29.3 billion, or 11% of gross farm receipts, the third lowest level in the OECD. Among U.S. commodities tracked by the OECD, sugar, wool, and milk received the highest single commodity transfers measured as a share of their gross farm receipts for 2004-06. Support for sugar and milk is primarily in the form of market price support whereas wool is mostly supported through output-based payments. According to the OECD, the fall expected for 2006 in the PSE is a result of higher world commodity prices rather than policy changes.

15. The Commodity Credit Corporation (CCC), a federal corporation operated by the U.S. Department of Agriculture, manages most financial transactions for federal agricultural programmes. Annual average net CCC outlays under the 2002 Farm Act (fiscal years 2002-07) were US$16.8 billion, around one billion more than the annual average for the previous six fiscal years. 4

CCC outlays nearly doubled between 2004 and 2005, to US$20.2 billion, reflecting low commodity prices and higher disaster and emergency assistance. They remained at that high level in 2006. The U.S. Department of Agriculture forecasts a decline in net CCC outlays from 2007, as increased

1 Preliminary data. USDA online information, "Farm Income: Data Files". Viewed at: http://www.ers.usda.gov/Data/FarmIncome/finfidmu.htm.

2 USDA online information, "Foreign Agricultural Trade of the United States (FATUS)". Viewed at: http://www.ers.usda.gov/Data/FATUS. These values differ from those in Chapter I because of differences in classification.

3 OECD (2007a).4 CCC outlays do not include crop insurance payments.


demand for corn-based ethanol production results in higher prices for corn and other crops (see also section (3) below).5

16. The United States has taken steps to comply with the Dispute Settlement Body's recommendations and rulings regarding a number of U.S. support measures for upland cotton (see section (iv) below). In this context, Brazil requested the establishment of a WTO compliance panel in August 2006.6 This panel found that certain changes to U.S. cotton programmes were insufficient to bring the measures challenged by Brazil into conformity with WTO rules. 7

The United States appealed some of the panel's findings in February 2008.8 In November 2007, Canada and Brazil requested the establishment of WTO panels to examine whether past U.S. domestic support to agriculture had exceeded the applicable WTO ceiling.9 The Dispute Settlement Body established a single panel covering both requests in December 2007.

(ii) Border measures

17. The average MFN applied tariff for agriculture (WTO definition) in 2007 was 8.9% (including the ad valorem equivalents of non-ad valorem rates) (see also Chapter III(2)(iv)). This is slightly more than twice the protection afforded to the non-agricultural sector.

18. Around 195 tariff lines are subject to tariff quotas (Table AIV.1). The simple average out-of-quota MFN tariff in 2007 was around 42%; the in-quota average was 9.1%.10 Close to 91% of out-of-quota tariffs are non-ad valorem, compared with almost 28% of in-quota tariffs. The latest U.S. notification on tariff quotas covers 2003.11

19. Parts of tariff quotas are generally allocated to specific countries. This is the case for most products subject to tariff quotas, including beef, certain dairy products, peanuts and peanut butter, chocolate crumb, and tobacco (Table AIV.1). Apart from the tariff quotas specified in its WTO schedule of commitments, the United States has allocated additional tariff quotas to its preferential trading partners under free-trade agreements.

20. Access to tariff quotas is on a first come, first served basis, except for dairy products and sugar. Access for dairy is granted to "historical" importers, importers designated by the government of an exporting country, and on the basis of a lottery. One or more methods may be used, depending on the particular good. A licensing system is used to administer access.12 Any importer, including manufacturers of like products, can apply for a licence

21. Access to the tariff quota for raw sugar is granted to exporting countries, not importers. It is administered through certificates of quota eligibility.13 The Department of Agriculture issues these certificates based on allocations specified by the USTR. In-quota imports of raw sugar must be

5 USDA (2007b).6 WTO document WT/DS267/30, 21 August 2006.7 WTO document WT/DS267/RW, 18 December 2007.8 WTO document WT/DS267/33, 19 February 2008.9 WTO documents WT/DS357/12 and WT/DS357/13, 9 November 2007.10 These averages were calculated by the WTO Secretariat based on ad valorem equivalents of non-

ad valorem rates provided by the U.S. authorities in the context of this Review.11 WTO document G/AG/N/USA/54, 17 February 2005.12 The licensing system is not a statutory requirement. The authority to allocate tariff quotas through

licences was delegated to the Secretary of Agriculture by Presidential Proclamation 3019 (8 June 1953). The procedures for submitting licence applications and other relevant provisions are contained in 7 CFR 6.20-6.36.

13 The regulations governing the system are contained in 15 CFR 2011.


accompanied by a certificate of quota eligibility, validated by the certifying authority in the exporting country. Certificates are issued free of charge.

22. The United States has reserved the right to apply additional tariffs on over-quota imports of products subject to tariff quotas, either if their import prices drop below a trigger price (price-based safeguards), or if quantities exceed a given threshold (volume-based safeguards), in accordance with the special safeguard provisions of the WTO Agreement on Agriculture. The United States invokes price-based safeguards automatically on a shipment-by-shipment basis.

23. In December 2007, the United States notified the WTO that it did not apply volume-based safeguards between 2003 and 2006.14 According to its notification, price-based safeguards were applied on bovine meat, dairy products, peanuts, sugar, and food preparations.

24. According to the U.S. International Trade Commission, some agricultural products, including beef, dairy, ethyl alcohol, sugar and sugar-containing products, and tobacco remain subject to high import barriers.15 For example, the Commission estimates that the removal of barriers on imports of raw and refined sugar would expand imports of these two products by 281% and 553%, and increase U.S. welfare by US$811 million. The Commission estimates that the elimination of barriers on imports of dairy products would add US$573 million to U.S. welfare; the associated increase in imports of these products would range between 88% and 380%.

(iii) Domestic programmes

25. In October 2007, the United States submitted its notification on domestic support for marketing years 2002-05.16 The total current Aggregate Measurement of Support averaged US$10.3 billion per year during this period (Table IV.1). This was well below the previous four-year annual average of US$14.6 billion, and the applicable WTO ceiling of US$19.1 billion per year. Annual average "green box" support was US$65.4 billion between marketing years 2002 and 2005, a 31% increase with respect to the average for the previous four marketing years. This increase mostly reflects higher expenditures on domestic food aid, particularly the Food Stamp programme.

Table IV.1Commitment levels and actual expenditure, 1999-05(US$ billion, unless indicated otherwise)

1999 2000 2001 2002 2003 2004 2005

AMS commitment 19.899 19.103 19.103 19.103 19.103 19.103 19.103

Current total AMS 16.862 16.803 14.413 9.637 6.950 11.629 12.938

AMS commitment "used" (%) 84.7 88.0 75.4 50.4 36.4 60.9 67.7

Product specific de minimis paymens 0.029 0.063 0.215 1.590 0.436 0.680 0.118

Non-product-specific de minimis payments 7.406 7.278 6.828 5.101 2.801 5.778 5.862

Blue box 0 0 0 0 0 0 0

Green box 49.749 50.057 50.672 58.321 64.062 67.425 71.829

Source: WTO documents G/AG/N/USA/43, 51, and 60.

26. In the context of the latest U.S. notification on domestic support, WTO Members raised several issues in the Committee on Agriculture.17 These included the categorization of direct

14 WTO document G/AG/N/USA/61, 17 December 2007.15 USITC (2007a).16 WTO document G/AG/N/USA/60, 9 October 2007.17 WTO online information, "Spotlight on U.S. Domestic Support in Agriculture Committee",

21 November 2007. Viewed at: http://www.wto.int/english/news_e/news07_e/ag_com_21nov07_e.htm.


payments as "green box", and of counter-cyclical payments as non-product-specific. The United States responded that direct payments meet green box criteria, and that counter-cyclical payments are not product-specific because they are based on historical acreages and yields, and do not require specific crops to be grown.

27. Average annual direct government payments to agricultural producers were US$16.3 billion between 2003 and 2007 (Table IV.2). Estimates by the Department of Agriculture predict a fall in these payments from their peak of US$24.4 billion in 2005 to US$12 billion in 2007. The decrease is driven partly by a sharp reduction in marketing loan benefits, which cover loan deficiency payments, marketing loan gains, and certificate exchange gains. According to the Department of Agriculture, marketing loan benefits in 2007 were only available for upland cotton, wool, mohair, and pelts, due to high prices.

Table IV.2Direct government payments, 2002-07a

(US$ million)

Component accounts 2002 2003 2004 2005 2006b 2007b

Total direct payments 12,414.9 16,523.5 12,969.9 24,395.9 15,789.1 12,003.1

Production flexibility contract paymentsc 3,499.8 -280.0 -4.2 -0.9 -0.3 0

Fixed direct paymentsc 367.1 6,703.6 5,242.4 5,198.8 5,052.0 5,193.6

Counter-cyclical paymentsc 203.4 2,300.7 1,122.0 4,073.8 4,035.9 1,184.8

Loan deficiency payments 1,196.7 576.4 2,865.1 5,080.3 730.6 67.5Marketing loan gains 459.7 198.2 131.2 368.7 188.3 6.4Certificate exchange gains 1,178.6 556.4 475.7 1,614.0 873.3 872.8Peanut quota buyout payments 983.0 237.6 24.7 22.3 21.2 0Milk income loss programme payments 859.6 913.3 205.7 9.6 431.2 90.0Tobacco transition payment programme 0 0.0 0.0 2,083.1 1,206.3 950.0Conservation programme payments 1,965.8 2,167.3 2,319.6 2,767.5 2,974.3 3,000.0Ad hoc and emergency programme payments 1,655.0 3,143.2 582.4 3,168.8 274.5 635.0Miscellaneous programme payments 46.1 6.8 5.4 9.9 1.7 3.0

a Data are calendar year payments; these may differ from data for the same programmes reported on a fiscal or crop year basis.b Preliminary.c The 2002 Farm Act terminated authority for production flexibility contract payments and established authority for fixed direct

payments and counter-cyclical payments.

Source: USDA online information, "Farm Income: Data Files". Viewed at: http://www.ers.usda.gov/Data/FarmIncome /finfidmu.htm.

(a) Commodity programmes

28. The main instruments of support in the 2002 Farm Act are: fixed direct payments, which are unrelated to prices and are based on historical acreage and yields; counter-cyclical payments, which are also based on historical acreage and yields but are available to historical producers of specified crops when prices fall below levels established in legislation; and marketing assistance loan benefits, which are based on current production and prices, and cover loan deficiency payments, marketing loan gains, and certificate exchange gains.18 Payments under these programmes averaged US$11 billion per year between 2003 and 2007, around two thirds of total direct government payments to agricultural producers during the same period (Table IV.2).

29. Five crops (corn, rice, soybean, upland cotton, and wheat), which account for around a quarter of farm cash receipts, received approximately 93% of all "commodity programme payments" between

18 For details on how each programme functions see WTO (2006).


crop years 2002 and 2005.19 Corn was by far the largest recipient, with 46% of total commodity programme payments, followed by upland cotton (23.3%), wheat (10.2%), rice (8%), and soybeans (5.8%). The share of commodity programme payments in each crop's production value varies widely. For rice, commodity programme payments accounted for 63% of production value between crop years 2002 and 2005; for cotton, the share was 50%, for corn 23%, for wheat 17%, and for soybeans 4%.

30. A study by the Department of Agriculture found that farm programme payments "contain elements that provide incentives for resource use that may be inconsistent with market signals". 20

According to the study, marketing assistance loans provide an incentive to plant more than would be the case in their absence. According to other studies, counter-cyclical payments may provide for the reduction of price-related revenue risk, and could also have some influence on production decisions.21

This would depend on expected market prices and farmers' level of risk aversion. These studies conclude that counter-cyclical payments may distort incentives in some situations but that any such distortions are to a lesser degree than "coupled" payments such as marketing assistance loans.

(b) Insurance programmes and emergency assistance

31. The federal Government offers subsidized insurance against losses resulting from natural disasters and price fluctuations. Farm insurance programmes are provided under the Federal Crop Insurance Act, as amended.22 Producers may select between yield or revenue insurance. Insured producers receive a payment when actual yield or revenue fall below an expected level due to an insured cause. The shortfall in revenue may be caused by low prices or low production levels. The basic level of coverage is catastrophic risk coverage, which is available for an administrative fee of US$100 per crop and per county. The premium is fully subsidized. Producers with catastrophic risk coverage who suffer losses in excess of 50% of yield receive a payment equal to 55% of the estimated market price of the insured crop. Producers may purchase higher levels of coverage, but the portion of the premium that is subsidized declines as coverage increases. The Department of Agriculture reinsures the companies that sell farm insurance, thereby covering a share of the underwriting risks and costs, and defrays some of their administrative costs.

32. The total insured liability under federal crop insurance was US$67.4 billion in 2007. The federal Government subsidizes 58% of the total premium. The total cost to the federal Government of the crop insurance programme averaged US$3 billion per year between 2003 and 2007. The Department of Agriculture introduced an insurance programme for pasture, rangeland, and forage from the 2007 crop year.23

33. According to one study, increased participation in crop insurance programmes is correlated with additional acreage in wheat and to a lesser extent, corn.24 However, simulations conducted as

19 USDA (2006b). This study defines commodity programme payments as fixed direct payments, counter-cyclical payments, and marketing assistance loan benefits. Attributing fixed direct and counter-cyclical payments to specific commodities may over- or understate payments to current production of specific commodities, since fixed direct and counter-cyclical payments are based on historical production and may therefore be made to producers that are no longer planting those commodities.

20 USDA (2006b).21 See, for example, Anton and Le Mouel (2004), and Westcott (2005).22 Two major amendments have been the Federal Crop Insurance Reform Act of 1994 and

the Agricultural Risk Protection Act of 2000.23 USDA online information, "USDA Announces Availability of New Insurance Tools for Pasture,

Rangeland, and Forage". Viewed at: http://www.usda.gov/wps/portal/!ut/p/_s.7_0_A/7_0_1OB? contentidonly=true&contentid=2006/08/0280.xml.

24 Goodwin, Vandeveer, and Deal (2004).

WT/TPR/S/200 Trade Policy Review6

part of the same study revealed that large insurance premium decreases would have very modest effects on acreage.

34. In addition to crop insurance, agricultural producers receive ad hoc and emergency programme payments. In 2007, these payments fell by approximately 80% from their high of US$3.2 billion in 2005 (Table IV.2).

(c) Marketing orders

35. The Agricultural Marketing Agreement Act of 1937 authorizes the Secretary of Agriculture to issue binding marketing orders. Marketing orders can be issued for fruit, vegetables, specialty crops, and milk. They target a specific geographic area and are binding on "handlers", i.e. individuals who receive the commodity from producers, grade, pack, transport, and make it available for sale. The process leading to the adoption of a marketing order is always initiated by producers. Twenty-eight marketing orders for fruit and vegetables were in force in late 2007.25

36. Marketing orders may set minimum product requirements such as grade, size, quality, and maturity. The Agricultural Marketing Agreement Act of 1937 requires that imported commodities meet the same or comparable grade, size, quality, and maturity requirements as those established for domestic commodities under federal marketing orders.26 Imports of the following commodities are subject to such requirements (December 2007): avocados, dates (other than for processing), hazelnuts, grapefruit, table grapes, kiwifruit, olives (other than Spanish-style), onions, oranges, Irish potatoes, raisins, tomatoes, and walnuts.

37. Marketing orders may also contain "supply management" provisions that fix output levels, specify the proportion of output to be sold in specific markets, or provide for the creation of reserve pools of covered commodities. Supply management provisions are in effect for Oregon and Washington hazelnuts, spearmint oil produced in several western states, California raisins, and tart cherries grown in seven states.27 There are also 11 regional milk marketing orders, which establish minimum prices for milk depending on its use by processors.

38. One of the supply management tools used by marketing orders are so-called "producer allotments". These set the quantity that growers may sell in a given year, normally based on historical sales. Spearmint oil produced in several western states is subject to an allotment. In the context of a proposed allotment for hops, the Department of Justice commented in 2004 that "the producer allotment system would, in effect, be a government sanctioned and enforced cartel of United States producers, where the central producer committee ... could absolutely control the quantity of domestic hops marketed".28 The Department of Justice recommended that the Secretary of Agriculture reject the proposed order, which would "raise prices above competitive levels, thereby misallocating the economy's resources and harming consumers and society as a whole". The Department of Agriculture rejected the proposal to establish a marketing order for hops in 2005.

25 Agricultural Marketing Service online information, "List of Federal Marketing Orders". Viewed at: http://www.ams.usda.gov/fv/moabmotab.htm.

26 Section 8(e), Agricultural Marketing Agreement Act of 1937.27 See 7 CFR 905, 982, 985, and 989. Additional information can be viewed at: http://www.ams.usda.

gov/fv/moabmotab.htm.28 U.S. Department of Justice, Proposed Marketing Order No. 991, Hops Produced in Washington,

Oregan, Idaho, and California, Post-Hearing Memorandum, Docket No. AO-F&V-991-A3; FV03-991-01, 18 February 2004.


(d) Other support programmes

39. The Fair and Equitable Tobacco Reform Act of 2004 terminated all production quotas and other price support mechanisms for tobacco beginning with the 2005 crop year. The Act establishes a levy on manufacturers and importers of tobacco products to fund compensation payments to tobacco quota holders and producers.29 Compensation payments, which began in 2005, are based on historical quota allotments and production, and will be paid in ten annual instalments. Total expenditures under the Act are estimated at US$10 billion.30

(iv) Export subsidies, credit, insurance, and guarantees

(a) Export subsidies

40. The United States scheduled export subsidy reduction commitments under the WTO Agreement on Agriculture for 13 product groups.31 The final bound ceiling since 2000-01 on export subsidy outlays for these commodities is US$594 million per year. During the period under review, the United States made a notification on export subsidies for 2003-05.32 According to the notification, total outlays for export subsidies averaged approximately US$250 million per year between 2003 and 2005. This amount includes payments to exporters under the Upland Cotton User Marketing Certificate Program. In February 2006, the United States enacted legislation to repeal this programme at the end of the 2005 marketing year, following a WTO panel and Appellate Body finding that certain payments under the programme were prohibited export subsidies.

41. Under the Export Enhancement Program (EEP) and the Dairy Export Incentive Program (DEIP), the United States provides cash bonus payments to exporters of eligible commodities based on the quantity exported. The commodities eligible under the EEP are wheat, wheat flour, rice, frozen poultry, barley, barley malt, table eggs, and vegetable oil. Under the DEIP, the eligible commodities are milk powder, butterfat, and various cheeses. Both programmes are authorized through 15 March 2008. There have been no expenditures under the EEP since fiscal year 2002, and no bonuses under the DEIP since 2004.

(b) Export credits, insurance, and guarantees

42. The United States operates two main export credit guarantee programmes: the Export Credit Guarantee Program (known as GSM-102) and the Facility Guarantee Program (FGP). The Intermediate Export Credit Guarantee Program (GSM-103), and the Supplier Credit Guarantee Program were discontinued in 2005.

29 Section 625(b), Fair and Equitable Tobacco Reform Act of 2004. The regulations governing the application of the levy are contained in Federal Register, 70 FR 7010, 10 February 2005. The regulations on the compensation payments are contained in Federal Register, 70 FR 17150, 4 April 2005.

30 USDA online information, "Announcing Preliminary Tobacco Transition Payment Program Provisions". Viewed at: http://price.house.gov/UploadedFiles/TPPP.pdf.

31 Wheat and wheat flour, coarse grains, rice, vegetable oils, butter and butter oil, skim milk powder, cheese, other milk products, bovine meat, pigmeat, poultry meat, live dairy cattle, and eggs.

32 WTO document G/AG/N/USA/62, 28 February 2008.


43. Under GSM-102, the CCC is authorized to guarantee the repayment of credit made available to finance U.S. exports of agricultural goods on credit terms of up to three years. The CCC generally guarantees 98% of the principal and a portion of the interest. It determines the eligibility of agricultural products based on market potential.33 The exporter pays a fee calculated on the basis of the repayment terms and the risk category that the Department of Agriculture assigns to the country where the bank responsible for repayment is located.34 There are seven risk categories eligible for coverage under the GSM-102 programme. According to the Department of Agriculture, this fee structure "responds to rulings by the [WTO] that export credit programs must be risk based and that fees must cover long-term program operating costs and losses".35 The fee cannot exceed the statutory cap of 1% of the guaranteed value of the transaction.36 In the context of its last Review, the United States indicated that the Administration was working with the Congress on legislation to repeal the fee cap.37

44. Under the FGP the CCC extends credit guarantees to U.S. banks for financing export sales of U.S. manufactured goods and services that improve agriculture-related facilities in emerging markets, including storage, processing, and handling facilities. The export credit guarantee for sales of manufactured goods and services is only extended to projects that are expected to benefit the export of U.S. agricultural products.

45. The annual average value of exports covered by officially supported export credit guarantees amounted to US$1.8 billion between fiscal years 2005 and 2007.38 The GSM-102 programme accounted for around 90% of this.

(v) Food labelling

46. Regulations issued under the Federal Meat Inspection Act and the Poultry Products Inspection Act require that the country of origin appear in English on the immediate containers of all meat and poultry products entering the United States.39 When imported bulk meat or poultry products are processed in the United States, the label on the processed product or its container does not need to include the country of origin.

47. Under the 2002 Farm Act, retailers must notify their customers of the country of origin of beef, lamb, pork, fish, shellfish, perishable agricultural commodities and, from September 2004, peanuts. Commodities that are ingredients in processed food are exempt. The Act specifies the criteria that commodities must meet to bear a "United States" label.

33 Foreign Agricultural Service online information, "Eligible Commodities Under the GSM 102 Program". Viewed at: http://www.fas.usda.gov/excredits/gsmcommodities.html.

34 See Foreign Agricultural Service online information, "Country Risk Category". Viewed at: http://www.fas.usda.gov/excredits/countryrisk.html.

35 USDA (2007a).36 7 USC 5641(b).37 WTO document WT/TPR/M/160/Add.1, 27 September 2006.38 Foreign Agricultural Service online information, "Monthly Summary of Export Credit Guarantee

Program Activity". Viewed at: http://www.fas.usda.gov/excredits/Monthly/ecg.html.39 Federal Meat Inspection Act, 21 USC 601 et seq., and Poultry Products Inspection Act, 21 USC 451

et seq.


48. The Department of Agriculture issued an interim final rule for the country-of-origin labelling programme for fish and shellfish in October 2004.40 The rule became effective in April 2005. A final rule is under preparation, and was reopened for public comment in June 2007.41 The application of country-of-origin labelling on beef, lamb, pork, perishable agricultural commodities, and peanuts has been delayed twice, most recently until September 2008.42 The Department of Agriculture requested public comments on a proposed rule covering these commodities in mid 2007.43

49. Preliminary estimates by the Department of Agriculture for the direct incremental costs associated with the country-of-origin labelling requirement in the 2002 Farm Act range from US$582 million to US$3.9 billion during the first year of application. This estimate is based on the proposed rule for all "covered commodities", that is, beef, pork, lamb, farm-raised and wild fish, perishable agricultural commodities, and peanuts.44 Annual costs to the U.S. economy after a ten-year adjustment period are estimated to range from US$138 million to US$596 million. Based on the interim final rule published in October 2004, the Department of Agriculture estimates that the direct costs associated with the country-of-origin labelling requirement for farm-raised and wild fish are US$89 million for the first year of implementation; the estimated cost to the U.S. economy after a ten-year adjustment period is US$62 million annually. The benefits derived from country-of-origin labelling were found to be negligible. The Department of Agriculture also found little or no evidence that consumers are willing to pay a price premium for country-of-origin labelling or that they would increase their purchases of food bearing the U.S. origin label.

(3) MINING AND ENERGY

(i) Main features

50. The United States is among the world's largest producers of several minerals, including coal, salt, sulphur, aluminium, copper, and gold. In 2006, the total value of raw non-fuel mineral production in the United States was approximately US$64.4 billion.45 In the same year, metal mine production was around US$23.5 billion, of which 60% was copper and gold, and 36% was iron ore, molybdenum, and zinc; exports of raw and processed mineral material were US$74 billion, and imports were US$138 billion.

51. The United States is the world's largest energy producer and consumer. Energy is imported mostly in the form of petroleum. The United States has the twelfth largest proved oil reserves in the world (21.8 billion barrels in December 2005).46 Petroleum production in the United States was 6.9 million barrels per day in 200647; imports of petroleum were 10.1 million barrels per day. U.S. production of natural gas was 18.5 trillion cubic feet in 2006; exports of natural gas were 4.2 trillion cubic feet, and imports were 749 billion cubic feet.

52. Total electricity net generation was 4.1 trillion kWh in 2006.48 Fossil fuels (mostly coal) accounted for 71% of all net generation, nuclear electric power for 19%, and renewable energy for

40 Federal Register, 69 FR 59708, 5 October 2004. An interim final rule has the full force and effect of law. However, before the interim final rule is revised or confirmed as a final rule, the agency concerned requests comments on specific aspects of it.

41 Federal Register, 72 FR 33851, 20 June 2007.42 Section 792 of the Agriculture, Rural Development, Food and Drug Administration, and Related

Agencies Appropriations Act of 2006.43 Federal Register, 72 FR 33917, 20 June 2007.44 Federal Register, 68 FR 61944, 30 October 2003.45 U.S. Geological Survey (2007).46 Energy Information Administration (2007b).47 Energy Information Administration (2007a).


9%. Three fourths of the net generation from renewable energy resources was derived from hydroelectric power. Electricity imports were 42 billion kWh in 2006, and exports were 25 billion kWh. Most electricity trade occurred with Canada.

53. The average retail rate of electricity for all customers in the United States was US$0.089 per kWh in 2006.49 It increased at an annual average rate of 4.3% between 2000 and 2006, reflecting higher fuel prices and, more recently, the lifting of retail price caps in some states. Average industrial rates were US$0.062 per kWh in 2006, and commercial rates were US$0.095 per kWh.

54. The federal Government has adopted measures to foster competition in wholesale electricity markets during the past three decades.50 In addition, some states began to allow retail customers to choose their power supplier during the 1990s. However, high wholesale prices in California spot markets in 2000-01 highlighted shortcomings in the regulatory framework governing electricity markets.51 For example, according to the Council of Economic Advisers, the "mix of regulations ... has not done enough to encourage companies to invest in building new [transmission] capacity". 52

The Energy Policy Act of 2005 contains provisions to enhance wholesale competition in electricity. It allows the Federal Energy Regulatory Commission (FERC) to impose civil penalties for market manipulation, expands the FERC's authority to review mergers and generation facility transfers to prevent increases in the exercise of market power, and contains provisions to enhance market transparency. The Act also includes provisions to strengthen the interstate power grid. As at April 2006, 16 states and the District of Columbia allowed at least some competition at the retail level.53

55. The Tennessee Valley Authority (TVA) is a corporation owned by the Federal Government. The Tennessee Valley Authority Act of 1933 established the TVA "in the interest of the national defense, for agricultural and industrial development, and to improve navigation in the Tennessee River and to control the destructive flood waters in the Tennessee River and Mississippi River Basins".54 In addition to dams and hydropower facilities on the Tennessee River and its tributaries, the TVA has natural gas, coal, and nuclear power generation plants. As at September 2005, the TVA sold electricity to 158 retail distributors and 61 large retail customers. Its service area covers most of Tennessee and parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Virginia.

56. Under an exemption in the Energy Policy Act of 1992, the TVA is not required to allow the use of its transmission lines so that other utilities can send power to TVA customers. This reduces the opportunities for TVA customers to choose their supplier. The Consolidated Appropriations Act of 2005, signed into law in December 2004, changed the TVA's management structure, and required the TVA to file financial reports with the Securities and Exchange Commission and to create an independent audit committee.

48 Energy Information Administration online information, "Energy Perspectives". Viewed at: http://www.eia.doe.gov/emeu/aer/ep/ep_frame.html.

49 Energy Information Administration online information, "Average Retail Price of Electricity to Ultimate Customers: Total by End-Use Sector," Table 5.3. Viewed at: http://www.eia.doe.gov/ cneaf/electricity/epm/table5_3.html.

50 For an overview of legislative and regulatory efforts to support competition in wholesale electricity markets see: Federal Energy Regulatory Commission, Wholesale Competition in Regions with Organized Electric Markets, Docket Nos. RM07-19-000 and AD07-7-000, 22 June 2007.

51 Suppanz, Wise, and Kiley (2004). See also GAO (2005a).52 Council of Economic Advisers (2004).53 International Energy Agency (2006).54 16 USC 831.


57. Foreign investment plays an important role in mining and energy. The stock of foreign direct investment in the mining industry was US$55.5 billion in 2006, up 80% from 2002 (historical cost basis).55 Approximately 32% of the total was in oil and gas extraction, and around 13% in metal ore mining. The stock of foreign direct investment in electric power generation was US$28.4 billion in 2006, up 16% from 2002.

(ii) Legal and policy framework

58. The federal Government's mining and minerals policy is to foster and encourage private enterprise in the development of a stable domestic minerals industry, and in the orderly and economic development of domestic mineral resources.56

59. The General Mining Law of 1872 governs access to hardrock minerals in federal public lands.57 It authorizes a prospector to stake a claim to land believed to contain a mineral deposit, subject to the payment of certain fees. A claim gives the holder the right to develop the minerals, and may be "patented" to transfer the ownership of the public land to the private sector. The law does not require payment of royalties. Many states have enacted laws governing mineral rights on state-owned lands. Although these laws vary considerably, many authorize royalty payments.58

60. The extent to which the General Mining Law of 1872 adequately balances mineral development with competing land uses is being debated in the United States.59 Congress imposed a mining claim patent moratorium in 1994; the U.S. authorities indicate that, except for 400 patents that were grandfathered, no new patent applications are being accepted until Congress decides what to do with the moratorium. In early 2008, there were about 380,000 mining claims located on federal lands in the western United States; most cover about 20 acres.

61. Federal oil and gas are subject to leasing under the Mineral Leasing Act. Companies seeking to lease federal lands for oil and gas exploration must pay a "bonus bid" determined through a competitive auction. Companies must pay royalties based on a percentage of the cash value of the oil and gas produced and sold. In general, royalty rates are 12.5% for onshore leases and between 12.5% and 16.7% for offshore leases.60 Under the Outer Continental Shelf Lands Act, the Secretary of the Interior has the discretion to establish higher royalty rates for offshore leases. The Department of the Interior reported that about 2,100 companies paid royalties totalling US$11.4 billion from approximately 28,980 federal and Indian mineral leases in fiscal year 2007.

62. The National Energy Policy, issued in May 2001, places emphasis on domestic energy production.61 The policy identifies major investment needs in power plants, oil refineries, and gas and electric transmission networks, and calls for measures to enhance energy efficiency and develop renewable energy. State energy policies vary considerably.

63. The Department of Energy has primary responsibility for federal energy policy, while states are responsible for their own energy policies. The FERC is an independent agency that regulates the

55 BEA online information, "International Economic Accounts". Viewed at: http://www.bea.gov/ international/fdi_ind_0206.htm.

56 30 USC 21a.57 30 USC 21 et seq. Hardrock minerals include most metals and non-fuel non-metals, such as gold,

silver, copper, zinc, barite, and fluorspar.58 For a survey of state laws governing hardrock mining see Flynn (2005).59 For a review of the arguments surrounding the claim patent system established by the General

Mining Law see Humphries (2005).60 GAO (2007b).61 National Energy Policy Development Group (2001).


transmission of electricity, natural gas, and oil in interstate commerce, and wholesale sales of electric energy and natural gas in interstate commerce. It acts under the authority of the Federal Power Act, the Natural Gas Act, the Public Utility Regulatory Policies Act, the Interstate Commerce Act, the Energy Policy Act of 1992, and the Energy Policy Act of 2005. The states regulate electricity and natural gas sales at the retail level.

(iii) Selected issues

64. The energy tax structure seeks to provide incentives for the supply of alternative and renewable fuels (Table IV.3). The Energy Policy Act of 2005, signed into law in August 2005, establishes tax incentives for domestic energy production and energy efficiency valued at approximately US$15 billion during 11 years.62 The Act requires a doubling of biofuel use and authorizes several federal energy research and development programmes.

Table IV.3Selected energy tax incentives, early 2007

Product Description Revenue loss, fiscal year 2006 (US$ million)

Oil and gas Exploration firms may deduct 100% of "intangible drilling costs" in first year (70% for integrated producers); 2 year amortization of geological and geophysical expenses (5 years for integrated producers)

1,100

Fuel minerals Independent producers and royalty owners can deduct 15% of sales of oil and gas (up to 25% for marginal wells); between 10% and 20% for other fuel minerals; only up to 1,000 barrels or equivalent per day

1,000

Synthetic fuels from coal and gas produced from either geopressurized brine, Devonian shale, tight formations, or biomass

Tax credit of US$6.40 per barrel of oil equivalent or US$1.13 per 1,000 cubic feet of gas

2,700

Biomass ethanol Tax credit of US$0.51 per gallon (blenders) plus US$0.10 per gallon (small producers)

1,890

Electricity from wind, closed-loop biomass, poultry waste, solar, geothermal

Tax credit of US$0.018 per kWh 2,000

Table IV.3 (cont'd)Fuel cell, hybrid, lean burn, or other alternative fuel motor vehicle

Tax credit of US$400-40,000 per unit 283

State and local bonds for hydroelectric or biomass facilities that produce electricity

Tax exemption for interest income 100

Biodiesel (from vegetable oil or animal fat)

Producer tax credit of US0.50 per gallon (recycled) or US$1 per gallon (virgin)

122

Energy efficient appliances Manufacturer's tax credit of US$50-200 per unit 117

Source: WTO Secretariat, based on Lazzari (2006).

65. Federal policy encourages biofuel production and use, through excise tax credits for ethanol and biodiesel blenders, tax credits for small ethanol and biodiesel producers, a tax credit for alternative fueling infrastructure development, and a special depreciation deduction for cellulosic ethanol facilities. The largest of the biofuel tax expenditures is the volumetric ethanol excise tax credit, which provides a US$0.51 per gallon tax credit to blenders of ethanol and gasoline. The cost of this programme in forgone tax revenue was US$2.7 billion in 2006.63

66. Imports of ethanol are subject to ad valorem MFN tariff rates of 1.9% or 2.5% (fuel ethyl alcohol under subheadings HS 2207.1060 and HS 2207.2000). An additional duty of

62 Lazzari (2006).63 GAO (2007a).


US$0.1427 per litre (US$0.54 per gallon) is assessed for imports of ethanol from MFN sources under subheading HS 9901.0050.

67. The Energy Policy and Conservation Act established fuel economy standards for passenger automobiles and light-duty trucks.64 Compliance with the standards is measured by calculating a sales-weighted mean of the fuel economies of a given manufacturer's product line. Domestically produced and imported passenger automobiles must meet the standards separately (two-fleet rule). A vehicle is considered to be part of the domestic fleet if at least 75% of the cost of the content is of U.S., Canadian, or Mexican origin.

68. In December 2007, Congress amended the Energy Policy and Conservation Act, mandating standards for passenger automobiles and light trucks of model years 2011-2020 to ensure that the average fuel economy of the combined industry-wide fleet of passenger automobiles and light trucks in model year 2020 is at least 35 miles per gallon.65 The Department of Transportation must set these standards on the basis of a vehicle attribute such as size.

69. In December 2005, the California Air Resources Board requested a waiver of pre-emption for its greenhouse gas regulations for certain new motor vehicles from model year 2009. The Clean Air Act gives California special authority to enact air pollution standards for motor vehicles that are stricter than those of the federal Government. However, the Environmental Protection Agency (EPA) must approve a waiver before California's regulations can go into effect. The EPA announced its intention to deny California's request for a waiver in late 2007; it issued a denial document in February 2008 explaining its decision.66 In the meantime, a federal district court issued a decision upholding the adoption of California's greenhouse gas regulations by Vermont, one of 11 states that had adopted California's regulations as at mid 2007.67 The court concluded that Vermont's regulations are not pre-empted by federal fuel economy laws, and do not "impermissibly intrude upon the foreign affairs prerogatives of the President and Congress of the United States".68

70. The Energy Policy and Conservation Act authorized in 1975 the creation of a Strategic Petroleum Reserve (SPR) for the storage of up to one billion barrels of petroleum products. 69

The SPR, which is managed by the Department of Energy, contained enough oil to offset 59 days of U.S. oil imports as at 2006.70 The United States has spent about US$45.2 billion in 2005 dollars to build, maintain, fill, and manage the SPR since 1976. There is also a Northeast Heating Oil Reserve that holds 2 million barrels of heating oil. It has never been tapped.

71. The Energy Policy and Conservation Act authorizes the President to use the SPR in the event of a severe energy supply disruption. Amendments adopted in 1990 authorized the President to use part of the SPR in reaction to "a circumstance that constitutes, or is likely to become, a domestic or

64 49 USC 32901 et seq.65 Title I, Energy Independence and Security Act of 2007.66 EPA online information, "California Greenhouse-Gas Waiver Request". Viewed at:

http://www.epa.gov/otaq/ca-waiver.htm.67 California Environmental Protection Agency online information, "Frequently Asked Questions:

Climate Change Emissions Standards for Vehicles". Viewed at: http://www.arb.ca.gov/cc/factsheets/ccfaq.pdf.68 United States District Court for the District of Vermont, Green Mountain Chrysler Plymouth Dodge

Jeep, et al. v. George Crombie, et al., No. 05-302, and The Association of International Automobile Manufacturers v. George Crombie, et al., No. 05-304, D. Vt, 12 September 2007. This decision is being appealed; opening briefs were filed in March 2008 in the U.S. Court of Appeals for the Second Circuit (No 07-4342-cv).

69 42 USC 6231 et seq.70 GAO (2006).


international energy supply shortage of significant scope or duration".71 Under this authority, the President authorized the sale and lending of oil from the SPR in the aftermath of hurricanes Katrina and Rita in 2005.

72. The Strategic and Critical Materials Stockpiling Act established a programme to maintain and manage certain materials for use during a national emergency.72 The Defense Logistics Agency's Defense National Stockpile Center (DNSC) manages the stockpile program. It stores 28 commodities with a market value of around US$1.4 billion at 17 U.S. locations.73 The commodities include zinc, cobalt, chromium, platinum, palladium, and industrial diamonds. DNSC has sold approximately US$6.6 billion worth of excess stockpile materials since 1993.

(4) MANUFACTURING

73. The United States is the world's leading producer of manufactured goods, accounting for about 21% of world manufacturing value added.74 After a cyclical downturn that started in late summer 2000 and deepened in 2001, manufacturing output increased by almost 18% between 2002 and 2006.75 However, the share of manufacturing in total U.S. value added declined during this period, to 12.1% in 2006, as other sectors experienced faster growth. In 2006, the largest industries in terms of manufacturing value added were: chemical products (13.8%); food and beverage and tobacco products (10.4%); computer and electronic products (9.0%); fabricated metal products (8.5%); machinery (7.9%); and motor vehicles, bodies and trailers, and parts (6.3%).76

Manufactured goods represented 80% of total U.S. merchandise exports in 2006, three percentage points less than in 2000; 70% of 2006 imports consisted of manufactures, compared with 77% in 2000. In absolute terms, however, manufacturing exports and imports increased by 24% and 40% between 2000 and 2006 (see Chapter I(6)(i)).

74. Foreign direct investment (FDI) is important in manufacturing. Assets of majority-owned non-bank U.S. affiliates in the manufacturing sector were almost US$1.1 trillion in 2005, almost one fifth of total U.S. affiliate assets.77 U.S. affiliates of foreign companies in the manufacturing sector employed some 2 million workers. Merchandise exports by these affiliates were US$97 billion and imports US$160 billion in 2005. Foreign-owned manufacturing firms had 14% more value added and plant sizes five times larger than U.S. manufacturers, on average.78 They paid 14% higher wages, and had 50% greater output per worker than the average comparable U.S.-owned manufacturer. At end 2004, the Netherlands, Switzerland, and the United Kingdom were the principal sources of FDI in manufacturing on a historical cost basis.79

75. The manufacturing sector accounts for 10% of non-farm payroll employment (September 2007).80 Manufacturing employment fell by 2.7 million between February 2001 and February 2004,

71 42 USC 6241.72 50 USC 98 et seq.73 DNSC online information. Viewed at: https://www.dnsc.dla.mil/contentview.asp?contentpage=

inside&folder=dnsc.74 United Nations Industrial Development Organization online information. Viewed at:

http://www.unido.org/data/geostat.cfm?CC=USA.75 International Trade Administration online information, "Industry Competitiveness and Regulatory

Analysis". Viewed at: http://ita.doc.gov/td/industry/otea/OCEA/MBU/index.html.76 BEA online information, "Industry Economic Accounts". Viewed at: http://www.bea.gov/industry/

gpotables/gpo_action.cfm?anon=57018&table_id=19018&format_type=0.77 Anderson (2007).78 Jackson (2005).79 BEA (2005).


which was the biggest cyclical decline in manufacturing employment since 1960 81; the downward trend continued in later years.

76. Multifactor productivity in manufacturing increased at an annual average rate of 2.5% between 2000 and 2005, which was higher than in the private non-farm business sector as a whole. 82

It increased in 68 of 86 manufacturing industries during this period.83 Of 16 foreign economies studied by the Department of Labor, only three had greater manufacturing productivity growth than the United States between 2000 and 2006.84

77. In the context of the President's Manufacturing Initiative announced in March 2003, the Secretary of Commerce ordered a comprehensive review of the issues influencing the competitiveness of the U.S. manufacturing sector. As part of this, the Department of Commerce held 23 public roundtables to identify the challenges facing manufacturers. In January 2004 it issued a report with 57 recommendations to address these challenges.85 The Interagency Working Group on Manufacturing Competitiveness coordinates the implementation of these recommendations, which include to make permanent the research and experimentation tax credit, modernize the U.S. legal system to eliminate disincentives to invest in manufacturing, identify priorities for future federal support for advanced manufacturing technology, and combat "unfair" trade practices affecting U.S. manufacturers. The U.S. authorities indicate that 36 of the report's recommendations have already been implemented.

78. In general, tariffs on manufactured goods are low. The average applied MFN tariff for manufactures (WTO definition) was 4% in 2007. However, the U.S. International Trade Commission has identified 12 sectors that are subject to relatively high tariffs.86 The Commission estimates that U.S. welfare gains from eliminating the tariffs on these products would range from US$2 million for edible fats and oils to US$249 million for footwear and leather products. 87 The increase in imports resulting from this liberalization would range from 2% to 19%.

79. The U.S. International Trade Commission has also identified textiles and apparel as subject to relatively high import barriers.88 One study estimates U.S. welfare gains from the elimination of tariffs and remaining quantitative restrictions on imports of textiles and apparel at US$830 million and US$1.9 billion.89 The same study also considers the welfare effects of textile and apparel rules of origin contained in U.S. preferential arrangements. The study found that the elimination of origin requirements for textiles and apparel would reduce foreign demand for U.S. textiles and apparel

80 Bureau of Labor Statistics online information, "Employment Situation", Table B-1. Viewed at: http://www.bls.gov/news.release/empsit.toc.htm.

81 Forbes (2004).82 Multifactor productivity measures the changes in output per unit of combined inputs.83 Bureau of Labor Statistics online information, "Multifactor Productivity Trends For Detailed

Manufacturing Industries", Table 3. Viewed at: http://www.bls.gov/news.release/prin3.toc.htm.84 USDOL (2007).85 USDOC (2004).86 These are: ball and roller bearings; ceramic wall and floor tile; costume jewellery; cutlery and

hand tools; edible fats and oils; footwear and leather products; glass and glass products; musical instruments; pens, mechanical pencils, and parts; processed fruits and vegetables; table kitchenware; and watches, clocks, and watch cases and parts. USITC (2007a).

87 In the case of ceramic tile, liberalization would lead to a welfare loss of US$2 million. Ceramic tile is considered as an input to residential and commercial buildings (investment goods) rather than a product purchased by consumers as end-users.

88 USITC (2007a).89 Fox, Powers and Winston (2007).


inputs, causing a loss in U.S. welfare. According to the study, this loss would be largely offset by the elimination of compliance costs embedded in rules of origin.

80. In addition to tariffs, government assistance to the manufacturing sector includes export financing, direct payments, and tax benefits (Chapter III(3)(iv) and (4)(ii)).

81. Manufacturers spent US$158 billion for research and development (R&D) performed in the United States in 2005.90 Federal government R&D expenditures in the manufacturing sector were approximately US$15.6 billion. These expenditures cut across a broad spectrum of industries, including computers and electronic products, aerospace products and parts, chemicals, and machinery. Together these industries accounted for approximately 72% of federal funds for R&D in manufacturing.

82. The United States is currently involved in two disputes settlement cases with the EC on trade in large civil aircraft under the WTO Agreements, one as complainant and one as defendant.

83. The United States maintains programmes to assist shipyards or ship-repair facilities. The Federal Ship Financing Program provides guarantees for private-sector financing to construct, reconstruct, and recondition commercial vessels in U.S. shipyards.91 Guarantees may not cover financing for the acquisition of foreign components unless the Department of Transportation grants a waiver. No new loan guarantees were issued during fiscal year 2006. US$2.94 billion in loan guarantees were outstanding in September 2006.92

84. Under the Capital Construction Fund (CCF) programme, U.S. flag operators may defer federal taxes on certain deposits placed into a CCF to construct, reconstruct, or acquire eligible vessels built in and documented under the laws of the United States. Under the Construction Reserve Fund programme, U.S. flag operators may defer federal taxes on gains attributable to the sale or loss of a vessel, provided that the proceeds are used to construct, reconstruct, or acquire an eligible, U.S. built vessel.93 Participation in both programmes is limited to U.S. citizens.

85. U.S.-flag vessels repaired abroad are subject to a 50% duty, assessed on the cost of equipment and non-emergency repairs in foreign countries. The duty is not applied on U.S.-owned foreign-flag vessels or in the context of U.S. free-trade agreements.

(5) SERVICES

(i) Introduction

86. The services sector is by far the largest contributor to output and employment in the U.S. economy. The private services sector accounted for 67.8% of GDP and 65.6% of total employment in 2006, or 80.2% and 83.4%, respectively, if government services are included. Private services industries have been expanding faster than GDP during the period under review and contributed 2.75 percentage points to GDP growth in 2006.94 Productivity has been growing rapidly in most service activities, particularly telecommunications, but also retail and wholesale trade and air

90 Wolfe (2007).91 Title XI, Merchant Marine Act of 1936.92 MARAD online information. Viewed at: http://www.marad.dot.gov/TitleXI/title_xi_program.html.93 Section 511, Merchant Marine Act of 1936.94 BEA (2007a).


transportation.95 Services are also playing an important role in U.S. trade: in 2006, services accounted for 29.2% of total U.S. exports and 15.6% of total imports.

87. The United States made wide-ranging sector-specific commitments under the General Agreement on Trade in Services (GATS).96 These include 11 of the 12 broadly defined service areas, or 111 of the approximately 160 services subsectors in the Services Sectoral Classification List.97 The United States' horizontal commitments include limitations regarding temporary entry and stay of natural persons, acquisition of land, taxation measures, and subsidies. The United States submitted an initial offer on services in the DDA in 2003, and a revised offer in 2005.98

(ii) Telecommunications and related services

(a) Market structure99

88. The U.S. telecommunications market is the world's largest by revenue (US$360 billion in 2005). Following a sharp decline between 2000 and 2004, telecommunication investment increased in 2005, reflecting partly the transition to fibre-based broadband technologies, higher-speed mobile, and next-generation networks.

89. There were 167.5 million residential and non-residential wireline switched access lines in service at end 2006, down from 192.4 million at end 2004.100 This decline reflects reductions in residential second lines and substitution of mobile for fixed. There were 213 million mobile telephone subscribers in the United States in December 2005, resulting in a nationwide penetration rate of approximately 71%.101 Although the number of cellular mobile subscribers has increased rapidly since 2000, penetration remains below the OECD average of 80%.

90. The United States enjoys some of the lowest prices for fixed-line telephony in the OECD.102

The price of mobile telephony is close to the OECD average; the U.S. authorities note that this estimate overstates the cost of mobile telephony in the United States, as it does not take into account the high volume of use. U.S. international calling charges are among the lowest in the OECD. The United States has relatively well developed facilities-based competition.

91. The main distribution platform for broadcasting services in the United States is cable, which in 2005 accounted for almost 60% of households equipped with television. The share of terrestrial television is 16%. Both terrestrial television and cable have lost share to direct broadcast satellite, which accounts for 25% of households equipped with television, up from 2% in 1995. The Chairman of the FCC notes that competition is needed in the market for the delivery of video programming. Cable prices have increased since 1996 while prices of other communication services have declined.103

95 Bureau of Labor Statistics online information. Viewed at: http://www.bls.gov/schedule/ archives/prin_nr.htm#2006.

96 GATT document, GATS/SC/90, 15 April 1994.97 WTO document MTN.GNS/W/120, 10 July 1991.98 The initial offer is contained in WTO document TN/S/O/USA, 9 April 2003. For the revised offer

see: http://www.ustr.gov/assets/Trade_Sectors/Services/2005_Revised_US_Services_Offer/asset_upload_file77 _7760.pdf.

99 Unless indicated otherwise, the data in this section is from OECD (2007d).100 FCC (2007).101 FCC (2006).102 OECD (2007d).103 Remarks of FCC Chairman Kevin J. Martin, Phoenix Center, U.S. Telecoms 2006 Symposium,

6 December 2006. Viewed at: h5ttp://www.phoenix-center.org/symposiums/2006/MartinSpeech.pdf.


(b) GATS commitments and legal framework

92. U.S. commitments on basic telecommunications attached to the Fourth Protocol of the GATS cover most services.104 Excluded from the commitments are one-way satellite transmissions of direct to home (DTH) and direct broadcast satellite (DBS) television services, and of digital audio services.

93. The United States has reserved an exemption under GATS Article II (MFN) to discriminate between WTO Members "due to application of reciprocity measures or through international agreements guaranteeing market access or national treatment" for DTH, DBS, and digital audio services.105 The United States also reserved the right to "allow the deduction for expenses of an advertisement carried by a foreign broadcast undertaking and directed primarily to a U.S. market only where the broadcast undertaking is located in a foreign country that allows a similar deduction for an advertisement placed with a U.S. broadcast undertaking".106 The purpose of this MFN exemption is to "encourage the allowance of advertising expenses internationally".

94. The Federal Communications Commission (FCC) is responsible for regulating interstate and international communications by radio, television, wire, satellite, and cable. Individual state commissions have the authority to regulate the rates, terms, and conditions of intra-state, non-radio-based basic telecommunications services.

Foreign ownership and international settlements policy

95. The FCC reviews foreign investment in FCC radio licences under Section 310 of the Communications Act of 1934, as amended.107 Under Section 310(a) of the Act, no radio licence may be granted to a foreign government or its representative. Under Section 310(b) of the Act, broadcast and common carrier, and aeronautical radio licences cannot be granted to or held by non-U.S. citizens, their representatives, corporations not organized under the laws of the United States, or foreign governments. Nor may licences be granted to U.S. corporations of which more than 20% of the capital stock is owned of record or voted by any of these entities. However, under Section 310(b)(4), licences may be granted to companies organized in the United States that are controlled by holding companies organized in the United States and in which foreign individuals, corporations, or governments own of record or vote more than 25% of the capital stock, unless the FCC finds that such ownership is inconsistent with the public interest.

96. Following the adoption in 1997 of an "open entry" standard with respect to WTO Members, the FCC presumes that indirect ownership by entities from WTO Members of common carrier wireless licences under Section 310(b)(4) is in the public interest.108 However, the FCC reserves the right to attach conditions to or deny authorization to exceed the 25% foreign ownership benchmark if, as a result of its public interest analysis, it finds that such authorization would threaten competition in the U.S. market. In addition, the FCC accords deference to legitimate national security, law enforcement, foreign policy, and trade concerns raised by other federal agencies in its public interest analyses, although the U.S. authorities indicate that no authorization has ever been denied on the basis of these concerns. In previous Reviews of the United States, several WTO Members have noted that

104 See WTO document GATS/SC/90/Suppl.2, 11 April 1997.105 WTO document GATS/EL/90/Suppl.2, 11 April 1997.106 WTO document GATS/EL/90, 15 April 1994.107 47 USC 310.108 Rules and Policies on Foreign Participation in the U.S. Telecommunications Market, Report and

Order and Order on Reconsideration, 12 FCC Rcd 23891 (1997) (“Foreign Participation Order”), Order on Reconsideration, 15 FCC Rcd 18158 (2000).


the explicit incorporation of the open entry standard into U.S. legislation would provide the full security of the law to suppliers from WTO Members.109

97. In the context of its open entry standard, the FCC has instituted a blanket authorization with respect to applications to supply domestic long-distance services on a facilities or resale basis. To supply international services, an individual authorization is required, but according to the U.S. authorities, the authorization process is generally pro forma, with most authorization granted automatically. The authorities note that the processing time for applications depends on the complexity of each case; processing takes from 14 days for routine authorizations to provide international services, to one year or longer for applications related to large, complex mergers or acquisitions.110

98. The international settlements policy (ISP) is one of several FCC regulatory safeguards to deter conduct by a foreign-based carrier that would harm competition in the U.S. telecommunications market.111 The ISP governs negotiations between U.S. and certain foreign carriers that have market power for the exchange of international switched traffic. It requires all rate agreements between U.S. and foreign carriers to provide for: an equal division of accounting rates between foreign and U.S. carriers112; the non-discriminatory treatment of U.S. carriers; and a share to U.S. carriers of U.S. inbound traffic proportionate to their share of U.S. outbound traffic. Since March 2004, the FCC has applied its ISP only to routes on which termination rates exceed FCC-specified benchmarks.113 In early 2008, 165 routes were exempt from the ISP.

99. In March 2006, three large operators requested that the FCC remove ISP requirements from the remaining routes subject to such requirements. FCC staff note that certain ISP requirements may no longer be necessary due to "meaningful economic competition between telecommunications service providers" and recommend the initiation of a proceeding to consider this petition. 114 The request is under consideration.

Unbundling requirements and inter-carrier compensation

100. Section 251 of the Communications Act of 1934 requires that all "incumbent local exchange carriers" provide requesting carriers with "non-discriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and non-discriminatory…".115 Section 251 network elements must be priced "based on the cost (determined without reference to a rate-of-return or other rate-based proceeding) of providing the ... network element" and "may include a reasonable profit".116

109 See, for example, WTO documents WT/TPR/M/126/Add.3, 22 November 2004, and WT/TPR/M/88/Add.1, 8 January 2002.

110 WT/TPR/M/160/Add.1, 27 September 2006.111 For a description of other regulatory safeguards besides ISP see WTO (2006).112 The accounting rate system refers to the pricing principles used in interconnection agreements

between international operators, to enable the revenue for international calls to be shared between the operator in the country that originates traffic and the operator in the country that delivers the traffic.

113 International Settlements Policy Reform, International Settlement Rates, Report and Order, IB Docket Nos. 02-324 and 96-261 (2004). The list of international routes that are not subject to the ISP is available at: http://www.fcc.gov/ib/pd/pf/isp_exempt.html.

114 See, for example, FCC 2006 Biennial Regulatory Review, 22 FCC Rcd 3138, 3166-67, 3175-78 (IB 2007).

115 47 USC 251(c).116 47 USC 252(d)(1). See also Implementation of the Local Competition Provisions in the

Telecommunications Act of 1996, Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, First Report and Order, CC Docket Nos. 96-98, 95-185 (1996).


101. The Communications Act left the FCC to choose the network elements to be "unbundled," specifying that the FCC must "consider, at a minimum, whether ... the failure to provide access to such network elements would impair the ability of the telecommunications carrier seeking access to provide the services that it seeks to offer."117 The FCC issued the results of a comprehensive re-examination of its Section 251 unbundling rules in 2003.118 The rules obtained judicial approval in June 2006, after having been modified in response to court challenges.119 According to the FCC, its unbundling framework "builds on actions by the Commission to limit unbundling to provide incentives for both incumbent carriers and new entrants to invest in the telecommunications market in a way that best allows for innovation and sustainable competition."120

102. Facilities-based common carriers that own transmission facilities and provide "enhanced services" must allow other enhanced service providers to use their transmission facilities on a non-discriminatory basis.121 In August 2005, the FCC relieved wireline broadband Internet access service providers from this "unbundling" requirement, which is separate from the unbundling obligations under Section 251 of the Communications Act. The FCC's decision responds to "the availability of Internet service from multiple broadband pipelines, including cable, wireless, satellite, and power line networks."122 According to the FCC, the decision "puts wireline broadband Internet access service, commonly delivered by digital subscriber line (DSL) technology, on an equal regulatory footing with cable modem service, currently the market leader".123

103. Inter-carrier compensation is governed by a complex system of rules that differentiate between types of carriers and services. Generally, these rules can be classified as "reciprocal compensation" rules, which govern compensation related to local traffic, and "access charge" rules, which apply to long-distance calls. The FCC, which has been considering measures to reform its intercarrier compensation regime since 2001, notes that the distinctions between types of traffic, carriers, and communication end-points create both opportunities for regulatory arbitrage, and incentives for inefficient investment and deployment decisions.124 In July 2006, the National Association of Regulatory Utility Commissioners' Task Force on Intercarrier Compensation filed with

117 47 USC 251(d)(2).118 Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers,

Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, Deployment of Wireline Services Offering Advanced Telecommunications Capability, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, CC Docket Nos. 01-338, 96-98, 98-147 (2003).

119 Covad Communications Co. v. FCC, 450 F.3d 528 (D.C. Cir. 2006), affecting Unbundled Access to Network Elements, Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Order on Remand, WC Docket No. 04-313, CC Docket No. 01-338, 20 FCC Rcd 2533 (2005).

120 FCC online information, "FCC Adopts New Rules for Network Unbundling Obligations of Incumbent Local Phone Carriers", 15 December 2004. Viewed at: http://hraunfoss.fcc.gov/edocs_public /attachmatch/DOC-255344A1.pdf. For a description of the particular facilities subject to unbundling requirements, see WTO (2006).

121 Computer II Final Decision, 77 FCC 2d. 384, 474-75, para. 231 (1980). Enhanced services combine basic service with computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber’s transmitted information, or provide the subscriber additional, different, or restructured information, or involve subscriber interaction with stored information.

122 FCC online information, "FCC Eliminates Mandated Sharing Requirement on Incumbents' Wireline Broadband Internet Access Services", 5 August 2005. Viewed at: http://hraunfoss.fcc.gov/edocs_public /attachmatch/DOC-260433A1.pdf.

123 FCC online information, "FCC Eliminates Mandated Sharing Requirement on Incumbents' Wireline Broadband Internet Access Services", 5 August 2005. Viewed at: http://hraunfoss.fcc.gov/edocs_public/ attachmatch/DOC-260433A1.pdf.

124 Regulatory arbitrage arises when entities subject to regulation rearrange their transactions to exploit a more advantageous regulatory treatment, even though such actions, in the absence of regulation, would be viewed as costly or inefficient.


the FCC an intercarrier compensation reform plan known as the "Missoula Plan". The FCC sought comment on this and subsequent filings.125

Satellite services

104. Under the DISCO II Order adopted in November 1997, foreign operators may request that their satellites be permitted to provide service in the United States. This request may be made by filing an application for an earth station to access the foreign satellite, or by filing a Petition for Declaration Ruling for the foreign satellite to serve U.S. customers. In addition, foreign operators with satellites operating in the conventional C-band or Ku-band may request that their satellites be considered for inclusion in the Permitted Space Station List.126 Satellites on this list may be accessed by any licensed earth station operating in specific bands and consistent with the FCC's technical requirements without further regulatory approval. There are 25 foreign satellites on the Permitted Space Station List (December 2007); an additional 16 are not included on the List but are authorized to provide service in the United States.

105. In the absence of a bilateral agreement between the United States and another country, the FCC requires that foreign satellite operators wishing to provide satellite services that are excluded from U.S. commitments at the WTO (DTH, DBS, and digital audio services) perform an ECO-SAT analysis for the excluded service. In this analysis, the applicant must show that there are no barriers to entry in the applicant's country for U.S.-licensed satellite operators wishing to provide the excluded service.127 The United States has bilateral agreements with Argentina and Mexico. Nine satellites are allowed to provide DTH, DBS, and digital audio services in the United States.

125 Comment Sought on Missoula Intercarrier Compensation Reform Plan, CC Docket No. 01-92, Public Notice, 21 FCC Rcd 8524 (Wireline Comp. Bur. 2006; Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Order, 21 FCC Rcd 9772 (Wireline Comp. Bur. 2006); Comment Sought on Missoula Plan Phantom Traffic Interim Process and Call Detail Records Proposal, CC Docket No. 01-92, Public Notice, 21 FCC Rcd 13179 (Wireline Comp. Bur. 2006); Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Order, 21 FCC Rcd 13526 (Wireline Comp. Bur. 2006); Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Order, 21 FCC Rcd 14626 (Wireline Comp. Bur. 2006); Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Order, 21 FCC Rcd 14761 (Wireline Comp. Bur. 2006); Comment Sought on Amendments to the Missoula Plan Intercarrier Compensation Proposal to Incorporate a Federal Benchmark Mechanism, CC Docket No. 01-92, Public Notice, 22 FCC Rcd 3362 (Wireline Comp. Bur. 2007); Pleading Cycle Extended For Comment on Amendments to the Missoula Plan Intercarrier Compensation Proposal to Incorporate a Federal Benchmark Mechanism, CC Docket No. 01-92, Public Notice, 22 FCC Rcd 5098 (Wireline Comp. Bur. 2007).

126 The conventional C-band comprises the 3700-4200/5925-6425 MHz frequency bands; the conventional Ku-band comprises the 11.7-12.2/14.0-14.5 GHz bands. Amendment of the Commission's Regulatory Policies to Allow Non-U.S.-Licensed Space Stations to Provide Domestic and International Satellite Service in the United States, First Order on Reconsideration, IB Docket No. 96-111 (1999) (DISCO II First Reconsideration Order).

127 For more on the ECO-SAT test, see DISCO II Order, paragraph 40.


Media ownership restrictions

106. The United States maintains several media ownership restrictions, with the objective of promoting competition, diversity, and "localism" in media production. Under the rules in effect in January 2008, the dual network rule prohibits mergers between two or more of the "top four" networks, that is, ABC, CBS, Fox, and NBC.128 Under the radio/television cross-ownership rule, an entity cannot own more than two television and six radio stations, or one television and seven radio stations in markets with at least 20 separately owned television, radio, cable, and newspaper "voices".129 There is a sliding scale for markets with fewer voices. The newspaper/broadcast cross-ownership rule bans a company from owning a daily newspaper and a broadcast station in the same market.130

107. The local television multiple ownership rule allows entities to own a maximum of two television stations in any local market, as long as one station is not a top four station, and there are at least eight independent television stations in that market.131 Under the local radio ownership rule, an entity cannot own more than eight radio stations in markets with 45 or more stations.132 There is a sliding scale for markets with less than 45 stations. At the national level, Congress enacted legislation in 2004 allowing an entity to own an unlimited number of television stations in the United States, as long as their aggregate "national audience reach" does not exceed 39%.133

108. The Telecommunications Act of 1996 requires the FCC to review its media ownership rules periodically to determine whether they are "necessary in the public interest as the result of competition".134 Congress determined in 2004 that these reviews should be held every four years, rather than every two. The FCC launched a comprehensive review of these rules in June 2006135, and adopted an order in December 2007 (not yet in effect).136 In that order the FCC approved a relaxation of the newspaper/broadcast cross-ownership rule, leaving all other media ownership restrictions unchanged.137

128 47 CFR 73.658(g).129 47 CFR 73.3555(c).130 47 CFR 73.3555(c).131 47 CFR 73.3555(a).132 47 CFR 73.3555(a).133 Section 629, Consolidated Appropriations Act, 2004.134 Section 202(h).135 2006 Quadrennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules

and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 2002 Biennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, Cross-Ownership of Broadcast Stations and Newspapers, Rules and Policies Concerning Multiple Ownership of Radio Broadcast Stations in Local Markets, Definition of Radio Markets, Further Notice of Proposed Rulemaking, MB Docket Nos. 06-121 and 02-277, and MM Docket Nos. 01-235, 01-317, 00-244 (2006).

136 2006 Quadrennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, 2002 Biennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, Cross-Ownership of Broadcast Stations and Newspapers, Rules and Policies Concerning Multiple Ownership of Radio Broadcast Stations in Local Markets, Definition of Radio Markets, Ways to Further Section 257 Mandate and To Build on Earlier Studies, Public Interest Obligations of TV Broadcast Licensees, Report and Order and Order and Order on Reconsideration, MB Docket Nos. 06-121, 02-277 and 04-228, and MM Docket Nos. 01-235, 01-317, 00-244 and 99-360 (2007).

137 FCC online information, "Chairman Kevin J. Martin Proposes Revision to the Newspaper Broadcast Cross-Ownership Rule", 13 November 2007. Viewed at: http://hraunfoss.fcc.gov/edocs_public/attachmatch/ DOC-278113A1.pdf.


Authorization to provide cable services

109. Section 621 of the Communications Act prohibits a cable operator from providing "cable service" in a particular area without obtaining an authorization or "franchise". 138 Franchises are generally granted by county or municipal entities. The Communications Act bans such entities from "unreasonably" refusing to award franchises to provide cable services.139

110. In an earlier FCC proceeding, potential entrants, primarily telecommunications companies, had cited several factors relating to the local franchising process that impeded their entry into the video services market.140 According to the FCC, the efficient operation of the local franchising process is especially significant for potential new entrants with existing facilities. For example, one operator has indicated that it would have to negotiate with more than 10,000 municipalities to offer video programming throughout its service area. Another operator has noted that it takes an average of 11 months to finalize a franchise agreement. A recent study estimated that a one-year delay in reforming the process to obtain cable franchises would cost American consumers US$8.2 billion.141 Another study found that incumbent cable companies had reduced prices by up to 42% in response to the entry of a major phone company into the television services market.142

111. The FCC adopted franchising rules in December 2006.143 The new rules set a time limit for franchising negotiations, establish limits on build-out and other requirements that may be imposed by local franchising authorities, and clarify the costs, fees, and other compensation required by these authorities that may be counted toward the statutory 5% cap on franchise fees. The FCC applied certain elements of the new rules to franchises governing incumbent cable operators in October 2007.

112. According to the National Cable Television Association, in mid 2007, eight states had passed state-wide cable franchise legislation designed to obviate the need for licensing locality by locality.144

(iii) Financial services

138 Cable service is defined as "the one-way transmission to subscribers of video or other programming service, and subscriber interaction, if any, which is required for the selection or use of such programming" (47 USC 522(6)).

139 47 USC 541(a)(1).140 Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended

by the Cable Television Consumer Protection and Competition Act of 1992, Notice of Proposed Rulemaking, MB Docket No. 05-311 (2005).

141 Ford and Koutsky (2006).142 Study by Bank of America Equity Research, cited in Ford and Koutsky (2006).143 Implementation of Section 621(a)(1) of the Cable Communications Policy Act of 1984 as amended

by the Cable Television Consumer Protection and Competition Act of 1992, Report and Order and Further Notice of Proposed Rulemaking, MB Docket No. 05-311 (2006).

144 Missouri, Florida, Indiana, Georgia, Nevada, Connecticut, Ohio, and Illinois.


(a) Recent market developments

113. The U.S. financial services sector accounted for 7.8% of GDP in 2006, about half of which was generated by banking activities, some 30% by insurance, 18% by securities trading activities, and 2% by funds, trusts, and other financial vehicles.145 The sector employed 6.1 million people in 2005, or some 4.3% of total employment.146 In 2006, exports of financial services, excluding insurance, amounted to US$42.8 billion; exports of insurance services reached US$9.3 billion. Also in 2006, imports of financial services amounted to US$14.3 billion, while imports of insurance services were US$33.8 billion. Sales of financial services, including insurance, to foreign persons by U.S. multinational corporations amounted to US$122.8 billion in 2005, while sales of financial services to U.S. persons by foreign multinational corporations were US$102.3 billion.147

114. There were 1,686 "large" commercial banks in the United States at end-June 2007, each with consolidated assets of US$300 million or more. Their total consolidated assets amounted to US$9.5 trillion, representing some three quarters of GDP; 84.7% were domestic assets.148 At end June 2007, foreign banks from 60 countries and territories operated 479 institutions in the United States: there were 219 branches, 41 agencies and 149 representative offices of foreign banks, as well as 68 U.S. commercial banks at least 25% owned by foreign entities, and three Edge corporations.149 The assets of the 479 U.S. foreign banking institutions totalled some US$2.8 trillion at end-September 2007, accounting for approximately 25% of the total assets of the U.S. commercial banking system.

115. The U.S. insurance market is the world's largest, with gross insurance premiums of US$1.17 trillion in 2006, or 31.5% of the world market; US$533.6 billion were in life and health insurance, and US$636.5 billion in property and casualty insurance.150 The United States is sixth in the world with respect to insurance premiums per capita, with US$3,924 per head in 2006; it is 14th with respect to premiums as a percentage of GDP (8.8% in 2006). Some US$65.3 billion in premiums were paid through cross-border trade to foreign-based insurers to cover risks in the United States in 2006; they consisted mostly of reinsurance. Some US$23.2 billion were paid to U.S.-owned insurers established abroad. In 2006, losses paid to U.S. firms reached US$29.3 billion, while losses paid by U.S. firms were US$10.9 billion.151

116. The United States has the largest securities markets in the world. The market value of equity and options sales on U.S. exchanges was some US$25.1 trillion in mid-November 2007. Some 73.51% of the value traded in 2007 was on the New York Stock Exchange (NYSE); the NYSE Arca

145 BEA online information, "Industry Economic Accounts". Viewed at: http://www.bea.gov/industry/gdpbyind_data.htm.

146 BEA online information, "Industry Economic Accounts". Viewed at: http://www.bea.gov/industry/xls/ GDPbyInd_VA_NAICS_1998-2006.xls. Some 2.9 million people were employed in banking; 2.3 million in insurance; 822,000 in securities; and 89,000 in funds, trusts and other financial activities.

147 BEA online information, and International Economic Accounts database, "U.S. International Services". Viewed at: http://www.bea.gov/scb/pdf/2007/10%20October/1007_int_srvcs_tables.pdf.

148 Federal Reserve Statistical Release, Large Commercial Banks, 30 June 2007 Viewed at: http://www.federalreserve.gov/releases/lbr/current/default.htm.

149 Federal Reserve, Structure and Call Report. Data for U.S. Offices of Foreign Entities by Type of Institution as of 30 June 2007. Viewed at: http://www.federalreserve.gov/. An Edge corporation is a subsidiary of a bank or bank holding company or financial holding company, chartered under the Edge Act of 1919, to engage in foreign banking activities.

150 Swiss Re (2007).151 BEA, U.S. International Transactions Accounts Data. Table 3: Private Services Transactions.

Viewed at: http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=3&area_id=3.


and the American Stock Exchange (AMEX) came second with 19.9% of the value traded and the NASDAQ third with 16.1%.152 As at November 2007, there were 2,779 listed issuers in the NYSE, of which 423 were non-U.S. issuers from 45 countries.153 The non-U.S. percentage of NYSE group volume transactions was 11.9% for the first three quarters of 2007. In April 2007, NYSE merged with the European stock exchange Euronext, based in Paris, and formed NYSE Euronext, which operates the world's largest exchange group.

117. The U.S. financial sector has been affected by the sub-prime mortgage crisis (see Chapter I), and several banks in the United States and abroad have been posting write downs and losses. 154 The IMF views the crisis as the result of a macroeconomic environment with a prolonged period of low interest rates, high liquidity and low volatility, which led financial institutions to underestimate risks; lax credit and risk management practices in many financial institutions; and shortcomings in financial regulation and supervision.155 The IMF considers that this environment both fuelled a U.S. housing boom and encouraged banks and other institutions to take on excessive leverage to generate high returns, and that supervisory and regulatory frameworks could not prevent the crisis, since mortgages were not subject to appropriate disclosure and consumer protection requirements.

118. The IMF deems that the resolution of the sub-prime mortgage crisis will require action in both macroeconomic and financial market areas.156 The Federal Reserve considers that bank holding companies (BHCs) will continue to face difficult market conditions and persistent pressure on earnings, and that more asset write-downs are likely as the market continues to adjust risk premiums and valuations change. To offset this, loan quality will require close monitoring by banking institutions and supervisory agencies; liquidity positions will need to continue to be actively managed; and banking organizations will need to implement risk management improvements. Residential mortgage lending, consumer protection, bank liquidity and capital positions, consumer lending, commercial real estate, and commercial lending are key areas of supervisory focus for the Federal Reserve.157 In this respect, the Federal Reserve has acknowledged that bank management in many cases was not fully aware of the latent risks contained in various structures and financial instruments, and how those risks could manifest themselves. To counter this in the future, financial market supervisors will be enhancing their focus on the capacity of a firm as a whole to manage risk and to integrate risk assessments into the overall decision-making by senior management.

119. The authorities consider that the U.S. banking system remains in sound overall condition, having entered the period of recent financial turmoil with solid capital and strong earnings. They noted that the Federal Reserve and other banking agencies, have been working with banking organizations to identify and rectify shortcomings in risk management and to ensure that the banking system continues to be safe and sound.158 Also, financial agencies have issued statements to encourage institutions that service residential mortgages to mitigate losses while preserving homeownership to the extent possible and appropriate.

152 NYSE online information. Viewed at: http://www.nyse.com/marketinfo/mktsummary/1108407 157455.html. The Amex typically lists stocks of younger or smaller companies. The NYSE Arca, is a fully electronic stock exchange with broader eligibility requirements which allow the listing of smaller companies.

153 NYSE online information. Viewed at: http://www.nyse.com/pdfs/07nonUSIssuers.pdf.154 See Federal Reserve online information. Viewed at: http://www.federalreserve.gov.155 IMF (2008a).156 IMF (2008a).157 Testimony of Federal Reserve Board Vice Chairman Donald L. Kohn Before the Committee on

Banking, Housing, and Urban Affairs, U.S. Senate, 4 March 2008, "Condition of the U.S. banking system". Viewed at: http://www.federalreserve.gov/newsevents/testimony/kohn20080304a.htm.

158 Testimony of Federal Reserve Board Vice Chairman Donald L. Kohn Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, 4 March 2008, "Condition of the U.S. banking system". Viewed at: http://www.federalreserve.gov/newsevents/testimony/kohn20080304a.htm.


120. In December 2007, the Federal Reserve Board proposed changes to Regulation Z (Truth in Lending) to protect consumers from unfair or deceptive home mortgage lending and advertising practices. The rule, which would be adopted under the Home Ownership and Equity Protection Act (HOEPA) of 1994, would restrict a number of practices and would also require certain mortgage disclosures to be provided earlier in the transaction. Under the HOEPA, the Board has the responsibility to prohibit acts and practices in connection with mortgage loans that it finds to be unfair or deceptive.159

(b) Legislative and regulatory framework

Consolidated financial sector regulation

121. The Gramm-Leach-Bliley Act (Financial Services Modernization) of 1999 (GLBA) is the main law regulating the consolidated financial sector. The GLBA allows domestic and foreign banks to affiliate with entities engaged in other activities that are financial in nature, or incidental or complementary to a financial activity, provided certain capital and managerial standards are met. A U.S. bank may affiliate with insurance or other financial services companies by first setting up a bank holding company (BHC) under the Bank Holding Company Act; foreign banks are not required to set up holding companies. Qualifying BHCs, referred to as financial holding companies or FHCs, may control banking, securities, or insurance firms, and may engage in new financial activities subject to prior approval by the Federal Reserve and the Treasury Department. 160 A U.S. bank that meets specified prudential standards may establish financial subsidiaries to engage in certain financial activities. The aggregate assets of all financial subsidiaries must not exceed 45% of the parent bank's assets or US$50 billion, whichever is less. Securities and insurance companies can become FHCs by acquiring a bank, provided they meet certain criteria. In November 2007, 654 bank holding companies had effectively become or were being treated as FHCs, including 45 foreign banks.161

122. Under the Bank Holding Company Act of 1956, BHCs and FHCs may not own non-financial corporations other than through FHC-authorized merchant banking activities. The non-financial activities of firms predominantly engaged in financial activities (at least 85% financial) were grandfathered for ten years (until 2009), with a possibility for a five-year extension; the authorities indicate that no entities were covered by these provisions as at early 2008.

123. The Federal Reserve is the umbrella regulator for financial conglomerates that include a bank. The activities of subsidiaries of FHCs are regulated by the appropriate regulator: the Office of the Comptroller of the Currency (OCC) in the case of national banks; a state banking agency and the Federal Reserve or Federal Deposit Insurance Corporation (FDIC) in the case of state-chartered banks; the Securities and Exchange Commission (SEC) in the case of securities firms; and a State insurance commission in the case of insurance companies.

124. U.S. bank subsidiaries of foreign banks are treated as domestic banks. Branches and agencies of foreign banks have similar powers to banks and are subject to similar supervision; agencies, however, may not accept deposits from U.S. citizens or residents. For a foreign bank with U.S. branches or agencies to qualify as an FHC, the GLBA provides that "well capitalized" and "well managed" standards comparable to those applied to U.S. banks be applied to foreign banks operating

159 Federal Reserve Board online information. Viewed at: http://www.federalreserve. gov/newsevents/press/bcreg/20071218a.htm.

160 The exceptions are insurance underwriting, merchant banking, insurance company portfolio investments, and real estate development and investment.

161 For the list of institutions see Federal Reserve online information. Viewed at: http://www.federal reserve.gov/generalinfo/fhc/.


a branch or agency in the United States "giving due regard to the principle of national treatment and equality of competitive opportunity".162 A composite rating along with the risk management sub-component rating provide the basis to classify a BHC or FHC as "well managed. In this respect, the Federal Reserve uses the Bank Holding Company Rating System, under which each inspected BHC is assigned a composite rating based on an evaluation of its managerial and financial condition and an assessment of future potential risk to its subsidiary depository institutions. The composite component and subcomponent ratings are assigned to BHCs on the basis of a numeric scale from 5 (lowest) to 1 (highest).163 Foreign banks that elect to be treated as FHCs, whose home country supervisors have adopted risk-based capital standards consistent with the Basle Accord, and whose capital is comparable to that of a U.S. bank owned by an FHC, must maintain specified ratios. Other foreign banks are assessed individually. Bank transactions with affiliates are subject to some statutory restrictions.164 Regulation W implements these statutory restrictions.

125. The Financial Services Regulatory Relief Act of 2006 introduced changes to U.S. financial service legislation, which affect banking, securities, and insurance business. The Act authorized payment of interest on funds maintained by a depository institution at a Federal Reserve bank and authorized the Federal Reserve Board to reduce to 0% the reserves required to be maintained by a depository institution as of 1 October 2011. The current statutory requirement ranges from 3% to 14%. The Act also amended the Home Owners' Loan Act (HOLA) to prescribe conditions under which a federal savings association may convert to a national or state bank, including prior FDIC approval for each bank if more than one national or state bank results from the conversion.

Banking services

126. Banking sector supervision in the United States is the responsibility of a number of federal and state regulators. The Federal Reserve Board (FRB) shares responsibility with the OCC, the FDIC, the Office of Thrift Supervision (OTS), as well as with State regulators. The OCC charters, regulates, and supervises all federally chartered U.S. (national) banks, and supervises the federal branches and agencies of foreign banks, as well as the international activities of U.S. national banks. The FDIC insures bank deposits. State regulators are organized in the Conference of State Bank Supervisors (CSBS).165 By statute and judicial interpretation of statutes and the U.S. Constitution, federal banking statutes and the regulations and other guidance issued by federal banking regulatory agencies may pre-empt state laws that would regulate certain activities of banking institutions and their subsidiaries.

127. The United States maintains a general policy of national treatment towards the U.S. branches, agencies, securities affiliates, and other operations of foreign banks. Bound commitments have been made by the United States in market access and national treatment for all subsectors included in the Annex on Financial Services in the GATS, and in line with the Understanding on Commitments in Financial Services.166

128. Foreign banks may establish a commercial presence in the U.S. market either by establishing federal- or state-licensed branches, agencies, or representative offices, or by establishing or acquiring

162 FRB online information. Viewed at: http://www.federalreserve.gov.163 Board of Governors of the Federal Reserve System (2004a).164 The restrictions are contained in sections 23A and 23B of the Federal Reserve Act, and implemented

through FRB Regulation W. Section 23A limits a Federal Reserve System member bank's covered transactions with any single affiliate to no more than 10% of the bank's capital stock and surplus, and transactions with all affiliates combined to no more than 20%. Section 23B requires that certain transactions between a bank and its affiliates occur on market terms.

165 CSBS online information. Viewed at: http://www.csbs.org/AM/Template.cfm?Section=About_Us.166 WTO document GATS/EL/90/Suppl.3, 26 February 1998.


a national or state subsidiary bank. In order to accept or maintain domestic retail deposits of less than US$100,000, a foreign bank must establish an insured banking subsidiary, except in the case of a foreign bank branch that was already engaged in insured deposit-taking activities before or on 19 December 1991). Branches of foreign banks are generally not required to commit organizational capital at the federal level and state level; they cannot benefit from federal deposit insurance. However, foreign bank branches and agencies are subject to an "asset pledge requirement" under applicable federal and state law. At the federal level, the International Banking Act of 1978 provides that branches and agencies licensed by the OCC must maintain a "capital equivalency deposit" equal to at least 5% of their third-party liabilities with a local custodian bank. Requirements under state laws vary.

129. The operations of foreign banks in the United States are mainly governed by the International Banking Act of 1978 (IBA), which provides for the granting of national treatment to foreign banks and offers them the option of establishing federally licensed branches and agencies in addition to state-licensed offices.

130. The Riegle-Neal Interstate Banking and Branching Act (RNIBBA) of 1994 allows interstate branching by merger or by de novo establishment of branches. Interstate expansion by a foreign bank through the establishment of branches by merger with a bank located outside the home state of a foreign bank is permitted on a national treatment basis. Certain size limitations apply: the merged bank may not control more than 10% of the total deposits of insured depository institutions in the United States, and there are deposit limitations at state level. However, in accordance with the RNIBBA, an interstate merger transaction may involve the acquisition of a branch of a bank without the acquisition of the bank only if the law of the State in which the branch is located permits out-of-state banks to do this. Although all states have introduced legislation to give effect to the branching by merger provisions of the RNIBBA, interstate branching by de novo establishment (opening a branch in another state instead of having to acquire an entire bank) is permitted in only 21 states, the District of Columbia, Puerto Rico, and under conditions of reciprocity.

131. Although foreign banks are generally subject to geographic and other limitations in the United States on a national treatment basis, some exceptions have been reserved in the U.S. GATS Schedule. For example, all directors of a national bank must be U.S. citizens unless the bank is an affiliate or subsidiary of a foreign bank, in which case only a majority of the board need be U.S. citizens; approximately half of the states also require all or the majority of the board of directors of depository financial institutions to be U.S. citizens. Credit union, savings bank, home loan or thrift business may not be provided through branches of corporations organized under a foreign country's law. Foreign banks cannot be members of the Federal Reserve System; foreign-owned U.S. bank subsidiaries are not subject to this measure.

132. Initial entry into the U.S. market through the establishment or acquisition of a nationally chartered bank subsidiary by a foreign person is permitted in all states. Initial entry or expansion by a foreign person (but not a domestic person) through acquisition or establishment of a state-chartered commercial bank subsidiary is prohibited or limited in 29 states. There are some other limitations at the state level: for example, branch licences for foreign banks are not available in six states, but agency licences are.167 Representative offices of foreign banks are not permitted in 18 states, and are subject to limitations in Oklahoma, while some states require the incorporation of representative

167 Delaware, Georgia, Louisiana, Mississippi, Missouri, and Oklahoma.


offices.168 Some states also place limitations on the acquisition by a foreign person of savings banks or loan associations (Delaware, Ohio, Tennessee, and Washington).

133. The Nationwide State and Federal Supervisory Agreement of 1996 established a series of principles to promote coordination in the supervision of interstate banks. In June 2004, new recommended practices were introduced incorporating procedures and techniques used by the Federal Reserve in working with the states in supervising state-chartered banking organizations.169

134. Risk-based capital standards were first adopted in 1989 (Basel I). In November 2007, the federal banking agencies approved final rules to implement Basel II capital requirements for large, internationally active banks with at least US$250 billion in total assets or US$10 billion in foreign exposure; Basel II is optional for smaller banks.170 Before operating under the Basel II framework, banks are required to progress through three transitional periods of at least one year each, during which there will be floors on potential declines in risk-based capital requirements. A bank needs approval from its primary federal regulator to move into each of the transitional floor periods, and at the end of the third transitional floor period to move to full Basel II.171 It is estimated that Basel II regulations will be mandatory only for the 11 or 12 largest U.S. banks.172 The authorities note that some 11 large banks must follow the new approach, and estimate that 21 banks in all will apply it, including some voluntarily. Federal banking agencies were expected to issue a draft proposal in early 2008 for smaller banks not required to implement Basel II.173

135. The Financial Services Regulatory Relief Act of 2006 introduced several amendments to U.S. law with respect to banking. The Act repealed the prohibition on the reduction of the capital stock by a national bank below certain limits, and amended provisions with respect to community development investment (CDI) requirements for national banks and state member banks, raising the ceiling on aggregate CDIs from 10% to 15% of their capital stock.174

136. Lending limit regulations restrict the total amount of loans and credits that a bank may extend to a single borrower. For example, a national bank generally must limit its total outstanding loans and credits to any single borrower to no more than 15% of the bank's total capital and surplus. State banking regulations also contain similar lending limits applicable to state-chartered banks.

137. Under the Federal Deposit Insurance Reform Act of 2005, the standard maximum deposit insurance coverage is US$100,000, or US$250,000 for certain retirement accounts; this will be indexed to inflation beginning in 2010.

168 Representative offices of foreign banks are not permitted in Arizona, Arkansas, Colorado, Kansas, Kentucky, Michigan, Mississippi, Montana, North Dakota, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont, Virginia, Wisconsin, and Wyoming.

169 Board of Governors of the Federal Reserve System, Supervision of State-Chartered Banks, SR 04-12, 30 June 2004. Viewed at: http://www.federalreserve.gov/boarddocs/srletters/2004/sr0412.htm.

170 FRB online information. Viewed at: http://www.federalreserve.gov/newsevents/press/bcreg/bcreg 20071102a1.pdf.

171 Office of the Comptroller of the Currency, Federal Reserve System, Federal Deposit Insurance Corporation, and Office of Thrift Supervision, Risk-Based Capital Standards: Advanced Capital Adequacy Framework-Basel II , Final Rule, 72 Federal Register 69288 (December 7, 2007).

172 Avery (2007).173 For the final proposal see Office of the Comptroller of the Currency (2007).174 Under 12 U.S.C. 24 (Eleventh), national banks are authorized to make community development

investments designed primarily to promote the public welfare, such as by providing housing, services, or jobs. It is the OCC's stated policy to encourage national banks to make such investments, consistent with safety and soundness. See OCC online information. Viewed at: http://www.occ.treas.gov/fr/cfrparts/12CFR24.htm.


Insurance services

138. U.S. regulation of the insurance services sector takes place primarily at the state level as provided by the McCarran-Ferguson Act of 1945 (U.S. Code Title 15, Chapter 20). Under the Act, insurance is exempt from federal antitrust statutes to the extent that it is regulated by the states. The GLB Act also reinforces the authority of states to regulate insurance activities, and specifically protects 13 areas of state insurance regulation from federal pre-emption.

139. Insurance companies, agents, and brokers must be licensed under the law of the state in which the risk they intend to insure is located, and are authorized to offer insurance services only in the state where they are licensed. In addition, in most states, insurers must obtain approval from state regulators for their premium rates. Licensing requirements differ among states and by line of insurance, although states have been moving towards adopting a more uniform approach (see below).

140. The U.S. insurance market is open to foreign direct investment through acquisition of a licensed insurance company. Market access for foreign companies may also take place through incorporation in a state as a subsidiary of a foreign insurance company, with the exception of Minnesota, Mississippi, and Tennessee. Foreign companies may also be licensed to operate as branches in 36 states and the District of Columbia; in this case, operations are limited in principle to writing premiums based on the capital deposited in each state where the company intends to do business.175 In practice this requirement is often waived, particularly if the applicant has a qualifying deposit in another state.

141. Foreign investors are liable for the full amount of their U.S. assets, and not just for their assets in a particular state. Companies must be licensed in a state to conduct insurance business within its borders and across its borders by mail, telephone, or over the Internet; there are some exceptions to residency requirement and these vary from state to state. For example, several states exempt certain large industrial placements, MAT (marine, aviation, or transport insurance) or "surplus lines" insurance. Under certain specific conditions and with some exceptions, foreign reinsurers may write insurance in the United States even when not licensed in a particular state.

142. U.S. citizenship and in-state residency requirements apply in most states to brokers and suppliers of other services auxiliary to insurance.

143. Non-U.S. licensed reinsurers must post collateral (i.e., make a trust account deposit in the United States for the whole of the operation equivalent, or submit a letter of credit for collateral), when they conduct cross-border reinsurance businesses with U.S. licensed companies in order for the U.S. licensed company to receive a credit for the reinsurance.

144. A federal tax on gross premium income is charged at 1% on all life insurance and on reinsurance, and at 4%, on non-life insurance premiums covering U.S. risks paid to companies not incorporated under U.S. law, or under the laws of countries with which the United States has double taxation treaties. This national treatment exception was listed in the U.S. GATS Schedule.

145. State legislators and regulators coordinate positions through their participation in bodies such as the National Conference of Insurance Legislators (NCOIL) and the National Association of Insurance Commissioners (NAIC). The NCOIL is an organization of state legislators whose main area of public policy concern is insurance legislation and regulation.176 The NAIC is the organization

175 The exceptions are Arkansas, Arizona, Connecticut, Georgia, Hawaii, Kansas, Maryland, Minnesota, Nebraska, New Jersey, North Carolina, Tennessee, Vermont, and Wyoming.

176 NCOIL online information. Viewed at: http://www.ncoil.org/.


of insurance regulators from the 50 states, the District of Columbia and five U.S. territories, and provides a forum for the development of uniform policy when appropriate.177

146. The NAIC plays a substantial role in the across-State standardization of regulatory requirements through the development of model laws. It has implemented the Uniform Treatment Project through which participating states agreed to license non-resident producers in good standing in their resident states, without imposing requirements additional to those asked of resident producers. To this end, the NAIC developed a Uniform Application for Individual Non-Resident Licence currently accepted in all states and the District of Columbia, and a Uniform Certificate of Authority Application. The NAIC has also been involved in other uniformity initiatives, such as the System for Electronic Rate and Form Filing, (SERFF), the Uniform Regulation through Technology (URTT), and the National Insurance Producer Registry. As of 1 January 2008, all 50 states, the District of Columbia, Puerto Rico and over 1,700 insurance companies accepted SERFF filings; 40 states, the District of Columbia and Puerto Rico were compliant will all URTT initiatives to increase the uniformity of processing and regulation across states. At the same date, all 50 states, the District of Columbia and Puerto Rico participated in the National Insurance Producer.

147. The NAIC developed a state-based system in 2002 to promote harmonization of legislation and procedures across states. The Interstate Insurance Product Regulation Compact is aimed at developing uniform standards and a central clearinghouse to provide prompt review and regulatory approval for life insurance products.178 The Compact became operational in May 2006, after 26 individual states representing half of the U.S. premium volume passed enabling legislation. The Interstate Insurance Product Regulation Commission, a public entity, was created to provide the states with a vehicle to develop uniform national product standards in life and long-term care insurance products, establish a central point of filing, and review product filings and make regulatory decisions according to uniform standards; it became operational in May 2006. At end 2007, 30 states participated in the Compact.

148. In previous U.S. Reviews, Members have argued that regulations at the state level result in unjustified burdens on insurers and prevent them from responding to customer needs in a timely manner.179 In its responses, the United States has stated that level regulation posed no barrier to trade, and that efforts were taking place towards uniformity of state regulations through the NAIC.180 Some insurance groups, such as the Insurance Information Institute, the American Insurance Association, and the American Council of Life Insurers (ACLI) are in favour of a federal charter for insurance regulation.181 The ACLI advocates the creation of an optional federal charter and has noted that uniform and efficient regulation is crucial to the continued competitiveness of life insurers. 182 In May 2007, an ACLI study found that a federal charter would save life insurers and their customers some US$5.7 billion a year in compliance costs related to supervision by multiple state regulators.183

149. The GLB Act introduced uniformity or reciprocity requirements for agents and brokers among the states, requiring states to enact uniform laws and regulations or a system of reciprocal

177 NAIC online information. Viewed at: http://www.naic.org/index_about.htm.178 An interstate compact is a contract between states that allows them to cooperate on multi-state or

national issues while retaining state control. Interstate compacts are mentioned in the U.S. Constitution.179 WTO documents WT/TPR/M/126/, 15 March 2004, and WT/TPR/M/160/, 9 June 2006.180 WTO documents WT/TPR/M/126/Add.3, 22 November 2004, and WT/TPR/M/160/Add.1,

27 September 2006.181 Insurance Information Institute, Optional Federal Charter, October 2007. Viewed at:

http://www.iii.org/media/hottopics/insurance/opt/; and ACLI, State Insurance Regulation. Viewed at: http://www.acli.com/ACLI/Issues/42.htm.

182 ACLI, State Insurance Regulation. Viewed at: http://www.acli.com/ACLI/Issues/42.htm.183 Pottier (2007).


licensing by 12 November 2002, failing which a National Association of Registered Agents and Brokers (NARAB) would be created, triggering federal pre-emption of state licensing laws. As a response, all states except New Mexico, plus Guam, passed the Producer Licensing Model Act (PLMA) or other licensing laws, providing for the required reciprocity. Through NAIC's Uniform Treatment/Licensing Reciprocity project, participating states agree to license non-resident producers who are in good standing in their resident states, without imposing additional restrictions or qualifications not required of resident producers.

150. The Terrorism Risk Insurance Act of 2002 (TRIA) introduced a three-year programme, from 22 November 2002 to 31 December 2005. TRIA was extended to 31 December 2007 by the Terrorism Insurance Extension Act of 2005, and again until 31 December 2014 by the Terrorism Risk Insurance Program Reauthorization Act of 2007. Under the programme, the U.S. Government pays 85% of the insured losses of an insurer resulting from acts of terrorism after an insurer pays out an individual company deductible (20% of the prior year's earned premiums in commercial lines). The Government's share of industry losses is capped at an annual aggregate maximum of US$100 billion. Also, the Government does not share in any losses if industry-wide insured losses do not first exceed US$100 million.

151. Companies licensed in a U.S. state may benefit from the TRIA; non-licensed companies that are eligible surplus line carriers listed in the Quarterly Listing of Alien Insurers of the NAIC, or have been approved for the purpose of offering property and casualty insurance by a federal agency in connection with maritime, energy, or aviation activities may also benefit. Participating insurers are required to make terrorism insurance available to policyholders. Insurers pay no premiums for TRIA reinsurance; instead, federal payments are to be collected later through surcharges assessed on all commercial policyholders. At end 2007, no federal payments had been made under the TRIA.

Securities services

152. The main U.S. laws governing securities services at the federal level are the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Sarbanes-Oxley Act of 2002, and the Credit Rating Reform Act of 2006.

153. The Securities Exchange Act of 1934 grants the Securities and Exchange Commission (SEC) broad authority over the securities industry, including the power to register, regulate, and oversee brokerage firms, investment advisers, transfer agents, and clearing firms, as well as self-regulatory organizations (SROs), such as the various stock exchanges. The 1934 Act also provides the SEC with disciplinary powers over regulated entities and persons associated with them. The Financial Services Regulatory Relief Act of 2006 amended the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 to include savings associations (thrifts) in the definition of "bank". This means that savings associations acting as investment advisers and broker-dealers are not subject to certain SEC registration requirements.

154. Registration of securities with the SEC is required in principle, prior to their offer or sale; however, there are exceptions.184 Foreign issuers can opt to use different registration and periodic reporting forms than those used by domestic users. Foreign private issuers that prepare their financial statements according to International Financial Reporting Standards, as issued by the International

184 Exemptions from the registration requirement include: private offerings to a limited number of persons or institutions; offerings of limited size; intrastate offerings; and securities of municipal, state, and federal governments. By exempting many small offerings from the registration process, the SEC seeks to foster capital formation by lowering the cost of offering securities to the public.


Accounting Standards Board, can submit financial statements to the SEC without reconciliation to U.S. Generally Accepted Accounting Principles. Broker-dealers, whether foreign or domestic, are generally required to register with the SEC to solicit business with U.S. persons, although pursuant to Rule 15a-6, promulgated under the Securities Exchange Act of 1934, foreign broker-dealers are allowed to engage in certain, limited securities activities in the United States without registering, under certain circumstances. Clearing agencies must also register with the SEC.

155. The Investment Company Act (ICA) of 1940, as amended, grants the SEC regulatory authority over domestic and foreign investment companies, both of which must register with the SEC before selling shares to the public. A foreign investment company may not publicly offer its shares in the United States unless the SEC issues an order, on a case-by-case basis, permitting the company to register under the ICA. Domestic investment advisers are regulated by state regulators if they manage less than US$25 million and do not advise an SEC-registered investment company; otherwise, they are regulated by the SEC. Foreign investment advisers are able to register with the SEC regardless of the amount of assets under management; the registration requirement involves record maintenance, inspections, submission of reports, and payment of a fee. U.S. banks must register as investment advisers only if they advise an investment company registered with the SEC under the ICA, while foreign banks generally must register as investment advisers if they provide investment advice for compensation.185 The United States took a national treatment reservation in the GATS for this different treatment.

156. Foreign-owned dealers of U.S. government securities are granted national treatment, under the Primary Dealers Act of 1988 of as long as U.S. firms operating in the government debt markets of the foreign country are accorded "the same competitive opportunities" as domestic companies operating in those markets. The United States took an MFN exemption in its GATS Schedule for participation in issues of government-debt securities.

157. The Sarbanes-Oxley Act of 2002 (P.L. 107-204) introduced regulatory changes to reinforce the supervision of the securities industry, and a number of reforms to enhance corporate responsibility, enhance financial disclosures, and combat corporate and accounting fraud. The Act created the Public Company Accounting Oversight Board (PCAOB), under the general oversight of the SEC, to supervise the audit of public companies that are subject to U.S. securities laws, and enforce compliance with accounting and auditing standards.

158. The Commodity Exchange Act and the Commodity Futures Modernization Act of 2000 grant the Commodity Futures Trading Commission (CFTC), created by the CFTC Act of 1974, the regulatory authority over futures trading in the United States. Persons offering or selling foreign exchange-traded futures and option products to persons located in the United States must register with the CFTC or obtain an exemption. CFTC Regulation 30.10 allows the CFTC to provide such exemptions if, among other things, the firm's home-country regulator demonstrates that it provides a comparable system of regulation and enters into an information-sharing agreement with the CFTC. Some 21 regulatory and self-regulatory authorities from 11 trading partners benefited from Regulation 30.10 relief in November 2007. Currently, 156 non-U.S. firms operate under CFTC rule 30.10 orders that have been issued to 13 self-regulatory and regulatory organizations in ten trading partners.186

185 This does not include domestic branches of foreign banks, which are treated the same as U.S. banks.186 Australia, Brazil, Canada, Chinese Taipei, France, Germany, Japan, Singapore, Spain, and the

United Kingdom. CFTC online information. Viewed at: http://www.cftc.gov/cftc/cftcreports.htm.


(iv) Air transport services

(a) Main features

159. Over a quarter of U.S. trade by value is moved via air cargo, which is the main mode of transportation for high value and perishable goods. U.S. air traffic accounts for about one third of the world aviation market, and 17 of the world's 30 busiest airports are located in the United States. There were some 19,854 airports in 2006, of which 5,270 for public use.187

160. The profitability of U.S. airlines, which was considerably affected by the 11 September 2001 attacks, improved during the period under review. Four of the major U.S. airlines (Delta, Northwest, US Airways, and UAL Corporation (United Airlines' parent) filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code in 2005, but by end 2007 they had all emerged from bankruptcy protection. The U.S. Department of Transportation reported an operating profit margin of 8.8% in the second quarter of 2007, the highest since 2000, for a group of 21 selected passenger airlines including the seven largest network, low-cost, and regional carriers in the United States. For the first time since 2000, airlines have posted five consecutive profitable quarters. The seven network carriers (Alaska Airlines, American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, United Airlines, and US Airways) reported a profit of US$2.4 billion in the second quarter of 2007, a 1.7% improvement over the same period in 2006.188

161. All public-use U.S. airports with commercial services are owned by state or local governments, or local authorities; this has been the case historically. Some U.S. airports are partly or totally operated through outsourcing and management contracts, including with foreign operators; this type of arrangement is common in the provision of services such as terminal and parking area operations, ground transport, building maintenance, baggage handling, and construction and engineering. The U.S. authorities consider that public ownership of airports has worked well. Under the Airport and Improvement Act of 1982, the FAA prepares an annual "National Airport Plan" for developing public airports. In terms of general location and type of development, the National Airport Plan specifies the maximum airport development necessary to provide a system of public airports adequate to anticipate and meet the needs of civil aeronautics. The authorities note that airport improvement public grants have had as a pre-condition that airlines be able to self-handle and that the use of airport facilities be non-discriminatory.

162. There are no legal barriers that prevent U.S. airports with commercial service from being privately-owned. Also, federal financial assistance is available both to private and public owners of commercial service airports. However, legal restrictions complicate financing and reduce profitability as well as incentives to privately owned airports. First, U.S. state or local governments or local airport authorities can obtain funding from local and state tax revenues and may impose and use passenger facility charges to fund airport development; these sources of revenue are not available to private airport owners. Second, there are U.S. Federal government policy and statutory limits on the use of airport revenue: a federally funded public or private airport, for example, may not use proceeds from the sale of the airport for non-airport purposes; i.e., the airport revenue must be used for the capital and operating costs of the airport. Once a privately owned airport accepts federal assistance, such as grants of federal funding under the Airport Improvement Program (AIP) or transfers of federally owned land, the airport may only use airport revenue (federal and non-federal) as noted above. If airport property is sold, the proceeds of the sale are considered airport revenue, so a city

187 Department of Transportation, Bureau of Transportation Statistics. Viewed at http://www.transtats. bts.gov.

188 Department of Transportation, Bureau of Transportation Statistics. Viewed at: http://www. transtats.bts.gov.


cannot sell its airport to a private operator and use the proceeds for general government purposes. This is a disincentive for local governments to transfer an airport to a private operator.

163. Congress passed a law establishing an Airport Privatization Pilot Program in 1996 to produce alternative sources of capital for airport development and improve customer service. The law authorizes the FAA to grant exemptions from certain federal requirements for up to five airport privatization projects. Commercial service airports can be leased; general aviation airports can be leased or sold. For example, if a local government privatizes its airport by selling it to a private operator, the Pilot Program permits the FAA to exempt the local government from the requirement to use the proceeds of sale for airport purposes. Also, if a private operator buys or leases a public airport under the programme, the private operator would be eligible to receive federal airport grants and to collect passenger facility charges.

164. Since 1997, when FAA published procedures for applications under the Airport Privatization Pilot Program, the FAA has approved only one application for participation. Several other applications were filed but withdrawn. In 2000, Stewart International Airport, a small hub air carrier airport in Newburgh, New York, was leased to National Express Group, PLC (NEG) to manage and develop Stewart Airport. The Port Authority of New York and New Jersey, however, acquired the lease from NEG in October 2007 and Stewart Airport returned to public ownership. In October 2006, the FAA approved the preliminary application for the lease of Chicago Midway International Airport to a private operator under the Pilot Program. If approved, Chicago Midway will be the first large hub airport to participate in the programme.189

165. Congestion remains a major problem at U.S. airports: some 26.5% of all flights were delayed by 15 minutes or more in 2007 (24.5% in 2006).190 Rising passenger demand and an industry preference for smaller planes may magnify this trend in the near future. Currently, the National Airspace System (NAS) handles 750 million passengers each year, and expects this number to reach 1 billion by 2015. Suggested solutions to the problem include: changes to U.S. policy on landing fees, designed to allow airports to use pricing to encourage more efficient use of their airfields, and attract additional resources to expand capacity; prioritizing operational and capacity improvements; and setting flight caps.191 With respect to changes in the pricing policy, the FAA has launched a proposal to amend the 1996 Rates and Charges Policy to give greater flexibility for operators of congested airports to use landing fees to provide incentives to air carriers to use the airport at less congested times or to use alternate airports to meet regional air service needs.192

(b) Regulatory framework

166. The Office of the Secretary of Transportation (OST) at the DOT oversees the formulation of U.S. air transport policy. The Federal Aviation Administration at the DOT is responsible for safety issues, regulates U.S. commercial space aviation, and monitors U.S. and foreign air carriers operating in U.S. territory.193 Anyone who wishes to provide air transport services as a U.S. air carrier must

189 FAA online information. Viewed at: http://www.faa.gov/airports_airtraffic/airports/airport_ obligations/privatization/.

190 Department of Transportation online statistics. Viewed at: http://www.transtats.bts.gov/HomeDrill Chart_Month.asp?Sel_Year=2007&Arr_Del=1&Sel_Carrier=000&Sel_Airport=000&URL_SelectYear=&URL_SelectMonth=.

191 "Aviation Congestion and the Way Forward: No More Delay". Remarks by Secretary of Transportation Mary Peters at the Aero Club of Washington, Washington, D.C., 22 January 2008. Viewed at: http://www.dot.gov/affairs/peters012208.htm.

192 Federal Aviation Administration, Policy Regarding Airport Rates and Charges: Notice of proposed amendment [Docket No. FAA–2008–0036] RIN 2120–AF90]. FR Vol. 73, No. 12, 17 January 2008.

193 FAA online information. Viewed at: http://www.faa.gov.


obtain two separate authorizations from the DOT: "economic" authority from the OST and "safety" authority from the FAA. The DOT can take action under its statutory authority to preserve competition. The Air Traffic Organization (ATO), of the FAA, established in February 2004 to oversee the U.S. air traffic system, provides all air traffic services in the United States.

167. U.S. airlines must be under actual control of U.S. citizens, as stated in the U.S. Code. U.S. citizens must hold at least 75% of the voting interest. In addition, the president and at least two thirds of the board of directors and other managing officers must be U.S. citizens. However, on a case-by-case basis, the DOT has allowed foreign citizens to own up to 49% of an airline's stock by using non-voting shares above 25%, provided that actual control remains in the hands of U.S. citizens and an open-skies agreement exists between the United States and the homeland of the foreign investor.

168. Domestic air services can be provided only by U.S. carriers. Crews engaged in domestic air passenger and freight service must be U.S. nationals or resident aliens. Although, generally, only U.S. companies and U.S. citizens are eligible to lease aircraft (with crew and, typically, maintenance, and insurance) to U.S. carriers, under certain limited conditions generally stipulated in bilateral agreements, foreign air carriers are allowed to provide aircraft with crew to U.S. carriers. In general, the Fly America Act (49 U.S.C. 40118) requires that whenever there is government-financed transportation of passengers and cargo, it must take place on U.S.-flag air carriers (or a U.S. carrier code-share on a foreign airline). This restriction may be waived when the United States enters into bilateral or multilateral agreements and allows the provision of such services by foreign air carriers.

169. The FAA's Aviation Insurance Program provides products that address the needs of the U.S. domestic airline industry that are not adequately met by the commercial insurance market. The programme is currently providing war risk hull loss and passenger, crew, and third-party liability insurance (until 31 August 2008), as required by the Homeland Security Act of 2002 as amended by the Consolidated Appropriations Act 2008. The programme charges premiums and has accumulated reserves to pay claims.

170. The DOT manages programmes that provide subsidies to air carriers for service to certain small communities. The DOT administers aviation regulatory programmes, including the Essential Air Service (EAS) programme under which approximately US$100 million are spent each year for about 140 communities194; and the Small Community Air Service Development Pilot Program, which provides federal grants to small communities, and under which US$10 million was available for grant awards in FY2007. No limits are set on the amount of individual awards. In FY2007, grants ranged from US$50,000 to US$800,000 for a total of nearly US$10 million granted to 26 communities. Incentives may also be granted at the state and local level, especially for airports in small and mid-size cities.

171. The United States has GATS commitments with respect to aircraft repairs and maintenance, and has scheduled MFN exemptions with regard to the sale and marketing of air transport services and the operation and regulation of CRS services.

172. The United States has bilateral aviation agreements with some 100 countries, of which 79 are open skies agreements (OSAs), as defined by the DOT.195 The DOT views OSAs as providing an environment that produces the most competitive and price-sensitive service for consumers; OSAs are

194 DOT, Office of Aviation Analysis, "Essential Air Service Program". Viewed at: http://ostpxweb. ot.gov/aviation/X-50%20Role_files/EAS.htm#Reports.

195 The list of open-skies agreements entered into by the United States may be viewed at: http://www.state.gov/e/eeb/rls/othr/2007/22281.htm.


also viewed as a necessary, although not the only, prerequisite for antitrust immunity to be granted to alliances with foreign airlines. The United States participates, together with Brunei, Chile, New Zealand, Samoa, Singapore, Tonga, and Cook Islands in the APEC Multilateral Open Skies Agreement, signed in May 2001. In its bilateral air-transport agreements the United States has inserted clauses on ground handling.

173. The U.S.-EU Air Transport Agreement, signed 30 April 2007, is scheduled to be applied provisionally from 30 March 2008. The agreement, which replaces bilateral agreements between the United States and EU Member States, introduced a number of liberalization measures with respect to air traffic freedoms, ownership and control, provision of aircraft with crew, and U.S. government procured transportation (see Box IV.1).

(v) Maritime transport

(a) Main features

174. In 2006, U.S. water-borne commerce amounted to some 2.59 million tonnes. Of this, 928,000 tonnes were domestic commerce, reserved for vessels built in the United States and registered under the U.S. flag. The share of foreign trade in the total volume of water-borne commerce continued to increase during the period under review, from 56% in 2001 to 60% in 2006, reflecting a rise in tanker imports and a decline in coastwise tanker trade.196 As a consequence of increased foreign trade, foreign-flag participation in U.S. water-borne trade has also grown in volume terms, reaching an estimated 60% in 2006, compared with 55% in 2001; this includes domestic water-borne transport, reserved for U.S. flag vessels. The traditional U.S. trade deficit in freight and port services reached US$19 billion in 2006.197 U.S. international maritime container traffic increased by 52% between 2001 and 2006, three times as fast as U.S. gross domestic output.198

175. The U.S.-flag fleet, at 12 million deadweight tons (dwt) and with 286 vessels, was the fifteenth largest merchant marine fleet in the world at end 2006. On an ownership basis, the U.S. fleet is the world's fifth largest, with 684 vessels (at 39.6 million dwt).199 From 2001 to end 2006, there was a 15% reduction of the U.S.-flag fleet, and older vessels were removed from service. Only 1.2% of international cargo was carried by U.S. flag vessels in 2006.

Box IV.1: U.S.-EU Air Transport AgreementOn 30 April 2007, the United States and the European Union signed a first-stage U.S.-EU Air Transport Agreement, with provisional application from 30 March 2008. The main characteristics of the agreement are:

U.S. airlines are granted the right to perform international air transportation from points behind the United States via the United States and intermediate points to any point(s) in any EU Member State and beyond; for all-cargo service, between the Czech Republic, France, Germany, Luxembourg, Malta, Poland, Portugal, and Slovakia and any point(s).

EU airlines are granted the right to perform air transport services from points behind the EU Member States via these States and intermediate points to any U.S. point(s) and beyond; for all-cargo service, between the United States and any point(s); and for combination services, between any point(s) in the United States and any point(s) in any member of the European Common Aviation Area (ECAA).

To benefit from these rights, for U.S. airlines, with some exceptions for all-cargo services, the

196 MARAD (2007c).197 Exports totalled US$46.3 billion, while imports were US$65.3 billion. BEA online information.

Viewed at: http://www.bea.gov/bea/international/bp_web/simple.cfm?anon=240&table_id=3&area_id=3.198 BTS online information. Viewed at: http://www.bts.gov/publications/americas_container_ports/

pdf/entire.pdf.199 MARAD online information. Viewed at: www.marad.dot.gov/MARAD_statistics.


transportation must be part of a service that includes the United States; for EU airlines, with the exception of all-cargo services and combination services between the United States and any member of the ECAA, the transportation must be part of a service that serves a Member State.

Airlines are allowed to determine the frequency and capacity of their international air transportation services, based upon commercial considerations; neither party may unilaterally limit the volume of traffic, frequency or regularity of service, or the aircraft type operated by the airlines of the other party.

Prices for air transportation services operated pursuant to the agreement can be established freely and may not be subject to approval, nor may they be required to be filed.

EU airlines are granted direct access to some U.S. Government procured transportation. Airlines of each party are allowed, under certain circumstances, to enter into arrangements for the

provision of aircraft with crew for international air transportation with airlines of the parties or of a third country.

The agreement, in addition to recognizing the EU carrier concept, opens the possibility for EU investors to own or control airlines from Switzerland, Liechtenstein, members of the European Common Aviation Area (ECAA, apart from the 27 EU members, Norway, Iceland, Croatia, the former Yugoslav Republic of Macedonia, Albania, Bosnia and Herzegovina, and Kosovo), Kenya, and U.S. open-skies partners in Africa, without putting at risk such airlines' rights to operate in the United States.

Annex 4 of the agreement spells out the conditions for ownership by nationals of an EU Member State of the equity of a U.S. airline, which is subject to the usual two limitations: first, ownership by all foreign nationals of more than 25% of a corporation's voting equity is prohibited; second, actual control of a U.S. airline by foreign nationals is also prohibited. Ownership of up to 49.9% of the total equity of a U.S. airline is not deemed, of itself, to constitute control of that airline. In the case of EU nationals, however, Annex 4 also specifies that ownership of 50% or more of the total equity of a U.S. airline by EU nationals is not to be presumed to constitute control of that airline, and that such ownership is to be considered on a case-by-case basis. Ownership by U.S. nationals of EU airlines shall also be subject to two limitations: first, Member States and/or their nationals must be majority owners and second, such Members States and/or their nationals must exercise effective control.

The agreement envisages starting second-stage negotiations not later than 60 days after the provisional application date, the agenda for which will include: traffic rights liberalization; additional foreign investment opportunities; effect of environmental measures and infrastructure constraints on the exercise of traffic rights; further access to Government-financed air transportation; and provision of aircraft with crew.

During the period of provisional application, bilateral U.S./EU Members agreements are suspended; upon entry into force of the agreement, they will be superseded by it.

Source: WTO Secretariat, based on the U.S.-EU Air Transport Agreement.

(b) Regulatory framework

176. The United States did not table an offer in the WTO Negotiations on Maritime Transport Services, suspended in June 1996. It has not tabled an offer with respect to maritime transport services in its offer on services in the Doha Development Agenda.200

177. The Maritime Administration (MARAD) of the Department of Transportation is responsible for promoting the development and maintenance of the U.S. merchant marine, ensuring that it is sufficient to carry U.S. domestic water-borne commerce and a substantial portion of its water-borne foreign commerce, and capable of serving as a naval and military auxiliary in time of war or national emergency.201 The Federal Maritime Commission (FMC) regulates ocean-borne transport, including

200 WTO document TN/S/O/USA, 9 April 2003.201 MARAD online information. Viewed at: http://www.marad.dot.gov/welcome/mission.html.


ocean transportation intermediaries, and oversees the collective activities of shipping lines (which are not subject to U.S. antitrust laws for both U.S. and foreign operators of liner shipping services with fixed-schedules).202 The FMC is also responsible for regulating rates of government-owned or - controlled carriers, and investigates and prosecutes malpractice, including market-distorting activities.203 The FMC also operates an Alternative Dispute Resolution programme.

Water-borne trade

178. Cabotage restrictions remain in place. Section 27 of the Merchant Marine Act of 1920, commonly referred to as the Jones Act, reserves cargo service between two points in the United States (including its territories and possessions), either directly or via a foreign port, for ships that are registered and built in the United States and owned by a U.S. corporation, and on which 75% of the employees are U.S. citizens. The Jones Act does not prevent foreign companies from establishing shipping companies in the United States as long as they meet some restrictions, like the requirements with respect to U.S. employees. Under the Passenger Vessel Services Act of 1886, domestic passenger services are subject to similar requirements. MARAD estimates that the cargo preference laws generated over 10 million revenue tons of cargo and US$1.3 billion of ocean freight revenue in FY2006.204

179. Under certain circumstances, waivers to the Jones Act or the Passenger Services Act may be granted to foreign vessels and to U.S. vessels not protected by the Act.205 The Secretary of Transportation is authorized to waive the U.S. build requirements for foreign built or rebuilt small passenger vessels authorized to carry no more than 12 passengers in a specified area, provided this does not adversely affect U.S. vessel builders or the coastwise trade business of any person who employs vessels built in the United States. The Maritime Policy Improvement Act of 2002 allows for the granting of a Jones Act waiver for self-propelled tank vessels not built in the United States, provided the person requesting the waiver is a party to a binding legal contract, executed within 24 months after the date of enactment of the Act, with a U.S. shipyard for the construction in the United States of a self-propelled tank vessel. Vessels benefiting from the waiver must be U.S.-owned. The waiver may not be granted to more than three vessels.

180. The Shipping Act of 1984, as amended by the Ocean Shipping Reform Act of 1998 (OSRA), allows shipping lines to enter into individual long-term service contracts with importers and exporters, without carrier groups being able to restrict them. The United States has bilateral maritime agreements in effect with Brazil, China, Russia and Viet Nam; an exchange of letters with Japan on port services has the effect of an agreement.206

181. U.S. and foreign operators of liner shipping services and marine terminal operators in the United States have exemptions to antitrust laws with respect to their operations in U.S.-foreign ocean-borne trade. Agreements among liner operators and marine terminal operators to discuss, fix, or regulate transportation rates, and other conditions of service, or cooperate on operational matters must be filed with the FMC, which reviews them to avoid anti-competitive behaviour. Under the OSRA,

202 FMC online information. Viewed at: http://www.fmc.gov.203 For a description of the activities of the FMC (2006).204 MARAD (2007a).205 For example, Public Law 87-77 authorizes the transportation of passengers and merchandise in

Canadian vessels between ports in Alaska and the rest of the United States, and Public Law 98-563 permits the transportation of passengers between Puerto Rico and other U.S. ports by foreign-flag carriers. Also, water-borne freight shipments between the U.S. Virgin Islands and other U.S. ports may be carried by foreign-flag vessels, and trade with Guam and other U.S. Pacific territories may be carried by foreign-built U.S.-flag ships that meet the ownership and crewing requirements.

206 MARAD (2007).


the FMC must ensure that common carriers' tariff rates and charges for carriage in U.S.-foreign trade are published electronically and are accessible to the public. The FMC is authorized to review the rates of government-owned and -controlled ocean common carriers to ensure that the commercial carriers with whom they compete are not unfairly disadvantaged.

182. Section 19 of the Merchant Marine Act and the Foreign Shipping Practices Act of 1988 (FSPA) empower the FMC to investigate and address conditions adversely affecting U.S. carriers in foreign trade that do not exist for foreign carriers in the United States. The FMC is also authorized to investigate and address general or specific conditions adverse to shipping in U.S.-foreign trade. In FY2006, the FMC monitored shipping practices by a number of foreign governments but no action was taken.207 Under the Shipping Act of 1984, the FMC exercises special regulatory oversight on "controlled carriers", i.e., ocean common carriers operating in U.S.-foreign trade that are owned or controlled by foreign governments. In May 2005, the FMC published an updated list that included eight controlled carriers, from Algeria, China (four), India, Singapore, and Sri Lanka.208 At end 2007, the list had not been updated.

183. The United States maintains a number of programmes to allow for the eventual use of its. commercial fleet for defence purposes. The Maritime Security Program (MSP) supports the U.S.-flag merchant marine by providing a fixed payment to U.S.-flag vessel operators. The Maritime Security Act of 2003 (MSA) creates a new MSP for FY2006-15. The MSA authorized US$1.73 billion for FY2006-15 to support the operation of 60 U.S.-flag vessels.209 Subject to annual appropriations, the programme is administered on the basis of renewable one-year contracts, provided funding is available. The Voluntary Intermodal Sealift Agreement (VISA) programme provides assured access to commercial intermodal capacity during time of war or national emergency. During 2007, 125 ships were enrolled in the VISA programme. Some 77% of the VISA capacity comprises MSP participants' vessels. VISA participants receive priority for award of DOD peacetime ocean freight contracts.210

184. The United States maintains some cargo preferences in international trade. The Cargo Preference Act of 1904 requires all items procured for or owned by U.S. military departments and defence agencies to be carried exclusively on U.S.-flag vessels. The Cargo Preference Act of 1954, as amended, requires that at least 50% of the gross tonnage of all government-generated cargo be transported on privately owned, U.S.-flag commercial vessels, to the extent such vessels are available at fair and reasonable rates.211 The Cargo Preference Act of 1954 also applies to the Strategic Petroleum Reserve (see section (3) above), which is required to use U.S.-flag tankers for at least 50% of oil transport.

185. Under the Food Security Act of 1985, the minimum U.S.-flag requirement is 75% for shipments of agricultural cargoes under certain USDA and USAID foreign assistance programmes. In 2006, 83% of food-aid preference cargoes were carried by U.S.-flag vessels. 212 The Act also established the ocean freight differential (OFD) programme under which MARAD reimburses the USDA and USAID for the cost differential of using U.S.-flag ships to carry more than 50% offood-aid cargoes.213 The OFD programme funding level was US$175 million in FY2007, down from

207 FMC (2006).208 Federal Maritime Commission, Controlled Carriers Under the Shipping Act of 1984, Notice,

5 May 2005. Viewed at: http://www.fmc.gov/home/UpdatedControlledCarrierList.asp.209 MARAD online information. Viewed at: http://www.marad.dot.gov/Programs/msp/.210 Maritime Administration Office of Statistical and Economic Analysis.211 Agencies may opt for higher preference percentages. See MARAD online information. Viewed at:

http://www.marad.dot.gov/offices/cargo/laws.htm.212 U.S. Government (2006).213 The ocean freight differential (OFD) is the difference between the cost of shipping the same cargo

on a U.S.-flag vessel and on a foreign-flag vessel.


US$269 million in FY2006. The Food Security Act of 1985 also foresees an additional reimbursement to the USDA, termed "Excess 20%", applicable if total costs incurred by the USDA for ocean freight and OFD on exports of agricultural commodities and products under certain agricultural programmes exceed 20% of the value of the commodities exported under these programmes; the reimbursement is made on the excess over 20%.

186. Under Public Resolution No. 17 of 1934, exports for which a government agency makes export loans or credit guarantees, must be carried exclusively in U.S. vessels; this applies to credits of the Ex-Im Bank or other government instruments. Waivers may be granted for partial use of national-flag vessels of recipient countries, when U.S. vessels are not available at reasonable rates, but the recipient country share may not exceed 50% of the total movement under the credit. These waivers are subject to reciprocal treatment for U.S.-flag vessels by the recipient country.214

Port services and shipbuilding

187. The United States has 361 public ports handling most U.S. overseas trade. In 2003, the top 50 ports accounted for 90% of total U.S. cargo tonnage; the 25 top container ports account for over 98% of all U.S. container shipments. Vessel calls to U.S. ports represent 10% of world vessel calls. The volume of traffic into U.S. west-coast ports has been increasing rapidly, due mainly to increased loads carried by vessels, stretching the capacity of some ports. The DOT has made congestion relief a top priority and is currently working to reduce this problem. The Port Development Program, run by MARAD, aims to address port congestion in the medium term, by doubling the cargo-handling capacity in every major U.S. port by 2020.215

188. Vessels from Cambodia, Cuba, Iran, Libya, North Korea, and Syria may not enter U.S. ports on national security grounds.

189. The United States maintains an MFN exemption covering restrictions on performance of longshore work by crews of foreign vessels owned and flagged in countries that similarly restrict U.S. crews on U.S.-flag vessels from longshore work.216 The Immigration and Nationality Act of 1952, as amended, prohibits non-U.S.-national crewmembers from performing longshore work in the United States, but provides a reciprocity exception.

190. Under the Maritime Transportation Security Act of 2002, commercial vessels arriving in the United States from a foreign port are required to transmit electronically, in advance, information on passengers, crew, and cargo. Under the Port Security Grant Program (PSGP), U.S. port areas may receive federal government funding for the enhancement of security. In FY2007, 57 ports were eligible, for a total of US$110 million.217

191. Under the Jones Act, only U.S. shipbuilders may supply ships on domestic routes; the United States was granted an exemption from GATT rules for measures prohibiting the use, sale, or lease of foreign-built or foreign-reconstructed vessels in commercial applications between points in national waters or the waters of an exclusive economic zone. There are no restrictions on foreign investment in U.S. shipyards or ship-repair facilities, but benefits under certain programmes may be contingent upon nationality requirements.

214 MARAD online information. Viewed at: http://www.marad.dot.gov/offices/cargo/PR17 waivers.html.

215 MARAD online information. Viewed at: http://www.marad.dot.gov/Headlines/factsheets/PDF%20 Versions/Port%20Development-FS.pdf.

216 WTO document S/C/W/71, 24 November 1998.217 U.S. Department of Homeland Security (2007).


192. MARAD provides financial assistance to ship-owners and U.S. shipyards (section (3) above), and U.S. citizens owning or leasing vessels may obtain tax benefits to build qualifying vessels. Assistance is also provided to construct tank vessels in the United States and carry out improvements in small shipyards.

(vi) Professional and business services

(a) Introduction

193. The United States has continued to maintain a sizeable trade surplus in professional and business services in recent years. Business, professional, and technical services receipts (exports) increased to US$96.2 billion in 2006: US$48.8 billion were affiliated services, and US$47.4 unaffiliated. Europe was the main destination of exports of unaffiliated services (40.6%), in particular the United Kingdom (12.8%), followed by Asia and the Pacific (25.4%) and Latin America and the Caribbean (12.2%). The main export areas were: R&D and testing services, and computer and information services. Business, professional, and technical services payments (imports) increased to US$58.2 billion in 2006; US$42.4 billion were affiliated services, and US$15.8 billion unaffiliated. The main sources of unaffiliated services imports in 2006 were Europe (43.2%), Canada (21%), Asia-Pacific (20.3%), and Latin America and the Caribbean (10%). The main import areas were: computer and information services, R&D and testing services, and management, consulting, and public relations services.218

194. States have responsibility for the regulation, licensing, and oversight of the professions practiced within their jurisdictions.219 Regulations vary from state to state and usually there is no automatic recognition of licences. The absence of a national regulatory regime creates different market access conditions among the states. Some professions are subject to national qualifying examinations recognized in most states as part of the licensing process, but there is no federal-level licensure that supersedes state regulation. The competent authorities for recognition, certification, and conferral of awards and titles are recognized institutions and programmes. The federal government does not itself evaluate diplomas or credits or recognize qualifications.220

195. In the context of previous U.S. reviews, the authorities noted that, in practice, there is a high degree of commonality across the states for some professions; for example, single national examinations are recognized by state authorities for accounting, architectural, and engineering services. They also noted that the Federal Government encourages states to pursue regulatory policies that minimize trade effects. While recognizing that residency and local presence requirements remained in a number of states, they noted that these had been eliminated for over 75% of the U.S. market for accounting, architectural, engineering, and foreign legal consultancy services, a market valued at over US$300 billion per year.221

196. In setting, evaluating, and enforcing standards for entry and continued competency in a profession, state regulatory authorities often use the services of independent institutions, including professional associations. For example, state authorities frequently recognize, contract with, or delegate legal authority to independent boards or organizations for accreditation of professional education programmes and licensing examinations.222

218 BEA (2007e).219 U.S. Department of Education online information. Viewed at: http://www.ed.gov/about/offices/list/

ous/international/usnei/us/edlite-state-reg.html.220 U.S. Department of Education online information. Viewed at: http://www.ed.gov/about/offices/list/

ous/international/usnei/us/edlite-uscompauth.html.221 WTO document WTO/TPR/M/160/Add 1, 15 June 2006, p. 365.222 Williams and Nersessian (2007).


197. The United States applies caps on visas under the Specialty Occupation Aliens and Fashion Models of Distinguished Merit and Ability (H-1B) visa programme. The H1-B visa is a non-immigrant visa category under the Immigration and Nationality Act, section 101(a)(15)(H), which allows U.S. employers to employ foreign guest workers employed in specialty occupations. H-1B work-authorization is limited to employment by the sponsoring employer. The duration of stay is three years, extendible to six. There is an annual cap on H-1B admissions of 65,000 workers per fiscal year. An additional 20,000 foreign nationals holding a master's or higher degree from U.S. universities may be admitted beyond the 65,000 cap, under the H-1B Visa Reform Act of 2004; H-1B non-immigrants who enter the United States to work for universities and non-profit research facilities are not subject to the 65,000 cap. Visa renewals do not count towards the annual limits.223

198. Some U.S. trade agreements contain temporary entry provisions that relate to market access for professional services. Under the U.S.-Chile and U.S.-Singapore FTAs certain categories of persons (non-immigrant professionals) can seek to enter the United States temporarily to engage in business activities subject to numerical limits (1,400 for Chile and 5,400 for Singapore).224 The H1B1 admission category was introduced in 2004 to implement the temporary entry provisions for these agreements.225 In addition, a citizen of a NAFTA country may enter the United States temporarily to work in a professional occupation recognized under the terms of the NAFTA. Numerical limitations do not apply to NAFTA professionals.

(b) Accounting services

199. Accounting, auditing, and bookkeeping is the only professional services activity where the United States runs a trade deficit. Exports of accounting, auditing, and bookkeeping services totalled US$420 million in 2006, while imports reached US$1 billion.226

200. Accountancy services are subject to professional licensing at the state level, as well as oversight by federal agencies where appropriate. The title of Certified Public Accountant (CPA) continues to be the statutory qualification for accountants.227 In most U.S. states, only CPAs are licensed to provide public attestation opinions on financial statements (including auditing). However, in Arizona, Kansas, North Carolina, and Wyoming the CPA designation, but not the practice of auditing, is restricted to those meeting in-state requirements. A few states have another tier of accountant qualification (Public Accountant - PA), which is being phased out. In a number of states an out-of-state CPA is restricted from using the CPA designation until a practice privilege licence or certificate from that State is obtained.

201. Since 2002 the U.S. auditing and accounting industry has undergone a significant transformation with respect to the expansion of auditors' duties vis-à-vis public companies, the creation of a new regulatory oversight, and its market structure.228 The Sarbanes-Oxley Act of 2002 (P. L. No. 107-204, 116 Stat. 745) introduced important accounting reforms, such as the creation of

223 United States Citizenship and Immigration Services online information. Viewed at: http://www.uscis.gov/portal/site/uscis/menuitem.eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextoid=1847c9ee2f82b010VgnVCM10000045f3d6a1RCRD&vgnextchannel=1847c9ee2f82b010VgnVCM10000045f3d6a1RCRD

224 U.S.-Chile Free Trade Agreement Implementation Act Statement Of Administrative Action. Viewed at http://waysandmeans.house.gov/media/pdf/chile/hr2738ChileSAA7-15-03.pdf.

225 U.S. Embassy in Singapore online information. Viewed at: http://singapore.usembassy.gov/fta _visas.html.

226 BEA (2007e).227 American Institute of Certified Public Accountants online information. Viewed at: http://www.

aicpa.org/.228 Talley (2006).


the Public Company Accounting Oversight Board (PCAOB), a private-sector, non-profit corporation, established to oversee the auditors of public companies subject to securities law.229 An Institute of Internal Auditors Research Foundation assessment of the costs and benefits associated with the Sarbanes-Oxley Act concluded that there were significant benefits associated with the control identification, documentation, and testing process.230 The SEC has recognized that, while most of the Act's benefits have been accomplished, there are also costs to public companies of achieving the full measure of the Act's objectives.231

202. The higher market concentration of the large U.S. accounting firms since the Arthur Andersen 2002 indictment has been noted as a factor influencing the auditing improvements mandated by the Sarbanes-Oxley Act of 2002.232 The remaining "big four" firms (PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG), handle the vast majority of audits for publicly traded companies as well as many private companies.233

203. The American Institute of Certified Public Accountants (AICPA) is the largest CPA professional association in the United States.234 The AICPA plays a major role in assisting practicing CPAs. For example, under a contract with the state boards, it has developed the Uniform CPA Examination, which is used by all states, and the International Qualification Examination (IQEX), which states can use for non-U.S. professionals covered by a mutual recognition agreement (MRA). The National Association of State Boards of Accountancy (NASBA) is an umbrella organization representing the accountancy boards in 55 U.S. jurisdictions that regulate the profession.235

The NASBA promotes uniformity among the states as they carry out their roles, which include setting entry-level professional standards and licence-renewal requirements (such as continuing professional education and firm-quality assurance reviews) and adopting and enforcing professional standards of the CPA qualification.

204. Through the International Qualifications Appraisal Boards, the AICPA and NASBA cooperate in setting up and maintaining MRAS with foreign accountancy institutes. In June 2006, agreements were in place with Australia, Canada, Ireland, and Mexico. Accountants from these countries who meet the specified criteria may sit for the IQEX as an alternative to the Uniform CPA Examination. A state board of accountancy may designate a professional accounting credential issued in a foreign country as substantially equivalent to a CPA certificate and may accept that credential in partial satisfaction of its requirements.

205. Issuing reports on financial statements and other attest and compilation services are reserved for CPAs, and auditors must be licensed by or have obtained a practice privilege from the regulatory authorities of each State where they wish to practice. There are no nationality requirements in 48 states236; the exceptions are Alabama and North Carolina, where U.S. citizenship (or permanent

229 PCAOB online information. Viewed at: http://www.pcaobus.org/.230 Rittenberg and Miller (2005).231 Testimony of U.S. Securities and Exchange Commission Chairman William H. Donaldson Before

the House Committee on Financial Services Concerning the Impact of the Sarbanes-Oxley Act, 21 April 2005. Viewed at: http://www.sec.gov/news/testimony/ts042105whd.htm.

232 Cunningham (2006).233 Rutgers Accounting Web online information. Viewed at: http://raw.rutgers.edu/raw/internet/

big5.htm.234 American Institute of Certified Public Accountants online information. Viewed at: http://www.

aicpa.org/.235 There is a board for each of the 50 states, plus the District of Colombia, Puerto Rico, U.S. Virgin

Islands, Guam, and the North Mariana Islands. National Association of State Boards of Accountancy online information. Viewed at: http://www.nasba.org/nasbaweb/NASBAWeb.nsf/WPANP.

236 American Institute Of Certified Public Accountants (2004).


residency, in North Carolina) is a requirement for licensing, except if there is international reciprocity.237 Thirteen states require state residency, employment in the state, or an in-state office for licensing of accountancy. Nearly all states require accounting firms to operate only as sole proprietorships, partnerships or professional corporations. Auditors for all companies are regulated by the State Boards of Accountancy, and auditors with public company clients (those defined as "issuers" under the Securities Exchange Act of 1934), are also regulated by the SEC and the PCAOB.

(c) Legal services

206. U.S. exports of legal services increased significantly between 2001 and 2006, from US$3 billion to US$5 billion, while imports of legal services increased more moderately, from US$740 million to US$914 million.238

207. In accordance with its list of specific GATS commitments, legal services in the United States must be supplied by a natural person. Foreign law firms may, however, establish subsidiaries in the United States, with the same rights as U.S. firms, including the right to hire domestic lawyers. U.S. residency is required in order to practice before the U.S. Patents Office. Nine jurisdictions maintain in-state office requirements for licensing, and 15 jurisdiction maintain in-state or U.S. residency requirements for licensure.239 The 29 states with FLC rules represent 86% of the U.S. legal services market.240 The American Bar Association (ABA) and the American Law Institute represent lawyers as a profession.

208. The United States has been active in the DDA services negotiations and, together with other Members, has formulated a specific proposal on licensing of foreign lawyers.241 The United States has made GATS commitments to accord market access and national treatment for the provision of foreign legal consultancy services in 16 jurisdictions.242 Thirteen other states have implemented rules on foreign legal consultancy in recent years and foreign-licensed lawyers may provide consultancy services in these jurisdictions.243

209. The practice of law in the United States requires admission to the bar of a particular state or jurisdiction.244 Each U.S. state/jurisdiction has its own rules for bar admission.245 All jurisdictions require that applicants for admission to the bar pass a written bar examination; all jurisdictions, except Maryland, Puerto Rico, Wisconsin, and Washington, also require applicants to pass a separate Multistate Professional Responsibility Examination (MPRE). Eighteen states limit eligibility for the bar exam to Juris Doctor or LL.B. graduates of ABA-approved law schools. The remaining states

237 For Alabama, see http://www.alabamaadministrativecode.state.al.us/docs/acc/4ACC.RTF; and for North Carolina, see http://www.nccpaboard.gov/Clients/NCBOA/Public/Static/license.htm#_North_ Carolina_ Accountancy.

238 BEA (2007e).239 District of Colombia, Indiana, Michigan, Minnesota, Mississippi, New Jersey, Ohio, South Dakota,

and Tennessee have state office requirements. Iowa, Kansas, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New Jersey, New Hampshire, Oklahoma, Rhode Island, South Dakota, Vermont, Virginia, Wyoming have residency requirements.

240 U.S. Economic Census, 2002. Viewed at: http://www.census.gov/econ/census02/ index.html.241 WTO document TN/S/W/37, S/CSC/W/46, 24 February 2005.242 Alaska, California, Connecticut, District of Colombia, Florida, Georgia, Hawaii, Illinois, Michigan,

Minnesota, New Jersey, New York, Ohio, Oregon, Texas, and Washington.243 Arizona, Delaware, Idaho, Indiana, Louisiana, Massachusetts, Missouri, New Mexico, North

Carolina, North Dakota, Pennsylvania, South Carolina, and Utah.244 USDOJ, United States Attorneys' Manual. Viewed at http://www.usdoj.gov/usao/eousa/foia_

reading_room/usam/index.html.245 For admission rules see: http://www.abanet.org.

http://www.alabamaadministrativecode.state.al.us/docs/acc/4ACC.RTF


have more extensive lists of approved law schools and/or allow other means for meeting the education requirement, including foreign law degrees. Graduates of foreign law schools are eligible for admission in 25 states, generally upon a determination of educational equivalency. The state-administered bar exam includes the Multistate Bar Examination (MBE), in all jurisdictions except Louisiana, Washington, and Puerto Rico.246 Lawyers who have been admitted to the bar in one jurisdiction may be admitted to the bar in another without taking another examination if they meet the latter jurisdiction's standards, which usually include a specified period of legal experience. In most cases, however, lawyers must pass the bar examination in each state in which they plan to practice.

210. Admission to a state bar does not entitle the admitted attorney to appear and plead before the U.S. district courts or any U.S. Court of Appeals; in some states admission to the bar does not entitle the admitted attorney to appear and plead before the State's appellate courts. Observers have noted that, because lawyers often represent individuals/corporations with business dealings in multiple states, the regulation of legal practice at the state level tends to create impediments to the efficient delivery of legal services.247

(d) Architectural and engineering services

211. The United States posts a significant trade surplus in architectural, engineering, and other technical services. In general, both exports and imports have increased rapidly in recent years: U.S. exports of these services increased to US$3.7 billion in 2006, while imports rose to US$169 million.248 Commercial presence remains the most important mode of delivery.

Architectural services

212. The U.S. GATS Schedule binds market access in modes 1, 2 and 3, with the exception of a commercial presence limitation applied by Michigan, where two thirds of the officers, partners, and/or directors of an architectural firm must be licensed in that state as architects, professional engineers, and/or land surveyors.

213. The right to practice architecture and to use the title "architect" is granted by registration boards in each of the 50 states, the District of Columbia, Guam, Puerto Rico, and the Virgin Islands, who also regulate the profession in their jurisdiction.249 The National Council of Architectural Registration Boards (NCARB), which represents state boards, works with its member boards to establish registration or licensing policies. The National Architectural Accrediting Board (NAAB) is the sole agency authorized to accredit U.S. professional degree programmes in architecture. Most state registration boards require a degree in architecture from a NAAB accredited programme as a precondition to registration.250

214. There is no reciprocal registration between foreign countries and the United States, with the exception of Canada, with which the United States maintains a full mutual recognition and immediate access agreement, the Inter-Recognition Agreement.

215. To register as an architect in a U.S. jurisdiction, a foreign architect must first comply with the education, training and examination requirements of that jurisdiction. The NAAB examines non-U.S. programmes in order to give NCARB a basis for deciding whether the architectural education in

246 A Lawyer's Guide to the United States. Viewed at: http://www.lexmundi.com/images/lexmundi /PDF/guide-unitedstates.PDF.

247 Williams and Nersessian, (2007e).248 BEA (2007e).249 NCARB (1999).250 NCARB (2007).


another country is comparable.251 Foreign architects credentialed in countries that the NCARB determines offer reasonable reciprocal credentialing opportunities for U.S. architects may apply for NCARB certification through the Broadly Experienced Foreign Architects process. The NCARB has worked to increase the mobility of architectural credentials through international agreements; at end 2007, NCARB had agreements with entities in Australia, Canada, China, the Czech Republic, Japan, Mexico, and New Zealand. The agreement with Mexico will end once the trinational agreement under negotiation is operational. Negotiations have been held with over 50 countries, including broader-scope MRA discussions with Australia and the EC.252

Engineering and integrated engineering services

216. In the GATS, the United States has undertaken market-access commitments regarding engineering and integrated engineering services. The only reservations involve citizenship requirements for the licensing of professional engineers in the District of Colombia and in-state residency requirements in 12 states.253

217. The registration of professional engineers is performed by the individual states.254 Each registration or licence is valid only in the State in which it is granted. The licensing procedure requirements vary but in general include: (i) graduation with a degree from an accredited four-year university programme in engineering; (ii) completing a standard Fundamentals of Engineering (FE) written examination; (iii) accumulating a certain amount of engineering experience (four years, in most states); and (iv) completing a written Principles and Practice in Engineering examination. 255

Some states also have state-specific examinations.256 Various states issue generic professional engineering licences, while others issue licences for specific disciplines.257

218. The National Council of Examiners for Engineering and Surveying (NCEES) is a non-profit organization composed of engineering and surveying licensing boards representing all states and U.S. territories. NCEES develops, scores, and administers the examinations used for engineering and surveying licensure throughout the United States. The accreditation of domestic and international engineering programmes from other countries considered to be substantially equivalent is performed by ABET. The U.S. Council for International Engineering Practice (USCIEP) participates in international fora that facilitate international mobility for qualified professional engineers, including the APEC Engineer Coordinating Committee and the Engineers Mobility Forum.258

251 NAAB online information. Viewed at: http://www.naab.org/newsletter1727/newsletter_show .htm?doc_id=14327.

252 AIA International Enews, "NCARB Fosters International Mobility". Viewed at: http://www.aia.org /nwsltr_intl.cfm?pagename=intl_a_ncarb_07.

253 Idaho, Iowa, Kansas, Maine, Mississippi, Nevada, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, and West Virginia.

254 For a list of the states' engineering sites, see: http://www.nspenetforum.org/eweb/Dynamic Page.aspx?Site=NSPE1&Webcode=state_society_website.

255 National Council of Examiners for Engineering and Surveying (NCEES) online information. Viewed at: http://www.ncees.org/licensure/licensing_boards/.

256 NCEES online information. Viewed at: http://www.ncees.org/exams/.257 National Society of Professional Engineers online information. Viewed at: http://www.nspe.

org/pd-home.asp.258 USCIEP online information. Viewed at: http://www.usciep.org/.


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