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2018 National Trade Estimate Report on FOREIGN …

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2018 National Trade Estimate Report on FOREIGN TRADE BARRIERSAmbassador Robert E. LighthizerOffice of the United States Trade Representative ACKNOWLEDGEMENTS The Office of the United States Trade Representative (USTR) is responsible for the preparation of this report. Trade Representative Robert E. Lighthizer gratefully acknowledges the contributions of the Departments of Agriculture, Commerce, Labor, Justice, State, Transportation, Treasury and the International Trade Commission. In preparing the report, substantial information was solicited from Embassies abroad. Drafts of the report were circulated through the interagency Trade Policy Staff Committee, composed of the following Executive Branch entities, whose participation was gratefully received: Defense, Interior, Energy, Health and Human Services, Homeland Security, the Environmental Protection Agency; the Office of Management and Budget; the Council of Economic Advisers; the Council on Environmental Quality; the Agency for International Development; the Small Business Administration; the National Economic Council; and the National Security Council. Assistant Trade Representative for Trade Policy and Economics: Edward Gresser Project Supervisors: Donald W. Eiss Karen M. Lezny Project Staff: Benjamin B. Christensen Molly L. Foley Garrett G. Kays Susanna S. Lee Naomi Freeman Erland Herfindahl Yvonne Jamison LIST OF FREQUENTLY USED ACRONYMS AD ........................................ ........................................ ... Antidumping AGOA ........................................ ..................................... African Growth and Opportunity Act APEC ........................................ ...................................... Asia Pacific Economic Cooperation ASEAN ........................................ ................................... Association of Southeast Asian Nations BOP ........................................ ........................................ . Balance of Payments CAFTA-DR ........................................ ............................ Dominican Republic-Central America-United States Free Trade Agreement CBERA ........................................ ................................... Caribbean Basin Economic Recovery Act CBI ........................................ ........................................ .. Caribbean Basin Initiative CTE ........................................ ........................................ . Committee on Trade and the Environment CTG ........................................ ........................................ Council for Trade in Goods CVD ........................................ ........................................ Countervailing Duty DDA ........................................ ........................................ Doha Development Agenda DOL ........................................ ........................................ Department of Labor DSB ........................................ ........................................ . Dispute Settlement Body DSU ........................................ ........................................ Dispute Settlement Understanding EU ........................................ ........................................ ... European Union FOIA ........................................ ...................................... Freedom of Information Act GATT ........................................ ...................................... General Agreement on Tariffs and Trade GATS ........................................ ...................................... General Agreements on Trade in Services GDP ........................................ ........................................ Gross Domestic Product GSP ........................................ ........................................ . Generalized System of Preferences GPA ........................................ ........................................ Government Procurement Agreement HS ........................................ ........................................ ... Harmonized System IPR ........................................ ........................................ .. Intellectual Property Rights ICTIME ........................................ ................................... Interagency Center on Trade Implementation, Monitoring, and Enforcement ITA ........................................ ........................................ .. Information Technology Agreement LDBDC ........................................ ................................... Least-Developed Beneficiary Developing Country MFN ........................................ ........................................ Most Favored Nation MOU ........................................ ....................................... Memorandum of Understanding NAFTA ........................................ ................................... North American Free Trade Agreement OECD ........................................ ...................................... Organization for Economic Cooperation and Development SME ........................................ ........................................ Small and Medium Size Enterprise SPS ........................................ ........................................ .. Sanitary and Phytosanitary Measures TAA ........................................ ........................................ Trade Adjustment Assistance TBT ........................................ ........................................ . Technical Barriers to Trade TIFA ........................................ ........................................ Trade & Investment Framework Agreement TPRG ........................................ ...................................... Trade Policy Review Group TPSC ........................................ ....................................... Trade Policy Staff Committee TRIMS ........................................ .................................... Trade Related Investment Measures TRIPS ........................................ ...................................... Trade Related Intellectual Property Rights UNCTAD ........................................ ................................ United Nations Conference on Trade and Development URAA ........................................ ..................................... Uruguay Round Agreements Act USDA ........................................ ...................................... Department of Agriculture USITC ........................................ ..................................... International Trade Commission USTR ........................................ ...................................... United States Trade Representative WTO ........................................ ...................................... World Trade Organization TABLE OF CONTENTS FOREWORD ........................................ ........................................ ........................................ .......... 1 ALGERIA ........................................ ........................................ ........................................ ............... 7 ANGOLA ........................................ ........................................ ........................................ .............. 11 ARAB LEAGUE ........................................ ........................................ ........................................ .. 15 ARGENTINA ........................................ ........................................ ........................................ ....... 21 AUSTRALIA ........................................ ........................................ ........................................ ........ 33 BAHRAIN ........................................ ........................................ ........................................ ............ 39 BANGLADESH ........................................ ........................................ ........................................ ... 43 BOLIVIA ........................................ ........................................ ........................................ .............. 51 BRAZIL ........................................ ........................................ ........................................ ................ 55 BRUNEI DARUSSALAM ........................................ ........................................ ........................... 67 BURMA ........................................ ........................................ ........................................ ................ 71 CAMBODIA ........................................ ........................................ ........................................ ......... 75 CANADA ........................................ ........................................ ........................................ ............. 79 CHILE ........................................ ........................................ ........................................ ................... 87 CHINA ........................................ ........................................ ........................................ .................. 91 COLOMBIA ........................................ ........................................ ........................................ ....... 111 COSTA RICA ........................................ ........................................ ........................................ ..... 119 DOMINICAN REPUBLIC ........................................ ........................................ ......................... 125 ECUADOR ........................................ ........................................ ........................................ ......... 129 EGYPT ........................................ ........................................ ........................................ ................ 137 EL SALVADOR ........................................ ........................................ ........................................ . 143 ETHIOPIA ........................................ ........................................ ........................................ .......... 149 EUROPEAN UNION ........................................ ........................................ ................................. 155 GHANA ........................................ ........................................ ........................................ .............. 203 GUATEMALA ........................................ ........................................ ........................................ ... 209 HONDURAS ........................................ ........................................ ........................................ ...... 213 HONG KONG ........................................ ........................................ ........................................ .... 217 INDIA ........................................ ........................................ ........................................ ................. 219 INDONESIA ........................................ ........................................ ........................................ ....... 237 259 JAPAN ........................................ ........................................ ........................................ ................ 263 JORDAN ........................................ ........................................ ........................................ ............. 277 KAZAKHSTAN ........................................ ........................................ ........................................ . 279 285 KOREA ........................................ ........................................ ........................................ ............... 293 KUWAIT ........................................ ........................................ ........................................ ............ 307 LAOS ........................................ ........................................ ........................................ .................. 311 MALAYSIA ........................................ ........................................ ........................................ ....... 315 MEXICO ........................................ ........................................ ........................................ ............. 321 MOROCCO ........................................ ........................................ ........................................ ........ 329 NEW ZEALAND ........................................ ........................................ ........................................ 333 335 NIGERIA ........................................ ........................................ ........................................ ............ 341 347 OMAN ........................................ ........................................ ........................................ ................ 351 PAKISTAN ........................................ ........................................ ........................................ ......... 355 PANAMA ........................................ ........................................ ........................................ ........... 361 PARAGUAY ........................................ ........................................ ........................................ ...... 365 PERU ........................................ ........................................ ........................................ .................. 369 THE PHILIPPINES ........................................ ........................................ .................................... 373 QATAR ........................................ ........................................ ........................................ ............... 381 RUSSIA ........................................ ........................................ ........................................ .............. 385 SAUDI ARABIA ........................................ ........................................ ........................................ 403 SINGAPORE ........................................ ........................................ ........................................ ...... 409 SOUTH 413 SRI LANKA ........................................ ........................................ ........................................ ....... 421 SWITZERLAND ........................................ ........................................ ........................................ 427 TAIWAN ........................................ ........................................ ........................................ ............ 429 THAILAND ........................................ ........................................ ........................................ ........ 437 449 TURKEY ........................................ ........................................ ........................................ ............ 453 UNITED ARAB 461 469 VIETNAM ........................................ ........................................ ........................................ .......... 475 APPENDIX I ........................................ ........................................ ........................................ ....... 487APPENDIX FOREIGN TRADE BARRIERS 1 FOREWORD SCOPE AND COVERAGE The 2018 National Trade Estimate Report on Foreign Trade Barriers (NTE) is the 33nd in an annual series that highlights significant foreign barriers to exports. This document is a companion piece to the President s 2018 Trade Policy Agenda and 2017 Annual Report published by Office of the United States Trade Representative in March. In accordance with section 181 of the Trade Act of 1974, as added by section 303 of the Trade and Tariff Act of 1984 and amended by section 1304 of the Omnibus Trade and Competitiveness Act of 1988, section 311 of the Uruguay Round Trade Agreements Act, and section 1202 of the Internet Tax Freedom Act, the Office of the Trade Representative is required to submit to the President, the Senate Finance Committee, and appropriate committees in the House of Representatives, an annual report on significant foreign trade barriers. The statute requires an inventory of the most important foreign barriers affecting exports of goods and services, foreign direct investment by persons, and protection of intellectual property rights. Such an inventory enhances awareness of these trade restrictions and facilitates negotiations aimed at reducing or eliminating these barriers. The NTE Report is based upon information compiled within USTR, the Departments of Commerce and Agriculture, and other Government agencies, as well as Embassies and supplemented with information provided in response to a notice published in the Federal Register, and by members of the private sector trade advisory committees. This report discusses the largest export markets for the United States, including 60 countries, the European Union, Taiwan, Hong Kong, and one regional body. The discussion of Chinese trade barriers is structured and focused to align more closely with other Congressional reports prepared by USTR on trade issues. The China section includes cross-references to other USTR reports where appropriate. As always, the omission of particular countries and barriers does not imply that they are not of concern to the United States. Trade barriers elude fixed definitions, but may be broadly defined as government laws, regulations, policies, or practices that either protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights. The NTE covers significant barriers, whether they are consistent or inconsistent with international trading rules. Many barriers to exports are consistent with existing international trade agreements. Tariffs, for example, are an accepted method of protection under the General Agreement on Tariffs and Trade 1994 (GATT 1994). Even a very high tariff does not violate international rules unless a country has made a commitment not to exceed a specified rate, , a tariff binding. On the other hand, where measures are not consistent with international trade agreements, they are actionable under trade law, including through the World Trade Organization (WTO). This report classifies foreign trade barriers into ten different categories. These categories cover government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services. The categories covered include: Import policies ( , tariffs and other import charges, quantitative restrictions, import licensing, customs barriers, and other market access barriers); FOREIGN TRADE BARRIERS 2 Sanitary and phytosanitary measures and technical barriers to trade; Government procurement ( , buy national policies and closed bidding); Export subsidies ( , export financing on preferential terms and agricultural export subsidies that displace exports in third country markets); Lack of intellectual property protection ( , inadequate patent, copyright, and trademark regimes and enforcement of intellectual property rights); Services barriers ( , limits on the range of financial services offered by foreign financial institutions, restrictions on the use of foreign data processing, and barriers to the provision of services by foreign professionals); Investment barriers ( , limitations on foreign equity participation and on access to foreign government-funded research and development programs, local content requirements, technology transfer requirements and export performance requirements, and restrictions on repatriation of earnings, capital, fees and royalties); Government-tolerated anticompetitive conduct of state-owned or private firms that restricts the sale or purchase of goods or services in the foreign country s markets; Digital trade barriers ( , restrictions and other discriminatory practices affecting cross-border data flows, digital products, Internet-enabled services, and other restrictive technology requirements); and, Other barriers (barriers that encompass more than one category, , bribery and corruption,i or that affect a single sector). The NTE Report highlights the increasingly critical nature of standards-related measures (including testing, labeling and certification requirements) and sanitary and phytosanitary (SPS) measures to trade policy, to identify and call attention to problems and efforts to resolve them during the past year and to signal new or existing areas in which more progress needs to be made. Standards-related and SPS measures serve an important function in facilitating international trade, including by enabling small and medium sized enterprises (SMEs) to obtain greater access to foreign markets. Standards-related and SPS measures also enable governments to pursue legitimate objectives such as protecting human, plant, and animal health, the environment, and preventing deceptive practices. However, standards-related and SPS measures that are nontransparent and discriminatory can act as significant barriers to trade. Such measures can pose a particular problem for SMEs, which often do not have the resources to address these problems on their own. To highlight the growing and evolving trade using or enabled by electronic networks and information and communications technology, and reflecting input from numerous stakeholders, relevant country chapters include a dedicated section on barriers to digital trade and reflecting digital trade market developments for exports. Pursuant to Section 1377 of the Omnibus Trade and Competitiveness Act of 1988, USTR annually reviews the operation and effectiveness of telecommunications trade agreements to make a determination on whether any foreign government that is a party to one of those agreements is failing to comply with that government s obligations or is otherwise denying, within the context of a relevant agreement, mutually FOREIGN TRADE BARRIERS 3 advantageous market opportunities to telecommunication products or services suppliers. The NTE Report highlights both ongoing and emerging barriers to telecommunication services and goods exports used in the annual review called for in Section 1377. The NTE Report identifies localization barriers to trade in the relevant barrier category in the report s individual sections to assist efforts to reduce their use and to inform the public on the scope and diversity of these practices. The United States has observed a growing trend among trading partners to impose localization barriers to trade measures designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property at the expense of imported goods, services or foreign-owned or developed intellectual property. These measures may operate as disguised barriers to trade and unreasonably differentiate between domestic and foreign products, services, intellectual property, or suppliers. They can distort trade, discourage foreign direct investment and lead other trading partners to impose similarly detrimental measures. For these reasons, it has been longstanding trade policy to advocate strongly against localization barriers and encourage trading partners to pursue policy approaches that help their economic growth and competitiveness without discriminating against imported goods and services. USTR continues to vigorously scrutinize foreign labor practices and to address substandard practices that impinge on labor obligations in free trade agreements (FTAs) and deny foreign workers their internationally recognized labor rights. In addition, USTR has enhanced its monitoring and enforcement of FTA partners implementation and compliance efforts with respect to their obligations under the environment chapters of those agreements. To further these initiatives, USTR has implemented interagency processes for systematic information gathering and review of labor rights practices and environmental measures in FTA countries, and USTR staff regularly works with FTA countries to monitor practices and directly engages governments and other stakeholders in its monitoring efforts. The Administration has reported on these activities in the 2018 Trade Policy Agenda and 2017 Annual Report of the President on the Trade Agreements Program. NTE sections report the most recent data on bilateral trade in goods and services and compare the data to the preceding period. This information is reported to provide context for the reader. The merchandise trade data contained in the NTE are based on total exports, free alongside ( )ii value, and general imports, customs value, as reported by the Bureau of the Census, Department of Commerce. The services data and direct investment are compiled by the Bureau of Economic Analysis in the Department of Commerce (BEA). (NOTE: These data are provided in Appendix II, ranked according to the size of the market). TRADE IMPACT ESTIMATES AND FOREIGN BARRIERS Wherever possible, this report presents estimates of the impact on exports of specific foreign trade barriers and other trade distorting practices. Where consultations related to specific foreign practices were proceeding at the time this report was published, estimates were excluded, in order to avoid prejudice to those consultations. The estimates included in this report constitute an attempt to assess quantitatively the potential effect of removing certain foreign trade barriers on particular exports. However, the estimates cannot be used to determine the total effect on exports either to the country in which a barrier has been identified or to the world in general. In other words, the estimates contained in this report cannot be aggregated in order to derive a total estimate of gain in exports to a given country or the world. Trade barriers or other trade distorting practices affect exports to another country because these measures effectively impose costs on such exports that are not imposed on goods produced in the importing country. In theory, estimating the impact of a foreign trade measure on exports of goods requires FOREIGN TRADE BARRIERS 4 knowledge of the (extra) cost the measure imposes on them, as well as knowledge of market conditions in the United States, in the country imposing the measure, and in third countries. In practice, such information often is not available. Where sufficient data exist, an approximate impact of tariffs on exports can be derived by obtaining estimates of supply and demand price elasticities in the importing country and in the United States. Typically, the share of imports is assumed constant. When no calculated price elasticities are available, reasonable postulated values are used. The resulting estimate of lost exports is approximate, depends on the assumed elasticities, and does not necessarily reflect changes in trade patterns with third countries. Similar procedures are followed to estimate the impact of subsidies that displace exports in third country markets. The task of estimating the impact of nontariff measures on exports is far more difficult, since there is no readily available estimate of the additional cost these restrictions impose. Quantitative restrictions or import licenses limit (or discourage) imports and thus raise domestic prices, much as a tariff does. However, without detailed information on price differences between countries and on relevant supply and demand conditions, it is difficult to derive the estimated effects of these measures on exports. Similarly, it is difficult to quantify the impact on exports (or commerce) of other foreign practices, such as government procurement policies, nontransparent standards, or inadequate intellectual property rights protection. In some cases, particular exports are restricted by both foreign tariff and nontariff barriers. For the reasons stated above, it may be difficult to estimate the impact of such nontariff barriers on exports. When the value of actual exports is reduced to an unknown extent by one or more than one nontariff measure, it then becomes derivatively difficult to estimate the effect of even the overlapping tariff barriers on exports. The same limitations that affect the ability to estimate the impact of foreign barriers on goods exports apply to services exports. Furthermore, the trade data on services exports are extremely limited in detail. For these reasons, estimates of the impact of foreign barriers on trade in services also are difficult to compute. With respect to investment barriers, there are no accepted techniques for estimating the impact of such barriers on investment flows. For this reason, no such estimates are given in this report. The NTE Report includes generic government regulations and practices that are not product specific. These are among the most difficult types of foreign practices for which to estimate trade effects. In the context of trade actions brought under law, estimates of the impact of foreign practices on commerce are substantially more feasible. Trade actions under law are generally product specific and therefore more tractable for estimating trade effects. In addition, the process used when a specific trade action is brought will frequently make available Government data (from companies or foreign sources) otherwise not available in the preparation of a broad survey such as this report. In some cases, stakeholder valuations estimating the financial effects of barriers are contained in the report. The methods for computing these valuations are sometimes uncertain. Hence, their inclusion in the NTE Report should not be construed as a Government endorsement of the estimates they reflect. March 2018 FOREIGN TRADE BARRIERS 5 Endnotes: i. Corruption is an impediment to trade, a serious barrier to development, and a direct threat to our collective security. Corruption takes many forms and affects trade and development in different ways. In many countries, it affects customs practices, licensing decisions, and the awarding of government procurement contracts. If left unchecked, bribery and corruption can negate market access gained through trade negotiations, undermine the foundations of the international trading system, and frustrate broader reforms and economic stabilization programs. Corruption also hinders development and contributes to the cycle of poverty. Information on specific problems associated with bribery and corruption is difficult to obtain, particularly since perpetrators go to great lengths to conceal their activities. Nevertheless, a consistent complaint from firms is that they have experienced situations that suggest corruption has played a role in the award of billions of dollars of foreign contracts and delayed or prevented the efficient movement of goods. Since the United States enacted the Foreign Corrupt Practices Act (FCPA) in 1977, companies have been prohibited from bribing foreign public officials, and numerous other domestic laws discipline corruption of public officials at the State and Federal levels. The United States is committed to the active enforcement of the FCPA. The United States has taken a leading role in addressing bribery and corruption in international business transactions and has made real progress over the past quarter century building international coalitions to fight bribery and corruption. Bribery and corruption are now being addressed in a number of fora. Some of these initiatives are now yielding positive results. The United States led efforts to launch the Organization for Economic Cooperation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-bribery Convention). In November 1997, the United States and 33 other nations adopted the Anti-bribery Convention, which currently is in force for 43 countries, including the United States. The Anti-bribery Convention obligates its parties to criminalize the bribery of foreign public officials in the conduct of international business. It is aimed at proscribing the activities of those who offer, promise, or pay a bribe (for additional information, see and ). The United States also played a critical role in the successful conclusion of negotiations that produced the United Nations Convention Against Corruption, the first global anticorruption instrument. The Convention was opened for signature in December 2003, and entered into force December 14, 2005. The Convention contains many provisions on preventive measures countries can take to stop corruption, and requires countries to adopt additional measures as may be necessary to criminalize fundamental corruption offenses, including bribery of domestic as well as foreign public officials. As of October 2017 (latest data available), there were 140 signatories and 183 parties, including the United States. In March 1996, countries in the Western Hemisphere concluded negotiation of the Inter-American Convention Against Corruption (Inter-American Convention). The Inter-American Convention, a direct result of the Summit of the Americas Plan of Action, requires that parties criminalize bribery of public officials and other kinds of corruption. The Inter-American Convention entered into force in March 1997. The United States signed the Inter-American Convention on June 2, 1996 and deposited its instrument of ratification with the Organization of American States (OAS) on September 29, 2000. Thirty-one of the thirty-three parties to the Inter-American Convention, including the United States, participate in a Follow-up Mechanism conducted under the auspices of the OAS to monitor implementation of the Convention. The Inter-American Convention addresses a broad range of corrupt acts including domestic corruption and trans-national bribery. Signatories agree to enact legislation making it a crime for individuals to offer bribes to public officials and for public officials to solicit and accept bribes, and to implement various preventive measures. The United States continues to push its anticorruption agenda forward. The United States promotes transparency and reforms that specifically address corruption of public officials. The United States led other countries in concluding multilateral negotiations on the World Trade Organization (WTO) Trade Facilitation Agreement which contains provisions on transparency in customs operations and avoiding conflicts of interest in customs penalties. The United States has also advocated for increased transparency of government procurement regimes as a way to fight corruption, including in the WTO Government Procurement Agreement, which contains a requirement for participating governments and their relevant procuring entities to avoid conflicts of interest and prevent corrupt practices. The United States is also playing a leadership role on these issues in APEC and other fora. ii. Free alongside ( ): Under this term, the seller quotes a price, including delivery of the goods alongside and within the reach of the loading tackle (hoist) of the vessel bound overseas. FOREIGN TRADE BARRIERS 6 FOREIGN TRADE BARRIERS 7 ALGERIA TRADE SUMMARY The goods trade deficit with Algeria was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to Algeria were $ billion, down percent ($ billion) from the previous year. Corresponding imports from Algeria were $ billion, up percent. Algeria was the United States' 75th largest goods export market in 2017. foreign direct investment (FDI) in Algeria (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Vehicles In March 2015, the Algerian government enacted various new safety requirements for imported vehicles, with a focus on passenger automobiles. Algerian officials assert that these new requirements apply to all vehicles, but the requirements appear to affect imported vehicles in a disproportionate manner. Under the procedures intended to enforce the requirements, all vehicles entering the country must be accompanied by a certificate of conformity before they are inspected by a representative of the Ministry of Industry and Mines. Algeria also requires this certificate in order to obtain the letter of credit necessary to finance a vehicle importation. Regulations introduced in October 2017 require a financial guarantee equal to 120 percent of the cost of the import to be provided 30 days in advance, which especially burdens small and medium size importers that often lack sufficient cash flow. Food Products Algeria requires imported food products to have at least 80 percent of their shelf life remaining at the time of importation. In 2017, Algeria introduced new labelling regulations on certain beverage products containing artificial sweeteners, Sanitary and Phytosanitary Barriers The Algerian government currently bans the importation, distribution, or sale of seeds that are the products of biotechnology. There is an exception for biotech seeds imported for research purposes. Algeria also does not accept export certificates for beef. and Algerian veterinary authorities are negotiating export certificates to allow for the importation of breeding cattle and bovine genetics. IMPORT POLICIES Tariffs Goods imported into Algeria face a range of tariffs, from zero to 70 percent. Nearly all finished manufactured products entering Algeria are subject to a 30 percent tariff rate, but some limited categories are subject to a 15 percent rate. Goods facing the highest rates are those for which direct equivalents are currently manufactured in Algeria, including some pharmaceuticals. The few items that are duty free are generally EU-origin goods that are used in manufacturing and are exempt from tariffs under the 2006 FOREIGN TRADE BARRIERS 8 European Union-Algeria Association Agreement. In addition, most imported goods are subject to the 19 percent value-added tax, and an additional percent tax is levied on a good if the applicable customs value exceeds DZD 20,000 (approximately $ ). Customs Procedures Clearing goods through Algerian customs is the single most frequently reported problem facing foreign companies operating in Algeria. Delays can take weeks or months, and in many cases are not accompanied by official explanations. In addition to a certificate of origin, the Algerian government requires all importers to provide certificates of conformity and quality from an independent third party. Customs requires shipping documents to be stamped with a Visa Fraud note from the Ministry of Commerce, indicating that the goods have successfully passed a fraud inspection, before the goods are cleared. Many importations also require authorizations from multiple ministries, which cause additional bureaucratic delays, especially when the regulations do not clearly specify which ministry s authority is being exercised. Storage fees at Algerian ports of entry are high, and the fee rates double when goods are stored for longer than 10 days. Import Restrictions Pharmaceuticals and Medical Devices Since 2010, Algeria s Ministry of Health has been issuing regulations to restrict the importation of a number of pharmaceutical products and medical devices. The Ministry of Health has published a list of 357 pharmaceutical products banned from importation. In 2007, the Algerian government instituted a regulation that bans the import of used medical equipment without a special exception. The government has applied the rule broadly to block the re-importation of machinery that has been sent abroad for maintenance under warranty, even for equipment owned by state-run hospitals. Import Licenses and Quotas The 2016 budget, signed into law on December 31, 2015, empowers the Ministry of Commerce to require import licenses for certain goods. Additional regulations released in January 2017 identified the following 22 categories as requiring import licenses: (1) vehicles for tourism and resale, (2) specialized and construction vehicles, (3) concrete in various forms, (4) concrete reinforcing bars, (5) wire rod in various forms, (6) wire rod used for concrete reinforcing, (7) wood of various types, (8) ceramics of various types, (9) grey Portland cement, (10) fresh or refrigerated beef, (11) frozen beef, (12) cheese, (13) citrus fruits, (14) apples, (15) bananas, (16) barley, (17) garlic, (18) corn, (19) soybean meal, (20) concentrated minerals and vitamins, (21) phosphates, and (22) double concentrated tomato. Some exceptions are permitted for products being provided for government use. More recently, in January 2018, Algeria issued a decree temporarily suspending its import licensing system for 851 products, which effectively banned imports of those products into Algeria. The products include: agricultural and industrial goods such as meat and poultry; dairy products; processed and prepared foods; tractors; machinery; and, consumer items. The United States will continue to monitor this activity and raise appropriate concerns with Algeria. Vehicles Vehicle imports through dealers were prohibited in 2017. Individuals were able to purchase on a personal basis a vehicle overseas and import it to Algeria. Vehicles cost approximately double the market rates when purchased by individuals overseas and imported. A new book of specifications concerning the automotive industry was released in December 2017, with import quotas for 2018 to be announced thereafter. Changes in regulations did not address specific import quotas, but provided that imports will only be permitted for FOREIGN TRADE BARRIERS 9 automotive companies who engage in local assembly or manufacturing. Minimum local integration rates for assembly plants will be 15 percent after 3 years, and 40 percent to 60 percent after 5 years. Other Product Bans All types of used machinery are banned from entry into Algeria. All products containing pork or pork derivatives are prohibited. GOVERNMENT PROCUREMENT In 2018, Algeria is expected to begin restricting foreign competition in bids for public projects, starting with public housing projects. This strengthens policies implemented in 2014, which prohibited public housing projects from using imported construction materials when local equivalents were available. Algeria announced in August 2015 that all ministries and state-owned enterprises (SOEs) would be required to purchase domestically manufactured products whenever available. It further announced that the procurement of foreign goods would be permitted only with special authorization at the ministerial level and if a locally made product could not be identified. Algeria requires approval from the Council of Ministers for expenditures in foreign currency that exceed 10 billion Algerian dinars ($87 million). In 2017, this requirement delayed payments to at least one company. Algeria is not a signatory to, nor an observer of, the WTO Agreement on Government Procurement Agreement. INTELLECTUAL PROPERTY RIGHTS PROTECTION Algeria remained on the Priority Watch List in the Special 301 Report in 2017. Significant challenges continue with respect to fair and equitable market access for intellectual property rights (IPR) rights holders in Algeria, notably for pharmaceutical and medical device manufacturers. Though Algeria has taken steps to raise awareness of IPR issues and has begun to engage with the United States, it has not taken significant steps to improve IPR enforcement or effectively address IPR-related deficiencies. Algeria continues to struggle to provide adequate and effective IPR protection and enforcement. Algeria fails to enforce its existing antipiracy statutes, including those combating the use of unlicensed software, and to provide adequate judicial remedies in cases of patent infringement. Algeria does not provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. INVESTMENT BARRIERS Algeria s 51/49 investment law requires Algerian ownership of at least 51 percent in all projects involving foreign investments. The requirement originated in a 2006 law governing hydrocarbons but was expanded in 2009 to cover foreign investment in all sectors. As there is no economy-wide process for registering foreign investments, prospective investors must work with the ministry or ministries relevant to a particular project to negotiate, register, and set up their businesses. businesses have commented that the process is subject to political influence, and that a lack of transparency in the decision making process makes it difficult to determine the reasons for any delays. The extent of Algerian bureaucratic requirements causes significant delays and deters many companies from attempting to enter the market. Several companies, particularly in the pharmaceutical sector, have reported difficulties in renewing their operating and market access licenses. Without a valid license, the process for obtaining import authorization is extremely slow. FOREIGN TRADE BARRIERS 10 BARRIERS TO DIGITAL TRADE Algerian citizens may not purchase goods online but can complete online orders and make payment, in local currency, upon the delivery of goods or app-based transportation services. Businesses, however, may purchase goods and services online and import them for business-related uses. OTHER BARRIERS State-Owned Enterprises State-owned enterprises (SOEs) comprise about two-thirds of the Algerian economy. The national oil and gas company Sonatrach is the most prominent SOE, but SOEs are present in all sectors of the economy. FOREIGN TRADE BARRIERS 11 ANGOLA TRADE SUMMARY The goods trade deficit with Angola was $ billion in 2017, a percent increase ($189 million) over 2016. goods exports to Angola were $810 million, down percent ($441 million) from the previous year. Corresponding imports from Angola were $ billion, down percent. Angola was the United States' 84th largest goods export market in 2017. foreign direct investment (FDI) in Angola (stock) was $804 million in 2016 (latest data available), a percent increase from 2015. IMPORT POLICIES Tariffs and Nontariff Measures Angola is a member of the WTO and the Southern African Development Community (SADC). Angola has delayed implementation of the 2003 SADC Protocol on Trade, which seeks to reduce tariffs, due to concerns that implementation would lead to a large increase in imports, particularly from South Africa. Angola approved a new harmonized tariff schedule in November 2017. The new tariff regime assigns minimum rates for the import of essential goods and other goods that the country does not produce. Medicines, educational material ( , school books), and automotive parts imported by automotive assembly industries that invest in Angola are exempt from customs duties under the new tariff system. Customs Barriers Administration of Angola s customs service has improved in the last few years but remains a barrier to market access. Under Presidential Decree No. 63/13, pre-shipment inspection is no longer mandatory for goods shipped since June 12, 2013. However, traders may continue to contract for pre-shipment inspection services from private inspection agencies if they wish to benefit from faster green channel access, or if their letter of credit agreement requires pre-shipment inspection. On November 7, 2017, the Angolan government terminated its contract with Bromangol, a private laboratory that dominated the inspection market, and whose fees some importers reported as excessive. Any shipment of goods equal to or exceeding $1,000 requires use of a clearing agent. The number of clearing agents increased from 55 in 2006 to 232 in 2015 (latest data available). However, competition among clearing agents and reduced importing activity have not reduced fees for such agents, which typically range from one percent to two percent of the import value of the declaration. The importation of certain goods may require specific authorization from various government ministries, which can result in delays and extra costs. Goods that require ministerial authorization include: pharmaceutical substances and saccharine and derived products (Ministry of Health); fiscal or postal stamps, radios, transmitters, receivers, and other devices (Ministry of Post and Telecommunications); weapons, ammunition, fireworks, and explosives (Ministry of Interior); plants, roots, bulbs, microbial cultures, buds, fruits, seeds, and crates and other packages containing these products (Ministry of Agriculture); poisonous and toxic substances and drugs (Ministries of Agriculture, Industry, and Health); and other goods imported to be given away as samples (Ministry of Customs). The import of goods such as poultry has been hindered at times through the use of restrictive import licensing rules. Angola has not ratified the WTO Trade Facilitation Agreement. FOREIGN TRADE BARRIERS 12 GOVERNMENT PROCUREMENT Angola s government procurement process lacks transparency and fails to promote competition among suppliers. Information about government projects and procurements is often not readily available from the appropriate authorities and the government does not have an electronic procurement portal. Although calls for bids for government procurements are sometimes published in the government newspaper, Jornal de Angola, many contracting agencies already form a preference for a specific business before receiving all of the bids. The Promotion of the Angolan Private Entrepreneurs Law provides Angolan companies preferential treatment in the government s procurement of goods, services, and public works contracts. Lacking the capacity to perform the contracts themselves, Angolan companies often deliver these goods and services by subcontracting with foreign companies. The latest Public Procurement law entered into force on September 16, 2016 (Law National Assembly Law No. 9/16, of 16 June 2016), encompassing both public procurement and rules on the performance of some contracts. This law represents an effort to reform and modernize Angola s procurement regime, and is a condition of an ongoing African Development Bank loan to support the reform of the electric power sector in Angola. Angola is neither a signatory to nor an observer of the WTO Agreement on Government Procurement. INTELLECTUAL PROPERTY RIGHTS PROTECTION Intellectual property rights (IPR) are administered by the Ministry of Industry (trademarks, patents, and designs) and by the Ministry of Culture (authorship, literary, and artistic rights). Angola is a party to the World Intellectual Property Organization (WIPO) Convention, the Paris Convention for the Protection of Industrial Property, and the WIPO Patent Cooperation Treaty. Although the Angolan National Assembly continues to work to strengthen existing legislation, IPR protection and enforcement remains weak. For example, statistics about seizures of counterfeit goods are not publicly available from the government of Angola. INVESTMENT BARRIERS Angola can be a difficult environment for foreign investors. Oil revenues contribute 75 percent of government revenues and are the dominant source of foreign exchange deposits for the Central Bank. Starting in late 2014, as a direct result of the further decline in oil prices, foreign exchange deposits diminished. To manage the depleting reserves, exacerbated by the loss of access to dollar trading, in 2016 the Central Bank of Angola implemented a process that severely limited foreign exchange approvals for private citizens and businesses. American and non-American businesses alike report facing significant impediments when seeking approvals to repatriate profits and make outward remittances in foreign currency. Local importers who deposit foreign currency are often unable to withdraw their deposits without authorization from the Central Bank. The loss of dollar-denominated correspondent banking relationships for Angolan banks has also complicated international transfers and payments. A process implemented in 2016 prioritized the authorization for foreign exchange for imports for the energy sector and for food and medicine. As of early 2018, the government has taken steps that could reduce the difference between the official and black market exchange rates. On August 26, 2015, the Angolan government enacted a new private investment law that stripped the National Agency for Private Investment of its authority with respect to attracting, facilitating, and approving investments. The law assigned responsibility for overseeing new investments across various ministries. FOREIGN TRADE BARRIERS 13 The law maintains the existing requirement that a $1 million investment is required of foreign investors to be eligible for fiscal incentives from the government, while lowering the eligibility threshold for Angolan investors to $500,000. The law also requires at least 35 percent local participation in foreign investments in the following sectors: electricity, water, tourism, hospitality, transportation, logistics, telecommunications, information technology, construction, and media. The previous law required local partnerships in only the energy, banking, and insurance sectors. The new investment law expressly prohibits private investment in areas such as defense and national security; banking activities relating to the operations of the Central Bank of Angola and the mint; the administration of ports and airports; and other areas where the law gives the state exclusive responsibility. Under the new law, foreign investors pay higher taxes on dividends and profit repatriation; the new tax rates start at 15 percent and rise to as much as 50 percent, depending on the date and amount of repatriation. By law, the Council of Ministers has 30 days to review a foreign investment application, although in practice decisions are often subject to lengthy delays. Obtaining the proper permits and business licenses to operate in Angola is time consuming and adds to the cost of investment. The Angolan justice system can be slow and arduous, including with respect to enforcing contracts, and while existing law contemplates domestic and international arbitration, arbitration law is not widely practiced in the country. Legislation for the petroleum sector requires most foreign oil services companies to form joint venture partnerships with local companies. With respect to the provision of goods and services not requiring heavy capital investment or specialized expertise, foreign companies may only participate as a contractor or sell manufactured products to Angolan companies for resale. Foreign petroleum companies face local content requirements forcing them to acquire low capital investment goods and services from Angolan-owned companies. For activities requiring a medium level of capital investment and a higher level of expertise (not necessarily specialized), foreign companies may only participate in association with Angolan companies. The Foreign Exchange Law for the Petroleum Sector requires that all petroleum, oil, and gas companies use Angola-domiciled banks to make all payments, including payments to suppliers and contractors located outside of Angola. Furthermore, payments for goods and services provided by resident service providers must be made in local currency. In October 2017, President Louren o convened a special task force to address issues in the petroleum sector, including a review of laws and regulations. OTHER BARRIERS Corruption Despite recent efforts by President Louren o to prioritize the fight against corruption notably through the dismissal of high ranking officials in state companies and government agencies corruption remains a problem in Angola. Corruption is prevalent in Angola for many reasons, including but not limited to an inadequately trained civil service, a highly centralized bureaucracy, antiquated regulations, and a lack of implementation of anticorruption laws. Gratuities and other facilitation fees are sometimes requested to secure quicker service and approval. It is common for Angolan government officials to have substantial private business interests that are not necessarily publicly disclosed. Likewise, it is difficult to determine the ownership of some Angolan companies. The business climate continues to favor those connected to the government. Laws and regulations regarding conflict of interest are not widely enforced. Some investors report pressure to form joint ventures with specific Angolan companies believed to have connections to political figures. FOREIGN TRADE BARRIERS 14 FOREIGN TRADE BARRIERS 15 ARAB LEAGUE The 22 Arab League members are the Palestinian Authority and the following countries: Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Kuwait, Jordan, Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, the United Arab Emirates, and Yemen. The effect of the Arab League s boycott of Israeli companies and Israeli-made goods (originally implemented in 1948) on trade and investment in the Middle East and North Africa varies from country to country. While on occasion the boycott can pose a barrier (because of associated compliance costs and potential legal restrictions) for individual companies and their subsidiaries doing business in certain parts of the region, it has for many years had an extremely limited practical effect overall on trade and investment ties with many key Arab League countries. About half of the Arab League members are also Members of the World Trade Organization (WTO) and are thus obligated to apply WTO commitments to all current WTO Members, including Israel. To date, no Arab League member, upon joining the WTO, has invoked the right of non-application of WTO rights and obligations with respect to Israel. Though Egypt and Jordan, having signed peace treaties with Israel, regularly publish official statistics regarding their trade with Israel, such statistics from other Arab League members either are not published at all or are not regularly updated. The United States has long opposed the Arab League boycott, and Government officials from a variety of agencies frequently have urged Arab League member governments to end it. The Department of State and Embassies in relevant Arab League host capitals take the lead in raising concerns related to the boycott with political leaders and other officials. The Departments of Commerce and Treasury and the Office of the United States Trade Representative monitor boycott policies and practices of Arab League members and, aided by embassies, lend advocacy support to firms facing boycott-related pressures. antiboycott laws (the 1976 Tax Reform Act (TRA) and the 1977 amendments to the Export Administration Act (EAA)) were adopted to require firms to refuse to participate in foreign boycotts that the United States does not sanction. The Arab League boycott of Israel was the impetus for this legislation and continues to be the principal boycott with which companies must be concerned. The EAA s antiboycott provisions, enforcement of which is overseen by the Department of Commerce s Office of Antiboycott Compliance (OAC), prohibit certain types of conduct undertaken in support of the Arab League boycott of Israel. These types of prohibited activity include, inter alia, agreements by companies to refuse to do business with Israel, furnishing by companies of information about business relationships with Israel, and implementation of letters of credit that include prohibited boycott terms. The TRA s antiboycott provisions, administered by the Department of the Treasury and the Internal Revenue Service, deny certain foreign tax benefits to companies that agree to requests from boycotting countries to participate in certain types of boycotts. The Government s efforts to oppose the Arab League boycott include alerting appropriate officials in boycotting countries to the presence of prohibited boycott requests and the adverse impact of those requests on both firms and on Arab League members ability to expand trade and investment ties with the United States. In this regard, Department of Commerce/OAC officials periodically visit Arab League members to consult with appropriate counterparts on antiboycott compliance issues. These consultations provide technical assistance to those counterparts to identify language in commercial documents with which businesses may or may not comply. Boycott activity can be classified according to three categories. The primary boycott prohibits the importation of goods and services from Israel into the territory of Arab League members. This prohibition may conflict with the obligation of Arab League members that are also Members of the WTO to treat FOREIGN TRADE BARRIERS 16 products of Israel on a most favored nation basis. The secondary boycott prohibits individuals, companies (both private and public sector), and organizations in Arab League members from engaging in business with firms and firms from other countries that contribute to Israel s military or economic development. Such foreign firms may be placed on a blacklist maintained by the Central Boycott Office (CBO), a specialized bureau of the Arab League; the CBO often provides this list to other Arab League member governments, which decide whether, or to what extent, to implement it through national laws or regulations. The tertiary boycott prohibits business dealings with and other firms that do business with blacklisted companies. Individual Arab League member governments are responsible for enforcing the boycott, and enforcement efforts vary widely among them. Some Arab League member governments have consistently maintained that only the Arab League as a whole can entirely revoke the boycott. Other member governments support the view that adherence to the boycott is a matter of national discretion; thus, a number of governments have taken steps to dismantle various aspects of their national boycotts. The Government has on numerous occasions indicated to Arab League member governments that their officials attendance at periodic CBO meetings is not conducive to improving trade and investment ties, either with the United States or within the region. Attendance of Arab League member government officials at CBO meetings varies; a number of governments have responded to officials that they only send representatives to CBO meetings in an observer capacity, or to push for additional discretion in national enforcement of the CBO-drafted company blacklist. Ongoing political upheaval in Syria since 2011 has prevented the CBO from convening meetings in Damascus on a regular basis. The current situation in individual Arab League members is as follows: ALGERIA: Algeria does not maintain diplomatic, cultural, or direct trade relations with Israel, though indirect trade reportedly takes place. The country has legislation in place that in general supports the Arab League boycott, but domestic law contains no specific provisions relating to the boycott and government enforcement of the primary aspect of the boycott is reportedly sporadic. Algeria appears not to enforce any element of the secondary or tertiary aspects of the boycott. COMOROS, DJIBOUTI, AND SOMALIA: None of these countries has officially participated in the Arab League boycott. Djibouti generally supports Palestinian causes in international organizations and there is little direct trade between Djibouti and Israel. However, the government of Djibouti currently does not enforce any aspect of the boycott. EGYPT: Egypt has not enforced any aspect of the boycott since 1980, pursuant to its peace treaty with Israel. In past years, Egypt has included boycott language drafted by the Arab League in documentation related to tenders funded by the Islamic Development Bank. The revolution and resultant political uncertainty in Egypt since early 2011 introduced some uncertainty with respect to future Egyptian approaches to boycott-related issues, but thus far the Egyptian government has affirmed its continued commitment to the peace treaty. IRAQ: As a matter of policy, Iraq does not adhere to the Arab League boycott. Most Iraqi ministries and state-owned enterprises have agreed not to comply with or have discontinued regulations enforcing the boycott, following a 2009 Council of Ministers decision to cease boycott-related implementation practices. However, individual Iraqi government officials and ministries continue to violate that policy. companies and investors consider the existence of boycott-related requirements in procurement contracts and tenders issued by the Iraqi government as significant disincentives for doing business in the country. It is estimated that since 2010, companies have lost more than $1 billion in sales opportunities in Iraq due to Arab League boycott-related requests. FOREIGN TRADE BARRIERS 17 Despite the 2009 Iraqi Council of Ministers guidance to all ministries, the number of boycott-related requests transmitted to companies from Iraqi entities increased from 2009 to 2014. In 2017, there were 28 prohibited requests (as defined by antiboycott laws) from Iraqi entities reported to the Department of Commerce, down from 51 in 2016. Requests emanated from several Iraqi government entities, including the Ministry of Health (MOH) and its procurement arm, the Iraqi State Company for Importation of Drugs and Medical Appliances (Kimadia), the Ministry of Planning, and the South Oil Company. The MOH committed to the United States in June 2013 that it would stop issuing boycott-related requests. Since that time, however, the MOH has issued several boycott-related requests that negatively affected suppliers of medical and pharmaceutical products. The South Oil Company, which had stopped issuing tenders with boycott language several years ago, recently resumed issuing tenders containing boycott-related language. JORDAN: Jordan formally ended its enforcement of any aspect of the boycott when it signed the Jordanian-Israeli peace treaty in 1994. Jordan signed a trade agreement with Israel in 1995, and later an expanded trade agreement in 2004. While some elements of Jordanian society continue to oppose improving political and commercial ties with Israel as a matter of principle, government policy has sought to enhance bilateral commercial ties. LEBANON: Since June 1955, Lebanese law has prohibited all individuals, companies, and organizations from directly or indirectly contracting with Israeli companies and individuals, or buying, selling, or acquiring in any way products produced in Israel. This prohibition is by all accounts widely adhered to in Lebanon. Ministry of Economy officials have reaffirmed the importance of the boycott in preventing Israeli economic penetration of Lebanese markets. LIBYA: Prior to its 2011 revolution, Libya did not maintain diplomatic relations with Israel and had a law in place mandating application of the Arab League boycott. The Qadhafi regime enforced the boycott and routinely inserted boycott-related language in contracts with foreign companies and maintained other restrictions on trade with Israel. Ongoing political upheaval in Libya since 2011 has made it difficult to determine the current attitude of Libyan authorities toward boycott issues. The Administration will continue to monitor Libya s treatment of the boycott. MAURITANIA: Mauritania does not enforce any aspect of the boycott despite freezing diplomatic relations with Israel in March 2009 in response to Israeli military engagement in Gaza. MOROCCO: Moroccan law contains no specific references to the Arab League boycott. The government informally recognizes the primary aspect of the boycott due to Morocco s membership in the Arab League, but does not enforce any aspect of it. In recent years, Morocco reportedly has been Israel s third largest trading partner in the Arab world, after Jordan and Egypt. firms have not reported boycott-related obstacles to doing business in Morocco. Moroccan officials do not appear to attend CBO meetings. PALESTINIAN AUTHORITY: All foreign trade involving Palestinian producers and importers must be managed through Israeli authorities. The Palestinian Authority (PA) agreed not to enforce the boycott in a 1995 letter to the Government and the PA has adhered to this commitment. Various groups advocating for Palestinian interests continue to call for boycotts and other actions aimed at restricting trade in goods produced in Israeli West Bank settlements. SUDAN: The government of Sudan supports the Arab League boycott and has enacted legislation requiring adherence to it. However, there appear to be no regulations in place to enforce the secondary and tertiary aspects of the boycott. FOREIGN TRADE BARRIERS 18 SYRIA: Syria, traditionally, was diligent in implementing laws to enforce the Arab League boycott, maintaining its own boycott-related blacklist of firms, separate from the CBO list. Syria s boycott practices have not had a substantive impact on businesses due to economic sanctions imposed on the country since 2004. The ongoing and serious political unrest within the country since 2011 has further reduced commercial interaction with Syria. TUNISIA: Upon the establishment of limited diplomatic relations with Israel, Tunisia terminated its observance of the Arab League boycott. In the wake of the 2011 Tunisian revolution, there has been no indication that Tunisian government policy with respect to the boycott has changed. GULF COOPERATION COUNCIL (GCC): In September 1994, the GCC member countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) announced that they would no longer adhere to what they consider to be the secondary and tertiary aspects of the boycott, eliminating a significant trade barrier to firms. In December 1996, the GCC countries recognized the total dismantling of the boycott as a necessary step to advance peace and promote regional cooperation in the Middle East and North Africa. Despite this commitment to dismantle the boycott, commercial documentation containing boycott-related language continues to surface on occasion and to impact business transactions. The situation in individual GCC member countries is as follows: Bahrain: The Government has received assurances from the government of Bahrain that it has no restrictions on companies trading with Israel or doing business in Israel, regardless of their ownership or other relations with Israeli companies. Bahrain renounced enforcement of its boycott law in September 2005 while preparing to sign its Free Trade Agreement with the United States. Tender documents from Bahrain have occasionally referred to the secondary and tertiary aspects of the boycott, but such instances have been remedied when brought to authorities attention. The government has stated publicly that it recognizes the need to abandon formally the primary aspect of the boycott. There are no laws prohibiting bilateral trade and investment between Bahrain and Israel and Israeli-labeled products reportedly can occasionally be found in Bahraini markets. Kuwait: Kuwait continues to recognize the 1994 GCC decision and no longer adheres to what they consider to be the secondary or tertiary aspects of the boycott. Kuwait claims to have eliminated all direct references to the boycott in procurement documentation as of 2000. Kuwait has a three person boycott office, which is part of the General Administration for Customs. Although Kuwaiti officials reportedly regularly attend Arab League boycott meetings, it is unclear whether they are active participants. Oman: The Government has received assurances from Oman that it does not apply the boycott. Although boycott-related language occasionally appears in tender documents, Omani officials have committed to ensure that such language is not included in new tender documents and have removed boycott-related language when brought to their attention. Omani customs processes Israeli-origin shipments entering with Israeli customs documentation, although Omani firms typically avoid marketing consumer products that can be identified as originating from Israel. Omani diplomatic missions are prohibited from taking part in Arab League boycott meetings. Qatar: Qatar has a boycott law but the extent to which the government enforces it is unclear. Although Qatar renounced implementation of the boycott of firms that do business in Israel (the secondary and tertiary boycott) in 1994, firms and their subsidiaries continue to report receiving boycott-related requests from public Qatari companies; in those instances, companies have made an effort to substitute alternative language. An Israeli trade office opened in Qatar in May 1996, but Qatar ordered that office closed in January 2009 in protest against the Israeli military action in Gaza. Despite this closure, Qatar continues to allow trade with Israel and allows Israelis to visit the country. Qatar permits the entry of Israeli FOREIGN TRADE BARRIERS 19 business travelers who obtain a visa in advance. The chief executive of Qatar s successful 2022 World Cup bid has indicated that Israeli citizens would be welcome to attend the World Cup. Saudi Arabia: Saudi Arabia, in recognition of the 1994 GCC decision, renounced enforcement of the secondary and tertiary boycott. Senior Saudi government officials from relevant ministries have requested that officials keep them informed of any allegations that Saudi entities are seeking to enforce these aspects of the boycott. Saudi entities have expressed a willingness to substitute non-boycott-related language in commercial documents. The United Arab Emirates (UAE): The UAE continues to recognize the 1994 GCC decision although firms and their subsidiaries continue to report receiving boycott-related requests from UAE entities. The UAE has not renounced the primary aspect of the boycott, but the degree to which it is enforced is unclear. Nevertheless, multiple boycott-related requests continue to emanate from Emirati entities. The United States has had some success in working with the UAE to resolve specific boycott-related cases. The Department of Commerce/OAC and Emirati Ministry of Economy officials have held periodic meetings aimed at encouraging the removal of boycott-related terms and conditions from commercial documents. The Emirati government has taken a number of steps to eliminate prohibited boycott requests, including the issuance of a series of circulars to public and private companies explaining that enforcement of the secondary and tertiary aspects of the boycott is a violation of Emirati policy. Non-Arab League Countries In recent years, press reports have occasionally surfaced regarding the implementation of officially sanctioned boycotts of trade with Israel by governments of non-Arab League countries, particularly some member states of the 57 member Organization of the Islamic Conference (OIC), headquartered in Saudi Arabia. (Arab League and OIC membership overlaps to a degree, though the OIC membership is geographically and culturally much more diverse). Information gathered by Embassies in various non-Arab League OIC member states does not paint a clear picture of whether the OIC enforces its own boycott of Israel (as opposed to lending support to Arab League positions). The degree to which non-Arab League OIC member states enforce any aspect of a boycott against Israel also appears to vary widely. Bangladesh, for example, does impose a primary boycott on trade with Israel. By contrast, OIC members Kazakhstan, Tajikistan, and Turkmenistan impose no boycotts on trade with Israel and in some cases have actively encouraged such trade; and, Turkey has an active history of trade with Israel. FOREIGN TRADE BARRIERS 20 FOREIGN TRADE BARRIERS 21 ARGENTINA TRADE SUMMARY The goods trade surplus with Argentina was $ billion in 2017, a percent increase ($883 million) over 2016. goods exports to Argentina were $ billion, up percent ($ billion) from the previous year. Corresponding imports from Argentina were $ billion, up percent. Argentina was the United States' 29th largest goods export market in 2017. exports of services to Argentina were an estimated $ billion in 2017, and imports were $ billion. Sales of services in Argentina by majority affiliates were $ billion in 2015 (latest data available). foreign direct investment (FDI) in Argentina (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Argentina is led by manufacturing, information, and mining. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Conformity Assessment and Safety Certificate Requirements for Electrical Products Since 2013, Argentina has maintained conformity assessment requirements that obligate foreign manufacturers and importers to obtain safety certifications from Argentine certification bodies for all imported electrical and electronic products before they can enter commerce in Argentina. These repetitive testing requirements are applicable only to foreign manufacturers, and they impose significant delays and increase costs. Additionally, pursuant to Resolution 508/2015, which was issued in October 2015 and modified in July 2016 by Resolution 171/2016, importers of low voltage electrical equipment are required to obtain safety certificates from the Argentine Gas Institute for their imports. On December 30, 2016, the Ministry of Production issued Dispositions E 578/2016 to E 586/2016, authorizing the acceptance of international certification results for some electronic products, alleviating the testing requirements for these products. Resolutions E 207/2017 and 390/2017, issued in March and May 2017, respectively, specified exceptions to certification requirements for certain products and introduced an administrative procedure for importers to certify via online affidavit that their imports of equipment for professional use meet Argentina s domestic safety standards. Some companies report improvements in the process for obtaining safety certificates, although they continue to engage with the government to further improve the system. The United States continues to monitor the implementation of Argentina s safety certification requirements. Sanitary and Phytosanitary Barriers Live Cattle, Beef, and Beef Products Argentina banned imports of all live cattle, beef, and beef products in 2002 due to concerns with bovine spongiform encephalopathy (BSE). In June 2015, through Resolution 238/2015, Argentina s National Agricultural and Food Health and Quality Service (SENASA) published new import requirements for ruminants and ruminant products. Resolution 238/2015 adopted three World Organization for Animal Health (OIE) categories for BSE risk classification. Through Resolution 238/2015, Argentina recognized FOREIGN TRADE BARRIERS 22 the OIE s classification of the United States as a country with negligible BSE risk. However, full market access for beef products has not yet been restored. The United States will continue to engage with Argentina to establish conditions for full market access for beef products. Pork Argentina does not currently allow imports of pork. In October 2016, the United States proposed to SENASA revisions to a sanitary certificate to address concerns raised by Argentina in previous discussions. SENASA had indicated that it would only accept imports of pork from herds that have tested negative for Trichinellosis and have no reported cases of Porcine Reproductive and Respiratory Syndrome (PRRS). The United States does not consider these requirements to be science-based. The OIE does not recognize trade in pork as posing a threat of transmitting PRRS. In addition, producers maintain stringent biosecurity protocols that have virtually eradicated trichinae in commercial pork production. The United States and Argentina engaged extensively in 2017 to address sanitary concerns and negotiate a sanitary certificate based on science that would allow for full market access for pork. In September and October 2017, SENASA carried out an audit of the food safety system and the commercial pork production and distribution systems. The United States will continue engaging with Argentina to restore full market access for pork and pork product exports. Poultry Argentina does not allow imports of fresh, frozen, and chilled poultry from the United States due to concerns over Avian Influenza (AI). Argentina also has not recognized the sanitary inspection system as equivalent to the Argentine system. In October 2015, APHIS and the Foreign Agricultural Service (FAS) provided SENASA a comprehensive presentation on the status of Highly Pathogenic Avian Influenza (HPAI) in the United States and on the success of the Government s eradication program. In addition, APHIS requested that Argentina regionalize its restrictions related to HPAI by either state or county. In November 2015, APHIS informed SENASA that the United States had complied with all the required OIE actions and requirements related to HPAI needed to be declared free of the disease after a 2015 HPAI outbreak. Argentina has indicated it would accept cooked poultry products from the United States, but there is no agreement yet on the terms of the necessary sanitary certificate as Argentina has maintained that the poultry inspection system is not equivalent to the Argentine system. During bilateral discussions with Argentina throughout 2017, the United States attempted to resolve the market access issues for poultry, including the certification requirements. The United States will continue to engage with Argentina to resolve this issue. IMPORT POLICIES Tariffs and Taxes Tariffs Argentina is a founding member of the Southern Common Market (MERCOSUR) customs union, formed in 1991 and comprised of Argentina, Brazil, Paraguay, and Uruguay. (Venezuela has been suspended from MERCOSUR since December 2016). MERCOSUR s Common External Tariff (CET) ranges from zero to 35 percent ad valorem. The CET allows for a limited number of exceptions, but Argentina s import tariffs generally follow the MERCOSUR CET. Argentina s MFN applied tariff rate averaged percent for agricultural products and percent for non-agricultural products in 2016 (latest data available). Argentina s simple average WTO bound tariff rate is significantly higher at percent for agricultural FOREIGN TRADE BARRIERS 23 products and percent for non-agricultural products. Argentina s maximum bound tariff rate for all products is 35 percent. Under a July 16, 2015 MERCOSUR Common Market Council (CMC) decision, each MERCOSUR member is permitted to maintain a limited number of exceptions to the CET for an established period. Argentina is permitted to maintain 100 exceptions to the CET until December 31, 2021. Modifications to MERCOSUR tariff rates are made through resolutions and are published on the official website, which can be found at: According to MERCOSUR rules, any good introduced into any member country must pay the CET to that country s customs authorities. If the product is then re-exported to another MERCOSUR country, the CET must be paid again to the second country. The MERCOSUR CMC moved toward the establishment of a Customs Union with its approval of a Common Customs Code (CCC) in August 2010 and a December 2010 plan to eliminate the double application of the CET within MERCOSUR. All MERCOSUR members must ratify the CCC for it to take effect, but thus far, only Argentina has ratified the CCC. Argentina ratified the CCC in November 2012. MERCOSUR member countries are also allowed to set import tariffs independently for some types of goods, including computer and telecommunications equipment, sugar, and some capital goods. Argentina imposes a 14 percent tariff on imports of capital goods that are also produced domestically. Imports of certain other capital goods that are not produced domestically are subject to a reduced ad valorem tariff of two percent. A list of the goods affected and their respective tariff rates can be found at: Argentina has bilateral arrangements with Brazil and Uruguay on automobiles and automotive parts intended to provide preferential treatment among the three countries. Mexico and Argentina also have a separate bilateral trade agreement regarding automobiles and automotive parts. Taxes In August 2012, the Argentine Tax Authority (AFIP) issued Resolution 3373, which raised the rate of certain taxes charged after import duties are levied, thereby increasing the tax burden for importers. The resolution established an advance value-added tax (VAT) rate of 20 percent for imports of consumer goods and 10 percent for imports of capital goods. The advance VAT is paid by the importer. If those products are then sold in Argentina, the normal VAT rate, which is 21 percent for most consumer and capital goods, is levied. The resolution also established a six percent income tax withholding rate on imports of all goods, except goods intended for consumption or for use by the importer. For those goods, an 11 percent income tax rate applies. Argentina has a tax exempt trading area called the Special Customs Area (SCA), located in Tierra del Fuego province. The SCA was established in 1972, through Law 19,640, to promote economic activity in the southern province. The SCA program, which is set to expire at the end of 2023, provides benefits for established companies that meet specific production, exportation, and employment objectives. Goods produced in Tierra del Fuego and shipped through the SCA to other parts of Argentina are exempt from some local taxes and benefit from reductions in other taxes. Additionally, capital and intermediate goods imported into the SCA for use in production are exempt from import duties. Some products are brought from outside Argentina to facilities in the SCA where they are taken apart and reassembled for sale inside Argentina in order to qualify for tax benefits. As of July 2017, sales of liquefied petroleum gas and natural gas produced in Tierra del Fuego and destined for consumption or industrial activities within the SCA are exempt from VAT. Argentina does not apply a VAT on information technology and electronics products, such as mobile phones, cameras, and tablets, produced in the SCA. FOREIGN TRADE BARRIERS 24 In 2009, Argentina increased the VAT from zero percent or percent to 21 percent on a list of information technology and electronics products not produced in the SCA, such as mobile and satellite phones, digital video and photography cameras, GPS equipment, DVD players, computer monitors, refrigerators and freezers, heaters, televisions, and microwave ovens. Additionally, prior to 2017, imports of most electronics products were subject to a 35 percent import duty, while imports of electronic components were subject to a 12 percent duty, unless they were imported into the SCA to be used as production inputs. Decree 117/2017, issued on February 17, 2017, eliminated the 35 percent duty on imports of a number of electronic devices effective April 1, 2017, and eliminated the 12 percent import duty on electronic components as of February 21, 2017. The list of products subject to Decree 117 can be found at: On November 29, 2017, Argentina issued Decree 979, which eliminated internal taxes on electronic products such as cell phones, air conditioning devices, televisions, and microwaves, produced in Tierra del Fuego, and established a gradual reduction plan for internal taxes on electronic goods produced outside Tierra del Fuego, with the intention of reaching a zero percent tax by 2024. On July 5, 2016, the Ministry of Production and the Ministry of Energy and Mining issued Joint Resolutions 123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment for use in investment projects that incorporate at least 60 percent local content in their electromechanical installations. In cases where local supply is insufficient to reach the 60 percent threshold, the threshold can be reduced to 30 percent. The resolutions also provide tax exemptions for imports of capital and intermediate goods that are not locally produced for use in the investment projects. For a list of goods that are not locally produced, see Annex 1 of the resolutions, found at: On August 1, 2016, Argentina passed law 27263, implemented by Resolution 599-E/2016, which provides tax credits to automotive manufacturers for the purchase of locally-produced automotive parts and accessories incorporated into specific types of vehicles. The tax credits range from 4 percent to 15 percent of the value of the purchased parts. The list of vehicle types included in the regime can be found at: Nontariff Barriers Import Licenses Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI) established in December 2015 by the National Tax Agency (AFIP) through Resolutions 5/2015 and 3823/2015. On July 7, 2017, the government issued Resolutions E-292 and E-523, which reorganized the regulation of the automatic and non-automatic import licensing system. The SIMI system requires importers to submit electronically detailed information about goods to be imported into Argentina. Once the information is submitted, relevant Argentine government agencies review the application through a Single Window System for Foreign Trade (Ventanilla Unica de Comercio Exterior). The automatic import licensing requirements apply to approximately 87 percent of Argentina s tariff schedule. The list of products subject to non-automatic licensing has been modified several times since the beginning of the SIMI system, resulting in a net increase in the number of tariff lines subject to non-automatic licensing. As of November 2017, Argentina maintained non-automatic import license requirements on 12,414 12-digit tariff lines, including on products the government deems import-sensitive, such as automobiles, paper and cardboard, iron and steel, nuclear reactors, electrical and construction materials and parts, toys, textiles and apparel, and footwear. FOREIGN TRADE BARRIERS 25 Customs Valuation Argentina continues to apply reference values to several thousand products. Under this system, authorities establish benchmark unit ( , reference) prices for customs valuation purposes goods that originate in, or are imported from, specified countries. These reference prices are used to establish a price for dutiable value. Importers of affected goods must pay duties calculated on the reference value, unless they can prove that the transaction was conducted at arm s length. Argentina also requires importers of any goods from designated countries, including the United States, that are invoiced below the reference prices to have the invoice validated by both the exporting country s customs agency and the appropriate Argentine embassy or consulate in that country. The Argentine government publishes an updated list of reference prices and covered countries, which can be found at: Certificates of Origin Certificates of origin have become a key element in Argentine import procedures to enforce antidumping measures, reference prices, and certain geographical restrictions. Argentina requires certificates of origin for certain categories of products, including certain organic chemicals, tires, bicycle parts, flat-rolled iron and steel, certain iron and steel tubes, air conditioning equipment, wood fiberboard, most fabrics ( , wool, cotton, other vegetable), carpets, most textiles ( , knitted, crocheted), apparel, footwear, metal screws and bolts, furniture, toys and games, brooms, and brushes. To receive the MFN tariff rate, a product s certificate of origin must be certified by an Argentine embassy or consulate, or carry a Chamber of Commerce seal. For products with many internal components, such as machinery, each individual part is often required to be notarized in its country of origin, which can be very burdensome. Importers have stated that the rules governing these procedures are unclear and can be enforced arbitrarily. Information on how to obtain a certificate of origin can be found at: Express Delivery and Electronic Commerce As of August 26, 2016, pursuant to Resolutions 3915 and 3916, Argentina allows the import of goods via mail or through an express delivery service provider. Non-commercial mail shipments with a value of $200 or less and a weight not greater than two kilograms may be delivered door-to-door. Books, printed material, and documents may be delivered door-to-door without the need to complete an international postal shipment declaration. Buyers have to pay a 50 percent tax on all but the first $25 of their orders. Non-commercial courier shipments with a value of $1,000 or less and a weight not greater than 50 kilograms are exempt from import licensing and other import requirements, subject to certain conditions, including an annual limit of five shipments per person. Commercial courier shipments, and non-commercial courier shipments with a value higher than $1,000 or a weight greater than 50 kilograms, must present an import declaration through a customs broker. Pursuant to 2016 Joint Resolutions 4149-E and 725-E, all merchandise with a value up to $15,000 and a weight up to 300 kilograms can be exported via the program Exporta Simple through postal service providers. However, the total value of goods that an exporter may export through the program in a given year may not exceed $600,000. Argentina does not have a centralized platform for, and does not allow the use of, electronically produced air waybills, which would accelerate customs processing and the growth of electronic commerce transactions. FOREIGN TRADE BARRIERS 26 Ports of Entry Argentina restricts entry points for several classes of goods, including sensitive goods classified in 20 Harmonized Tariff Schedule chapters ( , textiles; shoes; electrical machinery; iron, steel, metal, and other manufactured goods; and watches), through specialized customs procedures for these goods. A list of products affected and the ports of entry for those products can be found at: Used Capital Goods Imports Argentina prohibits the import of many used capital goods. Under the Argentina-Brazil Bilateral Automobile Pact, Argentina bans the import of used self-propelled agricultural machinery unless it is imported to be rebuilt in country. Argentina also prohibits the importation and sale of used or retreaded tires (but in some cases allows remolded tires); used or refurbished medical equipment, including imaging equipment; and used automotive parts. Argentina generally restricts or prohibits the importation of any remanufactured good, such as remanufactured automotive parts, earthmoving equipment, medical equipment, and information and communications technology products. In the case of remanufactured medical goods, imports are further restricted by the requirement that the importer of record must be the end user, such as a hospital, doctor, or clinic. Such parties are generally not accustomed to importing and are not typically registered as importers. Domestic legislation requires compliance with strict conditions on the entry of those used capital goods that may be imported, as follows: Used capital goods can only be imported directly by the end user. Overseas reconditioning of the goods is allowed only if performed by the original manufacturer. Third-party technical appraisals are not permitted. Local reconditioning of the good is subject to technical appraisal to be performed only by the state-run Institute of Industrial Technology (INTI), except for aircraft-related items. Regardless of where the reconditioning takes place, the Argentine Customs Authority requires the presentation of a Certificate of Import of Used Capital Goods at the time of importation. This certificate is issued by the Secretariat of Foreign Trade following approval by the Secretariat of Industry. Pursuant to Joint Resolutions 12/2014 and 4/2014 of January 2014, the import certificate for used capital goods has a duration of 60 working days from the issue date. The time period during which the imported used capital good cannot be transferred (sold or donated) is four years. Pursuant to Decree 2646/2012, used capital goods imports are subject to a 28 percent tax if local production of the good exists; a 14 percent tax in the absence of existing local production; and a 6 percent tax if the used capital good is for the aircraft industry. There are exceptions for used capital goods employed in certain industries ( , printing, textiles, mining, and in some cases, aviation), which permit imports of the goods at a zero percent import tax. On November 15, 2016, the government issued Decree No. 1174/2016, which reduces by 25 percent the import tariffs on used capital goods that are needed as part of investment projects. Complementary used capital and intermediate industrial goods, not more than 20 years old, for use in domestic production lines are also eligible for the 25 percent import tariff reduction. FOREIGN TRADE BARRIERS 27 Used Goods for Consumption Resolution 909/1994, issued by the then-Ministry of Economy, places restrictions on the importation of certain used goods for consumption, such as parts and components that are not used in the manufacture of other products. Decree 1205, issued November 29, 2016, modified the list of restricted items and established import tariffs ranging from 6 percent to 28 percent for some of these items. The list includes electronic and recording equipment; railroad vehicles and other railroad parts; optic, photography and filming equipment; tractors; buses; aircrafts; and ships. The full list of restricted items can be found at: Used Clothing Imports Pursuant to Decree 509/2007, Annex 6, Argentina maintains an import prohibition on used clothing. Consumer Goods Price Control Program In January 2014, the Argentine government launched a consumer goods price control program called Precios Cuidados. Under the program, participating businesses agreed to adhere to price caps on nearly 200 basic consumer goods. Since January 2016, the program has been extended several times with prices adjusted for inflation and additional products added to the program. On January 5, 2018, the government extended the program through May 6, 2018 for 436 products. The full list of goods can be found at: In February 2016, the Argentine government issued Resolution 12/2016, which established the Precios Claros program to monitor retail prices using an Electronic System of Advertised Prices (SEPA), accessible online or via mobile app. Supermarkets are required to publish their price lists and have enough stock of the products listed under the program. Consumers can report the absence of products or any difference in price via the SEPA app, through the website, or by presenting a complaint directly to the National Commission for the Defense of Competition (CNDC) Office. The CNDC has the authority to apply a fine to companies if it finds an absence of justification for increases in prices of products listed under the program. The CNDC reported that it did not receive any complaints through the SEPA program in 2017. EXPORT POLICIES Export Tariffs Argentina maintains export taxes on a range of products. Soybeans are taxed at 30 percent; soy flour and oil at 27 percent; soy pellets and other refined mixed soy oils at 27 percent; bovine leather at 10 percent; wool not carded or combed at 5 percent; paper and cardboard waste for recycling at 20 percent; and, alloy steel waste at 5 percent. In January 2017, Argentina issued Decree 1343/2016, which established a plan for a percent per month reduction in the export duty on soybeans starting on January 1, 2018. The export tax on biodiesel is established according to a formula that considers the international price of oil and national production, per Decree 1719/2012. On December 12, 2017, the government issued Decree 1025, which revoked Decree 1719 and established the biodiesel export tax at eight percent (up from zero percent) as of January 1, 2018. Goods produced in and exported from the Special Customs Area (SCA) located in Tierra del Fuego province are exempt from export taxes. FOREIGN TRADE BARRIERS 28 The MERCOSUR CCC, which as noted above is not yet in effect, would restrict future export taxes and transition to a common export tax policy. Export Ban On July 2, 2016, pursuant to Decree 823/2016, Argentina implemented a 360-day ban on all exports of scrap of iron, steel, copper, and aluminum. On October 27, 2017, through Decree 848/2017, the government extended the ban for another 360 days. According to Decree 160/2015, issued on December 18, 2015, iron and steel scrap are subject to a 5 percent export tax, but this tax is not presently being collected due to the current export ban on these products. Export Registrations and Permits Since December 29, 2015, Argentina has required exporters of grains, oilseeds, and their derivatives to obtain Affidavits of Foreign Sales ( DJVE or Declaraciones Juradas de Ventas al Exterior) and register the exportation with the Office of Coordination and Evaluation of Subsidies to Domestic Consumption (UCESCI). Approved DJVEs are valid for 180 days, except DJVEs for wheat, which are valid for 45 days. In the case of soybeans and other soy products, exporters are required to pay 90 percent of the export tax at the time of the DJVE approval. On September 26, 2016, the Ministry of Agroindustry, together with the Ministry of Production and the Ministry of Treasury and Public Finances, issued Joint Resolution 1-E, extending the DJVE requirement for the 2016-2017 agricultural year. The government has not issued a subsequent resolution, but the DJVE requirement remains in effect. Prior to March 30, 2016, an export permit was required for the exportation of dairy products. However, the permit requirement was replaced by a requirement to obtain DJVEs to export. On December 12, 2017, the government issued Joint Resolution 4370-E, which revoked export permit requirements for beef exports, effective on December 19, 2017. SUBSIDIES In October 2014, Argentina launched the Ahora 12 program, which allows individuals to finance the purchase of certain domestically-manufactured goods, ranging from clothing to home appliances, as well as domestic tourism, in 12 monthly installments without interest. On December 1, 2016, the government launched the Ahora 18 program, which allows individuals to finance the purchase of the same types of domestically manufactured goods and domestic tourism in 18 monthly, interest-free installments. On April 1, 2017, the government launched the Ahora 3 y 6 program, which allows individuals to finance the purchase of clothing, footwear, certain leather goods, toys and board games in three or six monthly, interest-free installments. On December 29, 2017, the government extended all three programs through April 1, 2018. The list of goods qualifying for each of the programs can be found at: Argentina provides full or partial VAT refunds to exporters of consumer goods, agricultural goods, industrial goods, and processed foods. The Ministry of Agroindustry maintains a list of qualifying agricultural products. The refund scheme was updated in December 2016 through Decree 1341. That decree provides an additional percent VAT refund to exporters of products that are certified with geographic or origin indications; are certified as organic; or that meet quality and innovation standards that qualify the good to be labelled Argentine Food a Natural Choice. These certifications and labels are granted by the Ministry of Agroindustry. In May 2017, through Resolution 90-E, the Ministry of Agroindustry amended the scheme to prevent exporters from claiming multiple additional percent VAT refunds when a product meets more than one of the criteria listed above. In December 2017 and January 2018, through Decrees 1126/2017 and 01/2018, Argentina updated the list of eligible products and the FOREIGN TRADE BARRIERS 29 refund percentages associated with them. Decrees 1126/2017 and 01/2018 can be viewed at: and #!DetalleNorma/177068/20180103. GOVERNMENT PROCUREMENT Argentine law establishes a national preference for local industry for most government procurement if the domestic supplier s tender is no more than five percent to seven percent higher than the foreign tender. The amount by which the domestic bid may exceed a foreign bid depends on the size of the domestic company making the bid. The preference applies to procurement by all government agencies, public utilities, and concessionaires. There is similar legislation at the sub-national (provincial) level. On November 16, 2016, the government passed a public-private partnership (PPP) law (No. 27,328) that regulates public-private contracts. The law lowered regulatory barriers to foreign investment in public infrastructure projects with the aim of attracting more foreign direct investment. However, the law contains a Buy Argentina clause that mandates at least 33 percent local content for every public project. Argentina is not a signatory to the WTO Agreement on Government Procurement (GPA), but it is an observer of the GPA. INTELLECTUAL PROPERTY RIGHTS PROTECTION Argentina remained on the Priority Watch List in the 2017 Special 301 Report. The absence of sustained enforcement efforts including under the criminal laws sufficient to have a deterrent effect, coupled with judicial inefficiency and outdated intellectual property laws, diminish the competitiveness of intellectual property (IP)-intensive industries in Argentina. During 2017, Argentina made progress in tackling the problem of street vendors selling counterfeit products within the City of Buenos Aires. Authorities also took significant action, including substantial seizures of illicit goods and key arrests, to dismantle organized crime operations in La Salada, one of South America s largest black markets for counterfeit and pirated goods. The existing legislative regime and lack of enforcement hinder the ability of rights holders, law enforcement, and prosecutors to halt, through legal action, the growth of illegal online markets. The situation for innovators in the pharmaceutical and agrochemical sectors also presents significant concerns. First, the scope of patentable subject matter is significantly restricted under Argentine law. Second, the patent pendency backlog continues to be excessive, although the creation (in collaboration with the United States) in March 2017 of a Patent Prosecution Highway, a fast-track procedure for patent applications granted by a foreign office, as well as digitization of internal procedures and the hiring of additional patent examiners, may help to address the backlog. Finally, there is no means of adequate protection against unfair commercial use and unauthorized disclosure of undisclosed test and other data submitted to the government in conjunction with its lengthy and challenging marketing approval process. The United States will continue to engage Argentina on these and other IP issues. SERVICES BARRIERS Audiovisual Services The Argentine government imposes restrictions on the showing, printing, and dubbing of foreign films in Argentina. Argentina also charges ad valorem customs duties on film exports based on the estimated value of the potential royalty generated from the film in Argentina rather than on the value of the physical materials being imported. FOREIGN TRADE BARRIERS 30 Decree 1914/2006 requires that Argentine collection management organizations (CMOs) pay audiovisual performers royalties for cable retransmission of motion pictures and television programs. However, some performers and film and television directors have reported that they have not received royalties collected by these organizations for retransmitted motion pictures and television programs. The National Institute of Cinema and Audiovisual Arts taxes foreign films screened in local movie theaters. Distributors of foreign films in Argentina must pay screening fees that are calculated based on the number and geographical locations of theaters at which the films will be screened within Argentina. Films that are screened in 15 or fewer movie theaters are exempted. The Media Law, enacted in 2009 and amended in 2015, requires companies to produce advertising and publicity materials locally or to include 60 percent local content. The Media Law also establishes a 70 percent local production content requirement for companies with radio licenses. Additionally, the Media Law requires that 50 percent of the news and 30 percent of the music that is broadcast on the radio be of Argentine origin. In the case of private television operators, at least 60 percent of broadcast content must be of Argentine origin. Of that 60 percent, 30 percent must be local news, and 10 percent to 30 percent must be local independent content. Insurance Services Beginning in early 2011, the Argentine insurance regulator (SSN) prohibited cross-border reinsurance. As a result, Argentine insurers have been able to purchase reinsurance only from locally-based reinsurers. Foreign companies without local operations have not been allowed to enter into reinsurance contracts except when the SSN determines there is no local reinsurance capacity. In November 2016, SSN eased reinsurance restrictions to allow foreign companies to provide reinsurance up to 10 percent of the ceded premium, starting in January 2017. In May 2017, the SSN further eased the regulatory framework through Resolution 40422-E/2017, which allows local insurance companies to place a higher percentage of risk with foreign reinsurance companies, namely up to 50 percent of the ceded premium starting in July 2017, up to 60 percent by 2018, and up to 75 percent by 2019. In November 2017, the SSN issued Resolution 41057-E/2017, amending the investment regime for insurance companies. The Resolution prohibits insurance companies from purchasing (directly or indirectly through mutual funds) short-term Central Bank debt instruments (locally known as Lebac) for their investment portfolios. The SSN justified its decision based on risk management, arguing that insurance companies frequently have longer term liabilities. The resolution allows insurance companies to invest in closed-end funds, mortgage-backed securities, and assets of Public-Private Partnerships. SSN requires that all investments and cash equivalents held by locally-registered insurance companies be located in Argentina. Telecommunications Competition Telecommunication services are regulated by the Media Law and the Telecommunications Law. In 2015, Presidential Decree 267/2015 amended this law, imposing numerous burdensome restrictions on suppliers. In 2016, however, a second Presidential Decree (1340/2016) removed most of the restrictions imposed by the first decree. Although this remedied many of the competition issues created by the first decree, there remain unreasonable disparities in the regulation of satellite and terrestrial-based services under the Media Law and Telecommunications Law. In particular, terrestrial based providers can bundle services, whereas FOREIGN TRADE BARRIERS 31 satellite-based providers are prohibited from bundling their services with other Internet and telecommunications services offered by terrestrial-based providers. Decree 1340 grandfathered satellite television suppliers that already held licenses for information technology services to continue providing such services. However, without changes to the Media Law and Telecommunications Law to remove these regulatory disparities, there remains unnecessary uncertainty in the market. INVESTMENT BARRIERS Pension System In 2008, the Argentine Parliament approved a bill to nationalize Argentina s private pension system and transfer pension assets to the government social security agency. Compensation to investors in the privatized pension system, including to investors, is still pending and under negotiation. Foreign Exchange In November 2017, the government repealed, through Circular A 6,363, the obligation to convert hard currency earnings on exports of both goods and services to pesos in the local official foreign exchange market. This amendment completely lifted all previously existing exchange controls. Prior to repeal, the regulation had granted a maximum of 10 years for exporters to fulfill the requirement. In January 2017, Argentina issued Resolution 1, which eliminated a previous requirement that capital inflows into Argentina remain in the country for a minimum of 120 days. Localization Measures Argentina maintains certain localization measures aimed at encouraging domestic production. On July 5, 2016, the Ministry of Production and the Ministry of Energy and Mining issued Joint Resolutions 123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment for use in investment projects that incorporate at least 60 percent local content in their electromechanical installations. In cases in which local supply is insufficient to reach the 60 percent threshold, the threshold can be reduced to 30 percent. The resolutions also provide tax exemptions for imports of capital and intermediate goods that are not locally produced for use in investment projects. In September 2017, the Ministry of Production and the Ministry of Energy and Mining issued Joint Resolution 1/2017, which updated the list of goods that are tax exempt under the renewable energy regime and adjusted the technical criteria used to calculate the local content. Details on the resolution and Annex 1 can be found at: In November 2015, the government issued Resolution 1219, which went into effect in May 2016, requiring mobile and cellular radio communication equipment manufacturers operating in Tierra del Fuego to incorporate certain percentages of local content into their production processes and products, including batteries, screws, chargers, technical manuals, and packaging and labelling. The percentage of local content required ranges from 10 percent to 100 percent depending on the process or item. In cases where local supply is insufficient to meet local content requirements, companies may apply for an exemption. A detailed description of local content percentage requirements can be found at: FOREIGN TRADE BARRIERS 32 FOREIGN TRADE BARRIERS 33 AUSTRALIA TRADE SUMMARY The goods trade surplus with Australia was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to Australia were $ billion, up percent ($ billion) from the previous year. Corresponding imports from Australia were $ billion, up percent. Australia was the United States' 16th largest goods export market in 2017. exports of services to Australia were an estimated $ billion in 2017, and imports were $ billion. Sales of services in Australia by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Australia-owned firms were $ billion. foreign direct investment (FDI) in Australia (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Australia is led by nonbank holding companies, mining, and manufacturing. TRADE AGREEMENTS The United States-Australia Free Trade Agreement (FTA) entered into force on January 1, 2005. The United States and Australia meet regularly to review implementation. In addition to the United States, Australia has free trade agreements in force with Chile, China, Japan, Korea, Malaysia, New Zealand, Singapore, and Thailand, as well as the Association of Southeast Asian Nations (ASEAN) as a group. It is also a participant in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership trade negotiations, and the Pacific Agreement on Closer Economic Relations (PACER Plus) among Pacific Island nations. Australia has announced plans to launch FTA negotiations with the European Union and with the Pacific Alliance. SANITARY AND PHYTOSANITARY BARRIERS Animal Health Beef and Beef Products Australia requires completion of a complex approval process before it will permit the importation of bovine products from a country that has reported any indigenous cases of bovine spongiform encephalopathy (BSE). Under Australia s requirements, Food Standards Australia New Zealand (FSANZ) conducts an individual country risk analysis. In August 2013, an audit team from FSANZ conducted an inspection of production and processing facilities. In its final report, FSANZ found that the United States has comprehensive and well-established controls to prevent the introduction and amplification of the BSE agent within the cattle population and to prevent contamination of the human food supply with the BSE agent. It reported that beef imports from the United States are safe for human consumption and recommended Category 1 status under Australia s import requirements, indicating that beef from the United States meets the negligible BSE risk requirements of the World Organization for Animal Health (OIE) and can be imported subject to specific import conditions. and Australian officials are coordinating requirements for export certificates for heat-treated, shelf-stable beef products from the United States, after which the export of these products from the United States to Australia will be able to resume. FOREIGN TRADE BARRIERS 34 For fresh (chilled or frozen) beef and beef products, the Australian government in December 2015 announced the start of a review of its import requirements for three countries that have applied for eligibility to export to Australia: the United States, Japan, and the Netherlands. This review considered fresh (chilled or frozen) beef and beef products such as meat, bone, and offal of cattle, buffalo, and bison. The review concluded in August 2017, and the Department of Agriculture (USDA) is reviewing the final assessment. The next step will be to clarify with Australia the process it will follow to update its import regulations and engage the United States on the terms and conditions for fresh beef and beef product exports to Australia. Pork Pork and pork products are currently the top agricultural export to Australia, valued at $195 million in 2017. However, due to concerns about porcine reproductive and respiratory syndrome (PRRS) and post-weaning multisystemic wasting syndrome (PMWS), the importation of fresh/chilled pork and bone-in products is not permitted. The United States has requested that Australia remove all PRRS- and PMWS-related restrictions and has provided scientific evidence to document the safety of pork products. In addition, the OIE approved an international standard for PRRS in May 2017. Australia has requested additional scientific information from the United States. In December 2017, USDA Animal and Plant Health Inspection Service (APHIS) sent a scientific review paper on PRRS with a request that Australia re-open the import risk assessment for origin fresh/chilled/frozen pork. Access to the Australian market for fresh/chilled pork, bone-in pork, and pork products continues to be a high priority for the United States. Poultry Australia currently prohibits imports of uncooked poultry meat from all countries except New Zealand. While cooked poultry meat products may be imported, current import conditions (as set out in an import risk analysis) require that imported poultry meat products must be cooked to a minimum core temperature of 74 C for 165 minutes or the equivalent. This temperature requirement does not permit importation of cooked product that is suitable for sale in restaurants or delicatessens, thus limiting commercial opportunities. In 2012, Australia initiated an evaluation of whether it would grant access for cooked turkey meat to the Australian market under amended import conditions. The Australian government has been conducting an import risk analysis to assess this issue. In August 2016, the Australian Department of Agriculture and Water Resources released the draft review of cooked turkey meat from the United States for comment. Following public consultation, which ended in November 2016, the department is seeking further information from the United States on the prevalence of infectious bursal disease virus (IBDV) in turkeys. The department also is reviewing the definition of cooking after submissions received indicated that time and temperature requirements for cooking may be impractical for turkey products intended for export. USDA APHIS and the National Turkey Federation are coordinating a study to evaluate the prevalence of IBDV in commercial turkey flocks. A letter outlining the suggested approach to the prevalence study was sent to Australia in January 2018. The United States has identified the resolution of this issue as a high priority and continues to work with Australia to gain meaningful commercial market access for cooked turkey meat. FOREIGN TRADE BARRIERS 35 Plant Health Apples Australia prohibits the importation of apples from the United States based on concerns regarding several pests. In October 2009, Australia published a pest risk analysis for apples from the United States and identified three additional fungal pathogens of concern to Australian regulatory authorities. In December 2014, the United States provided information to Australia to support a systems approach. The Australian government requested additional information. Australia has agreed to provide information on its process for completing the import risk analysis for apples. GOVERNMENT PROCUREMENT Under the United States-Australia FTA, the Australian government opened its market for covered government procurement to suppliers, eliminating preferences for domestic suppliers and committing to use fair and transparent procurement procedures. Australia continues to pursue accession to the World Trade Organization s (WTO) plurilateral Agreement on Government Procurement (GPA). Australia presented a second revised offer to the GPA Committee in June 2017. At the completion of the June committee meeting, the WTO reported that Members viewed Australia s offer as strong or very strong, and that work to finalize Australia s accession had intensified and is nearing final stages. Certain Australian federal and state government procurement rules introduced in 2017 that appear to favor local suppliers have caused some international concerns. The new federal government procurement rules require agencies to consider the national economic benefit of all contracts awarded over a value of A$4 million (approximately $ million). While little guidance has been given on how national economic benefit should be interpreted, some foreign companies have expressed concern about the consistency of this requirement with Australia s trade obligations. The state of Queensland also introduced a Buy Queensland procurement policy in 2017. In the media statement for the policy, the Queensland Government stated that [the Queensland] Cabinet has agreed the State Government would no longer be constrained or bound by free trade agreements that have seen jobs go off-shore or interstate. INTELLECTUAL PROPERTY RIGHTS PROTECTION Australia generally provides strong intellectual property rights protection and enforcement through legislation that, among other things, criminalizes copyright piracy and trademark counterfeiting. Under the United States-Australia FTA, Australia must provide that a pharmaceutical product patent owner be notified of a request for marketing approval by a third party for a product claimed by that patent and provide measures in its marketing approval process to prevent persons other than the patent owner from marketing a patented product during the patent term. and Australian pharmaceutical companies have expressed concerns about delays in this notification process. The Government also has raised concerns about provisions in Australian law that impose a potential significant, unjustifiable, and discriminatory burden on the enjoyment of patent rights, specifically on the owners of pharmaceutical patents. SERVICES BARRIERS Audiovisual Services The Australian Content Standard of 2005 requires commercial TV broadcasters to produce and screen Australian content. Broadcasting content requirements include an Australian content quota of 55 percent FOREIGN TRADE BARRIERS 36 for transmissions between 6:00 and midnight in addition to minimum annual sub-quotas for Australian drama, documentary, and children s programs. A broadcaster must also ensure that Australian-produced advertisements occupy at least 80 percent of the total advertising time screened between the hours of 6:00 and midnight in a year. These local content requirements do not apply to cable or online programming. Australia s Broadcasting Services Amendment Act requires subscription TV channels with significant drama programming to spend 10 percent of their programming budgets on new Australian drama programs. This local content requirement applies to cable and satellite services but does not apply to new digital multi-channels or to online programming. The Australian commercial radio industry Code of Practice sets quotas for the broadcast of Australian music on commercial radio, which include a requirement that Australian performers account for at least 25 percent of all music broadcast between 6:00 and midnight. In July 2010, the Australian Communications and Media Authority introduced a temporary exemption from the Australian music quota for digital-only commercial radio stations ( , stations not also simulcast in analog). The exemption was renewed in 2014 and remains in effect. INVESTMENT BARRIERS Foreign direct investment into Australia is regulated by the Foreign Acquisitions and Takeovers Act 1975 and Australia s Foreign Investment Policy. The Foreign Investment Review Board (FIRB), a division of Australia s Treasury, screens potential foreign investments in Australia above a threshold value that stands at A$252 million (approximately $197 million) as of January 1, 2016. Based on advice from the FIRB, Australia s Treasurer may deny or place conditions on the approval of particular investments above the threshold on national interest grounds. Under the United States-Australia FTA, all greenfield investments are exempt from FIRB screening. In addition, under the FTA, non-greenfield investments are only screened above a (higher) threshold value, which stands at A$1,094 million (approximately $855 million) as of January 1, 2016. The FIRB has generally approved investments. All foreign persons, including investors, must notify the Australian government and get prior approval to make investments of five percent or more in enterprises in the media sector, regardless of the value of the investment. A number of recent instances of Australia s state or territorial governments cancelling existing foreign investment projects has prompted some concern about increased risks facing foreign investors in Australia. BARRIERS TO DIGITAL TRADE The United States-Australia FTA recognizes the importance of avoiding barriers to trade conducted electronically and commits Parties not to impose tariffs or otherwise discriminate against digital products distributed electronically ( , books, films, and music). In June 2017, Australia passed legislation to collect goods and services tax (GST) on previously exempt imported goods purchased online with a value less than A$1,000,000 (approximately $780 million). The legislation, Treasury Laws Amendment (GST Low Value Goods) Bill 2017, places the onus of GST collection and remittance on the overseas vendor. Only vendors with annual sales to Australian customers in excess of A$75,000 million (approximately $59,000 million) are subject to the legislation. The new tax arrangements will take effect on July 1, 2018, and apply to overseas merchants, online marketplaces, and re-deliverers. No regulation impact analysis was undertaken prior to the legislation being passed, meaning that a post-implementation review will likely be undertaken within the first two years. FOREIGN TRADE BARRIERS 37 The review will assess the effectiveness of the legislation, including compliance and alternative approaches to taxing online goods. As the laws have not taken effect, it remains unclear the effects they will have on companies and exports. FOREIGN TRADE BARRIERS 38 FOREIGN TRADE BARRIERS 39 BAHRAIN TRADE SUMMARY The trade balance with Bahrain shifted from a goods trade surplus of $131 million in 2016 to a goods trade deficit of $89 million in 2017. goods exports to Bahrain were $907 million, up percent ($8 million) from the previous year. Corresponding imports from Bahrain were $996 million, up percent. Bahrain was the United States' 80th largest goods export market in 2017. exports of services to Bahrain were an estimated $271 million in 2016 (latest data available) and imports were $ billion. Sales of services in Bahrain by majority affiliates were $319 million in 2015 (latest data available), while sales of services in the United States by majority Bahrain-owned firms were $ billion. foreign direct investment (FDI) in Bahrain (stock) was $548 million in 2016 (latest data available), a percent decrease from 2015. FREE TRADE AGREEMENTS The United States-Bahrain Free Trade Agreement Upon entry into force of the United States-Bahrain Free Trade Agreement (FTA) in August 2006, 100 percent of bilateral trade in industrial and consumer products and trade in most agricultural products became duty free. Duties on other products were phased out gradually over the first ten years of the Agreement. The FTA also provided a ten-year transitional period for preferential tariff treatment of certain quantities of textiles and apparel that did not meet the otherwise applicable requirements, in order to assist and Bahraini producers in developing and expanding business contacts. This provision expired on July 31, 2016, and now textiles and apparel must generally be made from or Bahraini yarn or fabric to benefit from preferential tariffs under the FTA. The United States-Bahrain Bilateral Investment Treaty, which took effect in May 2001, covers investment issues between the two countries. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Energy Drinks In 2016, the six Member States of the Gulf Cooperation Council (GCC), working through the Gulf Standards Organization (GSO), notified WTO Members of a draft regional regulation for energy drinks. The Government and private sector stakeholders have raised questions and concerns regarding the draft regulation, including labeling statements regarding recommended consumption and container size, as well as potential differences in labeling requirements among GCC Member States. Conformity Assessment Marking In December 2013, GCC Member States issued regulations on the GCC Regional Conformity Assessment Scheme and GCC G mark in an effort to unify conformity marking and facilitate the control process of the common market for the GCC Members, and to clarify requirements of manufacturers. and GCC officials continue to discuss concerns about consistency of interpretation and implementation of these regulations across all six GCC Member States, as well as the relationship between national conformity FOREIGN TRADE BARRIERS 40 assessment requirements and the GCC regulations, with the objective of avoiding inconsistencies or unnecessary duplication. Cosmetics and Personal Care Products GCC Member States notified WTO Members in April of 2017 of a new GSO proposed regulatory and conformity assessment scheme that will govern market authorization for cosmetics and personal care products. The United States raised concerns that neither the GCC nor its Member States have indicated whether the regional scheme will replace existing national-level registration requirements or will function in addition to national programs, potentially introducing a scenario whereby Member States require duplicative and discordant registration procedures for relatively low-risk cosmetic and personal care products. The Government and industry have also raised concerns that the measure is inconsistent with relevant international standards for cosmetics product safety. Sanitary and Phytosanitary Barriers In November 2016, the GCC announced that it would implement a GCC Guide for Control on Imported Foods in 2017. The United States has raised concerns about the Guide, particularly regarding the GCC s failure to offer a scientific justification for requiring certain health certificate statements, some of which may not follow relevant guidelines established by the Codex Alimentarius Commission, the International Plant Protection Convention, or the World Organization for Animal Health. The United States has requested that the GCC delay implementation of the Guide until experts are able to address these concerns. As of December 2017, GCC Member States have indefinitely suspended implementation of the Guide. IMPORT POLICIES Excise Taxes and Value-Added Tax Although GCC Member States agreed to introduce common GCC excise taxes on sweetened carbonated drinks, energy drinks, and tobacco products, implementation varies by Member State. Bahrain began to levy the taxes on December 30, 2017. beverage producers report that the current tax structure both fails to address public health concerns and disadvantages products, noting that sugary juices many of which are manufactured domestically remain exempt from the tax. GCC Member States agreed to introduce a common GCC value-added tax (VAT) of five percent; implementation of the VAT varies by Member State as well. GOVERNMENT PROCUREMENT Chaired by the Minister of Housing, the Tender Board oversees all tenders and purchases valued at BD 10,000 ($26,525) or more. The FTA requires covered entities in Bahrain to conduct procurements covered by the agreement in a fair, transparent and nondiscriminatory manner. Some companies have reported that they have faced prolonged and detrimental issues with the tendering process related to GCC-funded projects. The United States continues to monitor Bahrain s procurement system to ensure compliance with its trade obligations. Bahrain is an observer of but not a signatory to the WTO Agreement on Government Procurement. FOREIGN TRADE BARRIERS 41 INTELLECTUAL PROPERTY RIGHTS PROTECTION As part of its FTA obligations, Bahrain enacted several laws to improve protection and enforcement for copyrights, trademarks, and patents. However, Bahrain has yet to accede to the International Convention for the Protection of New Varieties of Plants (1991), a requirement under the FTA. Bahrain s record on intellectual property rights (IPR) protection and enforcement continues to be mixed. Over the past several years, Bahrain has launched several campaigns to block illegal signals and prohibit the sale of decoding devices in order to combat piracy of cable and satellite TV, and has launched several public awareness campaigns regarding IPR piracy. However, many counterfeit consumer goods continue to be sold openly. As GCC Member States explore further harmonization of their IPR regimes, the United States will continue to engage with GCC institutions and the Member States and to provide technical cooperation and capacity building programs on IPR policy and practice, as appropriate and consistent with resources and objectives. OTHER BARRIERS As a result of a 2015 ban on network marketing schemes, direct selling and multi-level marketing organizations are not allowed to operate in Bahrain. FOREIGN TRADE BARRIERS 42 FOREIGN TRADE BARRIERS 43 BANGLADESH TRADE SUMMARY The goods trade deficit with Bangladesh was $ billion in 2017, a percent decrease ($782 million) over 2016. goods exports to Bangladesh were $ billion, up percent ($559 million) from the previous year. Corresponding imports from Bangladesh were $ billion, down percent. Bangladesh was the United States' 68th largest goods export market in 2017. foreign direct investment (FDI) in Bangladesh (stock) was $616 million in 2016 (latest data available), a percent increase from 2015. IMPORT POLICIES Bangladesh s import policies are outlined in the Import Policy Order 2015-2018 issued by the Ministry of Commerce. The Import Policy Order has two lists, a List of Controlled Goods and List of Prohibited Goods . All imports, except for capital machinery and raw materials for industrial use, must be supported by a letter of credit. A letter of credit authorization form and a cash bond (ranging from 10 percent to 100 percent of the value of the imported good) are also required. Foreign exchange is controlled by the Bangladesh Bank the central bank in accordance with Foreign Exchange Control policies. Tariffs The Import Policy Order is the primary legislative tool governing customs tariffs. Tariffs are a significant source of government revenue, which greatly complicates efforts to lower tariff rates. Bangladesh levies tariffs at four primary levels of imported goods and publishes the applied rates at: Generators, information technology equipment, raw cotton, textile machinery, certain types of machinery used in irrigation and agriculture, animal feed for the poultry industry, certain drugs and medical equipment, and raw materials imported for use in specific industries are generally exempt from tariffs. Samples in reasonable quantity can be carried by passengers during travel and are not subject to tariffs; however, samples are subject to tariffs if sent by courier. USAID s Bangladesh Trade Facilitation Activity supported the government s efforts to develop the Enhanced Customs Website ( ) that provides a one-stop shop for importers and exporters to calculate rates and access any required forms. The average MFN applied tariff rate is percent with average rates of percent for agricultural products and percent for non-agriculture products in 2016. According to the 2017-2018 Bangladesh Customs Tariff Schedule, the maximum MFN applied tariff rate is 25 percent. Products subject to rates of from 5 percent to 25 percent include general input items, basic raw materials, and intermediate and finished goods. Bangladesh provides concessions for the import of capital machinery and equipment, as well as for specified inputs and parts, which makes determinations of tariff rates a complex and non-transparent process. Other charges applicable to imports are an advance income tax of 5 percent; a value-added tax (VAT) of zero to 15 percent, with exemptions for input materials previously mentioned; and a supplementary duty of zero to 350 percent, which applies to certain new vehicles or luxury items such as cigarettes, alcohol, and perfume. FOREIGN TRADE BARRIERS 44 In the fiscal year 2017-2018, the government of Bangladesh has imposed export duties of 4 percent to 25 percent on 17 product categories, including rice bran, tobacco, cigarettes, liquefied petroleum gas cylinders (capacity below 5,000 liters), cotton waste, and ceramic bricks. Bangladesh has abolished excise duties on all locally produced goods and services, with certain exceptions. For example, services rendered by banks or financial institutions are subject to a tax on each savings, current, loan, or other account with balances above defined levels. Nontariff Measures All importers, exporters, and brokers must be members of a recognized chamber of commerce as well as members of a Bangladesh organization representing their trade. Import Licenses In general, documents required for importation include a letter of credit authorization form, a bill of lading or airway bill, commercial invoice or packing list, and certificate of origin. For certain imported items or services, additional certifications or import permits related to health, security or other matters are required by the relevant government agencies. Reduced documentation requirements apply for the public sector. Bangladesh imposes registration requirements on commercial importers and private industrial consumers. In some cases, the registrations specify maximum values of imports. Commercial importers are defined as those who import goods for sale without further processing. Private industrial consumers are units registered with one of four sponsoring agencies: the Bangladesh Export Processing Zones Authority, for industries located in the Export Processing Zones (EPZs); the Bangladesh Small and Cottage Industries Corporation, for small and medium-sized enterprises; the Handloom Board, for handloom industries run by weavers associations engaged in the preservation of classical Bangladesh weaving techniques; and the Bangladesh Investment Development Authority (BIDA) (formerly the Board of Investment), for all other private industries. Commercial importers and private industrial consumers (with the exception of those located in EPZs) must register with the Chief Controller of Imports and Exports within the Ministry of Commerce. The Chief Controller issues import registration certificates (IRC). An IRC is generally issued within 10 days of receipt of the application. Commercial importers are free to import any quantity of non-restricted items. For industrial consumers, the IRC specifies the maximum value (the import entitlement ) for each product that the industrial consumer may import each year, including items on the restricted list for imports. The import entitlement is intended as a means to monitor imports of raw materials and machinery, most of which enter Bangladesh at concessional duty rates. Registration Certificate Registered commercial and industrial importers are classified into six categories based on the maximum value of annual imports. Initial registration fees and annual renewal fees vary depending on the category. For example, for the sixth category, which applies if annual imports exceed approximately $640,000, the initial registration fee is approximately $770 and the renewal fee is approximately $385. An importer must apply in writing to the concerned Import Control Authority (ICA) for registration in any of the six categories, and provide necessary documents, including an original copy of the Chalan (the Treasury payment form) as evidence of payment of the required registration fees. The ICA makes an endorsement under seal and signature on the IRC for each importer, indicating the maximum value of annual imports and the renewal fee. An importer may not open a letter of credit in excess of the maximum value FOREIGN TRADE BARRIERS 45 of annual imports. Indentors (representatives of foreign companies or products compensated on a commission or royalty basis) and exporters must also pay registration and renewal fees, of approximately $500 and $250, and $90 and $60, respectively. Double Fumigation of Origin Cotton Bangladesh requires imported cotton be fumigated at the Chittagong Port for boll weevil. cotton exporters and Bangladeshi cotton importers have described this requirement as unnecessary because cotton is already fumigated for boll weevil in the United States. This additional fumigation adds 1 to 2 cents to the cost of each imported bale, which decreases demand for cotton and increases costs for Bangladeshi importers. The United States continues to press the government of Bangladesh to eliminate unnecessary import restrictions for cotton. Pharmaceutical Products From 2012 to October 2017, pharmaceutical companies reported that they were denied access to the Bangladesh market due to informal guidance from the Director General of the Drug Administration (DGDA) and the Ministry of Commerce to limit imports of drugs that can be produced domestically. and international pharmaceutical companies are normally required to request import licenses called indents, which are reviewed by the DGDA s Standing Committee for Import composed of DGDA officials and domestic pharmaceutical producers. The DGDA began decreasing import volumes beginning in 2015 and by October 2017 had blocked all imports of certain pharmaceutical products that competed with domestic producers. The DGDA began approving importation of certain drugs in October 2017, but pharmaceutical companies remain concerned that this resolution is only temporary. GOVERNMENT PROCUREMENT Government procurement is primarily undertaken through public tenders under the Public Procurement Act of 2006 and conducted by the Central Procurement Technical Unit (CPTU). The CPTU was established in April 2002 as a unit within the Implementation Monitoring and Evaluation Division (IMED) of the Ministry of Planning. A Director-General who reports directly to the Secretary of IMED leads the CPTU. The government of Bangladesh publicly subscribes to principles of international competitive bidding; however, charges of corruption are common. Bangladesh recently launched a national electronic Government Procurement portal at , but companies have raised concerns about the use of outdated technical specifications, the structuring of specifications to favor preferred bidders, and a lack of overall transparency in public tenders. Several companies have noted that their foreign competitors often use their local partners to influence the procurement process and to block awards to otherwise competitive company bids. Bangladesh is not a signatory to the WTO Agreement on Government Procurement. INTELLECTUAL PROPERTY RIGHTS PROTECTION Although Bangladesh has shown improved enforcement of intellectual property rights (IPR), counterfeit goods continue to be widely available, and music and software piracy are widespread. companies and other international companies in the software, publishing, clothing, and consumer product industries complain that inadequate IPR enforcement damages their business prospects in Bangladesh and, in certain cases, damages them in other markets due to pirated physical goods sourced from Bangladesh. Bangladesh is in the initial stages of formulating a national intellectual property policy, which holds promise in FOREIGN TRADE BARRIERS 46 addressing the challenges facing IPR holders in Bangladesh, but the effort has unfortunately not made measurable progress during the past year. Foreign software companies face significant challenges registering and enforcing their copyrights in Bangladesh. Although recognition for certain foreign country copyrights was granted as a result of the annual bilateral trade talks between the United States and Bangladesh, the Trade and Investment Cooperation Framework Agreement, Bangladesh has not yet instituted a notification system using its official gazette that would make enforcement of these rights practicable. The United States Government, including the Patent and Trademark Office and the Department of Justice, continue to provide technical assistance to Bangladesh on intellectual property rights protection and enforcement. SERVICES BARRIERS Foreign companies are allowed to provide services in Bangladesh except in sectors that are subject to administrative licensing processes. However, new market entrants face significant restrictions in most regulated commercial fields (including telecommunications, banking, and insurance), some of which are targeted towards and other international companies. There have been reports that licenses are not always awarded in a transparent manner. Transfer of control of a business from local to foreign shareholders requires prior approval from the Bangladesh Bank (control is defined as the ability to control the board of directors or a majority of the directors). In 2016, the Bangladesh Investment Development Authority (BIDA) was formed from the merger of the Board of Investment and the Privatization Commission. BIDA s goal is to push for implementation of a One-Stop Service Act (OSSA) and to become Bangladesh s one-stop private investment promotion and facilitation agency. BIDA expects to launch the One-Stop Service Center ' on a pilot basis by mid-2018, but OSSA is still awaiting parliamentary approval. Telecommunications In 1997 the government of Bangladesh opened telecommunications services to increased competition by removing the sector from the Reserve List and established the Bangladesh Telecommunication Regulatory Commission (BTRC) as the regulatory authority in 2001. The BTRC was established to facilitate dependable telecommunication services, with the mobile sector as its primary focus. Yet BTRC s licensing practices limit foreign participation in the telecommunications industry. Furthermore, frequent changes to regulations and tax policy in the sector increase business uncertainty, thereby decreasing the incentive to invest. Bangladesh imposes the highest taxes on mobile services of any country in South Asia. Under the present tax regime, the mobile industry is taxed like a supplier of luxury goods, with a series of taxes imposed at various levels of operation. Mobile network operators pay percent of their revenue to the BTRC as a spectrum fee, 1 percent of their revenue into a social obligation fund, and approximately $633,000 as an annual licensing fee. A tax of approximately $ is imposed on the sale of SIM cards, and a three percent supplementary duty is applied to charges for phone usage. Handsets are subject to a 15 percent import duty. Under the 2013-2014 Finance Act, the corporate income tax rate for listed telecommunications companies was raised to 40 percent from the prior rate of 35 percent, while the corporate income tax rate for mobile service providers that are not publicly listed in the Bangladesh capital markets is 45 percent. Taxation of the mobile industry represents the largest source of tax revenue for the government of Bangladesh. The high tax rates adversely affect the telecommunication industry s growth and expansion. Moreover, the National Board of Revenue has sought to apply new telecommunication tax policies retroactively. For example, government regulators have sought to levy taxes on mobile providers that sold SIM cards between July 2009 and December 2011 without providing regulators with the notice called for under later FOREIGN TRADE BARRIERS 47 regulations. In addition, the BTRC is in the process of drafting new mobile network tower sharing guidelines. However, the process for drafting these guidelines has been delayed for nearly four years. In the latest draft, foreign companies shareholding limit was raised to 70 percent from the previous limit of 40 percent. The revised draft guidelines will also allow four companies to manage mobile towers in Bangladesh, but will limit mobile phone operators ownership of tower infrastructure. According to the National Telecommunication Policy, foreign investors in the telecommunications sector are encouraged to demonstrate their commitment to Bangladesh by forming joint ventures with local companies, but the government will consider equity participation of up to 100 percent of the overall shareholdings. Insurance Section 22 of the Insurance Act of 2010 allows foreign investors to buy or hold shares in an insurance company, and permits exclusively foreign-owned companies to supply insurance without local or state-owned enterprise equity participation. However, companies have reported that permission to open branch offices can be politically influenced and, notwithstanding the Insurance Act. The government of Bangladesh is not permitting new exclusively foreign-owned companies into the insurance market. Rather, foreign insurance firms can hold a stake of up to 60 percent in an insurance company in Bangladesh. To attract more multinational insurers into the market, the government has outlined plans that would increase the percentage stake foreign firms are permitted to hold. companies have also raised concerns that the Bangladesh Bank is not permitting commercial banks to market and sell life insurance products. The Bangladesh Bank has raised concerns about potential financial exposure, but companies assess there is no risk for foreign-owned commercial banks because the parent companies take on all the risk for their products. The United States continues to press the Bangladesh Bank to reconsider its restriction on marketing life insurance products via commercial banks. National Payment Switch In December 2012, the government began phasing in a National Payment Switch of Bangladesh (NPSB) for processing electronic transactions through various channels, including ATMs, point of sale (POS), mobile devices, and the Internet. The main objectives of the NPSB are to create a common electronic platform for payments throughout Bangladesh, facilitate the expansion of debit and credit card-based payments, and promote electronic commerce. NPSB is owned by Bangladesh Bank, which is also the regulator of financial transactions. Initially, only ATM transactions were routed through the NPSB. However, Bangladesh intends to expand the system and, at present, seems to be requiring certain point of sale transactions to be routed through the system. In practical terms, through this expanding prohibition on cross-border processing, the NPSB is limiting the ability of global suppliers of electronic payment services to participate in the market. On August 24, 2017, the Bangladesh Bank issued formal guidance requiring financial institutions to use the NPSB to process domestic ATM and POS transactions starting December 31, 2017. The Bangladesh Bank previously provided informal guidance to domestic banks encouraging them to use the NPSB, but the August 24 circular is the first time the Bank has formally instructed domestic banks that they must use the NPSB. Bangladesh Bank s position as both regulator and market participant creates a formidable barrier for competitors to the NPSB. There are initial indications that the Bangladesh Bank will postpone implementation of the NPSB requirements for at least one year. Security of NPSB transactions is another issue raised by market participants. The NPSB can only process FOREIGN TRADE BARRIERS 48 magnetic strip data and cannot yet process the data stored on secure chips. Banks and payment networks have requested that the Bangladesh Bank review its policies on the NPSB and hold discussions with all stakeholders to address their security concerns. The United States has passed concerns to the Bangladesh Bank and continues to encourage a constructive dialogue between the central bank and companies. Broadcasting According to the Bangladesh Telecommunication Act of 2001, the government must approve licenses for foreign-originating channels. Foreign television distributors are required to pay a 25 percent supplementary fee on revenue from licensed channels. FOREIGN DIRECT INVESTMENT Foreign investors can establish, own, operate, and dispose of interests in most types of business enterprises in Bangladesh. Four sectors are reserved for government investment and therefore closed to both foreign and domestic private sector activity: 1) arms and ammunition and other defense equipment and machinery; 2) forest plantation and mechanized extraction within the bounds of reserved forests; 3) nuclear energy production; and 4) security printing (currency and post stamps). In addition, there are 17 controlled sectors in which prior government approval is required prior to an investment being made. These include banking and insurance, telecommunications, and the exploration, extraction, and supply of mineral resources, including oil and gas. While discrimination against foreign investors is not widespread, the government frequently promotes local industries and some discriminatory policies and regulations do exist. In practical terms, foreign investors frequently find it necessary to have a local partner even though this requirement may not be statutorily defined. In 2017, the government also rejected foreign investment projects on the basis of geopolitical concerns. OTHER BARRIERS Bureaucratic inefficiencies often discourage investment in Bangladesh. Overlapping administrative procedures and a lack of transparency in regulatory and administrative systems can frustrate investors seeking to undertake projects in the country. Frequent transfers of top- and mid-level officials in various government agencies are disruptive and prevent timely implementation of both strategic reform initiatives and routine duties. While repatriation of profits and external payments is allowed under current law, and other international investors have raised concerns that outbound transfers from Bangladesh remain cumbersome and that approvals to repatriate profits or dividends can be subject to significant delays. and other international investors have also raised concerns that the National Board of Revenue has arbitrarily reopened sometimes decades-old tax cases, targeting in particular cases involving multinational companies. Extortion of money from businesses by individuals claiming political backing is common in Bangladesh. Other impediments to business include frequent transportation blockades called by political parties, which can both keep workers away and block deliveries, resulting in productivity losses. Vehicles and other property are at risk from vandalism or arson during such blockades, and looting of businesses has also occurred. Land disputes are common, and both companies and citizens have filed complaints about fraudulent land sales. For example, sellers fraudulently claiming ownership have transferred land to good faith purchasers while the actual owners were living outside of Bangladesh. In other instances, FOREIGN TRADE BARRIERS 49 dual citizens have purchased land from legitimate owners only to have third parties make fraudulent claims of title to extort settlement compensation. Corruption remains a serious impediment to investment in Bangladesh. While the government has established legislation to combat bribery, embezzlement, and other forms of corruption, enforcement is inconsistent. While the 2007-2008 caretaker government attempted to address the culture of corruption in Bangladesh, including by strengthening the role of the Anti-Corruption Commission (ACC) continuous efforts to ease public procurement rules and proposals to curb the independence of the ACC have undermined limited efforts toward institutional r e f o r m. A 2013 amendment to the ACC Law removed the ACC s authority to sue public servants without prior government permission. While the ACC has increased pursuit of cases against lower-level government officials and some higher-level officials, there remains a large backlog of cases. Concerns over industrial relations practices and the safety of infrastructure have discouraged greater investment and trade. The rapid growth of the ready-made garment sector in in the past two decades led to unregulated expansion in the number and size of factories. The collapse of the Rana Plaza building and the death of 1,129 workers in April 2013 highlighted health and safety concerns in the country s factories and the lack of effective oversight and regulation. Bangladesh s eligibility for the Generalized System of Preferences (GSP) was suspended in June 2013 as a result of failure to meet the program s mandatory criteria regarding internationally recognized worker rights. Recent initiatives by the government of Bangladesh, international garment buyers, and the International Labor Organization have led to improvements in factory safety standards and transparency over the past four years, although remediation of safety issues has progressed unevenly. A lack of meaningful progress towards labor law reform overall, including in the country s export processing zones, has also been a major point of concern for Bangladeshi and international stakeholders. Limited protections for labor organizations, weak enforcement of existing protections, and long delays in the labor court system have led to a deep distrust of sanctioned association and bargaining processes, and a reliance on unofficial or wildcat industrial actions. FOREIGN TRADE BARRIERS 50 FOREIGN TRADE BARRIERS 51 BOLIVIA TRADE SUMMARY The trade balance with Bolivia shifted from a goods trade deficit of $318 million in 2016 to a goods trade surplus of $29 million in 2017. goods exports to Bolivia were $595 million, down percent ($63 million) from the previous year. Corresponding imports from Bolivia were $566 million, down percent. Bolivia was the United States' 88th largest goods export market in 2017. foreign direct investment (FDI) in Bolivia (stock) was $546 million in 2016 (latest data available), a percent increase from 2015. SANITARY AND PHYTOSANITARY BARRIERS The National Agricultural Health and Food Safety Service (SENASAG) is responsible for certifying the health safety status of products for domestic consumption, including imports, and for issuing sanitary and phytosanitary import permits. Importers have voiced concerns regarding SENASAG s transparency, including the inconsistent application of agricultural health and food safety standards and regulations. While SENASAG approved imports of live cattle and bovine genetics in 2015, beef, poultry, pork and dairy products are not permitted entry. The United States will continue to engage with Bolivia in efforts to obtain market access for these products. Importers also have raised concerns regarding the inconsistent application of import regulations by Bolivia s Agency for Medicines and Medical Technologies (AGEMED). IMPORT POLICIES Bolivia s constitution, adopted in February 2009, establishes broad guidelines to give priority to local production. However, to date, the only legislation enacted to support this requirement is Law 144 (the Productive Revolution Law ) approved on June 26, 2011. The Productive Revolution Law supports communal groups and unions of small producers in an effort to bolster domestic food production. It allows the production, importation, and commercialization of genetically modified products, though it calls for mandatory labeling. The Bolivian government has yet to issue regulations to implement the Productive Revolution Law. However, on October 15, 2012 the Bolivian government passed the Mother Earth Law (Ley de Madre Tierra) that calls for the phased elimination of all genetically modified products from the Bolivian marketplace. Implementing regulations have not yet been issued due in part to objections from Bolivian industry. Tariffs Bolivia s MFN tariff structure consists of seven rates ranging from zero to 40 percent. In 2017, Bolivia s simple average applied tariff was percent. The rates in principle apply according to the category of the product: zero percent for capital goods (machinery and equipment) and certain meat and grain products; five percent for capital goods and inputs; 15 percent for fruit, vegetables, fish, and raw materials for manufacturing plastics; 20 percent for other manufactures and value-added products; 30 percent for cigarettes, wooden doors, and windows; and 40 percent for clothing and accessories, alcoholic beverages, wooden furniture and footwear. Bolivian legislation also allows the government to raise tariffs if necessary to protect domestic industry, or alternatively, to lower tariffs if supplies run short. Import Restrictions/Licenses FOREIGN TRADE BARRIERS 52 Bolivian law authorizes prohibitions on the import of goods on the basis that the goods may affect human and animal life or health, or are harmful to the protection of plants, morality, the environment, the security of the state, or the nation s financial system. In 2017, prohibitions applied to 33 tariff lines. Prohibited items included radioactive residues; halogenated derivatives of hydrocarbons; arms, ammunition, and explosives; worn clothing; and some types of vehicles and motor vehicles, in particular vehicles using liquefied gas and used motor vehicles over one year old, motor vehicles over three years old for the transport of more than ten persons, and special-purpose motor vehicles over five years old. Other products require prior authorization before they can be imported. In 2017, prior authorization was required for 719 ten-digit tariff lines. Prior authorization, similar to an import prohibition, is generally presented as a way to protect human and animal health or life, or to protect plants and conserve exhaustible natural resources, or to protect the security of the state. Bolivian law also permits the use of prior authorization to protect domestic industry. Prior authorizations may be automatic or non-automatic, and examples of products requiring prior authorization include: mineral products, chemical products, plastics and rubber, pulp and paper, textiles, footwear and headgear, precious stones, machinery and appliances, precision equipment, arms and ammunition, and some miscellaneous manufactures. GOVERNMENT PROCUREMENT In 2004, Bolivia enacted the Compro Boliviano (Buy Bolivian) program through Supreme Decree 27328. This program supports domestic production by giving preference margins to domestic producers or suppliers in government procurement. Under procurement rules that were modified in 2007 and 2009, the government must give priority to small and micro-producers and to peasant associations in procurements under $100,000. In addition, the government requires fewer guarantees and imposes fewer requirements on Bolivian suppliers that qualify as small or micro-producers or as peasant associations. Bolivian companies also are given priority in government procurement valued between $142,000 and $ million. Importers of foreign products can participate in these procurements only where locally manufactured products and local service providers are unavailable or where the Bolivian government does not initially select a domestic supplier. In such cases, or if a procurement exceeds $ million, the government can call for an international tender. There is a requirement that foreign companies submitting a tender for government consultancy contracts do so in association with a Bolivian company, but the Bolivian government has been known to make exceptions in strategic sectors, as defined by the government. As a general matter, the tendering process is nontransparent. Government requirements and the details of the tender are not always defined, and procurement notices are not always made public. For example, none of the government-owned strategic sector companies, including the state-owned oil and gas company, Yacimientos Petrol feros Fiscales Bolivianos, the state-owned electricity company Empresa Nacional de Electricidad, and the state lithium company, Yacimientos de Litios Bolivianos, is required to publish tenders through the official procurement website, Sistema de Informaci n de Contrataciones Estatales. Concerns have been raised that these state-owned companies are not required to follow the procedures established in the national procurement law. Direct procurement of goods and services by the Bolivian government has grown, and in 2016, direct procurement exceeded public invitations to tender, according to Bolivian government procurement statistics. Bolivia is not a signatory to the WTO Agreement on Government Procurement. INTELLECTUAL PROPERTY RIGHTS PROTECTION Bolivia was on the Watch List in the 2017 Special 301 report. The report noted that challenges continue with respect to adequate and effective IPR protection and enforcement. While certain Bolivian laws provide FOREIGN TRADE BARRIERS 53 for the protection of copyrights, patents, and trademarks, significant concerns remain about trade secret protection. Significant challenges persist with respect to widespread piracy and counterfeiting. The report encouraged Bolivia to improve its weak protection of IPR. INVESTMENT BARRIERS Bolivia s 2009 constitution calls for a limit on foreign companies access to international arbitration in cases of conflicts with the government. The constitution also states that all bilateral investment treaties (BITs) must be renegotiated to adjust to this and other new constitutional provisions. Citing these provisions, in June 2012, the Bolivian government became the first BIT partner to terminate its BIT with the United States. Existing investors in Bolivia at the time of termination continue to be protected by the BIT s provisions for 10 years after the termination of the treaty. The government of Bolivia emphasizes public ownership of strategic enterprises. In an effort to control key sectors of the economy, the Bolivian government has obtained (through legally required contract renegotiations) majority ownership in a number of companies in the hydrocarbons, electricity, mining, and telecommunications sectors. The Bolivian government also uses means other than nationalization to re-establish public sector control over the economy. In the past few years, the Bolivian government created dozens of public companies in strategic sectors such as food production, industrialization of natural resources, air travel, banking, and mining. Private sector entities have expressed concern that these public companies engage in subsidized, unfair competition leading to a state-driven economic system. The Bolivian constitution includes requirements for state involvement in natural resource companies. The constitution states that all natural resources shall be administered by the government of Bolivia. The government grants ownership rights and controls the exploitation, exploration, and industrialization of natural resources through public companies, communities, and private companies in joint ventures with the with government entities and government-owned companies. With respect to hydrocarbon resources, Article 359 of the 2009 constitution stipulates that all hydrocarbon deposits, whatever their state or form, belong to the government of Bolivia. No concessions or contracts may transfer ownership of hydrocarbon deposits to private or other interests. The Bolivian government exercises its right to explore and exploit hydrocarbon reserves and trade-related products through the state-owned Yacimientos Petrol feros Fiscales Bolivianos (YPFB). Since 2006, YPFB has benefitted from nationalization laws that required operators to turn over all production to YPFB and sign new contracts that give the company control over the distribution of gasoline, diesel fuel, and liquefied petroleum gas. Since 2009, Article 359 has allowed YPFB to enter into joint venture contracts for limited periods of time with domestic or foreign entities wishing to exploit or trade hydrocarbons or their derivatives. Outside the hydrocarbons sector, the Bolivian government changed the mining code in 2014, requiring all companies wishing to operate in the mining sector to enter into joint ventures with the state mining company, Corporaci n Minera de Bolivia. Bolivia s 2011 Telecommunications Law stipulates that foreign investment in broadcasting companies may not exceed 25 percent and that broadcasting licenses may not be granted to foreign persons. Priority is also given to Bolivian investment over foreign investment in financial activities. Bolivian labor law limits foreign firms ability to globally staff their companies by restricting foreign employees to 15 percent of the work force. FOREIGN TRADE BARRIERS 54 FOREIGN TRADE BARRIERS 55 BRAZIL TRADE SUMMARY The goods trade surplus with Brazil was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to Brazil were $ billion, up percent ($ billion) from the previous year. Corresponding imports from Brazil were $ billion, up percent. Brazil was the United States' 10th largest goods export market in 2017. exports of services to Brazil were an estimated $ billion in 2017 and imports were $ billion. Sales of services in Brazil by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Brazil-owned firms were $ billion. foreign direct investment (FDI) in Brazil (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Brazil is led by manufacturing, finance/insurance, and nonbank holding companies. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Telecommunications Acceptance of Test Results Pursuant to Resolution 323 of November 2002, the Brazilian National Telecommunications Agency (ANATEL) requires testing of telecommunication products and equipment by designated testing facilities in Brazil, rather than allowing testing by a facility certified by an independent certification body. The only exception is in cases where the equipment is too large or too costly to transport to the designated testing facilities. Because of these requirements, manufacturers and exporters must present virtually all of their information technology and telecommunication equipment for testing at laboratories located in Brazil before that equipment can be placed on the Brazilian market. This redundant testing increases costs for exporters and can delay the time to market for their products. At the end of November 2017, ANATEL issued a draft regulation for the Conformity Assessment and Approval of Telecommunications Equipment, which, if adopted, would replace existing regulations that govern the conformity assessment process for telecommunications equipment in Brazil (Resolution 242/2000 and 323/2002). The United States is monitoring developments and analyzing the potential effects of the proposed changes. The United States has urged Brazil to implement the Inter-American Telecommunication Commission (CITEL) Mutual Recognition Agreement (MRA) with respect to the United States. Under the CITEL MRA, CITEL participants may agree to provide for the mutual recognition of conformity assessment bodies and mutual acceptance of the results of testing and equipment certification procedures undertaken by those bodies to determine whether telecommunication equipment meets the importing country s technical regulations. The United States and Brazil are both participants in CITEL. If Brazil implemented the CITEL MRA with respect to the United States, it would benefit suppliers seeking to sell telecommunication equipment in the Brazilian market by accepting product testing and certification conducted in the United States to meet Brazil s technical requirements. Conformity Assessment Procedures for Toys In December 2016, Brazil s National Institute of Metrology, Quality, and Technology (INMETRO) issued a final measure providing for testing and conformity assessment requirements for toys (Ordinance FOREIGN TRADE BARRIERS 56 563/2016). The measure will enter into force on December 30, 2018. Since July 2014, INMETRO had been developing new testing requirements (Ordinances 310/2014; 489/2014; 428/2015; and 597/2015), which are intended to improve conformity assessment procedures and consolidate all toy-related certification requirements into a single measure. Under previous regulations, toy manufacturers were required to register manufacturing facilities; the new regulation goes further and requires the registration of each toy as part of a family of products. In addition, it appears that product labels have to bear a separate registration number for each product family, which must be obtained through a new Object Registration (Registro de Objeto) system prior to importation. The application of the new Object Registration system to toys is expected to increase the complexity of the existing certification system, create delays in importing toys, and increase costs for importers and Brazilian consumers. This system also requires exporters to submit commercially sensitive and confidential business information. Quality Requirements for Wine and Derivatives of Grape and Wine In May 2016, Brazil notified to the WTO Committee on Technical Barriers to Trade (TBT) a draft technical regulation to set the official identity and quality standards for wine and derivatives of grape and wine products. The Government and industry submitted comments on the draft regulation in July 2016. Previous drafts of this measure were notified to the TBT Committee in 2010 and 2015. industry remains concerned that Brazil s definition of wine coolers and wine cocktails is overly trade-restrictive and does not allow for the addition of colors, aromas, and flavors that are already permitted in spirits-based beverages. There are also concerns with the measure s analytical parameters for laboratory analysis that do not correlate with the safety and quality of the product. The United States seeks to clarify the varieties of grapes that are allowed to make fine wine, the types of sugars that may be added to wine for sweetening, and pesticides that are permitted in the production process. The United States has raised concerns with Brazil regarding the drafts of this measure at TBT Committee meetings and submitted detailed written comments as part of Brazil s 2017 WTO Trade Policy Review. We will continue to raise concerns and seek clarifications as Brazil works on this measure in 2018. Sanitary and Phytosanitary Barriers Pork fresh, frozen, and further processed pork products are ineligible for import into Brazil. Brazil has indicated it will only authorize imports of pork and pork products that have been tested and shown to be free of trichinae, or if mitigation measures are enforced in the production process. The United States does not consider these import requirements for trichinae to be scientifically justified, as pork producers maintain stringent biosecurity protocols that have virtually eradicated the incidence of trichinae in commercial herds. In August 2016, the Department of Agriculture proposed a export certificate for fresh pork and pork products to the Ministry of Agriculture, Livestock, and Food Supply (MAPA). The United States has raised this proposal in various engagements with Brazil, including in November 2017. We will continue to work with MAPA in 2018 to gain approval of the proposed export certificate. IMPORT POLICIES Tariffs Brazil is a founding member of the Southern Common Market (MERCOSUR) customs union, formed in 1991 and comprised of Argentina, Brazil, Paraguay, and Uruguay. (Venezuela has been suspended from MERCOSUR since December 2016). MERCOSUR s Common External Tariff (CET) ranges from zero to 35 percent ad valorem and averages percent. The CET allows for a limited number of exceptions, but FOREIGN TRADE BARRIERS 57 Brazil s import tariffs generally follow the MERCOSUR CET. Brazil s MFN applied tariff rate averaged 10 percent for agricultural products and percent for non-agricultural products in 2016 (latest data available). Brazil s simple average WTO bound tariff rate is significantly higher at percent for agricultural products and percent for non-agricultural products. Brazil s maximum bound tariff rate for industrial products is 35 percent, while its maximum bound tariff rate for agricultural products is 55 percent. Given the large disparities between bound and applied rates, exporters face significant uncertainty in the Brazilian market because the government frequently increases and decreases tariffs to protect domestic industries from import competition and to manage prices and supply. The lack of predictability with regard to tariff rates makes it difficult for exporters to forecast the costs of doing business in Brazil. Brazil imposes relatively high tariffs on imports across a wide range of sectors, including automobiles, automotive parts, information technology and electronics, chemicals, plastics, industrial machinery, steel, and textiles and apparel. Under a July 16, 2015, MERCOSUR Common Market Council decision, Brazil is permitted to maintain 100 exceptions to the CET until December 31, 2021. Using these exceptions, Brazil maintains higher tariffs than its MERCOSUR partners on certain goods, including cellular phones, telecommunications equipment, computers and computer printers, wind turbines, certain chemicals and pharmaceuticals, cosmetics, joint cement, hydrogenated castor oil, white mineral oils, hydrogen carbonate, machining centers, speed changers, and certain instruments and models designed for demonstration purposes. According to MERCOSUR procedures, any good imported into a member country is subject to the payment of the CET to that country s customs authorities. If the product is then re-exported to another MERCOSUR country, the CET must be paid again to the second country. The MERCOSUR Common Market Council (CMC) moved toward the establishment of a Customs Union with its approval of a Common Customs Code (CCC) in August 2010 and a December 2010 plan to eliminate the double application of the CET within MERCOSUR. All MERCOSUR members must ratify the CCC for it to take effect, but thus far, only Argentina has ratified the CCC. Brazil s executive branch continues to work on draft legislation to ratify the CCC. Wheat Tariff-Rate Quota As part of commitments made during Uruguay Round negotiations and subsequent accession to the WTO in 1995, Brazil agreed to establish a 750,000 metric ton (MT) duty-free MFN tariff-rate quota (TRQ) for wheat imports. Brazil has not implemented this TRQ commitment, and in 1996, notified the WTO of its intent to withdraw the wheat TRQ in accordance with the negotiating process established in Article XXVIII of the GATT 1994. Since then, Brazil has applied a 10 percent tariff on imported wheat from non-MERCOSUR trading partners, including the United States, but could increase this rate at any time to its WTO bound rate of 55 percent. The United States continues to seek predictable and meaningful access to the Brazilian market for wheat producers and exporters. Ethanol Tariff-Rate Quota In September 2017, Brazil implemented a 24-month TRQ on ethanol imports, whereby imports above a 600 million liter quota are subject to a 20 percent tariff. While the 20 percent above quota tariff is below Brazil s WTO bound tariff rate of 35 percent, it nevertheless serves to limit ethanol imports from the United States. The United States has conveyed to Brazil its strong objection to this measure, which ended the mutually beneficial reciprocity of tariff-free trade of ethanol between the world s largest ethanol consumers and producers. The United States will continue to press Brazil to ensure that the measure is temporary in order to minimize disruptions to trade. FOREIGN TRADE BARRIERS 58 Nontariff Barriers Brazil applies federal and state taxes and charges to imports that can effectively double the actual cost of imported products in Brazil. The complexities of the domestic tax system, including multiple cascading taxes and tax disputes among the various states, pose numerous challenges for all companies operating in and exporting to Brazil, including firms. For example, effective January 1, 2013, Brazil instituted a temporary regime for a reduction in the Industrial Product Tax (IPI) that made preferential tax rates available to locally produced vehicles, provided that manufacturers comply with a series of local content and other requirements. This program expired at the end of 2017. As part of the program, the baseline IPI on all vehicles had been revised upward by 30 percent, which is equivalent to the level applied to imported vehicles under the prior regime. However, those vehicles meeting certain levels of local content, fuel efficiency and emissions standards, and required levels of local engineering, research and development, or labeling standards, received tax breaks that could offset the full amount of the IPI. As a result, imported automobiles faced a potential 30 percent price disadvantage compared to equivalent vehicles manufactured in Brazil even before import duties are levied. On August 31, 2015, Brazil issued Provisional Measure 690/2015 to reform its excise tax regime for alcoholic beverages, which introduced a tax advantage for domestic producers of cacha a, a distinctive product produced from sugarcane. The Provisional Measure was signed into law on December 30, 2015 and imposes a 25 percent ad valorem IPI on domestically-produced cacha a, while imposing a 30 percent ad valorem IPI on all other alcoholic beverages, including Tennessee Whiskey, bourbon, gin, and vodka. Brazil generally prohibits imports of used consumer goods, including automobiles, clothing, tires, medical equipment, and information and communications technology (ICT) products, as well as imports of certain blood products. However, Secretariat of Foreign Trade (SECEX) Ordinance 23/2011 establishes an exceptions list of more than 25 categories of used goods approved for import under certain specific circumstances. For example, certain antiques, cultural objects, inherited items, materials entering Brazil temporarily, and items with no commercial value, may be approved for import. Brazil also restricts the entry of certain types of remanufactured goods ( , earthmoving equipment, automotive parts, and medical equipment). Brazil only allows the importation of such goods if an importer can provide evidence that the goods are not or cannot be produced domestically, or if they meet certain other limited exceptions. A 25 percent merchant marine tax on ocean freight plus port handling charges at Brazilian ports also puts products at a competitive disadvantage vis- -vis MERCOSUR products. Import Licenses and Customs Procedures All importers in Brazil must register with SECEX to access SECEX s computerized documentation system (SISCOMEX). SISCOMEX registration is onerous, and includes a minimum capital requirement. Brazil has both automatic and non-automatic import license requirements. Brazil s non-automatic import licensing system covers imports of products that require authorization from specific ministries or agencies, such as agricultural commodities and beverages (Ministry of Agriculture), pharmaceuticals (Ministry of Health), and arms and munitions (Ministry of National Defense). Although a list of products subject to non-automatic import licensing procedures is available on the SISCOMEX system, specific information related to non-automatic import license requirements and explanations for rejections of non-automatic import license applications are lacking. The lack of transparency surrounding these procedures creates additional burdens for exporters. FOREIGN TRADE BARRIERS 59 footwear and apparel companies have expressed concern about the extension of non-automatic import licenses and certificate of origin requirements for footwear, textiles, and apparel from non-MERCOSUR countries. They also note additional monitoring, enhanced inspection, and delayed release of certain goods, all of which negatively impact the ability to sell and footwear, textiles, and apparel in the Brazilian market. Brazil imposes non-automatic import licensing requirements on imported automobiles and automotive parts, including those originating in MERCOSUR countries. Delays in issuing the non-automatic import licenses negatively affect automobile and automotive parts manufacturers that export vehicles to Brazil. companies continue to complain of burdensome documentation requirements for the import of certain types of goods that apply even if imports are on a temporary basis. In addition, the Ministry of Health s National Sanitary Regulatory Agency, ANVISA, must approve product registrations for imported pharmaceuticals, medical devices, health and fitness equipment, cosmetics, and processed food products. The registration process at ANVISA typically takes from three months to more than a year for new versions of existing products and more than six months for new products. SUBSIDIES The Plano Brasil Maior (Greater Brazil Plan) industrial policy offers a variety of tax, tariff, and financing incentives to encourage local producers and production for export. For example, Brazil allows tax-free purchases of capital goods and inputs to domestic companies exporting over 50 percent of their output. Similarly, the Reintegra program, launched in December 2011 as part of Plano Brasil Maior, exempted from certain taxes exports of goods covering 8,630 tariff lines, and allowed Brazilian exporters to receive up to three percent of their gross receipts from exports in tax refunds. The Reintegra program expired at the end of 2013 and was reintroduced in July 2014 through Law 13043/2014. The program was amended in September 2014 through Decree 8304 to add sugar, ethanol, and cellulose, among others, to the list of eligible products. The Reintegra program was amended again in February 2015 (Decree 8415) and October 2015 (Decree 8543), establishing that throughout most of 2015, exporters received one percent of gross receipts from exports in tax refunds, dropping to percent for 2016, and increasing to two percent for 2017. For the majority of products eligible for Reintegra benefits, the total cost of imported inputs cannot exceed 40 percent of the export price of the product. For a small number of eligible products, the total cost of imported inputs cannot exceed 65 percent of the export price. In 2016 (latest data available), Brazil s National Bank for Economic and Social Development (BNDES) provided approximately R$ billion (approximately $ billion) in preferential financing to various sectors of the Brazilian economy through several different programs. BNDES financing increased substantially from 2007 to 2014 as the government s response to the global economic crisis and former President Rousseff s policy to use BNDES as a driver for economic development. BNDES loan portfolio decreased considerably starting in 2015, however; financing dropped 27 percent in 2015, and a further percent in 2016 (to 2008 levels). BNDES applies a local content requirement of 60 percent for loans for large scale solar power systems. A number of complex state-specific tax incentives distort the real price of distributed generation solar energy systems. Another BNDES program, FINAME, provides preferential financing for the sale and export of Brazilian machinery and equipment, and provides financing for the purchase of imports of such goods provided that FOREIGN TRADE BARRIERS 60 such goods are not produced domestically. The funding is used to finance capacity expansions and equipment purchases in industries such as steel and agriculture. BNDES also provides preferential financing for wind and solar farm development, contingent upon progressively more stringent local content requirements. Wind turbine suppliers of any nationality are eligible to receive preferential BNDES financing, provided the wind towers are built with at least 70 percent Brazilian steel, and photovoltaic suppliers must use 60 percent Brazilian-made components by 2020. In 2016, BNDES funding for FINAME was approximately R$ billion (approximately $ billion), percent less than in 2015. In 2017, the Brazilian Congress approved a change to BNDES preferential long-term lending rate. The new rate will be phased-in over five years starting in January 2018 and will be linked to inflation-indexed National Treasury bonds. Due to BNDES previous subsidized long-term lending rate, BNDES controlled nearly the entire long-term lending market in Brazil. Under the new rate, private banks should be able to better compete with BNDES. For the crop season of 2016/17 (October 1, 2016 through September 30, 2017), BNDES announced that it would provide subsidized funds of R$ billion (approximately $ billion) for corporate and family agriculture. This was an increase of 18 percent from the 2015/16 crop year. At least 43 percent of these funds were part of the MODERFROTA program, which finances the acquisition of domestically-produced agricultural machinery at subsidized interest rates that vary from percent to percent per year. An additional 11 percent was allocated to finance the working capital of Brazilian agricultural cooperatives. Brazil s Special Regime for the Information Technology Exportation Platform (REPES) suspends Social Integration Program (PIS) and Contribution to Social Security Financing (COFINS) taxes on goods imported and information technology services provided by companies that commit to export software and information technology services to the extent that those exports account for more than 50 percent of the company s annual gross income. The Special Regime for the Acquisition of Capital Goods by Exporting Enterprises (RECAP) suspends these same taxes on new machines, instruments, and equipment imported by companies that commit for a period of at least two years to export goods and services such that they account for at least 50 percent of the company s overall gross income for the previous calendar year. Brazil provides tax reductions and exemptions on many domestically-produced ICT and digital goods that qualify for status under the Basic Production Process (Processo Produtivo B sico, or PPB). The PPB is product-specific and stipulates which stages of the manufacturing process must be carried out in Brazil in order to be considered produced in Brazil. Tax exemptions are also provided for the development and build-out of telecommunications broadband networks that utilize locally-developed products and investments under the Special Taxation Regime for the National Broadband Installation Program for Telecommunication Networks (Regime Especial de Tributa o do Programa de Banda Larga para Implanta o de Redes de Telecomunica es, or REPNBL-Redes). In 2013, Brazil passed the Special Regime for the Development of the Fertilizer Industry (REIF). Under this program, fertilizer producers receive tax benefits, including an exemption for the IPI on imported inputs, provided they comply with minimum local content requirements and can demonstrate investment in local research and development projects. Brazil also provides a broad range of assistance to its agricultural sector in the form of low interest financing, price support programs, tax exemptions, and tax credits. Brazil establishes minimum guaranteed prices for specific commodities through different programs to ensure that the returns to producers do not fall below the guaranteed level. These programs include the Federal Government Acquisition (AGF) program, the Acquisition from Public Option Contracts (POC) program, the Premium for Product Outflow (PEP) program, and the Premium Equalizer Payment to the Producer (PEPRO) program. Under the AGF FOREIGN TRADE BARRIERS 61 and POC programs, the Brazilian government purchases commodities to maintain prices at the level of the minimum guaranteed price. Under the PEP and PEPRO programs, producers or processors receive a government payment in return for purchasing commodities shipped to specified regions in Brazil or exported. The primary difference between these two programs is that the PEP payment goes to the first purchaser of the commodity while PEPRO payments are made through an auctioning system to producers or cooperatives, but the administration of the programs is the same. The amount of the PEP/PEPRO payment is based on the difference between the minimum price set by the government and the prevailing market price. Each PEP/PEPRO auction notice specifies the commodity to be tendered and the approved destinations for that product, including export destinations. From 2003 through 2017, approximately 46 million metric tons of commodities received assistance under PEPRO at a cost of R$ billion (approximately $ billion). Most of that assistance was for cotton, corn, soy and wheat. In 2017, PEPRO payments of R$ 485 million (approximately $ million dollars) were disbursed to corn and wheat producers. The program supported million metric tons of corn and 453,000 metric tons of wheat. From 2003 to 2017, approximately 42 million metric tons of commodities received assistance under PEP at a cost of R$ billion (approximately $ billion). The majority of this assistance was allocated to corn and wheat. In 2017, PEP payments of R$ 105 million (approximately $ million) supported million metric tons of corn and 18,000 metric tons of wheat. The United States has asked Brazil to provide additional information on these programs in meetings of the WTO Committee on Agriculture for several years and will continue to closely monitor their use. GOVERNMENT PROCUREMENT Brazil is not a signatory to the Agreement on Government Procurement (GPA), but it became an observer of the GPA in October 2017. By statute, a Brazilian state enterprise may subcontract services to a foreign firm only if domestic expertise is unavailable. Additionally, and other foreign firms may only bid to provide technical services where there are no qualified Brazilian firms. companies without a substantial in-country presence regularly face significant obstacles to winning government contracts and often are more successful in subcontracting with larger Brazilian firms. Brazil gives procurement preference to firms that produce in Brazil and that fulfill certain economic stimulus requirements such as generating employment or contributing to technological development, even if their bids are up to 25 percent more expensive than bids submitted by foreign firms not producing in Brazil. The law allows for strategic ICT goods and services procurements to be restricted to those with indigenously developed technology. In 2012, Brazil s Ministry of Science, Technology and Innovation issued the Bigger IT Plan, which establishes a process for the government to evaluate and certify that software products are locally developed in order to qualify for price preferences. Presidential Decree , adopted in 2013, imposes cyber auditing requirements on IT systems used by Brazilian government entities. The decree continues to be implemented in stages and is a concern for technology companies because of the potentially prohibitive costs of having a system certified for an individual market. In August 2016, the Ministry of Planning announced its intention to revoke the decree in favor of approved hardware and software solutions for government entities, but it has not yet issued an alternative measure. In 2003, the Brazilian National Oil and Gas Regulatory Agency (ANP) created minimum local content requirements (LCRs) for all oil companies operating in Brazil s upstream exploration and production phases, including State-controlled Petrobras. The LCRs vary by hydrocarbon resource block (the geographic area that is awarded by the Brazilian government to companies for oil and gas exploration), and within that block the LCRs differ for equipment, workforce, and services. Beginning with offshore bid rounds in 2003, LCRs were as low as 30 percent. Over time, ANP requirements have gradually become more rigorous with LCRs commonly ranging between 37 percent to 60 percent for the oil blocks auctioned between 2003 and 2016. However, on February 22, 2017, Brazil announced reforms to LCRs for Brazil s FOREIGN TRADE BARRIERS 62 critical oil and gas sector. LCRs for deepwater oil and gas exploration fell by half on average, to a minimum of 18 percent down from 37 percent for previous auctions and LCRs for deepwater production fell to between 25 percent and 40 percent, depending on the activity, down from 55 percent. Onshore exploration and development LCRs, currently 70 percent and 77 percent respectively, were reduced to 50 percent as well. INTELLECTUAL PROPERTY RIGHTS PROTECTION Brazil remained on the Special 301 Watch List in 2017. Brazil is an increasingly important market for intellectual property (IP)-intensive industries; however, administrative and enforcement challenges continue, including high levels of counterfeiting and piracy in Brazil online and in physical markets. Increased emphasis on enforcement at the tri-border region and stronger deterrent penalties are critical to make sustained progress on these IP concerns. The National Council on Combating Piracy and Intellectual Property Crimes (CNCP) was identified in the past as an effective entity for carrying out public awareness and enforcement campaigns, but the CNCP appeared to be nonoperational in 2017 and did not deliver the same kinds of achievements as in recent years. Brazil has taken steps to address a backlog of pending patent and trademark applications, including the 2016 implementation of a Patent Prosecution Highway pilot program for oil and gas industry applications and the hiring of 210 examiners, but considerable delays remain, with reported pendency averages of more than two and a half years for trademarks and years for patents. ANVISA s duplicative review of pharmaceutical patent applications has been a longstanding concern because it lacks transparency, exacerbates delays of patent registrations for innovative medicines, and has prevented patent examination by the National Institute of Industrial Property (INPI). In April 2017, Brazil announced an agreement between INPI and ANVISA, which is intended to expedite the examination of pharmaceutical patent applications and redefines ANVISA s role in that process, though the underlying law (Article 229c of the Intellectual Property Law) that allows ANVISA to review patents remains in force. Further, while Brazilian law and regulations provide for protection against unfair commercial use of undisclosed test and other data generated to obtain marketing approval for veterinary and agricultural chemical products, similar protection is not provided for pharmaceutical products. The United States also remains concerned about INPI s actions to invalidate or shorten the term of a significant number of mailbox patents for pharmaceutical and agricultural chemical products. The United States will continue to engage Brazil on these and other IP-related issues. SERVICES BARRIERS Audiovisual Services and Broadcasting Brazil imposes a fixed tax on each foreign film released in theaters, on foreign home entertainment products, on foreign programming for broadcast television, and on foreign content and foreign advertising released on the cable and satellite channels. The taxes are significantly higher than the corresponding taxes levied on Brazilian products. In addition, 80 percent of the programming aired on open broadcast (non-cable) television channels must be Brazilian, and foreign ownership in media outlets is limited to 30 percent, including the print and open broadcast television sectors. Remittances to foreign producers of audiovisual works are subject to a 25 percent income withholding tax. As an alternative to paying the full tax, producers can elect to invest 70 percent of the tax value in local independent productions. In addition, local distributors of foreign films are subject to a levy equal to 11 percent of remittances to the foreign producer. This levy, a component of the CONDECINE (Contribution to the Development of a National Film Industry), is waived if the distributor agrees to invest an amount FOREIGN TRADE BARRIERS 63 equal to three percent of the remittance in local independent productions. Remittances for video on demand (VOD) are also subject to CONDECINE and would be subject to further regulation under proposed law PL 8889/2017, which includes incentives for Brazilian production and minimum quotas for Brazilian content structured to increase progressively with company revenue. The CONDECINE levy is also assessed on foreign-produced video and audio advertising. In May 2017, normative instruction 134 extended this requirement to online advertising. Brazil requires that all films and television shows be printed locally by prohibiting the importation of color prints for the theatrical and television markets. Brazil also maintains domestic film quotas for theatrical screening and home video distribution. In 2011, Brazil enacted Law , which covers the subscription television market, including satellite and cable television. The law permits telecommunication companies to offer television packages with their services and removes the previous 49 percent limit on foreign ownership of cable television companies. However, the legislation also imposes local content quotas by requiring every channel to air at least three and a half hours per week of Brazilian programming during prime time, and by requiring that one-third of all channels included in any television package be Brazilian. The law also makes subscription television programmers subject to the 11 percent CONDECINE levy on remittances. In addition, the law delegates significant programming and advertising regulatory authority to the national film industry development agency, ANCINE, which raises concerns about the objectivity of regulatory decisions. Express Delivery Services express delivery service companies face significant challenges in the Brazilian market due to numerous barriers, including high tariffs, an automated express delivery clearance system that is only partially functional, and the lack of a de minimis exemption from tariffs for express delivery shipments. Brazil s $50 de minimis exemption applies only to postal service shipments to individuals. The Brazilian government charges a flat 60 percent duty for all goods imported through the Simplified Customs Clearance process used for express delivery shipments. This flat rate is higher than duties normally levied on goods arriving through regular mail, putting express delivery companies at a competitive disadvantage. The Simplified Customs Clearance process limits shipments for commercial purposes to $100,000 per importer per year. Moreover, Brazilian Customs has established maximum per-shipment value limits of $10,000 for exports and $3,000 for imports sent using express services. Express delivery companies may transport shipments of higher value, but such shipments are subject to the formal import and declaration process. Financial Services Foreign banks may establish subsidiaries, but Brazilian residents must be directly responsible for the administration of the financial institution. Institutions legally registered in Brazil are considered Brazilian, regardless of foreign ownership. Foreign investors receive national tax treatment in relation to operations in the financial and capital markets. Through Resolutions 225/2010 and 232/2010, the Brazilian National Council on Private Insurance (CNSP) restricts foreign insurers participation in the Brazilian market. Brasil Resseguros SA, a state-controlled company, monopolized the provision of reinsurance in Brazil until the enactment of Complementary Law 126 in 2007, which allowed private reinsurers to operate in the Brazilian market. In August 2010, Brazil passed Complementary Law 137/2010, an updated form of Complementary Law 126/2007, to liberalize entrance into national markets for foreign firms. Under Complementary Law 137/2010, for a foreign company to qualify as an admitted reinsurer, it must have a representation office in Brazil; meet the FOREIGN TRADE BARRIERS 64 requirements of Complementary Law 126/2007; keep an active registration with Brazil s insurance regulator, the Superintendence of Private Insurance (SUSEP); and maintain a minimum solvency classification issued by a risk classification agency equal to Standard & Poor s or Fitch ratings of at least BBB. In July 2015, under CNSP Resolution 325, the Brazilian government announced a significant relaxation of the restrictions on foreign insurers participation in the Brazilian market, and in December 2017, restrictions on risk transfer operations involving companies under the same financial group were eliminated. Under the new rules, the mandatory cession requirement to purchase a minimum percentage of reinsurance has been revoked and there is no longer a limitation or threshold for intra-group cession of reinsurance to companies headquartered abroad that are part of the same economic group. Rules on preferential offers to local reinsurers, which are set to decrease in increments from 40 percent in 2016 to 15 percent in 2020, were maintained. Telecommunications Local Content Requirements The rules governing spectrum auctions in Brazil have required winning bidders to provide a preference for technology, services, equipment, and materials produced in Brazil, as they built out their networks. As a condition of the 2012 auction for GHz and 450 MHz radio spectrum, ANATEL required wireless carriers to ensure that 50 percent of the infrastructure, including software, installed to supply the licensed service met the local content requirements of the PPB (discussed above in the Subsidies section). ANATEL also required wireless carriers to use a minimum percentage of technology developed in Brazil, starting with 10 percent in 2012, 15 percent in 2015, and 20 percent after 2017. ANATEL extended these requirements to the 700 MHz spectrum in an auction held in 2014. Because of these eligibility requirements, which favor local manufacturing and technology development, no telecommunication companies submitted bids in the 2012 and 2014 auctions. In its most recent auction for the , , and GHz spectrums, in November 2015, ANATEL had the stated goal of increasing competition and attracting smaller carriers, and did not include specific local content requirements. However, in the case of equivalent bids, the auction rules provided a preference for a bid utilizing services, equipment, or materials produced in Brazil, including those with national technology. Among the major regulations of concern are the Certification of National Technology Software and Related Services (or CERTICs) and the Basic Production Process (8248/1991). Brazil s Bigger IT Industrial Plan ( TI Maior ) includes the CERTICs certification component, which favors software developed in Brazil in public procurement processes. Although some stakeholders report that the policy has not been applied recently, it has not been formally rescinded. Under the Basic Production Process, Brazil provides tax incentives for locally sourced information and ICT equipment. In August 2017, a WTO dispute settlement panel found Brazil s Informatics program, which confers tax benefits and imposes local content requirements favoring Brazilian goods, is inconsistent with Brazil s obligations under the General Agreement on Tariff and Trade (GATT 1994), the WTO Agreement on Trade-Related Investment Measures (TRIMS) and the WTO Agreement Subsidies and Countervailing Measures. The panel s report is pending appeal before the WTO Appellate Body. Satellites In 2004, ANATEL issued Resolution 386, which requires foreign satellite operators to acquire landing rights and pay annual landing rights fees to provide service in Brazilian territory. These landing rights are granted for a fixed term of no longer than 15 years, after which time the landing rights must be reacquired in order to continue providing services. Unlike a Brazilian-owned auction winner that acquires the FOREIGN TRADE BARRIERS 65 exclusive right to operate a satellite and its associated frequencies from the selected Brazilian orbital location, the operator of a foreign-licensed satellite does not acquire the same exclusive right when seeking an authorization to provide services in Brazil. Instead, the foreign satellite operator obtains a non-exclusive right (a landing right) to provide service in Brazilian territory. The foreign satellite operator obtains its authorization to operate a satellite from its own domestic authority. Landing rights in a given jurisdiction simply allow the satellite operator to provide a satellite-based service legally in that jurisdiction, in competition with all other terrestrial and satellite operators that are licensed in that jurisdiction. The landing rights fees for foreign satellite operators are determined by the reserve amounts at auction set by ANATEL and have increased 17-fold between 2006 and 2015 (latest data available). Landing fees for foreign companies in Brazil are unpredictable and higher than for Brazilian firms. Roaming Telecommunications regulator ANATEL ruled that FISTEL, a local regulatory tax applied to active subscriber identity module cards (SIMs) within Brazil, may only be applied to domestic carriers utilizing domestic SIMs with corresponding local numbering. As foreign-based carriers utilizing foreign SIMs are not subject to FISTEL, ANATEL concluded that these value-added services may only be provided by locally licensed carriers using local SIMs. This ANATEL interpretation restricts permanent roaming options for international machine to-machine (M2M) and Internet of things (IoT) providers, thus requiring development of devices solely for the Brazilian market, and requiring service infrastructure in Brazil. This interpretation is at odds with other jurisdictions that have consistently permitted foreign carriers to utilize foreign SIMs to provide permanent roaming for M2M or IoT services to their respective OEM customers. INVESTMENT BARRIERS Foreign Ownership of Agricultural Land The National Land Reform and Settlement Institute (INCRA) administers the purchase and lease of Brazilian agricultural land by foreigners. Under the applicable rules, the area of agricultural land bought or leased by foreigners cannot account for more than 25 percent of the overall land area in a given municipal district. Additionally, no more than 10 percent of agricultural land in any given municipal district may be owned or leased by foreign nationals from the same country. The rules also make it necessary to obtain congressional approval before large plots of agricultural land can be purchased by foreign nationals, foreign companies, or Brazilian companies with majority foreign shareholding. Draft Law 4059/2012, which would lift the limits on foreign ownership of agricultural land, has been in the Brazilian Congress since 2016. BARRIERS TO DIGITAL TRADE Data Localization Data localization was not included in the original text of Brazil s 2014 Civil Rights Framework for the Internet, or Marco Civil, legislation. However, Brazil is considering draft legislation that could regulate cross-border data flows and storage requirements. As Brazil looks to complement Marco Civil with comprehensive data protection and privacy legislation, it is considering several proposals that could be modeled after the European Union s approach. The United States and the technology industry intend to work with Brazil during the legislative process on an approach that would spur innovation, economic growth, and societal well-being through flexible regulatory regimes, robust cross-border data flows, and a free and open Internet. FOREIGN TRADE BARRIERS 66 Technology Source Code Presidential Decree 8135/2013 requires that government agencies procure email, file sharing, teleconferencing and Voice over Internet Protocol (VoIP) services from a federal Brazilian public entity such as the SERPRO, Brazil s Federal Data Processing Agency. Subsequent implementing regulations (Portarias 141 and 54) impose additional requirements including auditing of government contractors systems and access to their source code. In August 2016, the Ministry of Planning announced its intention to revoke the decree in favor of approved hardware and software solutions for government entities, but it has not yet issued an alternative measure. Internet Services Liability/Safe Harbor Although there are proposed laws that would modify Marco Civil, including one with a provision that would force online companies to assume liability for all user communications, publications, and legislation that would implement the right to be forgotten, these proposals have not advanced substantially in Brazil s Congress. In October 2017, President Temer vetoed a provision of a political reform package that would have required Internet content providers to suspend and potentially remove online content that was hateful, offensive, or false toward a political candidate or party. Industry submissions cite eight proposals of concern originating in the Brazilian Parliamentary Commission of Inquiry Cybercrimes Commission. Of these, the most advanced proposal is PL 5204/2016. Sharing Economy Brazil has enacted regulations that limit drivers from providing transportation services via smartphone applications. Municipalities and states have passed legislation that add per mile road use fees (which do not apply to taxis), licensing and car ownership requirements, dress codes, and passenger data sharing (including geographical data about rides). These requirements, which exceed the regulations for traditional taxis, are seen as measures to protect the taxi industry. In October 2017, Brazil s Senate approved legislation that would remove the most onerous ride share restrictions on licensing, vehicle plates, car ownership, and trips crossing municipal lines. On February 22, 2018, the Chamber of Deputies passed the Senate s version of the bill, but allowed for municipalities to continue to regulate mobile applications for transportation. The bill became law on March 27, 2018. FOREIGN TRADE BARRIERS 67 BRUNEI DARUSSALAM TRADE SUMMARY The goods trade surplus with Brunei was $98 million in 2017, a percent decrease ($503 million) over 2016. goods exports to Brunei were $121 million, down percent ($494 million) from the previous year. Corresponding imports from Brunei were $23 million, up percent. Brunei was the United States' 138th largest goods export market in 2017. exports of services to Brunei were an estimated $69 million in 2016 (latest data available) and imports were $9 million. Sales of services in Brunei by majority affiliates were $100 million in 2015 (latest data available). foreign direct investment (FDI) in Brunei (stock) was $30 million in 2016 (latest data available), a percent increase from 2015. TRADE AGREEMENTS Brunei has a network of bilateral and regional trade agreements with countries in the Indo-Pacific region as well as countries from other regions. Current trade agreement partners include Australia, China, India, Japan, Korea, and New Zealand. Additionally, Brunei is a party to the region-wide Association of Southeast Asian Nations (ASEAN) trade agreement. In November 2017, the ASEAN countries including Brunei signed a free trade agreement with Hong Kong. Brunei is participating in the 16-member Regional Comprehensive Economic Partnership negotiations as well as in the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership. TECHNICAL BARRIERS TO TRADE Meat and Poultry Products Halal Standards Most food sold in Brunei must be certified as halal. However, there is a small market for non-halal foods, which must be sold in designated rooms in grocery stores separated from other products or at restaurants that are specified as non-halal. The Ministry of Religious Affairs administers Brunei s halal standards, which are among the most stringent in the world. Regulations enacted in May 2017 require all businesses that produce, supply, and serve food and beverages to obtain a halal certificate. While Codex allows for halal food to be prepared, processed, transported, or stored using facilities that have been previously used for non-halal foods, provided that Islamic cleaning procedures have been observed, Brunei s halal regime is one of the most restrictive in the world. Under the Halal Meat Act, halal meat (including beef, mutton, lamb, and chicken) can be imported only by a person holding a halal import permit and an export permit from the exporting country. The importers and local suppliers of halal meat must be Muslim. The Bruneian government maintains a list of the foreign and local slaughtering centers (abattoirs) that have been inspected and declared fit for supplying meat that can be certified as halal. Brunei s stringent system of abattoir approval involves on-site inspections carried out by Bruneian government officials for every establishment seeking to export meat or poultry to Brunei. Halal meat must be kept separately from non-halal meat at all times, and halal certification must be renewed annually by the Brunei Religious Council. FOREIGN TRADE BARRIERS 68 IMPORT POLICIES Tariffs Brunei has bound percent of its tariff lines, according to the WTO, with an average bound MFN tariff rate of percent. Its average applied MFN tariff rate is percent. Brunei introduced new tariff and trade classifications in 2017. These new classifications incorporate the ASEAN Harmonized Tariff Nomenclature. In 2017, Brunei also amended its customs import and excise duties. Import duties were replaced by excise duties in categories such as instant coffee, carpets and textile floor coverings, headgear, cosmetics, electrical goods, automotive parts, apparel and clothing, jewelry, and clocks. Brunei also imposed excise duties on food products with high sugar content and monosodium glutamate. Excise duties on restricted goods such as tobacco and e-cigarettes were increased. GOVERNMENT PROCUREMENT Under current Brunei regulations, government procurement is conducted by individual ministries and departments, which must comply with financial regulations and procurement guidelines issued by the State Tender Board of the Ministry of Finance. Tender awards above BND $500,000 (approximately $380,000) must be approved by the Sultan in his capacity as Minister of Finance, based on the recommendation of the State Tender Board. Most invitations for tenders or quotations are published in a bi-weekly government newspaper, but are often selectively tendered only to locally registered companies. Some ministries and departments publish tenders on their individual websites. Foreign firms may participate in the tenders individually, but are advised by the government to form a joint venture with a local company. Brunei is neither a signatory of nor an observer to the WTO Agreement on Government Procurement. INTELLECTUAL PROPERTY RIGHTS PROTECTION In February 2017, Brunei acceded to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty, which came into force for Brunei in May 2017. Concerns remain in some intellectual property rights areas, however, including with respect to whether Brunei provides effective protection against unfair commercial use as well as unauthorized disclosure of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. OTHER BARRIERS Localization Brunei s Local Business Development Framework seeks to increase the use of local goods and services, train a domestic workforce, and develop Bruneian businesses by placing requirements on all companies operating in the oil and gas industry in Brunei to meet local hiring and contracting targets. These requirements also apply to information and communication technology firms that work on government projects. The Framework sets local content targets based on the difficulty of the project and the value of the contract, with more flexible local content requirements for projects requiring highly specialized technologies or with a high contract value. FOREIGN TRADE BARRIERS 69 Foreign Business Registration Companies can be 100 percent foreign-owned, although under the Companies Act, at least one of two directors of a locally incorporated company must be a resident of Brunei, unless granted an exemption by the government. Transparency Transparency is lacking in many areas of Brunei s economy, particularly in its state-owned enterprises that manage key sectors of the economy such as oil and gas, telecommunications, transport, and energy generation and distribution. Land In June 2016, the Brunei Government announced land code amendments that have created uncertainty over land rights. The amendments would prohibit non-citizens, including Brunei ethnic minorities, from buying, selling, or holding land by means of powers of attorney or trust deeds. The amendments were published in the official government gazette, but have not been implemented. An additional concern is that the prohibition applies retroactively to existing contracts. FOREIGN TRADE BARRIERS 70 FOREIGN TRADE BARRIERS 71 BURMA TRADE SUMMARY The goods trade deficit with Burma was $155 million in 2017, a percent increase ($103 million) over 2016. goods exports to Burma were $211 million, up percent ($18 million) from the previous year. Corresponding imports from Burma were $366 million, up percent. Burma was the United States' 123rd largest goods export market in 2017. foreign direct investment (FDI) in Burma (stock) was $1 million in 2016 (latest data available), unchanged from 2015. SANITARY AND PHYTOSANITARY BARRIERS The United States is increasingly concerned about non-science based sanitary and phytosanitary (SPS) measures in Burma. The United States has expressed concern about new pest risk assessment requirements, burdensome meat inspection procedures, and a lack of avian influenza (AI) regionalization protocols. The United States is also monitoring the development of a new Food Law in Burma. Burma announced Pest Risk Assessment regulations in 2016, requiring additional information regarding plant products before they are approved to enter the country. The new rules entered into force on January 1, 2017. To avoid any disruption to ongoing trade, in September 2017, the Burmese Ministry of Agriculture, Livestock, and Irrigation, Plant Protection Division, reached an agreement with the Department of Agriculture on a process for achieving market access for major impacted commodities. All major impacted commodities have now been approved or expect prompt approval for entry into the country. IMPORT POLICIES Tariffs Burma is a Member of the WTO. However, to date, Burma s WTO tariff schedule covers only 18 percent of the country s tariffs on goods. Burma s overall simple average bound tariff rate is percent, while the average applied tariff rate is around percent. Agricultural goods have an average bound tariff rate of percent, while the average applied tariff rate is around percent. Burma is a member of ASEAN. Non-Tariff Barriers The Directorate of Trade within the Ministry of Commerce oversees amendments to the Commerce Ministry s list of prohibited imports. The list is published in trade bulletins and publications, but changes with little notice. The current list includes counterfeit money and goods, pornographic articles, narcotic drugs, playing cards, and items featuring images of the Buddha, Burma s pagodas, and the flag of Burma. Import and Export Licensing Burma applies import and export licenses to trade in a wide range of products. However, a Ministry of Commerce process to reduce redundant documentary requirements also involves reducing the number of products subject to licensing. Burma manages imports of meat products through an import licensing scheme. Receiving an import license for meat products requires approval from the Myanmar Meat Import Board, a quasi-government body FOREIGN TRADE BARRIERS 72 consisting largely of representatives from local livestock companies. This arrangement appears to allow domestic meat producers to block market access for meat products. While import licenses for meat have been granted with relative reliability since 2015, they are few in number and cover small volumes. In addition, despite laboratory testing of meat samples during the license approval process, additional testing is required for each shipment of imported meat products upon arrival in Burma. These testing and inspection procedures do not appear to align with international standards for risk-based inspection of imports. Customs Procedures Both local and foreign businesses have raised concerns that the Customs Department engages in practices that are nontransparent and appear arbitrary. Importers frequently cite concerns with customs valuation practices. For some commodities, the Customs Department reportedly uses its own reference guide to determine the value of imports. The guide lists prices in kyat based on the price of these goods in Burma, which is sometimes substantially lower or higher than their value outside Burma. Burma ratified the WTO Trade Facilitation Agreement on December 16, 2015. The Ministry of Commerce launched a Myanmar Trade Portal: in 2016. GOVERNMENT PROCUREMENT Burma issued new procurement procedures in January 2017, with a goal of increasing transparency and accountability. This guidance called for an open tender for procurement of goods, services, and construction services valued at above 10 million Myanmar Kyat (approximately $7,400 dollars). SUBSIDIES The Burmese government provided tax incentives for companies to invest in the Thilawa Special Economic Zone (SEZ), with export-oriented firms exempt from taxes for seven years and other firms exempt for five years. The 2016 Investment Law provides tax and tariff exemptions for many types of activities by domestic and foreign firms investing within specific zones. INTELLECTUAL PROPERTY RIGHTS PROTECTION The government submitted four draft intellectual property laws regarding trademarks, patents, industrial designs, and copyright to Parliament in January 2018. The draft laws are aimed at meeting Burma s international obligations. SERVICES BARRIERS A 1989 law stipulates that state owned enterprises have the sole right to carry out economic activities in a range of sectors, including teak extraction, oil and gas, banking and insurance, and electricity generation. In practice, however, the government has opened many of these areas to private sector development and foreign investment, including through the 2016 investment law. The Ministry of Planning and Finance has announced plans to liberalize the insurance sector, but has not released additional details. While foreign banks are allowed to operate in Burma, they cannot do business in local currency and are subject to other restrictions and requirements. Foreign banks can only offer their services including deposit accounts, working capital financing, trade financing and foreign exchange transactions to foreign companies. Foreign banks are not allowed to offer loans in Kyats (local currency). FOREIGN TRADE BARRIERS 73 INVESTMENT BARRIERS Burma has a challenging investment climate with respect to access to finance, land titles, transportation costs, energy supplies, and availability of skilled workers. Investors report difficulties with the enforcement of contracts, protection of minority investors, and resolving insolvency. In 2016 Burma adopted the Myanmar Investment Law, which consolidated the domestic investment law and foreign investment law into a single instrument. In April 2017, implementing rules for the law went into effect. The law and implementing rules made the legal environment for investment more predictable, but the environment remains ambiguous and uncertain in key respects, including related to transparency. In 2017 Burma issued its Negative Investment List, which identified 9 sectors in which investment is prohibited; 12 sectors in which only domestic investment is allowed; 22 sectors that require a joint venture; and other sectors that are open to 100 percent foreign investment. In addition, Burma adopted a new Companies Law, which will go into effect in August 2018 and replace the Companies Law of 1914. The new law changes the definition of a foreign company to a company with more than 35 percent ownership by an overseas corporation or foreign person. This is a significant change from the old version of the law under which if one share of a company was held by a foreign company or individual, it was considered a foreign company and could not own land, hold long term leases without Myanmar Investment Commission approval, or participate in sectors restricted to domestic companies (banking, insurance, real estate, importing, and more). While the new law makes a number of positive changes, there are still potential challenges with implementation and questions about the impact of these changes. OTHER BARRIERS Smuggling The smuggling of products, including teak, gems, timber, wildlife, and narcotics remains significant. Burma has porous borders and significant natural resources, many of which are in parts of the country that the government does not fully control. Burma is also one of the largest source countries of methamphetamines. The underdeveloped banking system, the low risk of enforcement and prosecution, and the large illicit economy breed criminal activity, though the value is difficult to estimate. Corruption The government has prioritized fighting corruption, and has succeeded in countering high-level corruption to some extent. However, underdeveloped justice and investigative institutions pose significant challenges to making the fight against corruption both systematic and effective. Low-level corruption is still common in some areas but business representatives report a sharp decrease in required payments. In its 2016 Corruption Perceptions Index, Transparency International rated Burma 136 out of 176 countries, an improvement from the 2015 ranking of 147 out of 168 countries. Situations where corruption could be a problem include seeking investment permits, paying taxes, applying for import and export licenses, and negotiating land and real estate leases. FOREIGN TRADE BARRIERS 74 FOREIGN TRADE BARRIERS 75 CAMBODIA TRADE SUMMARY The goods trade deficit with Cambodia was $ billion in 2017, a percent increase ($211 million) over 2016. goods exports to Cambodia were $400 million, up percent ($39 million) from the previous year. Corresponding imports from Cambodia were $ billion, up percent. Cambodia was the United States' 101st largest goods export market in 2017. IMPORT POLICIES Tariffs Cambodia is one of the few least-developed WTO Members that made binding commitments on all products in its tariff schedule when it joined the WTO in 2004. Cambodia s overall simple average bound tariff rate is percent, while the average applied tariff rate is around percent. Cambodia s highest applied tariff rate is 35 percent, which is imposed across a number of product categories, including a wide variety of prepared food products, bottled and canned beverages, cigars and cigarette substitutes, table salt, paints and varnishes, cosmetic and skin care products, glass and glassware, electrical appliances, cars, furniture, video games, and gambling equipment. Customs Both local and foreign businesses have raised concerns that the Customs and Excise Department engages in practices that are nontransparent and that appear arbitrary. Importers frequently cite problems with undue processing delays, burdensome paperwork, and unnecessary formalities. Some importers have noted that duties imposed on the same products, shipped in the same quantity, but at different times, may vary for reasons that can be unclear. On February 12, 2016, Cambodia ratified the WTO Trade Facilitation Agreement. Taxation Cambodia levies trade-related taxes in the form of customs duties, additional taxes on gasoline ($ per liter) and diesel oil ($ per liter), two indirect taxes (a value-added tax (VAT) and an excise tax), and taxes on exports. The VAT is applied at a uniform rate of 10 percent. To date, the VAT has been imposed only on large companies, but the Cambodian government is working to expand the VAT tax base. The VAT is not collected on exports and services consumed outside of Cambodia (technically, a zero percent VAT applies). Subject to certain criteria, the zero percent rate also applies to businesses that support exporters and subcontractors that supply goods and services to exporters, including education services, electricity and clean water, unprocessed agricultural products and waste removal. On October 10, 2017, Cambodia implemented a new regulation on transfer pricing immediately after the initiative was announced with no phase-in period. It was the first revision to transfer pricing in over 20 years. According to the new regulation, Cambodian-based enterprises that have transactions with related foreign entities must submit: 1. An annual transfer pricing declaration, to be submitted together with the annual declaration on tax on income. FOREIGN TRADE BARRIERS 76 2. Annual transfer pricing documentation, to be submitted upon request by Cambodia s General Department of Taxation (GDT). Over the last several years, GDT has increased tax revenues significantly. After years of somewhat loose enforcement of the tax code, GDT has hit some companies with exorbitant tax bills and have had assets frozen for failure to pay purported back taxes. GOVERNMENT PROCUREMENT By law, public procurement must be carried out through one of four methods: bids by international competition, bids by domestic competition, price consulting, or price surveys. Included in the criteria of each method are the minimum prices of the bids, levels of domestic resources, and technical capacity. The government has a general requirement for competitive bidding in procurements valued over KHR 100 million (approximately $25,000). In some cases, particularly for procurements valued below $1 million, advertisements and application forms are written in the Khmer language, which may place foreign firms at a disadvantage. Procurements valued above $1 million are typically conducted entirely in English. In addition, government procurement is often not transparent, and the Cambodian government frequently provides short response times to public announcements of tenders, which are posted on the Ministry of Economy and Finance s website ( ). For construction projects, only bidders registered with the Ministry are permitted to participate in tenders. As an additional complication, differing prequalification procedures exist at the provincial level, making some bids particularly complex for prospective contractors. Irregularities in the public procurement process are common despite a strict legal requirement for audits and inspections. Despite accusations of malfeasance at a number of ministries, the Cambodian government has taken little action to investigate irregularities. Cambodia is neither a signatory to nor an observer of the WTO Agreement on Government Procurement. INTELLECTUAL PROPERTY RIGHTS PROTECTION The Government has some concerns regarding the protection and enforcement of intellectual property rights (IPR) in Cambodia. Pirated CDs, DVDs, software, garments, and other copyrighted materials, as well as an array of counterfeit goods, including pharmaceuticals, are reportedly widely available in Cambodian markets. The rates of signal and cable piracy also remain high and online sites purveying pirated music, films, eBooks, software, and television shows are spreading and gaining in popularity. Draft legislation that would address protection of trade secrets has been under review at the Ministry of Commerce but has not been passed into law. In addition, draft legislation on encrypted satellite signals is still under review at the Ministry of Posts and Telecommunications, and draft legislation on semiconductor layout designs is under review at the Ministry of Industry and Handicraft. The United States continues to meet with Cambodia under our bilateral TIFA and in other dialogues to urge Cambodia to take steps to improve IPR protection and enforcement. Various Cambodian authorities work on IPR-related issues, including: the Ministry of the Interior s Economic Police unit, the General Department of Customs and Excise, the Cambodia Import-Export Inspection and Fraud Repression Directorate General, the National Committee for Intellectual Property Rights, the Institute of Standards of Cambodia, and the Ministry of Commerce. The division of responsibility among these disparate institutions is not clearly defined. In 2014, a new committee was created under the Ministry of Interior called the Cambodia Counter Counterfeit Committee (CCCC) to act as an umbrella agency consisting of over fourteen organizations. In 2016, the CCCC launched its five-year FOREIGN TRADE BARRIERS 77 strategic plan for 2016-2020 with a focus on targeting products that cause a high risk to health and social safety. The CCCC has not yet focused on other counterfeit products. Cambodia is a member of the Patent Cooperation Treaty and became bound to the treaty on December 8, 2016. In November 2016, Cambodia acceded to the Hague Agreement Concerning the International Registration of Industrial Designs, which took effect on February 25, 2017. The Ministry of Industry and Handicrafts Office of Patents and Industrial Design has indicated that it is planning to join the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure in the future, but has not yet committed to a timeline. Procedures to record and file permission letters for imported goods bearing trademarks were established by the Ministry of Commerce in May 2016. Owners of trademarks registered in Cambodia and their distributors can apply to the Ministry s Department of Intellectual Property Rights to have their commercial relationship recognized as an exclusive dealership. Companies with registered exclusive dealership status have the right to request enforcement actions against parallel importers of their registered trademark. However, it is not yet clear what recourse companies with registered exclusive dealership status will have when reporting infringement of their trademarks, and which processes they will have to follow in order to initiate enforcement actions. INVESTMENT BARRIERS Cambodia s constitution restricts foreign ownership of land. A 2010 law allows foreign ownership of property above the ground floor of a structure, but stipulates that no more than 70 percent of a building can be foreign-owned, and that foreigners cannot own property within 30 kilometers of the national border. Although foreign investors may use land through concessions and renewable leases, the Cambodian government in 2012 imposed a moratorium on Economic Land Concessions (ELCs), which allowed long-term leases of state-owned land. The Cambodian government reportedly also has reviewed and revoked previously granted ELCs on the grounds that the recipients had not complied with the ELC terms and conditions. As of February 2016, the Cambodian government reported that a countrywide review of ELCs resulted in the re-appropriation of over one million hectares of land, but land rights activists dispute the accuracy of these reports. While Cambodia has made significant progress in formalizing its tax regime and increasing tax revenues, reports suggest that the GDT s methods can be very burdensome on tax-compliant companies. Concerns range from surprise tax audits, to a lack of industry consultation when implementing new tax code, to a subjective application of taxes that could favor local industry over international investors. Apart from tax issues, investors also report high electricity and logistics costs, poor infrastructure, lack of human resources, and corruption as challenges to establishing and maintaining investments. SERVICES BARRIERS Financial Services In October 2017, the National Bank of Cambodia (NBC) began to implement the Cambodian Shared Switch (CSS). Under the CSS system, Cambodian debit card holders will be able to use their cards at any ATM or point-of-sale (POS) machine of any participating bank or microfinance deposit-taking institutions (MDI) for a fee. As of January 2018, banking regulations mandate that all banks and MDIs use the CSS for transactions that include balance inquiries, cash withdrawals, and inter-bank fund transfers. The government has indicated it hopes to expand the CSS to include FOREIGN TRADE BARRIERS 78 credit transactions in the future. Industry contacts note that as more transactions are required to be routed through the CSS, this will hinder the competitiveness of foreign payment suppliers and could have several other negative impacts on consumers, including a decrease in security, speed, and reliability of transactions. OTHER BARRIERS Corruption Both foreign and local businesses have identified corruption in Cambodia as a major obstacle to business and a deterrent to investment, with Cambodia s judiciary viewed as one of the country s most corrupt institutions. In 2010, Cambodia adopted anti-corruption legislation and established a national Anti-Corruption Unit to undertake investigations, implement law enforcement measures, and conduct public outreach. Enforcement, however, remains inconsistent. The Anti-Corruption Unit s (ACU) participation in investigations of political opponents of the ruling party has tarnished its reputation as an unbiased enforcer of rules. Cambodia began publishing official fees for public services at the end of 2012 in an effort to combat facilitation payments, but this exercise has yet to be completed. After national elections in July 2013, certain agencies, such as the Ministry of Commerce and the General Department of Taxation, started providing online information and services in an effort to reduce paperwork and unofficial fees. In addition, anti-corruption information has been incorporated into the national high school curriculum, and civil servants salaries are disbursed through commercial banks. Businesses have noted that signing an anti-corruption MOU with the ACU has helped them avoid paying facilitation payments. Cambodia ranks 113 out of 137 in the World Economic Forum s Global Competitiveness Index (2017-2018) on Irregular Payments and Bribes. Judicial and Legal Framework Cambodia s legal framework is incomplete, and its laws are unevenly enforced. While the National Assembly has passed numerous trade and investment-related laws, including a law on commercial arbitration, many business-related laws are still pending. A 2014 Law on Court Structures established a Commercial Court with first-instance jurisdiction over all commercial matters, including insolvency cases, and a Commercial Chambers to hear all appeals arising out of the Commercial Court. Neither entity is formed or operating, however. Smuggling The smuggling (illegal importation) of products, such as cosmetics, textiles, wood, sugar, vehicles, fuel, soft drinks, livestock, crops, and cigarettes, remains widespread. The Cambodian government has worked to address this issue with limited success. It has issued numerous orders to stop smuggling, has created various anti-smuggling units within government agencies, including the General Department of Customs and Excise, and has established a mechanism within this department to accept and act upon complaints from the private sector and foreign governments. The CCCC allows products rights holders to file complaints regarding smuggled and parallel goods. Since the process is fairly new, it is too early to assess its effects. FOREIGN TRADE BARRIERS 79 CANADA TRADE SUMMARY The goods trade deficit with Canada was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to Canada were $ billion, up percent ($ billion) from the previous year. Corresponding imports from Canada were $ billion, up percent. Canada was the United States' largest goods export market in exports of services to Canada were an estimated $ billion in 2017 and imports were $ billion. Sales of services in Canada by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Canada-owned firms were $ billion. foreign direct investment (FDI) in Canada (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Canada is led by manufacturing, nonbank holding companies, and finance/insurance. TRADE AGREEMENTS North American Free Trade Agreement The North American Free Trade Agreement (NAFTA), signed by the United States, Canada, and Mexico (the Parties), entered into force on January 1, 1994. At the same time, the United States suspended the United States-Canada Free Trade Agreement, which had entered into force in 1989. Under the NAFTA, tariffs on nearly all goods were eliminated progressively, with all final duties and quantitative restrictions eliminated, as scheduled, by January 1, 2008. Canada still maintains tariffs on dairy, poultry, and egg products while the United States still maintains tariffs on dairy, sugar, and peanut products from Canada. After signing the NAFTA, the Parties concluded supplemental agreements on labor and the environment. The United States entered into negotiations with the Parties seeking to update and rebalance the NAFTA by addressing many of these barriers, among other issues, in August 2017. 1 The international shipment of goods through the United States can make standard measures of bilateral trade balances potentially misleading. For example, it is common for goods to be shipped through regional trade hubs without further processing before final shipment to their ultimate destination. This can be seen in data reported by the United States largest trading partner, Canada. The data report a $ billion goods deficit with Canada in 2017. Canada reports a substantially larger goods surplus -- $ billion -- in the same relationship. This reflects the large role of re-exported goods originating in other countries (or originating in one NAFTA partner, arriving in the United States, and then returned or re-exported to the other partner without substantial transformation). statistics count goods coming into the customs territory from third countries and being exported to our trading partners, without substantial transformation, as exports from the United States. Canada, however, counts these re-exported goods as imports from the actual country of origin. In the same way, Canadian export data may include re-exported products originating in other countries as part of their exports to the United States, whereas data count these products as imports from the country of origin. These counting methods make each country s bilateral balance data consistent with its overall balance, but yield large discrepancies in national measures of bilateral balance. It is likely that a measure of the trade deficit with Canada excluding re-exports in all accounts would be somewhere in between the values calculated by the United States and by our country trading partner. FOREIGN TRADE BARRIERS 80 TECHNICAL BARRIERS TO TRADE Cheese Compositional Standards Canada s regulations on compositional standards for cheese limit the amount of dry milk protein concentrate (MPC) that can be used in cheese making, reducing the demand for dry MPCs. The United States continues to monitor the situation with these regulations for any changes that could have a further adverse impact on dairy product exports. Front-of-Package Labeling on Prepackaged Foods In November 2016, Health Canada requested public and technical comments on its proposal to implement requirements for front-of-package (FOP) labeling on prepackaged foods deemed high in sodium, sugars, and saturated fat, and on updating requirements for other information on the front of food packages including certain claims and labeling of sweeteners. The approach under consideration uses nutrient thresholds to determine whether a food would be required to carry a new FOP symbol. The Government and industry submitted comments on Canada s pre-consultation. Canada issued proposed regulations on February 10, 2018. The Government will submit comments on the proposed regulations. Restrictions on Seeds Exports For many major field crops, Canada s Seeds Act generally prohibits the sale or advertising for sale in Canada, or import into Canada, of any variety of seeds that is not registered with Canada s Food Inspection Agency (CFIA). Canada s variety registration is designed to give CFIA an oversight role for maintaining and improving quality standards for grains in Canada; facilitate and support seed certification and the international trade of seed; verify claims made which contributes to a fair and accurate representation of varieties in the marketplace; and facilitate varietal identity, trait identity and traceability in the marketplace to ensure standards are met and to support trade. However, there are concerns that the variety registration system is slow, cumbersome and disadvantages seed and grain exports to Canada. The United States is in discussions with Canada on steps to modernize and streamline Canada s variety registration system. IMPORT POLICIES Agricultural Supply Management Canada uses supply-management systems to regulate its dairy, chicken, turkey, and egg industries. Canada s supply-management regime involves production quotas, producer-marketing boards to regulate price and supply, and tariff-rate quotas (TRQs) for imports. Canada s supply-management regime severely limits the ability of producers to increase exports to Canada above TRQ levels and inflates the prices Canadians pay for dairy and poultry products. Under the current system, imports above quota levels are subject to prohibitively high tariffs ( , 245 percent for cheese and 298 percent for butter). The United States remains concerned about potential Canadian actions that would further limit exports to the Canadian dairy market. The United States continues to monitor closely any tariff reclassifications of dairy products to ensure that market access is not negatively affected. Milk Classes Canada provides milk components at discounted prices to domestic processors under the Special Milk Class Permit Program (SMCPP). These prices are discounted and are lower than Canadian support prices and FOREIGN TRADE BARRIERS 81 reflect or world prices. The SMCPP is designed to help Canadian processed products compete against imports in Canada and in foreign markets. An agreement reached between Canadian dairy farmers and processors in July 2016 introduced a new national milk class (Class 7) that extends discount pricing to an even wider range of Canadian dairy ingredients. Provincial milk marketing boards (agencies of Canada s provincial governments) began implementing Class 7 in February 2017. Class 7 is aimed at decreasing imports of milk protein substances into Canada and increasing Canadian exports of skim milk powder. The United States has raised its serious concerns with Class 7 with Canada bilaterally and at the WTO Committee on Agriculture, and is examining these milk classes closely. Restrictions on Grain Exports A number of grain sector requirements limit the ability of wheat and barley exporters to receive a premium grade (a grade that indicates use for milling purposes as opposed to grain for feed use) in Canada, including the provisions of the Canada Grain Act and Seeds Act. Under the Canada Grain Act, the inspection certificate for grain grown outside Canada, including grain, can only state the country of origin for that grain and not issue a grade. Also, the Canada Grain Act allows the Canadian Grain Commission to establish grades and grade names for any kind of western grain and eastern grain and establish the specifications for those grades by regulation. The explicit definitions of eastern grain and western grain as grain grown in the eastern and western divisions of Canada in the Canada Grain Act further underscores that grading is only available to Canadian grains. Under the Canada Grain Act, only grain of varieties registered under Canada s Seeds Act may receive a grade higher than the lowest grade allowable in each class. wheat and barley can be sold without a grade directly to interested Canadian purchasers at prices based on contract specifications. However, contract-based sales are a relatively small proportion of all sales in Canada. Most sales occur through the bulk handling system in grain elevators. Canadian grain elevators offer economic efficiencies by collecting and storing grain from many small-volume growers, giving them the ability to fulfill larger contracts and to demand higher prices for that ability. The barriers to assigning grain a premium grade encourages both a price discounting of high-quality grain appropriate for milling use and de facto segregation at Canadian elevators. The United States will continue to press the Canadian government to move forward swiftly with legislative and any other necessary changes that would enable grain grown outside Canada to receive a premium grade and changes to its varietal registration system. Customs Procedures Personal Duty Exemption Canada s personal duty exemption for residents who bring back goods from short trips outside of its borders is considerably less generous than the personal duty exemption. Canada provides no duty exemption for returning residents who have been out of Canada for fewer than 24 hours. Canadians who spend more than 24 hours outside of Canada can bring back C$200 (approximately $153) worth of goods duty free, or C$800 (approximately $613) for trips over 48 hours. retailers have raised concerns about the effect of this policy on purchases by Canadians on short trips to the United States. FOREIGN TRADE BARRIERS 82 De Minimis Threshold De minimis refers to the maximum threshold below which no duty or tax is charged on imported items. Canada s de minimis threshold remains at C$20 (approximately $15), which is the lowest among industrialized nations. (By comparison, in March 2016, the United States raised its de minimis threshold from $200 to $800.) Stakeholders, particularly shipping companies and online retailers, maintain that Canada s low de minimis threshold creates an unnecessary trade barrier. Wine, Beer, and Spirits The government of Canada allows residents to import a limited amount of alcohol free of duty and taxes when returning from trips that are at least 48 hours in duration. If the amount exceeds the personal exemption, duties and taxes apply. The taxes vary by province, but generally inhibit Canadians from importing alcoholic beverages when returning from shorter visits to the United States. Most Canadian provinces restrict the sale of wine, beer, and spirits through province-run liquor control boards, which are the sole authorized sellers of wine, beer, and spirits in those provinces. Market access barriers imposed by the provincial liquor boards greatly hamper exports of wine, beer, and spirits to Canada. These barriers include cost-of-service mark-ups, restrictions on listings (products that the liquor board will carry), reference prices (either maximum prices the liquor board is willing to pay, or prices below which imported products may not be sold), label requirements, discounting policies (requirements that suppliers must offer rebates or reduce their prices to meet sales targets), and distribution policies. British Columbia In January 2017, the United States requested WTO dispute settlement consultations with Canada regarding measures maintained by British Columbia (BC) governing the sale of wine in grocery stores. The WTO Secretariat entitled that dispute Canada Measures Governing the Sale of Wine in Grocery Stores and assigned it the dispute number DS520. The United States and Canada held consultations in Ottawa in April 2017. In October 2017, the United States filed a second request for consultations with Canada regarding the same matter and identified successor laws and regulations that entered into force subsequent to the original request for consultations. The United States and Canada held consultations by video conference in October 2017. The BC wine measures that the United States has challenged provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves. The BC measures discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called store within a store. The United States believes these measures are inconsistent with Canada s obligations pursuant to Article III:4 of the GATT 1994 because they are laws, regulations, or requirements affecting the internal sale, offering for sale, purchase, or distribution of wine and fail to accord products imported into Canada treatment no less favorable than that accorded to like products of Canadian origin. Ontario Previously, grocery stores in Ontario were not permitted to sell wine. Under Regulation 232/16, effective December 2016, grocery stores are permitted to sell wine under certain conditions, including conditions related to the size of the winery producing the wine, the size of wineries affiliated with the producing winery, the country where the grapes were grown, and whether the wine meets the definition of a quality assurance wine. Working with industry, the United States is analyzing these conditions for sale in grocery stores as well as other developments in Ontario to help ensure wines are not disadvantaged. FOREIGN TRADE BARRIERS 83 Quebec Quebec measures may provide an advantage to Quebec small wine producers vis- -vis imported wines by allowing Quebec small wine producers to bypass the provincial liquor board, Soci t des alcools du Qu bec (SAQ), and sell directly to grocery stores, therefore also bypassing the SAQ s mark-ups. DOMESTIC SUPPORT MEASURES Aerospace Sector Support The Canadian government continues to fund the Strategic Aerospace and Defense Initiative (SADI). The SADI provides repayable support for strategic industrial research and pre-competitive development projects in the aerospace, defense, space, and security industries, and has authorized C$ billion (approximately $ billion) to fund 33 advanced research and development projects since its establishment in 2007. The Canadian federal government and the Quebec provincial government announced aid to the Bombardier aircraft company in 2008 to support research and development related to the launch of the new class of Bombardier CSeries commercial aircraft. The federal government provided C$350 million (approximately $ million) in financing for the CSeries aircraft, and the government of Quebec provided another C$117 million (approximately $ million). In February 2017, the government of Canada announced $284 million in additional assistance to Bombardier consisting of a direct $97 million repayable contribution to Bombardier s Montreal-based CSeries program and a $187 million loan to Bombardier s Toronto-based Global 7000 program using Canada s Strategic Aerospace and Defense Initiative, making it one of the largest loans ever made with the SADI program. In October 2015, Bombardier and the Quebec government signed a memorandum of understanding for the province to buy a percent equity share in a CSeries joint venture for $1 billion, with a commitment by the company to maintain aircraft manufacturing operations in Quebec for a period of 20 years. Under the agreement, Bombardier received two $500 million payments from the Quebec government, the first on June 30 and the second on September 1, 2016. In February 2017, Brazil requested consultations in the WTO alleging that Canadian federal and provincial subsidies provided to Bombardier are inconsistent with Canada s international trade obligations. The United States joined the consultations as a third party. The WTO established a panel to investigate Brazil s claims on September 29, 2017. On October 16, 2017, Bombardier and a European-based multinational aerospace corporation announced a partnership on the CSeries aircraft program. Under the agreement, the European aerospace company acquired a percent interest in the CSeries program, while Bombardier and the Province of Quebec maintain approximately a 31 percent and 19 percent share of the project respectively. The European aerospace company will provide procurement, sales and marketing, and customer support expertise as part of the agreement. While Parties to the February 2011 OECD Sector Understanding on Export Credits for Civil Aircraft implement that agreement, the United States also has expressed concern over the possible use of export credit financing from Export Development Canada to support commercial sales of Bombardier CSeries aircraft in the market. The United States will continue to monitor carefully any government financing and support of the CSeries aircraft. Canada has committed to spend approximately C$25 million (approximately $ million) from 2009 to 2018 to support the Green Aviation Research and Development Network and provide additional funding to the National Research Council s Industrial Research Assistance Program to support research and development in Canada s aerospace sector. Canada s federal government announced in October 2016 that FOREIGN TRADE BARRIERS 84 a consortium of companies and academic institutions, led by Bombardier, will receive up to C$54 million (approximately $ million) to develop the next generation of aircraft technologies. GOVERNMENT PROCUREMENT Canada has made commitments to open its government procurement to suppliers under the WTO Agreement on Government Procurement (GPA) and NAFTA. The current agreements provide businesses with access to procurement conducted by most Canadian federal departments and a large number of provincial entities, and to procurement by some but not all of Canada s Crown Corporations. Hydro-Qu bec, a provincial-level Crown Corporation in Quebec, has a provincial mandate to require 60 percent Qu bec content for its procurements for wind energy projects, and these local content requirements could pose hurdles for companies in the renewable energy sector in Canada. INTELLECTUAL PROPERTY RIGHTS PROTECTION Canada remains listed on the Watch List in the Special 301 Report. Because shortfalls in protection and enforcement of intellectual property rights (IPR) constitute a barrier to exports and investment, these issues are a continuing priority in bilateral trade relations with Canada. The United States remains deeply concerned that Canada does not provide customs officials with the ability to detain, seize, and destroy pirated and counterfeit goods that are moving in transit or are transshipped through Canada. The 2017 out-of-cycle review of Notorious Markets listed the Pacific Mall in Markham, Ontario due to the large-scale availability of counterfeit and pirated goods. With respect to pharmaceuticals, the United States welcomed the Supreme Court of Canada s June 2017 ruling that rejected the application of patent utility standards that lower Canadian courts had adopted resulting in the invalidation of patents held by pharmaceutical companies. The United States has concerns about due process and transparency relating to the geographical indications system in Canada, including commitments Canada took under the Canada-EU Comprehensive Economic and Trade Agreement (CETA), which came into force provisionally on September 21, 2017. SERVICES BARRIERS Telecommunications Canada maintains a percent limit on foreign ownership of certain existing suppliers of facilities-based telecommunication services (most significantly, incumbent operators with more than 10 percent market share). Despite steps to partially liberalize the market through the 2012 revision to the Telecommunications Act, Canada continues to possess one of the most restrictive telecommunication regimes among developed countries. The cable TV industry, a major competitor for Internet access services, was excluded from the 2012 liberalization, and remains subject to a percent foreign equity cap. In addition to foreign equity restrictions, Canada requires that Canadian citizens comprise at least 80 percent of the membership of boards of directors of facilities-based telecommunication service suppliers. Canadian Content in Broadcasting The Canadian Radio-television and Telecommunications Commission (CRTC) imposes quotas that determine both the minimum Canadian programming expenditure (CPE) and the minimum amount of Canadian programming that licensed Canadian broadcasters must carry (Exhibition Quota). Large English-language private broadcaster groups have a CPE obligation equal to 30 percent of the group s gross revenues from their conventional signals, specialty, and pay services. FOREIGN TRADE BARRIERS 85 In March 2015, the CRTC eliminated the overall 55 percent daytime Canadian-content quota. Nonetheless, CRTC maintained the Exhibition Quota for primetime at 50 percent from 6 to 11 Specialty services and pay television services that are not part of a large English-language private broadcasting group are now subject to a 35 percent requirement throughout the day, with no prime time quota. For cable television and direct-to-home broadcast services, more than 50 percent of the channels received by subscribers must be Canadian channels. Non-Canadian channels must be pre-approved ( listed ) by the CRTC. Upon an appeal from a Canadian licensee, the CRTC may determine that a non-Canadian channel competes with a Canadian pay or specialty service, in which case the CRTC may either remove the non-Canadian channel from the list (thereby revoking approval to supply the service) or shift the channel into a less competitive location on the channel dial. Alternatively, non-Canadian channels can become Canadian by ceding majority equity control to a Canadian partner, as some channels have done. This policy is ostensibly designed to promote Canadian culture. The CRTC also requires that 35 percent of popular musical selections broadcast on the radio qualify as Canadian under a Canadian government-determined point system. In September 2015, the CRTC released a Wholesale Code that governs certain commercial arrangements between distributors ( cable companies) and programmers ( channel owners). The Wholesale Code came into force January 22, 2016. The code is binding for vertically-integrated suppliers in Canada ( , suppliers that own infrastructure and programming) and applies as guidelines to foreign programming suppliers (who by definition cannot be vertically integrated, as foreign suppliers are prohibited from owning video distribution infrastructure in Canada). The CTRC closely monitors negotiations with foreign suppliers and can take actions if the guidelines are not followed. suppliers of programming also have raised concerns about a CRTC policy not to permit simultaneous substitution of advertising for the Super Bowl, beginning in the 2016-2017 season. Simultaneous substitution is a process by which broadcasters can insert local advertising into a program, overriding the original advertising and providing the Canadian broadcaster an independent source of revenue. suppliers of programming believe that the price Canadian networks pay for Super Bowl rights is determined by the value of advertising they can sell in Canada, and that the CRTC s decision reduces the value of their programming. On August 19, 2016, the CRTC issued a formal rule preventing simultaneous substitution during the Super Bowl by a major Canadian telecommunication company, which has exclusive rights to air the Super Bowl in Canada. The rule came into force January 1, 2017. The United States is very concerned about this policy. On August 1, 2017, the Canadian telecommunication company with rights to air the Super Bowl (Bell Canada) submitted a formal request to the CRTC to rescind its simultaneous substitution ruling, noting it has had a negative effect on broadcasters, creators, and the Canadian economy. Bell Canada also separately challenged the CRTC rule in the Canadian Federal Court of Appeals, but its claim was dismissed in December 2017. Certain broadcasters operating in border states have also complained about Canadian cable and satellite suppliers picking up their signals and redistributing them throughout Canada without the broadcasters consent. The United States is exploring avenues to address these concerns. Financial Services By law, Canada requires financial institutions in Canada to mirror any data that relates to the Canadian operations of the financial institution that is transferred outside of Canada. The United States is urging that Canada withdraw these requirements as regulators can have immediate and direct access to data for regulatory purposes regardless of where data is stored. FOREIGN TRADE BARRIERS 86 INVESTMENT BARRIERS The Investment Canada Act (ICA) has regulated foreign investment in Canada since 1985. Foreign investors must notify the government of Canada prior to the direct or indirect acquisition of an existing Canadian business above a threshold value. On June 22, 2017, a provision to increase the threshold for review to C$1 billion (approximately $ million) from C$600 million (approximately $ million) for WTO investors that are not state-owned enterprises (SOEs) came into force. Subsequently, on September 21, 2017, the threshold for review was increased to C$ billion (approximately $ billion) for investors that are not SOEs from countries that are party to certain designated trade agreements with Canada, including the NAFTA. Innovation, Science and Economic Development (ISED) Canada is the government s reviewing authority for most investments, except for those related to cultural industries, which come under the jurisdiction of the Department of Heritage Canada. Foreign acquisition proposals under government review must demonstrate a net benefit to Canada to be approved. The ISED Minister may disclose publicly that an investment proposal does not satisfy the net benefit test and publicly explain the reasons for denying the investment, so long as the explanation will not do harm to the Canadian business or the foreign investor. The ISED Minister also can make investment approval contingent upon meeting certain conditions such as minimum levels of employment and research and development. Canada administers supplemental guidelines for investment by foreign SOEs. Those guidelines include a stipulation that future bids by SOEs to acquire control of a Canadian oil-sands business will be approved on an exceptional basis only. On December 19, 2016, the Canadian government published guidelines on the national security review of investments under the ICA. The guidelines provide a list of criteria the ISED Minister may consider when making a national security determination on an investment, and provide information to investors on how and when to file a notification under the ICA. BARRIERS TO DIGITAL TRADE Digital Media On September 28, 2017, the government launched its Creative Canada initiative that provides a policy framework to grow Canada s creative industries. Creative Canada s policy framework states that the government will seek commitments from, and pursue agreements with global Internet companies that provide services to Canadians to ensure they contribute to Canadian programming and the development of Canadian talent with investments in production and distribution. The United States will closely monitor this policy to ensure it is implemented in a manner that does not constitute a barrier to digital trade. FOREIGN TRADE BARRIERS 87 CHILE TRADE SUMMARY The goods trade surplus with Chile was $ billion in 2017, a percent decrease ($ billion) over 2016. goods exports to Chile were $ billion, up percent ($687 million) from the previous year. Corresponding imports from Chile were $ billion, up percent. Chile was the United States' 21st largest goods export market in 2017. exports of services to Chile were an estimated $ billion in 2016 (latest data available) and imports were $ billion. Sales of services in Chile by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Chile-owned firms were $203 million. foreign direct investment (FDI) in Chile (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Chile is led by mining, finance/insurance, and manufacturing. TRADE AGREEMENTS United States-Chile Free Trade Agreement The United States-Chile Free Trade Agreement (FTA) entered into force on January 1, 2004. Pursuant to the FTA, Chile immediately eliminated tariffs on over 85 percent of qualifying goods. Since January 1, 2015, all originating goods enter Chile duty free. Chile also implemented new laws and regulations to ensure additional access for companies to its government procurement, services, telecommunications, and electronic commerce markets and made commitments with respect to regulatory transparency, customs procedures, and enforcement of environmental protection laws. The liberalization of the Chilean goods and services markets have supported increased exports to Chile. However, the United States continues to have significant concerns with Chile s failure to implement fully some intellectual property rights protections and enforcement commitments made under the FTA. The FTA established a Free Trade Commission (FTC), which meets regularly to review the functioning of the Agreement and address outstanding issues. The United States has worked effectively with Chile to address some priority issues, including labor protection, trade in table grapes, beef grade labeling, and environmental protection for endangered species. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANTIARY BARRIERS Technical Barriers to Trade Nutritional Labeling In June 2016, Chile implemented the Law on Food Nutritional Composition and its Advertising (known as Decree 13). The law, and its subsequent implementing regulations, establish a front-of-package warning label system for certain prepackaged food and beverage products that exceed specified thresholds for sodium, sugar, energy (calories), and saturated fats. Food and beverage products that exceed the thresholds must bear a black stop sign shaped warning label with the words high in salt, sugar, energy, or saturated fat on the front of the product package. Fresh or unpackaged food and beverage products are not covered FOREIGN TRADE BARRIERS 88 by these same measures. Because food and beverage products must bear a warning label for each threshold surpassed, products can be required to bear up to four warning labels on the front of the pack. Thresholds are established based on 100 gram or 100 milliliter quantities, rather than portion sizes consumed in single servings. In accordance with the timeline established in Decree 13, Chile has indicated that it will lower these threshold limits in June 2018, thereby expanding the number and scope of products affected. Additionally, the law restricts the advertising of products that exceed nutritional thresholds, including by prohibiting the use of images deemed appealing to children 14 years of age or younger. Implementation of Decree 13, particularly with regard to the interpretation of registered trademarks as constituting advertising on product packaging, has been inconsistent. Despite initial assurances that registered trademarks would not be affected, in the months after implementation of the Decree, the Chilean Ministry of Health (MINSAL) barred foreign products from entering the Chilean market on the basis that images on product packaging, including registered trademarks, constitute advertising to children and therefore violate provisions of Decree 13. These actions resulted in delays, shortages, and repackaging that cost firms millions of dollars in lost sales and other expenses. In December 2017, the Chilean Ministry of Health (MINSAL) published additional requirements and specifications related to the advertising of food and beverage products that carry the warning labels. Beginning on June 11, 2018, advertisements on all media (including television, radio, print, Internet, and public advertisements) of such products must also include the phrase Choose foods with fewer stop signs, followed by Ministry of Health, Government of Chile below the MINSAL logo. The United States has raised concerns with the law and its associated implementing measures at the WTO Committee on Technical Barriers to Trade (WTO TBT Committee), through the FTA in the FTC and the FTA TBT Committee, and on other occasions. The United States will continue to discuss these issues, and request explanation of the underlying scientific justification for the measures, with Chile. Cell Phone Labeling and Emergency Warning Alerts In June 2016, Chile s Ministry of Transportation and Telecommunications (SUBTEL) issued Resolution No. 1463, which established requirements for cellphone labeling. This measure entered into force on September 23, 2017. Per SUBTEL s Manual of Graphic Standards: Broadband Label issued pursuant Resolution No. 1463, labels are required to indicate whether cellphones or mobile devices are suitable for 2G, 3G, or 4G. Resolution No. 271, issued on March 2, 2017, clarified that the label must be applied to all device boxes before the point of sale, and that it was the responsibility of the party commercializing the device to ensure that the labels are applied. For a 4G phone certification, the device must support the bands 700 MHz, 2600 MHz, and Advanced Wireless Services (AWS). In Chile, some mobile phone companies currently pay an extra cost to unlock the AWS band. Thus, if a device has 4G capability, but the AWS band is not accessible it will be labeled instead as 2G or 3G. SUBTEL has outlined a testing procedure to ensure compliance with Resolution No. 1463, which involves local testing done by an accredited local certification body, a list of which is published on SUBTEL s webpage. Stakeholders are concerned that these labelling requirements may be unduly broad and costly to implement. In June 2016, SUBTEL published External Resolution No. 1474, which calls for a mandatory and universal emergency alert (vibration) to be included in all cellphones or mobile devices. The Resolution entered into force on September 23, 2017. SUBTEL has further clarified technical guidelines, a transition plan, and noted that the same local certifying bodies as those assigned to test compliance with requirements for No. Resolution 1463 will also test for compatibility with Chile s emergency alert system. As a result of engagement through the WTO TBT Committee and FTA mechanisms, Chile also provided additional time for stakeholder comment and has addressed issues with the use of a common international standard. FOREIGN TRADE BARRIERS 89 However, concerns continue to exist that this measure appears to be unique to the Chilean market and is more onerous than necessary, particularly with respect to duplicative testing and certification requirements. Sanitary and Phytosanitary Barriers Salmonid Products Ban In July 2010, Chile s Ministry of Fisheries (SERNAPESCA) suspended imports of salmonid species, including salmonid eggs, from all countries, pursuant to Chile s revised import regulations for aquatic animals. The United States continues to work with Chile to develop a protocol to allow for safe exports of salmonid eggs. INTELLECTUAL PROPERTY RIGHTS PROTECTION Chile remained on the Priority Watch List in the 2017 Special 301 Report. The adequacy and effectiveness of Chile s framework for the protection and enforcement of intellectual property (IP) rights remains a serious concern. Specifically, this concern relates to, among other things, a lack of protection against the unlawful circumvention of technological protection measures, a lack of effective remedies to address satellite television piracy, failure to ratify the (1991) Act of the International Convention for the Protection of New Varieties of Plants (UPOV 91), and an ineffective Internet Service Provider liability regime, which has failed to promote effective and expeditious action against online piracy. The United States also has urged Chile to address patent issues in connection with applications to market pharmaceutical products and to provide adequate protection against unfair commercial use of undisclosed test or other data generated to obtain marketing approvals for pharmaceutical products. The United States will continue to work bilaterally with Chile to address these and other IP issues, including those related to overdue FTA implementation tasks. IMPORT POLICIES Tariffs According to the WTO, Chile s average bound WTO tariff rate was percent in 2016 (latest data available), and its average MFN applied tariff rate was 6 percent. Apart from a price-band system for some agricultural products, Chile effectively applies only two tariff rates to imported goods: zero percent or six percent. Chile has placed heavy emphasis on an open-trade strategy and has one of the largest numbers of preferential trade agreements with the greatest number of trading partners of any WTO Member. As noted above, pursuant to the FTA, as of January 1, 2015, all originating goods enter Chile duty free. Taxes Importers must pay a 19 percent value-added tax (VAT) calculated based on the cost, insurance, freight (CIF) value of the import. The VAT is also applied to nearly all domestically produced goods and services. Certain products (regardless of origin) are subject to additional taxes. There is an 18 percent tax on sugared non-alcoholic beverages, a 20 percent tax on beers and wines, and a percent tax on distilled alcoholic beverages. Cigarettes are subject to a 30 percent ad valorem tax plus approximately $ per cigarette; other tobacco products have taxes between percent and percent. Luxury goods, defined as jewelry and natural or synthetic precious stones, fine furs, fine carpets or similar articles, mobile home trailers, electric and high-value vehicles, caviar conserves and their derivatives, and air or gas arms and their FOREIGN TRADE BARRIERS 90 accessories (except for underwater hunting), are subject to a 15 percent tax. The luxury tax is not assessed on vehicles as a result of the FTA. Pyrotechnic articles, such as fireworks, petards, and similar items (except for industrial, mining or agricultural use), are subject to a 50 percent tax. Pursuant to changes in Chile s tax law, foreign shareholders must pay a 35 percent tax on capital gains that are recognized in connection with the sale or other transfer of Chilean shares on or after January 1, 2017. This tax change applies to capital gains from the sale of shares in Chilean companies, regardless of their participation in the stock exchange (Bolsa de Comercio). Such capital gains were previously subject to tax at a rate of 20 or 35 percent, depending on certain requirements. Under the new rules, the rate is 35 percent on net gain in all cases. Under the United States - Chile Treaty for the Avoidance of Double Taxation, which was signed in 2010 but which has not yet come into force, certain companies would be exempt from the 35 percent tax. The tax treaty would also reduce withholding tax rates on royalties, dividends, interest payments, and capital gains. Further, the treaty would exempt engineering, financial services, and other service companies from a 35 percent withholding tax, and banks and insurance companies would be subject to a reduced 4 percent withholding tax rate on interest earned in Chile. Nontariff Measures There are virtually no restrictions on the types or amounts of goods that can be imported into Chile, nor are there any requirements to use the official foreign exchange market. However, importers and exporters must report their import and export transactions to the Central Bank. Commercial banks may sell foreign currency to any importer to cover the price of imported goods and related expenses as well as to pay interest and other financing expenses that are authorized in the import report. Chile s licensing requirements appear to be used primarily for statistical purposes; legislation requires that most import licenses be granted as a routine procedure. However, Chile applies more rigorous licensing procedures for certain products, such as pharmaceuticals and weapons. Companies are required to contract the services of a customs broker when importing or exporting goods valued at over $1,000 free on board (FOB). Companies established in any of Chile s free trade zones are exempt from the obligation to use a customs broker when importing or exporting goods. Noncommercial shipments valued at less than $500 are also exempt. EXPORT POLICIES Chile currently provides a simplified duty drawback program for nontraditional exports (except in cases where a free trade agreement provides otherwise). The program reimburses a firm up to 3 percent of the value of the exported good if at least 50 percent of that good consists of imported raw materials. Chile publishes an annual list of products excluded from this policy. In accordance with its commitments under the FTA, as of January 1, 2015, Chile eliminated the use of duty drawback and duty deferral for imports that are incorporated into any good exported to the United States. Under Chile s VAT reimbursement policy, which is distinct from its drawback program, exporters have the right to recoup the VAT paid on goods and services intended for export activities. Any company that invests in a project in which production will be for export is eligible for VAT reimbursement. Exporters of services can only benefit from the VAT reimbursement policy when the services are rendered to people or companies with no Chilean residency. In addition, the service must qualify as an export through a resolution issued by the Chilean customs authority. FOREIGN TRADE BARRIERS 91 CHINA TRADE SUMMARY The goods trade deficit with China was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to China were $ billion, up percent ($ billion) from the previous year. Corresponding imports from China were $ billion, up percent. China was the United States' 3rd largest goods export market in 2017. exports of services to China were an estimated $ billion in 2017 and imports were $ billion. Sales of services in China by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority China-owned firms were $ billion. foreign direct investment (FDI) in China (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in China is led by manufacturing, wholesale trade, and nonbank holding companies. KEY TRADE BARRIERS The United States continues to pursue vigorous engagement to increase the benefits that businesses, workers, farmers, ranchers, service providers and consumers derive from trade and economic ties with China. At present, China s trade policies and practices in several specific areas cause particular concern for the Government and stakeholders. The key concerns in each of these areas are summarized below. For more detailed information on these concerns, see the 2017 USTR Report to Congress on China s WTO Compliance, issued on January 19, 2018, at: percent202017 percent20WTO INDUSTRIAL POLICIES Overview China continued to pursue a wide array of industrial policies in 2017 that seek to limit market access for imported goods, foreign manufacturers and foreign services suppliers, while offering substantial government guidance, resources and regulatory support to Chinese industries. The beneficiaries of these constantly evolving policies are not only state-owned enterprises but also other domestic companies attempting to move up the economic value chain. Technology Transfer At the beginning of 2017, longstanding and serious concerns regarding technology transfer remained unaddressed, despite repeated, high-level bilateral commitments by China to remove or no longer pursue problematic policies and practices. At the same time, new concerns have continued to emerge. In August 2017, USTR initiated an investigation under Section 301 of the Trade Act of 1974, as amended, focused on policies and practices of the government of China related to technology transfer, intellectual property and innovation. Specifically, in its initiation notice, USTR identified four categories of reported Chinese government conduct that would be the subject of its inquiry, including but not limited to: (1) the use of a variety of tools to require or pressure the transfer of technologies and intellectual property to Chinese FOREIGN TRADE BARRIERS 92 companies, (2) depriving companies of the ability to set market-based terms in licensing negotiations with Chinese companies, (3) intervention in markets by directing or unfairly facilitating the acquisition of companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property, and (4) conducting or supporting unauthorized intrusions into commercial computer networks or cyber-enabled theft for commercial gains. On March 22, 2018, USTR issued a report supporting findings that the four categories of acts, policies and practices covered in the investigation are unreasonable or discriminatory and burden and/or restrict commerce. Made in China 2025 Industrial Plan In May 2015, China s State Council released Made in China 2025, a 10-year plan spearheaded by the Ministry of Industry and Information Technology (MIIT) and targeting 10 strategic industries, including advanced information technology, automated machine tools and robotics, aviation and spaceflight equipment, maritime engineering equipment and high-tech vessels, advanced rail transit equipment, new energy vehicles (NEVs), power equipment, farm machinery, new materials, biopharmaceuticals and advanced medical device products. While ostensibly intended simply to raise industrial productivity through more advanced and flexible manufacturing techniques, Made in China 2025 is emblematic of China s evolving and increasingly sophisticated approach to indigenous innovation, which is evident in numerous supporting and related industrial plans. Their common, overriding aim is to replace foreign technology, products and services with Chinese technology, products and services in the China market through any means possible so as to ready Chinese companies for dominating international markets. Made in China 2025 seeks to build up Chinese companies in the 10 targeted, strategic industries at the expense of, and to the detriment of, foreign industries and their technologies through a multi-step process over 10 years. The initial goal of Made in China 2025 is to ensure, through various means, that Chinese companies develop, extract or acquire their own technology, intellectual property (IP) and know-how and their own brands. The next goal of Made in China 2025 is to substitute domestic technologies, products and services for foreign technologies, products and services in the China market. The final goal of Made in China 2025 is to capture much larger worldwide market shares in the 10 targeted, strategic industries. Many of the policy tools being used by the Chinese government to achieve the goals of Made in China 2025 raise serious concerns. These tools are largely unprecedented, as other WTO Members do not use them, and include a wide array of state intervention and support designed to promote the development of Chinese industry in large part by restricting, taking advantage of, discriminating against or otherwise creating disadvantages for foreign enterprises and their technologies, products and services. Indeed, even facially neutral measures can be applied in favor of domestic enterprises, as past experience has shown, especially at sub-central levels of government. Made in China 2025 also differs from industry support pursued by other WTO Members by its level of ambition and, perhaps more importantly, by the scale of resources the government is investing in the pursuit of its industrial policy goals. In this regard, even if the Chinese government fails to achieve the industrial policy goals set forth in Made in China 2025, it is still likely to create or exacerbate market distortions and create severe excess capacity in many of the targeted industries. The United States continues to monitor and analyze Chinese policies and practices in key industrial sectors, specifically those outlined in Made in China 2025, which are important pillars of the and global economies, to ensure a level playing field. Indigenous Innovation Policies aimed at promoting indigenous innovation continue to represent an important component of China s industrialization efforts. Through intensive, high-level bilateral engagement with China since 2010, the United States has attempted to address these policies, which provide various preferences when IP FOREIGN TRADE BARRIERS 93 is owned or developed in China, both broadly across sectors of China s economy and specifically in the government procurement context. For example, at the May 2012 Strategic and Economic Dialogue (S&ED) meeting, China committed to treat IP owned or developed in other countries the same as IP owned or developed in China. The United States also used the 2012 Joint Commission on Commerce and Trade (JCCT) process to press China to revise or eliminate specific measures that appeared to be inconsistent with this commitment. Throughout 2013 and 2014, the United States and China intensified their discussions. At the December 2014 JCCT meeting, China clarified and underscored that it will treat IP owned or developed in other countries the same as domestically owned or developed IP. Once again, however, these commitments were not fulfilled. China continues to pursue myriad policies that require or favor the ownership or development of IP in China. The United States secured a series of similar commitments from China in the government procurement context, where China agreed to de-link indigenous innovation policies at all levels of the Chinese government from government procurement preferences, including through the issuance of a State Council measure mandating that provincial and local governments eliminate any remaining linkages by December 2011. Many years later, however, this promise had not been fulfilled. At the November 2016 JCCT meeting, in response to concerns regarding the continued issuance of scores of inconsistent measures, China announced that its State Council had issued a document requiring all agencies and all sub-central governments to further clean up related measures linking indigenous innovation policy to the provision of government procurement preference. Again, the United States should not have to seek the same promises over and over through multiple negotiations. Investment Restrictions China seeks to protect many domestic industries through a restrictive investment regime, which adversely affects foreign investors in key services sectors, agriculture, extractive industries and certain manufacturing sectors. Many aspects of China s current investment regime continue to cause foreign investors great concern, including a lack of substantial liberalization evidenced by the continued application of foreign equity caps and joint venture requirements, the maintenance of a case-by-case administrative approval system for a broad range of investments, the evolving potential for a new and overly broad national security review mechanism, and the increasingly adverse impact of China s Cybersecurity Law and related implementing measures. In addition, foreign enterprises report that Chinese government officials may condition investment approval on a requirement that a foreign enterprise transfer technology, conduct research and development in China, satisfy performance requirements relating to exportation or the use of local content, or make valuable, deal-specific commercial concessions. The United States has repeatedly raised concerns with China about its restrictive investment regime. To date, this sustained bilateral engagement has not led to a significant relaxation of China s investment restrictions, nor has it appeared to curtail ad hoc actions by Chinese government officials. Shortly after President Trump s visit to Beijing in November 2017, China did announce that it would be relaxing certain restrictions on foreign investment in banking services, life insurance services, and securities and asset management services in the future. It remains to be seen if these promises will be fulfilled. Secure and Controllable Information and Communications Technology Policies In 2017, as China issued a series of draft and final measures to implement the Cybersecurity Law adopted in November 2016, global concerns regarding China s approach to cybersecurity policy increased. China s FOREIGN TRADE BARRIERS 94 approach is to impose severe restrictions on a wide range of and other foreign information and communications technology (ICT) products and services with an apparent goal of supporting its technology localization policies by encouraging the replacement of foreign ICT products and services with domestic ones. Stakeholders and governments around the world expressed serious concerns about requirements that ICT equipment and other ICT products and services in critical sectors be secure and controllable, as these requirements are used by the Chinese government to disadvantage non-Chinese firms in multiple ways. Separate from the Cybersecurity Law, China has referenced its secure and controllable requirements in a variety of measures dating back to 2013. Through these measures, China has mandated that Chinese information technology (IT) users purchase Chinese products and favor Chinese service suppliers, imposed local content requirements, imposed domestic research and development (R&D) requirements, considered the location of R&D as a cybersecurity risk factor and required the transfer or disclosure of source code or other IP. In addition, in 2015, China enacted a National Security Law and a Counterterrorism Law, which include provisions citing not only national security and counterterrorism objectives but also economic and industrial policies. The State Council also published a plan in 2015 that sets a timetable for adopting secure and controllable products and services in critical government ministries by 2020. Meanwhile, sector-specific policies under this broad framework continue to be proposed and deployed across China s economy. A high profile example from December 2014 was a proposed measure drafted by the China Banking Regulatory Commission (CBRC) that called for 75 percent of ICT products used in the banking system to be secure and controllable by 2019 and that would have imposed a series of criteria that would shut out foreign ICT providers from China s banking sector. Not long afterwards, a similar measure was proposed for the insurance sector. In 2015, the United States, in concert with other governments and stakeholders around the world, raised serious concerns about China s secure and controllable regime at the highest levels of government within China. During the state visit of President Xi in September 2015, the and Chinese Presidents committed to a set of principles for trade in information technologies. The issue also was raised in connection with the June 2015 S&ED meeting and the November 2015 JCCT meeting, with China making a series of additional important commitments with regard to technology policy. China reiterated many of these commitments at the November 2016 JCCT meeting, where it affirmed that its secure and controllable policies are not to unnecessarily limit or prevent commercial sales opportunities for foreign ICT suppliers or unnecessarily impose nationality-based conditions and restrictions on commercial ICT purchases, sales or uses. China also agreed that it would notify relevant technical regulations to the WTO Committee on Technical Barriers to Trade (TBT Committee). Again, however, it appears that China does not intend to honor its promises. The numerous draft and final cybersecurity implementation measures issued by China in 2017 raise serious questions about China s approach to cybersecurity regulation. China s measures do not appear to be consistent with the non-discriminatory, non-trade restrictive approach to which China has committed. Accordingly, throughout the past year, the United States conveyed its serious concerns about China s approach to cybersecurity regulation through written comments on draft measures, bilateral engagement under the auspices of the United States-China Comprehensive Economic Dialogue (CED) and multilateral engagement at WTO committee meetings in an effort to persuade China to revise its policies in this area to ensure that they are consistent with its WTO obligations and bilateral commitments. These efforts are ongoing. Subsidies China continues to provide substantial subsidies to its domestic industries, which have caused injury to industries. Some of these subsidies also appear to be prohibited under WTO rules. To date, the United States has been able to address some of these subsidies through countervailing duty proceedings conducted FOREIGN TRADE BARRIERS 95 by the Commerce Department and dispute settlement cases at the WTO. The United States and other WTO Members also have continued to press China to notify all of its subsidies to the WTO in accordance with its WTO obligations while also submitting counter notifications listing hundreds of subsidy programs that China has failed to notify. Since joining the WTO 16 years ago, China has not yet submitted to the WTO a complete notification of subsidies maintained by the central government, and it did not notify a single sub-central government subsidy until July 2016, when it provided information largely only on sub-central government subsidies that the United States had challenged as prohibited subsidies in a WTO case. Excess Capacity Because of its state-led approach to the economy, China is the world s leading offender in creating non-economic capacity, as evidenced by unprecedentedly severe excess capacity situations in several industries. China also is well on its way to creating severe excess capacity in other industries through its pursuit of industrial plans such as Made in China 2025, pursuant to which the Chinese government is doling out hundreds of billions of dollars to support Chinese companies and requiring them to achieve preset targets for domestic market share at the expense of imports and global market share in each of 10 advanced manufacturing industries. In manufacturing industries like steel and aluminum in particular, China s economic planners and their government actions and financial support have contributed to massive excess capacity in China, with the resulting over-production distorting global markets and hurting producers and workers in both the United States and third country markets such as Canada and Mexico, where exports compete with Chinese exports. While China recognizes the severe excess capacity problem in these industries, among others, and has taken some steps to try to address this problem, there have been mixed results. From 2000 to 2014, China accounted for more than 75 percent of global steelmaking capacity growth, even though China has no comparative advantage with regard to the energy and raw material inputs that make up the majority of costs for steelmaking. Currently, China s capacity represents about one-half of global capacity and twice the combined steelmaking capacity of the European Union (EU), Japan, the United States and Russia. Meanwhile, China s steel exports grew to be the largest in the world, at 91 million metric tons (MT) in 2014, a 50-percent increase over 2013 levels, despite sluggish steel demand abroad. In 2015, Chinese exports reached a historic high of 110 million MT, causing increased concerns about the detrimental effects that these exports would have on the already saturated world market for steel. China s steel exports continued to grow in the first half of 2016, before beginning to decline in the second half of the year, a trend that continued into 2017. Similarly, production of primary aluminum in China increased by more than 50 percent between 2011 and 2015, and it has continued to grow in subsequent years despite a severe drop in global aluminum prices beginning in 2015. Large new facilities have been built with government support, and China s primary aluminum production now accounts for more than one-half of global production. As a consequence, China s aluminum excess capacity has been contributing to a severe decline in global aluminum prices, harming plants and workers. Not unlike the situations in the steel and aluminum industries, China s production of soda ash has increased as domestic demand has stagnated. As a result, China s soda ash exports increased 23 percent in 2015 as compared to the previous year, and this trend continued in 2016. Further, China s soda ash production, which totaled 26 million MT in 2016, is projected to grow at nearly three percent annually through 2020, which is more than double China s projected percent annual increase in domestic demand over that same time period. It also is estimated that China s excess soda ash capacity will continue to grow in the coming years, reaching over million MT by 2019. FOREIGN TRADE BARRIERS 96 Excess capacity in China whether in the steel industry or other industries like aluminum or soda ash hurts industries and workers not only because of direct exports from China to the United States, but because lower global prices and a glut of supply make it difficult for even the most competitive producers to remain viable. Domestic industries in many of China s trading partners have continued to respond to the effects of the trade-distortive effects of China s excess capacity by petitioning their governments to impose trade remedies such as antidumping and countervailing duties. Export Restraints China continues to deploy a combination of export restraints, including export quotas, export licensing, minimum export prices, export duties and other restrictions, on a number of raw material inputs where it holds the leverage of being among the world s leading producers. Through these export restraints, it appears that China is able to provide substantial economic advantages to a wide range of downstream producers in China at the expense of foreign downstream producers, while creating pressure on foreign downstream producers to move their operations, technologies and jobs to China. In 2013, China removed its export quotas and duties on several raw material inputs of key interest to the steel, aluminum and chemicals industries after the United States won a dispute settlement case against China at the WTO. In 2014, the United States won a second WTO case, focusing on China s export restraints on rare earths, tungsten and molybdenum, which are key inputs for a multitude of products, including hybrid automobile batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum, and chemicals. China removed those export restraints in May 2015. In July 2016, the United States launched a third WTO case challenging export restraints maintained by China. The challenged export restraints include export quotas and export duties maintained by China on various forms of 11 raw materials, including antimony, chromium, cobalt, copper, graphite, indium, lead, magnesia, talc, tantalum and tin. These raw materials are key inputs in important manufacturing industries, including aerospace, automotive, construction and electronics. It is deeply concerning that the United States has been forced to bring multiple cases to address the same obvious WTO compliance issues. Value-added Tax Rebates and Related Policies As in prior years, in 2017, the Chinese government attempted to manage the export of many primary, intermediate and downstream products by raising or lowering the value-added tax (VAT) rebate available upon export. China sometimes reinforces its objectives by imposing or retracting export duties. These practices have caused tremendous disruption, uncertainty and unfairness in the global markets for some products, particularly downstream products where China is a leading world producer or exporter, such as products made by the steel, aluminum and soda ash industries. These practices, together with other policies, such as excessive government subsidization, also have contributed to severe excess capacity in these same industries. An apparently positive development took place at the July 2014 S&ED meeting, when China committed to improve its VAT rebate system, including by actively studying international best practices, and to deepen communication with the United States on this matter, including regarding its impact on trade. Once more, however, this promise remains unfulfilled. To date, China has not made any movement toward the adoption of international best practices. Import Ban on Remanufactured Products China prohibits the importation of remanufactured products, which it typically classifies as used goods. China also maintains restrictions that prevent remanufacturing process inputs (known as cores) from being imported into China s customs territory, except special economic zones. These import prohibitions and restrictions undermine the development of industries in many sectors in China, including mining, agriculture, healthcare, transportation and communications, because companies in these industries are FOREIGN TRADE BARRIERS 97 unable to purchase high-quality, lower-cost remanufactured products produced outside of China. Nevertheless, China is apparently prepared to pay this price in order to limit imports of remanufactured goods. Import Ban on Recoverable Materials In 2017, China issued two measures that would limit or ban imports of numerous scrap and recovered materials, such as certain types of plastic, paper and metals. Similar restrictions do not appear to apply to domestically sourced scrap or recovered materials. Standards In the standards area, two principal types of Chinese policies harm companies. First, Chinese government officials in some cases reportedly have pressured foreign companies seeking to participate in the standards-setting process to license their technology or intellectual property on unfavorable terms. Second, China has continued to pursue unique national standards in a number of high technology areas where international standards already exist. The United States continues to press China to address these specific concerns, but to date this bilateral engagement has yielded minimal progress. Currently, China is undergoing a large-scale reform of its standards system. As part of this reform, China is seeking to incorporate a bottom up strategy in standards development in addition to the existing top down system. In September 2017, China published a revised draft version of a new Standardization Law on which the United States submitted written comments. This draft of the law introduced a serious new concern with regard to preferences for Chinese technologies in standards development and failed to address other concerns detailed in written comments on the previous draft. The September 2017 draft, with only minor revisions, became final in November 2017 and went into effect in January 2018. At the same time, existing technical committees continue to develop standards, and more foreign participation is being allowed. For example, while the United States substantive concerns with China s cybersecurity standards have not been addressed, the technical committee for cybersecurity standards has begun allowing foreign companies to participate in standards development and setting, with several and other foreign companies being allowed to vote and to participate at the working group level in standards development. Nevertheless, the United States remains very concerned about China s policies with regard to standards, as China prepares to develop implementing regulations for the Standardization Law. Notably, concerns about China s standards regime are not limited to the implications for companies access to China s market. China s ongoing efforts to develop unique national standards aims eventually to serve the interests of Chinese companies seeking to compete globally, as the Chinese government s vision is to use the power of the large China market to promote or compel the adoption of Chinese standards in global markets. Government Procurement China made a commitment to accede to the WTO Agreement on Government Procurement (GPA) and to open up its vast government procurement market to the United States and other GPA Parties. To date, however, the United States, the EU, and other GPA Parties have viewed China s offers as highly disappointing in scope and coverage. China submitted its fifth revised offer in December 2014. This offer showed progress in a number of areas, including thresholds, entity coverage and services coverage. Nonetheless, it fell short of expectations and remains far from acceptable to the United States and other GPA Parties as significant deficiencies remain in a number of critical areas, including thresholds, entity coverage, services coverage and exclusions. FOREIGN TRADE BARRIERS 98 China s current government procurement regime is governed by two important laws. The Government Procurement Law, administered by the Ministry of Finance, governs purchasing activities conducted with fiscal funds by state organs and other organizations at all levels of government in China. The Tendering and Bidding Law falls under the jurisdiction of the National Development and Reform Commission (NDRC) and imposes uniform tendering and bidding procedures for certain classes of procurement projects in China, notably construction and works projects, without regard for the type of entity that conducts the procurement. Both laws cover important procurements that GPA Parties would consider to be government procurement eligible for coverage under the GPA. Trade Remedies China s regulatory authorities in some instances seem to be pursuing antidumping and countervailing duty investigations and imposing duties even when necessary legal and factual support for the duties is absent for the purpose of striking back at trading partners that have exercised their WTO rights against China. To date, the response has been the filing and prosecution of three WTO disputes. The decisions reached by the WTO in those three disputes confirm that China failed to abide by WTO disciplines when imposing the duties at issue. INTELLECTUAL PROPERTY RIGHTS Overview After its accession to the WTO, China undertook a wide-ranging revision of its framework of laws and regulations aimed at protecting the intellectual property rights (IPR) of domestic and foreign rights holders, as required by the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement). Currently, China is in the midst of an extended round of revisions to these laws and regulations. Despite various plans and directives issued by the State Council in 2017, inadequacies in China s IPR protection and enforcement regime continue to present serious barriers to exports and investment. As a result, China was again placed on the Priority Watch List in USTR s 2017 Special 301 report. In addition, in January 2018, USTR announced the results of its 2017 Out-of-Cycle Review of Notorious Markets, which identifies online and physical markets that exemplify key challenges in the global struggle against piracy and counterfeiting. Several Chinese markets were among those named as notorious markets. Trade Secrets Serious inadequacies in the protection and enforcement of trade secrets in China have been the subject of high-profile attention and engagement between the United States and China in recent years. Thefts of trade secrets for the benefit of Chinese companies have occurred both within China and outside of China. Offenders in many cases continue to operate with impunity. Particularly troubling are reports that actors affiliated with the Chinese government and the Chinese military have infiltrated the computer systems of companies, stealing terabytes of data, including the companies intellectual property (IP), for the purpose of providing commercial advantages to Chinese enterprises. In an effort to address these problems, the United States secured commitments from China to issue judicial guidance to strengthen its trade secrets regime. The United States also has secured commitments from China not to condone state-sponsored misappropriation of trade secrets for commercial use. In addition, the United States has urged China to make certain key amendments to its trade secrets-related laws and regulations, particularly with regard to a draft revision of the Anti-unfair Competition Law. The United States also has urged China to take actions to address inadequacies across the range of state-sponsored actors and to promote public awareness of trade secrets disciplines. FOREIGN TRADE BARRIERS 99 At the November 2016 JCCT meeting, China confirmed that it is strengthening its trade secrets regime and plans to bolster several areas of importance, including the availability of evidence preservation orders and damages based on market value as well as the issuance of a judicial interpretation on preliminary injunctions and other matters. In addition, in 2016 and 2017, China circulated proposed revisions to the Anti-unfair Competition Law for public comment. China issued the final measure in November 2017, effective January 2018. Despite improvements in the protection of trade secrets relative to prior law, the final measure reflects a number of missed opportunities for the promotion of effective trade secrets protection. Furthermore, as discussed above, the United States continues to have significant concerns about IP protection in China, including with regard to trade secrets. Thus, the protection of trade secrets and IP more broadly represents yet another area where China has failed to comply with its promises for a more market-oriented system, particularly to the extent that the state itself sponsors the theft of trade secrets or actively frustrates the effective protection of trade secrets. Bad Faith Trademark Registration Of particular concern is the continuing registration of trademarks in bad faith. At the November 2016 JCCT meeting, China publicly noted the harm that can be caused by bad faith trademarks and confirmed that it is taking further steps to combat bad faith trademark filings. Nevertheless, companies across industry sectors continue to face Chinese applicants registering their marks and holding them for ransom or seeking to establish a business building off of companies global reputations. Pharmaceuticals The United States has engaged China on a range of patent and technology transfer concerns relating to pharmaceuticals. At the December 2013 JCCT meeting, China committed to permit supplemental data supporting pharmaceutical patent applications. In April 2017, China issued amended patent examination guidelines, which require patent examiners to take into account supplemental test data submitted during the patent examination process. However, there are reports that China s patent examiners apply these guidelines inconsistently and sometimes too narrowly, and as a result some patent applicants have found that submitting supplemental data becomes practically impossible. Meanwhile, many other concerns remain, including the need to provide effective protection against unfair commercial use of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products, and to provide effective enforcement against infringement of pharmaceutical patents. In 2017, China issued draft measures in this area, but they have not yet been finalized. Additionally, a backlogged drug regulatory approval system presents market access and patient access concerns. At the December 2014 JCCT meeting, China committed to significantly reduce time-to-market for innovative pharmaceutical products through streamlined processes and additional funding and personnel. In addition, in 2017, the State Council and China s Food and Drug Administration (CFDA) issued several draft measures evidencing a positive trajectory for the protection of pharmaceutical patents and regulatory data in China and for a more streamlined drug approval process. However, these draft measures lack full details about implementation, and it is not yet clear whether China finally intends to comply with its commitments in this area. Accordingly, the United States will remain in close contact with industry and will actively examine developments to ensure that appropriate and non-discriminatory changes are made to the anticipated implementing measures in the areas of patent linkage, regulatory data protection, and clinical trials. Another serious concern stems from China s proposals in the pharmaceuticals sector that seek to promote government-directed indigenous innovation and technology transfer through the provision of regulatory FOREIGN TRADE BARRIERS 100 preferences. For example, in 2016, a State Council measure issued in final form without having been made available for public comment creates an expedited regulatory approval process for innovative new drugs where the applicant s manufacturing capacity has been shifted to China. The United States is pressing China to reconsider this approach. In April 2016, CFDA issued a draft measure that effectively would require drug manufacturers to commit to price concessions as a pre-condition for marketing approval of new drugs. Given its inconsistency with internationally accepted science-based regulatory practices for drug approval focusing on ensuring drug safety, effectiveness, and manufacturing consistency and quality, the draft measure elicited serious concerns from the United States and industry. Subsequently, at the November 2016 JCCT meeting, China promised not to link a pricing commitment to drug registration evaluation and approval. In addition, China promised not to require any specific pricing information when implementing the final measure. Given China s lack of follow through in other areas, as discussed in this report, the United States remains concerned about whether these promises will be fulfilled. Accordingly, the United States has remained in close contact with industry and has been examining developments carefully in this area. Online Infringement Online piracy continues on a large scale in China, affecting a wide range of industries, including those involved in distributing legitimate music, motion pictures, books and journals, software and video games. While increased enforcement activities have helped stem the flow of online sales of some pirated offerings, much more sustained action and attention is needed to make a more meaningful difference for content creators and rights holders, particularly small and medium-sized enterprises. The United States has urged China to consider ways to create a broader policy environment that helps foster the growth of healthy markets for licensed and legitimate content. The United States also has urged China to revise existing rules that have proven to be counterproductive. For example, rules on the review of foreign television content present a serious concern for the continued viability of licensed streaming of foreign television content via online platforms. These rules are disrupting legitimate commerce while inadvertently creating conditions that allow for pirated content to displace legitimate content online. At the November 2016 JCCT meeting, China agreed to actively promote e-commerce-related legislation, strengthen supervision over online infringement and counterfeiting, and to work with the United States to explore the use of new approaches to enhance online enforcement capacity. In addition, in December 2016 and November 2017, China published drafts of a new E-Commerce Law for public comment. In written comments, the United States has stressed that the final version of this law should promote an effective notice-and-takedown regime that addresses online infringement while providing appropriate safeguards to Internet service providers. Counterfeit Goods Although rights holders report increased enforcement efforts by Chinese government authorities, counterfeiting in China, affecting a wide range of goods, remains widespread. One of many areas of particular concern involves medications. Despite years of sustained engagement by the United States, China still needs to improve its regulation of the manufacture of active pharmaceutical ingredients to prevent their use in counterfeit and substandard medications. At the July 2014 S&ED meeting, China committed to develop and seriously consider amendments to the Drug Administration Law that will require regulatory control of the manufacturers of bulk chemicals that can be used as active pharmaceutical ingredients. At the June 2015 S&ED meeting, China further committed to publish revisions to the Drug Administration Law in draft form for public comment and to take into account the opinions of the United States and other relevant stakeholders. In October 2017, China published limited draft revisions to the FOREIGN TRADE BARRIERS 101 Drug Administration Law and stated that future proposed revisions to the remainder of this law would be forthcoming. Although many elements of the October 2017 draft revisions appear to be positive, the United States remains in close contact with industry and will continue to examine developments vigilantly in this area. SERVICES Overview The prospects for service suppliers in China should be promising, given the size of China s market. While the United States maintained a $ billion surplus in trade in services with China in 2017, the share of China s services market remained well below the share of the global services market. In 2017, numerous challenges persisted in a range of services sectors. As in past years, Chinese regulators continued to use case-by-case approvals, discriminatory regulatory processes, informal bans on entry and expansion, overly burdensome licensing and operating requirements, and other means to frustrate the efforts of suppliers of services to achieve their full market potential in China. These policies and practices affect service suppliers across a wide range of sectors, including banking, securities and asset management, insurance, electronic payment, cloud computing, telecommunications, video and entertainment software, film production and distribution, express delivery and legal services, among others. In addition, China s Cybersecurity Law and related draft and final implementing measures include mandates to purchase domestic ICT products and services, restrictions on cross-border data flows and requirements to store and process data locally, which make it even more difficult for services suppliers to take advantage of market access opportunities in China. China also has failed to fully address concerns in areas that have been the subject of WTO dispute settlement, including electronic payment services and theatrical film importation and distribution. Electronic Payment Services In 2017, China continued to place unwarranted restrictions on foreign companies, including major credit and debit card processing companies, which have been seeking to supply electronic payment services to banks and other businesses that issue or accept credit and debit cards in China. In a WTO case that it launched in 2010, the United States argued that China had committed in its WTO accession agreement to open up this sector in 2006, and a WTO panel agreed with the United States in a decision issued in 2012. China subsequently agreed to comply with the WTO panel s rulings in 2013, but China did not take needed steps even to allow foreign suppliers to apply for licenses until June 2017. Reportedly, several suppliers have sought to submit their applications for licenses, but no action has been taken on them yet. Throughout the time that China has actively delayed opening up its market to foreign suppliers, China s national champion, China Union Pay, has used its exclusive access to the China market to support its efforts to build out its electronic payment services network abroad, including in the United States. In one telling example, China Union Pay recently announced that it had reached 100 percent penetration at automated teller machines and between 80 and 90 percent penetration at stores that accept credit cards. This history shows how China has been able to maintain market-distorting practices that benefit its own companies, even in the face of adverse rulings at the WTO. Theatrical Films In February 2012, the United States and China reached an alternative resolution with regard to certain rulings relating to the importation and distribution of theatrical films in a WTO case that the United States had won. The two sides signed a memorandum of understanding (MOU) providing for substantial increases in the number of foreign films imported and distributed in China each year, along with substantial additional FOREIGN TRADE BARRIERS 102 revenue for film producers. Significantly more films have been imported and distributed in China since the signing of the MOU, and the revenue received by film producers has increased significantly. However, China has not yet fully implemented its MOU commitments, including with regard to critical commitments to open up film distribution opportunities for imported films. As a result, the United States has been pressing China for full implementation of the MOU. In 2017, in accordance with the terms of the MOU, the two sides began discussions regarding the provision of further meaningful compensation to the United States. Banking Services China has largely refused to open its banking sector to significant non-Chinese competition. Although China has opened its banking sector to foreign competition in the form of wholly foreign-owned banks, China has maintained restricted access in other ways that have kept foreign banks from obtaining significant market share in China. The most recently available data shows that the foreign share of banking assets in China actually has declined since China joined the WTO. China has imposed various discriminatory and non-transparent regulatory requirements that have made it more difficult for foreign banks to establish and expand their market presence in China. One problematic area involves the ability of and other foreign banks to participate in the domestic currency business in China. This is a market segment that foreign banks are most eager to pursue in China, particularly with regard to Chinese individuals. Under existing governing regulations, only foreign-funded banks that have had a representative office in China for one year and that have total assets exceeding $10 billion can apply to incorporate in China. In addition, China imposes some asset and capital requirements on foreign banks that it does not apply to domestic banks, and it is slow to act upon the applications of foreign banks to set up new internal branches. Furthermore, China restricts the scope of activities that can be conducted by foreign banks seeking to operate in China through branches instead of through subsidiaries. Discriminatory and non-transparent regulations also have limited foreign banks ability to participate in China s capital markets. For years, China has limited the sale of equity stakes in existing Chinese-owned banks for a single foreign investor to 20 percent, while the total equity share of all foreign investors is limited to 25 percent. In November 2017, China announced that it would be removing these foreign equity restrictions and that the same set of rules would apply to domestic and foreign companies. In February 2018, China issued a measure suggesting that it intends to remove the foreign equity restrictions, but the measure is vague in important respects and it is not yet clear whether, in practice, China will be providing meaningful, non-discriminatory market access. Insurance Services China s regulation of the insurance sector has resulted in market access barriers for foreign insurers, whose share of China s market remains very low. In the life insurance sector, China only permits foreign companies to establish as Chinese-foreign joint ventures, with foreign equity capped at 50 percent. The market share of these joint ventures is about five percent. For the health and pension insurance sectors, China also caps foreign equity at 50 percent. While China allows wholly foreign-owned subsidiaries in the non-life ( , property and casualty) insurance sector, the market share of foreign-invested companies in this sector is only about two percent. China s market for political risk insurance remains closed to foreign participation. Although China s Foreign Investment Catalogue indicates that China has liberalized insurance brokerage services, China in practice seems to continue to restrict the scope of insurance brokerage services that foreign companies can provide. Meanwhile, some insurance companies established in China sometimes encounter difficulties in getting the Chinese regulatory authorities to issue timely approvals of their requests to open up new internal branches to expand their operations. In November FOREIGN TRADE BARRIERS 103 2017, China announced that it would be easing certain of its foreign equity restrictions in the insurance services sector, but to date it has not done so. Securities and Asset Management Services In the securities and asset management services sectors, China only permits foreign companies to establish as Chinese-foreign joint ventures, with foreign equity capped at 49 percent. Recently, however, China reportedly licensed one foreign company to establish a majority foreign-owned joint venture. In addition, China has started to license a small number of wholly foreign-owned companies to provide certain private fund management services to high-wealth individuals, but these services represent only a subset of the services normally provided by securities and asset management companies. In November 2017, China announced that it would be removing certain of its foreign equity restrictions in the securities and asset management services sectors over time. In March 2018, China issued a draft measure for public comment that appears to relate to the November 2017 announcement regarding the securities sector. Some aspects of this draft measure raise questions about whether China intends to implement its November 2017 announcement in a full and meaningful manner. China has not yet issued a draft measure for public comment relating to the asset management sector. Telecommunications Services Restrictions maintained by China on value-added telecommunications services have created serious barriers to market entry for foreign suppliers seeking to provide value-added telecommunications services. These restrictions include opaque and arbitrary licensing procedures, foreign equity caps and periodic, unjustified moratoria on the issuance of new licenses. As a result, only a few dozen foreign-invested suppliers have secured licenses to provide value-added telecommunications services, while there are thousands of licensed domestic suppliers. In addition, China s restrictions on basic telecommunications services, such as informal bans on new entry, a 49-percent foreign equity cap, a requirement that foreign suppliers can only enter into joint ventures with state-owned enterprises and exceedingly high capital requirements, have blocked foreign suppliers from accessing China s basic telecommunications services market. China recently issued draft regulations that propose to allow domestic and foreign suppliers to obtain licenses to supply mobile telecommunications resale services. However, the terms and conditions applicable to foreign suppliers remain unclear, and it is too early to tell whether any meaningful market access would be provided. Audio-visual and Related Services China s restrictions in the area of theater services have discouraged investment by foreign suppliers, and China s restrictions on services associated with television and radio greatly limit participation by foreign suppliers. China also prohibits foreign companies from providing film production and distribution services in China. In addition, the United States remains very concerned about the impact of online publishing rules issued by State Administration of Press, Publication, Radio, Film and Television (SAPPRFT) and MIIT in February 2016 on the ability of foreign companies to engage in the online distribution of videos and entertainment software (See discussion below in the section on Barriers to Digital Trade). Express Delivery Services The United States continues to have concerns regarding China s implementation of the 2009 Postal Law and related regulations through which China prevents foreign service suppliers from participating in the document segment of its domestic express delivery market. In the package segment, China applies overly burdensome and inconsistent regulatory approaches, including with regard to security inspections, and reportedly has provided more favorable treatment to domestic service suppliers when awarding business permits. FOREIGN TRADE BARRIERS 104 Legal Services China has issued measures intended to implement the legal services commitments that it made upon joining the WTO. However, these measures restrict the types of legal services that can be provided by foreign law firms, including through a prohibition on foreign law firms hiring lawyers qualified to practice Chinese law, and impose lengthy delays for the establishment of new offices. BARRIERS TO DIGITAL TRADE Overview China s Internet regulatory regime is restrictive and non-transparent, affecting a broad range of commercial services activities conducted via the Internet. In addition, overlapping regulatory jurisdictions often result in a single service requiring separate authorizations from multiple agencies. Cloud Computing Restrictions In major markets, including China, cloud computing services are typically offered through commercial presence in one of two ways. They are offered as an integrated service in which the owner and operator of a telecommunication network also offers computing services, including data storage and processing function, over that network, or they are offered as a stand-alone computer service, with connectivity to the computing service site provided separately by a telecommunications service supplier. Although China s GATS commitments allow both of these approaches, neither one is currently open to foreign-invested companies. China also is proposing to severely restrict the ability of foreign enterprises to offer cloud computing services into China on a cross-border basis. In 2017, China s regulator issued a circular entitled On Cleaning up and Regulating Internet Access Services Market, scheduled to enter into force in March 2018, which prohibits Chinese telecommunication operators from offering consumers leased lines or virtual private network (VPN) connections reaching overseas data centers eliminating the key access mechanism companies use to connect to foreign cloud computing service providers and related resources. The United States is evaluating this restriction in the context of China s WTO GATS obligation to ensure access to and use of leased lines for cross-border data processing services. The United States will work to ensure that legitimate cross-border services can continue to be offered into China. Web Filtering and Blocking China continues to engage in extensive blocking of legitimate websites, imposing significant costs on both suppliers and users of web-based services and products. According to the latest data, China currently blocks 12 of the top 30 global sites, and industry research has calculated that up to 3,000 sites in total are blocked, affecting billions of dollars in business, including communications, networking, app stores, news and other sites. While becoming more sophisticated over time, the technical means of blocking, dubbed the Great Firewall, still often appears to affect sites that may not be the intended target, but that may share the same Internet Protocol address. In addition, there have been reports that simply having to pass all Internet traffic through a national firewall adds delays to transmission that can significantly degrade the quality of the service, in some cases to a commercially unacceptable level, thereby inhibiting or precluding the cross-border supply of certain services. In the past, consumers and business have been able to avoid government-run filtering through the use of VPN services, but a crackdown in 2017 has all but eliminated that option, with popular VPN applications now banned. This development has had a particularly dire FOREIGN TRADE BARRIERS 105 effect on foreign businesses, which routinely use VPN services to connect to locations and services outside of China, and which depend on VPN technology to ensure confidentiality of communications. Voice-over-Internet Protocol (VOIP) Services While computer-to-computer VOIP services are permitted in China, China s regulatory authorities have restricted the ability to offer VOIP services interconnected to the public switched telecommunications network ( , to call a traditional phone number) to basic telecommunications service licensees. There is no obvious rationale for such a restriction, which deprives consumers of a useful communication option, and thus the United States continues to advocate for eliminating it. Domain Name Rules and other foreign stakeholders continue to express concern over rules proposed in 2016 to regulate Internet Domain Names, a critical input into many web-based services offered in China. While China explained that initial fears that the rules sought to block access to any website not registered in China were based on a misreading of the intent of the proposed rules, concerns remain with regard to how China intends to implement requirements for registering and using domain names and other Internet resources. Cross-Border Data Transfers and Data Localization Various draft and final measures being developed by China s regulatory authorities to implement China s Cybersecurity Law, which took effect in June 2017, and China s National Security Law, which has been in effect since 2015, would prohibit or severely restrict cross-border transfers of information that are routine in the ordinary course of business and are fundamental to any business activity. These measures also would impose local data storage and processing requirements on companies in critical information infrastructure sectors, a term that the Cybersecurity Law defines in broad and vague terms. Given the wide range of business activities that are dependent on cross-border transfers of information and flexible access to global computing facilities, these developments have generated serious concerns among governments as well as among stakeholders in the United States and other countries. Restrictions on Online Video and Entertainment Software China restricts the online supply of foreign video and entertainment software through measures affecting both content and distribution platforms. With respect to content, the most burdensome restrictions are implemented through exhaustive content review requirements, based on vague and otherwise non-transparent criteria. In addition, with respect to online video, SAPPRFT has required Chinese online platform suppliers to spend no more than 30 percent of their acquisition budget on foreign content. With respect to distribution platforms, SAPPRFT has instituted numerous measures, such as requirements that video platforms all be state-owned, that prevent foreign suppliers from qualifying for a license. At the same time, several Chinese companies (including Alibaba) appear exempt from these requirements. SAPPRFT and other Chinese regulatory authorities also have taken actions to prevent the cross-border supply of online video services, which may implicate China s GATS commitments relating to video distribution. Encryption Use of ICT products and services is increasingly dependent on robust encryption, an essential functionality for protecting privacy and safeguarding of sensitive commercial information. Such functionality is particularly important in China, given the high incidence of cybertheft in this market. Onerous requirements on the use of encryption, including intrusive approval processes and, in many cases, mandatory use of indigenous encryption algorithms ( , for WiFi and 4G cellular products), continue to be cited by FOREIGN TRADE BARRIERS 106 stakeholders as a significant trade barrier. The United States will continue to monitor implementation of existing rules, and will remain vigilant toward the introduction of any new requirements hindering technologically neutral use of robust, internationally standardized encryption. Restrictions on Internet-enabled Payment Services The People s Bank of China (PBOC) first issued regulations for non-bank suppliers of online payment services in 2010, and it subsequently began processing applications for licensees in a sector that previously had been unregulated. Regulations were further strengthened in 2015, with additional provisions aimed at increasing security and traceability of transactions. According to a industry report, of more than 200 licenses issued as of June 2014, only two had been issued to foreign-invested suppliers, and those two were for limited services. This report provides clear evidence supporting stakeholder concerns about the difficulties they have faced entering the market and the slow process foreign firms face in getting licensed. In addition, as with other ICT sectors, PBOC has required suppliers to localize data and facilities in China. The United States will continue to closely monitor developments in this area. AGRICULTURE Overview China is the largest agricultural export market for the United States, with more than $20 billion in agricultural exports in 2017, down from $21 billion in 2016. Notwithstanding these exports, China remains a difficult and unpredictable market for agricultural exporters, largely because of inconsistent enforcement of regulations and selective intervention in the market by China s regulatory authorities. Food Safety Law China s ongoing implementation of its 2015 Food Safety Law has introduced a myriad of new regulations. These regulations, many of which were notified to the WTO TBT Committee but not the WTO SPS Committee, include exporter facility and product registration requirements for goods such as dairy, infant formula, seafood, grains and oilseeds. Additionally, despite facing strong international opposition and agreeing to a two-year implementation delay, Chinese authorities are still considering the implementation of a burdensome and unnecessary measure requiring official certification of all food products, including low-risk food exports. These and other new measures continue to place excessive strain on Chinese agencies resources, traders and exporting countries competent authorities, with no apparent added benefit to food safety, yet they seemingly provide China a tool to control the volume of food trade as desired. Beef, Poultry and Pork In 2017, China restored partial access for beef exports. While this decision was recognized as a sign of cooperation, it highlights two important points that underlie the overall agricultural relationship. First, when China has political will, it finds a solution to maintain or restore trade. Years of technical exchanges between the industry and regulatory agencies with China were unable to resolve its unscientific ban on beef, despite the United States negligible risk status for bovine spongiform encephalopathy (BSE). For many other commodities, there appears to be a lack of political will on the Chinese side to open its market, despite overwhelming technical and scientific evidence provided by the side. Second, although the agreement restoring beef access is broad in scope, it is not based on international standards. Instead, China continues to maintain a zero-tolerance ban on the use of beta-agonists, hormones and other synthetic and natural compounds that are widely used by the international beef industry. In 2017, China also continued to impose an unwarranted and unscientific avian influenza-related import suspension on poultry due to an outbreak of high-pathogenic avian influenza FOREIGN TRADE BARRIERS 107 (HPAI) in 2015, which has now been resolved in the United States. Specifically, China has been unwilling to recognize World Organization for Animal Health (OIE) guidelines related to regionalization and accept poultry from regions in the United States unaffected by this disease. Additionally, China continued to maintain overly restrictive pathogen and residue requirements for raw meat and poultry. Consequently, exports of these products have been significantly constrained. Biotechnology Approvals Marginal progress was made in the regulatory approval process for agricultural products derived from biotechnology in 2017. Following a commitment made to President Trump by Chinese President Xi during their April 2017 meeting, China s National Biosafety Committee (NBC) met in May and June 2017 and issued four product approvals (two after each meeting), while not approving four other products that were subject to NBC review. Of the four products that remain pending approval in the Chinese regulatory system, two have been under review since 2011. As of March 2018, in addition to these four products, another six products are stalled at the final approval stage of NBC review. The number of products pending Chinese regulatory approval continues to increase, causing uncertainty among traders and resulting in an adverse trade impact, particularly for exports of corn and alfalfa. In addition, the asynchrony between China s biotech product approvals and the product approvals made by other countries has widened considerably over the past three years. Agricultural Domestic Support For several years, China has been significantly increasing domestic subsidies and other support measures for its agricultural sector. China maintains direct payment programs, minimum support prices for basic commodities and input subsidies. China has implemented a cotton reserve system, based on minimum purchase prices, and cotton target price programs. In 2016, China established subsidies for starch and ethanol producers to incentivize the purchase of domestic corn, resulting in higher export volumes of processed corn products in 2017. China submitted its most recent notification concerning domestic support measures to the WTO in May 2015, but it only provided information up to 2010. The United States remains concerned that the methodologies used by China to calculate support levels, particularly with regard to its price support policies and direct payments, result in underestimates of the amounts reported formally to the WTO. In September 2016, the United States launched a WTO case challenging China s government support for the production of rice, wheat and corn as being in excess of China s commitments. The United States is pursuing this case aggressively. Tariff-rate Quota Administration Market access promised through the tariff-rate quota (TRQ) system set up pursuant to China s WTO accession agreement still has yet to be fully realized. China s TRQs for rice, wheat and corn do not fill each year. In December 2016, the United States launched a WTO case challenging China s administration of TRQs for rice, wheat and corn. The United States is pursuing this case aggressively. Value-added Tax Rebates and Related Policies The Chinese government attempted to manage imports of primary agricultural commodities by raising or lowering the VAT rebate to manage domestic supplies. China sometimes reinforces its domestic objectives by imposing or retracting VATs. These practices have caused tremendous distortion and uncertainty in the global markets for corn and soybeans, as well as intermediate processed products of these commodities. FOREIGN TRADE BARRIERS 108 TRANSPARENCY Overview One of the core principles reflected throughout China s WTO accession agreement is transparency. Unfortunately, there remains a lot more work for China to do in this area. Publication of Trade-related Laws, Regulations and Other Measures In its WTO accession agreement, China committed to adopt a single official journal for the publication of all trade-related laws, regulations and other measures, and China adopted a single official journal, to be administered by China s Ministry of Commerce, in 2006. More than 10 years later, it appears that some but not all central-government entities publish trade-related measures in this journal, and these government entities tend to take a narrow view of the types of trade-related measures that need to be published in the official journal. These government entities more commonly (but still not regularly) publish trade-related administrative regulations and departmental rules in the journal, but it is less common for them to publish other measures such as opinions, circulars, orders, directives and notices, even though they are in fact all binding legal measures. In addition, China rarely publishes in the journal certain types of trade-related measures, such as subsidy measures, and seldom publishes sub-central government trade-related measures in the journal. Notice-and-comment Procedures In its WTO accession agreement, China committed to provide a reasonable period for public comment before implementing new trade-related laws, regulations and other measures. While no progress has been made in implementing this commitment at the sub-central government level, the National People s Congress (NPC) instituted notice-and-comment procedures for draft laws in 2008, and shortly thereafter China indicated that it would also publish proposed trade- and economic-related administrative regulations and departmental rules for public comment. Subsequently, the NPC began regularly publishing draft laws for public comment, and China s State Council often (but not regularly) published draft administrative regulations for public comment. In addition, many of China s ministries were not consistent in publishing draft departmental rules for public comment. At the May 2011 S&ED meeting, China committed to issue a measure implementing the requirement to publish all proposed trade and economic related administrative regulations and departmental rules on the website of the State Council s Legislative Affairs Office (SCLAO) for a public comment period of not less than 30 days. In April 2012, the SCLAO issued two measures that appear to address this requirement. Since then, despite continuing engagement, little noticeable improvement in the publication of departmental rules for public comment appears to have taken place, even though China confirmed that those two SCLAO measures are binding on central government ministries. Translations In its WTO accession agreement, China committed to make available translations of all of its trade-related laws, regulations and other measures at all levels of government in one or more of the WTO languages, , English, French and Spanish. Prior to 2014, China had only compiled translations of trade-related laws and administrative regulations (into English), but not other types of measures, and China was years behind in publishing these translations. At the July 2014 S&ED meeting, China committed that it would extend its translation efforts to include not only trade-related laws and administrative regulations but also trade-related departmental rules. Subsequently, in March 2015, China issued a measure requiring trade-related departmental rules to be translated into English. This measure also provides that the translation of a departmental rule normally must be published before implementation. This measure, even if fully FOREIGN TRADE BARRIERS 109 implemented, is not sufficient to bring China into full WTO compliance in this area, as China does not publish timely ( , before implementation) translations of trade-related laws and administrative regulations, nor does it publish any translations of trade-related measures issued by sub-central governments at all. LEGAL FRAMEWORK Overview In addition to the area of transparency, several other areas of China s legal framework can adversely affect the ability of industry to access or invest in China s market. Key areas include administrative licensing, competition policy, the treatment of non-governmental organizations (NGOs), commercial dispute resolution, labor laws, and laws governing land use. Corruption among Chinese government officials, enabled in part by China s incomplete adoption of the rule of law, is also a key concern. Administrative Licensing companies continue to encounter significant problems with a variety of administrative licensing processes in China, including processes to secure product approvals, investment approvals, business expansion approvals, business license renewals and even approvals for routine business activities. While there has been an overall reduction in license approval requirements and a focus on decentralizing licensing approval processes, companies report that these efforts have only had a marginal impact on their licensing experiences so far. Competition Policy Chinese regulatory authorities implementation of China s Anti-monopoly Law poses multiple challenges. One key concern relates to how the Anti-monopoly Law will be applied to state-owned enterprises. While Chinese regulatory authorities have clarified that the Anti-monopoly Law does apply to state-owned enterprises, to date they have only brought enforcement actions against provincial government-level state-owned enterprises, not any central government-level state-owned enterprises under the supervision of SASAC. In addition, provisions in the Anti-monopoly Law protect the lawful operations of state-owned enterprises and government monopolies in industries deemed nationally important. Overall, many companies cite selective enforcement of the Anti-monopoly Law against foreign companies seeking to do business in China as a major concern, and they have highlighted the limited enforcement of this law against state-owned enterprises. Another concern relates to the procedural fairness of Anti-monopoly Law investigations of foreign companies. industry has expressed concern about insufficient predictability, fairness and transparency in the investigative processes of the NDRC. For example, through the threat of steep fines and other punitive actions, NDRC has pressured foreign companies to cooperate in the face of unspecified allegations and has discouraged or prevented foreign companies from bringing counsel to meetings. FOREIGN TRADE BARRIERS 110 FOREIGN TRADE BARRIERS 111 COLOMBIA TRADE SUMMARY The goods trade deficit with Colombia was $284 million in 2017, a percent decrease ($443 million) over 2016. goods exports to Colombia were $ billion, up percent ($205 million) from the previous year. Corresponding imports from Colombia were $ billion, down percent. Colombia was the United States' 22nd largest goods export market in 2017. exports of services to Colombia were an estimated $ billion in 2016 (latest data available) and imports were $ billion. Sales of services in Colombia by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Colombia-owned firms were $91 million. foreign direct investment (FDI) in Colombia (stock) was $ billion in 2016 (latest data available), a percent decrease from 2015. direct investment in Colombia is led by mining, manufacturing, and finance/insurance. TRADE AGREEMENTS The United States Colombia Trade Promotion Agreement The United States Colombia Trade Promotion Agreement (CTPA) entered into force on May 15, 2012. The CTPA is a comprehensive free trade agreement, under which Colombia immediately eliminated duties on 80 percent of exports, with most remaining tariffs to be phased out over ten years, and tariffs on some sensitive agricultural products to be phased out over longer periods of time. Colombia also provides substantially improved market access for service suppliers under the CTPA. In addition, the CTPA includes disciplines on customs administration and trade facilitation, technical barriers to trade, government procurement, investment, electronic commerce, telecommunications, intellectual property rights, transparency, and labor and environmental protection. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Local Certification Requirements Colombian directives and guidelines create local certification requirements and other regulatory obstacles for companies. Decree 1595, finalized in August 2015, requires medium and high risk products to obtain safety conformity certifications in Colombia unless the exporting country agrees to recognize Colombia s safety conformity certifications. To date, Colombia has not articulated the criteria for assessing product risk categories and, thus, has not clarified the scope of medium and high risk products. Other regulations that require local certification include measures addressing electrical installations and electrical equipment (Resolution 181331 of 2009), illumination and public lighting, toy safety (Resolution 3388 of 2008), public passenger vehicles, and fuel blends. Some of these regulations and related modifications were not notified to the WTO. Additionally, some stakeholders have expressed concerns regarding a lack of coordination among government ministries and agencies, excessive and duplicative import documentation requirements, vague guidelines, and frequently changing requirements that create uncertainty with respect to the local certification requirements. The United States has raised these issues FOREIGN TRADE BARRIERS 112 in WTO Technical Barriers to Trade (TBT) Committee meetings, as well as bilaterally, including in CTPA TBT Committee meetings Cosmetic Soaps Resolution 837 of 2017, issued jointly by the Ministry of Health and the Ministry of Environment and Sustainable Development, establishes the maximum level of phosphorus and the level of biodegradability of surfactants in detergents and soaps. The resolution also applies to cosmetic soaps, despite the fact that these products do not typically include ingredients or chemicals for which biodegradability is a concern. The United States raised concerns at the WTO TBT Committee, and Colombia delayed implementation of the measure until May 5, 2018. However, cosmetic soaps continue to be included in the scope of the measure. If implemented, this final regulation would impose burdensome testing and certification requirements on these products. Ethanol In December 2016, the Ministry of Environment and Sustainable Development published for public comment a draft decree regarding carbon footprint requirements for ethanol. The draft was reissued with revisions in January 2017, and notified to the WTO s TBT Committee in April 2017. The United States raised concerns both bilaterally and in the WTO TBT Committee regarding Colombia s methodology in developing the standard and its ability to apply the certification procedures in a non-discriminatory manner. On September 25, 2017, the Ministry of Environment and Sustainable Development published the final resolution (number 1962), to become effective thirty days later. After the United States asked for a reasonable implementation period of at least six months, Colombia accordingly deferred implementation for another sixty days until December 29, 2017, at which time it entered into force. The United States will continue to monitor developments closely and engage with Colombia regarding its concerns. Sanitary and Phytosanitary Barriers Rice In April 2012, Colombia and the United States agreed that Colombia would provide access to rough rice through the Port of Barranquilla, subject to certification that the shipments were free of Tilletia horrida and the pre-export fumigation of shipments. Following a December 2013 report that indicated that Tilletia horrida had been detected in rice production areas in Colombia, Colombian authorities initiated an epidemiologic survey and determined that Tilletia horrida was widespread in Colombian rice production areas. In August 2017, the United States and Colombia reached an agreement to allow for expanded market access for exports of rough rice, which rescinded the requirements of the 2012 agreement. Risk Categorization and Associated Import Requirements Through an INVIMA (Colombia s sanitary authority, analogous to the Food and Drug Administration) Resolution 719 of 2015, Colombia has assigned risk categories to foods with a view to imposing new requirements on foods depending on the category of risk. While Colombia has indicated it intends to apply the envisioned categories to both imported and domestic products, the United States is concerned about the criteria that Colombia uses to assign risk. The United States reiterated concerns with Colombia s risk classification system under Resolution 719 during the June 2017 CTPA Committee on Sanitary and Phytosanitary (SPS) meeting. The United States will continue to engage with Colombia and affected stakeholders regarding the impact of these requirements, as well as the process for recognition of the food safety system. FOREIGN TRADE BARRIERS 113 Ministry of Health Decree 539 of March 12, 2014, included numerous new requirements for high-risk foods, including plant registration with INVIMA and the inspection of facilities intending to export to Colombia. In January 2017, Colombia notified a regulation to the WTO that amends Decree 539 by introducing a provision that allows for the recognition of the food safety systems of trading partners with which Colombia has free trade agreements. Recognition of the food safety system will exempt federally regulated establishments from individual inspection and approval requirements. The United States welcomed the addition of this provision to Decree 539 during the June 2017 meeting of the CTPA SPS Committee, and noted that it is interested in better understanding how Colombia plans to undertake positive recognition of the food safety system. However, as of the end of December 2017, the final version of this new decree has yet to be published. IMPORT POLICIES Tariffs About 80 percent of exports of consumer and industrial products to Colombia became duty free immediately upon the CTPA s entry into force on May 15, 2012. The remaining consumer and industrial product tariffs are to be phased out within 10 years of entry into force, that is, by January 1, 2021. While Colombia generally applies variable tariffs to imports of certain agricultural products pursuant to the Andean Community s price band system, upon entry into force of the CTPA, Colombia stopped imposing such tariffs on agricultural exports. Almost 70 percent of agricultural exports (by value) became duty free at entry into force, and duties on most other agricultural goods phase out over a period of 5 to 12 years. Tariffs on the most sensitive products for Colombia, such as certain poultry products, certain dairy products, sugar, and rice, will be phased out over 15 years to 19 years from entry into force. agricultural exporters also currently benefit from duty-free access under tariff-rate quotas for corn, rice, poultry parts, dairy products, sorghum, dried beans, standard grade beef, animal feeds, and soybean oil. As quota volumes increase and over-quota duties are phased out, access to the Colombian market for those products will increase. Nontariff Measures Truck Scrappage Prior to March 2013, new freight trucks over metric tons (mt) could be legally registered in Colombia either by paying a scrappage fee to the government, or by demonstrating that an old freight truck of equivalent capacity ( 1x1 ) had been scrapped and its registration cancelled. In March 2013, without public consultation or a transition period, Colombia issued Decree 486, which eliminated the option to pay the scrappage fee. As a result, scrapping an old truck of equivalent cargo capacity is now a condition for the registration of new freight trucks over mt. This change in policy has significantly affected previously robust sales of imported trucks (which are generally over mt). stakeholders estimate they have lost a billion dollars worth of sales since March 2013. In September 2016, Colombia issued Decree 1517, which indicates that the 1x1 scrappage policy will be terminated by December 31, 2018. In the interim, pursuant to Decree 1517, and to Ministry of Transport Resolution 332 of February 2017, Colombia established a new government-administered process for the distribution of the scrapping certificates required to register a new truck. Decree 1517 provides that the interim system will be maintained until: 1) the government incentive funds used to encourage scrappage are expended; 2) the balancing of the market s supply and demand conditions, is reached; or 3) no later than December 31, 2018. FOREIGN TRADE BARRIERS 114 Under the interim system, buyers can apply to receive the scrapping certificate required to import a new truck via a government-administered process. They will pay a fee equivalent to 15 percent of the value of the new truck to access the certificate, and Colombia will continue to link the number of available certificates to vehicles scrapped. Importers and other buyers continue to raise concerns about the long timeframe for transition to a free market, as well as the restrictions that remain in place under the interim system, including limiting buyers to four vehicle registrations per month. Colombia s Ministry of Transport reported in December 2017 that it would establish exceptions to this limit on registrations. Subsequently, an internal instruction memo issued by the Ministry of Transport provides an opportunity to request exceptions from the Ministry. However, the requester must provide justification for the request, and the criteria for granting or rejecting exceptions remain unclear and provide little certainty for to stakeholders. The United States continued to raise the scrappage requirement bilaterally in 2017. The United States also raised the lack of a transparent public consultation process in multiple fora and at senior and working levels, including in the Organization for Economic Cooperation and Development (OECD) Trade Committee in the context of Colombia s accession to the OECD. The United States will continue to engage with Colombia regarding the scrappage policy, including with respect to changes to the policy, and press Colombia for an effective resolution of this issue to reopen the market to products. Internal Taxes on Distilled Spirits and Alcohol Monopolies Under the previous tax regime (Law 788 of 2002, Chapter V, as amended by Law 1393 of 2010), Colombia assessed a consumption tax on distilled spirits with a system of specific rates per degree (half percentage point) of alcohol strength, and arbitrary breakpoints based on alcohol content which appeared to result in a lower tax rate on spirits produced locally. While the CTPA provides certain exceptions for Colombia s measures relating to the taxation of alcoholic beverages, those exceptions expired May 15, 2016. The European Union sought consultations with Colombia regarding its taxation and departmental practices with respect to imported spirits under the WTO dispute settlement mechanism in January 2016. The United States participated in those consultations, held in March 2016, as a third party. On December 19, 2016, President Santos signed into law a bill reforming tax treatment of distilled spirits and oversight of monopolies at the department (provincial government) level. The new law, effective January 1, 2017, replaced the previous tax structure (including the breakpoints) with a combination of a specific tax based on alcohol content and an ad valorem tax on the retail price. The law also includes provisions that are aimed at disciplining practices of the department level alcohol monopolies. However, the United States continues to have questions on the process for aligning department-level practices with the new law, and has asked in particular that Colombia ensure the non-discriminatory application of provisions regarding exploitation rights. The Ministry of Finance issued a draft circular on this issue for public comment in December 2017, but the circular has not been finalized. Importers also are seeking greater clarity on technical provisions, including with respect to price certifications, labeling requirements, and certificates of good manufacturing processes, that - depending on how they are implemented - could impact market access. The United States will continue to monitor the implementation of the new legislation and engage with Colombia regarding concerns. Mobile Phones Decree A branded phone manufacturer continues to report that measures designed to prevent the theft of mobile phones do not achieve their intended aim and impose unnecessary burdens on importers. On October 16, 2015, Colombia s trade ministry published Decree 2025, which establishes measures to control the import and export of smart phones and their parts as part of its strategy to address phone theft. FOREIGN TRADE BARRIERS 115 The decree established extensive administrative requirements for trade in mobile phones and created barriers to export them even for legitimate purposes, such as warranty repairs or recycling. In particular, the decree mandated that each mobile phone have a government-issued International Mobile Equipment Identity (IMEI) verification certificate at the time of import and required all importers and exporters to pre-register with the National Police in order to trade in mobile phones. Additionally, the decree prohibited all imports and exports of mobile devices and parts via mail or express delivery (often the method of shipment for purchases by private individuals), and travelers entering Colombia were limited to carrying no more than three devices as personal items. On December 23, 2016, the trade ministry published Decree 2142, which modifies a number of Decree 2025 s provisions. In particular, Decree 2142 reverses the prohibition on imports of mobile devices and parts via mail or express delivery, with some limitations as to the number of devices that can be shipped by those means, and allows more flexibility with respect to the documentary requirements for the export of used phones, , for servicing and repair, or recycling and safe disposal of electronic waste. (The limit on how many devices travelers can carry into the country remains in place, as do the requirements with respect to IMEI verification and registration of importers and exporters with the National Police.) However, concerns remain regarding the government of Colombia s operational capacity to implement the system established in Decree 2025 of 2015, as amended. In 2017 a branded phone manufacturer reported that, in some cases, Colombia s database wrongly includes IMEI numbers for phones that have not been previously imported. New phones with an IMEI number included in the database, even incorrectly, must be removed from import shipments, a disruptive and costly process. The United States will continue to monitor the implementation of these decrees and engage with Colombia as appropriate to facilitate legitimate trade in cell phones. Biologic and Biosimilar Medicines Regulations In September 2014, Colombia issued a decree establishing a framework for marketing approval of biological and biosimilar medicines. It established three approval pathways. The third pathway, the abbreviated comparability pathway, appears to be incompatible with international norms for biosimilars pathways. The 2014 decree came into effect following the entry into force of implementing guidelines in 2017, but it remains unclear what data, clinical trials, or other information will be required to demonstrate biosimilarity with the reference products. According to the stability guideline (Resolution 3690 of August 2016), in force since August 2017, INVIMA, Colombia s sanitary authority, shall accept stability studies of biologic medicines in accordance with international standards. However, the immunogenicity guideline that also entered into force in August 2017 (Resolution 4490 of September 2016, as modified by 0553 of March 2017), does not formally require clinical trials for assessing the potential for unwanted immune responses (immunogenicity) of biosimilars. The United States will continue to monitor the implementation of the Decree to assess its impact on fair competition in the Colombian market. Marketing Approval Dependent on Price Review The National Development Plan 2014-2018 law gives the health ministry the authority to require two additional assessments before medicines and medical devices can receive or renew a sanitary registration, which is required before a product can be sold in Colombia: (1) a health technology assessment by the Institute for Health Technological Evaluation; and (2) a price determination by the health ministry. The Ministry of Health is currently developing implementing regulations for the relevant provisions, and in October 2017 published for public comment a draft presidential decree related to this issue. This decree was enacted on March 5, 2018. FOREIGN TRADE BARRIERS 116 INTELLECTUAL PROPERTY RIGHTS PROTECTION Colombia remained on the Watch List in the 2017 Special 301 Report, and an Out-of-Cycle Review was initiated to assess Colombia s commitment to the intellectual property provisions of the CTPA and to monitor the implementation of the National Development Plan. Colombia s implementation of certain intellectual property rights (IPR) provisions of the CTPA was interrupted in 2013 when the Colombian Constitutional Court invalidated on procedural grounds a law enacting certain obligations under the CTPA. Colombia redrafted copyright amendments in November 2015, published the copyright amendments for public comment in September 2016, and introduced them to congress in October 2017, but as of December 2017, when the legislative session ended, the legislature held only one of the four debates required before the bill can move to a formal vote. The legislative session reconvenes in mid-March 2018. Additionally, Colombia has not yet acceded to the 1991 Act of the International Convention for the Protection of New Varieties of Plants, or developed Internet service provider liability limitations and notice and takedown procedures. The United States will continue to engage with Colombia at political and technical levels to complete implementation as soon as possible. Companies remain concerned with widespread intellectual property infringement, including unauthorized recordings in movie theaters, allowing performance of audiovisual works on buses without payment to rights holders, counterfeiting and piracy operations at the border and in the San Andresitos markets, online and mobile piracy, and the use of micro-chipped free-to-air boxes used exclusively for pirating broadcasting signals. Stakeholders are also concerned about Colombia s linkage of pricing consideration as a variable for marketing approval on pharmaceutical patents. The National Development Plan included a requirement to develop an IPR enforcement policy to help guide, coordinate, and raise awareness of IPR enforcement. However, other provisions of the National Development Plan, depending on how they are interpreted and implemented, may structurally undermine innovation and intellectual property rights. The United States will continue to engage bilaterally to resolve these issues. SERVICES BARRIERS The CTPA grants service suppliers substantially improved market access. Some restrictions, such as economic needs tests and residency requirements, remain in sectors such as accounting, tourism, legal services, insurance, distribution services, advertising, and data processing. Audiovisual Services Under the CTPA, Colombia committed to reduce its domestic content requirement from 50 percent to 30 percent for free-to-air national television programming broadcast during the hours of 10:00 to 24:00 on Saturdays, Sundays, and holidays. In 2013, Colombia enacted legislation to implement this obligation. However, in 2013, Colombia s Constitutional Court invalidated the legislation on procedural grounds. The United States will continue to press Colombia to revise its legislation as soon as possible in order to fulfil its obligations under the agreement. In May 2017, the National Television Authority (ANTV) proposed changes to the assessment of regulatory fees on subscription television services. These regulatory fees are used to finance the operation of state-owned broadcasters. ANTV has proposed to change the method of calculation from a current fee per subscriber methodology to a fee based on the gross revenues of the supplier. In addition, ANTV has included a higher assessed fee for any supplier whose subscribers reside primarily in large cities, which largely impacts one supplier. The United States has encouraged Colombia to consider carefully public comments received concerning this proposed change and to ensure that fees are assessed in an equal and reasonable manner to all providers of video services. FOREIGN TRADE BARRIERS 117 Telecommunications Roaming In Section 1377 Reports, USTR has expressed concerns with Colombia s enforcement of roaming arrangements, particularly with regard to arrangements between dominant providers and their smaller competitors. Roaming arrangements can be especially critical for new entrants and smaller competitors because they rely on roaming to supplement their network in their build-out phase, in order to offer a commercially viable service. In February 2017, the Communication Regulation Commission (CRC) amended its regulation on wholesale voice and data roaming services in Colombia, with a new pricing methodology that will remain in effect until November 2018. A operator in Colombia has raised concerns that the brief remaining duration of the asymmetrical tariff it is afforded under this regulation is insufficient to ensure a competitive market for mobile services given the difficulty it has had in obtaining and enforcing roaming arrangements with its competitors since entering the market in Colombia. The United States will look to Colombia to ensure the decisions of the CRC with respect to roaming are consistent with Colombia s trade commitments, including that such services are provided on reasonable and non-discriminatory terms and conditions. Spectrum In February 2017, the Ministry of Information Technologies and Communication (MinTIC) published draft rules for an auction of the 700 MHz spectrum band that would create one 30 MHz block, one 20 MHz block, and two 10 MHz blocks. This band can be particularly useful for new entrants because of technical characteristics that support coverage of larger geographic areas with less infrastructure, enabling a new entrant to more quickly and more economically build up its customer base, particularly where population density is lower. In December 2017, MinTIC affirmed Decree 2194 raising the limit on the amount of spectrum that any supplier in Colombia can acquire from 30 MHz to 45 MHz for low bands (below 1GHz) and from 85 MHz to 90 MHz for high bands (above 1 GHz). The draft auction rules, in combination with this change in the spectrum cap, would allow incumbent suppliers in Colombia the opportunity to bid on and acquire all of the spectrum in this band, to the potential exclusion of new entrants to the market. Given the importance of this band to new entrants, the OECD in its 2014 review of Colombia s Telecommunications Policy and Regulation recommended that the auction of this band should include conditions that specifically allow small operators to have access to it. MinTIC officials have indicated that an updated version of the draft auction rules will be published for public comment before finalizing the rules for the auction. The United States encourages Colombia to do so expeditiously and to give full consideration to public comment in finalizing rules for the auction, including the need to promote competition in the Colombian mobile services market. The United States will continue to monitor these developments, with a view to ensuring that Colombia implements its trade commitments with respect to the allocation and use of spectrum, including that procedures are timely, transparent, and non-discriminatory. Distribution Services Commercial Agency A section of Colombia s commercial code provides protections for agents that can make it difficult and costly for companies to terminate a commercial agent (sales representative) contract. The United States has been working with Colombia to address this issue and will continue to monitor progress. BARRIERS TO DIGITAL TRADE Movement of Data FOREIGN TRADE BARRIERS 118 Colombia s Superintendency of Industry and Trade (SIC) has the legal mandate to ensure compliance with Data Protection Law 1581 of 2012. In February 2017, the SIC issued a draft circular that defined general criteria reflecting the SIC s view of adequate data protection, detailed responsibilities of data controllers with respect to international data transfers, and provided a list of countries that meet data protection guidelines. This list did not include the United States, raising serious concerns about the basis for such a decision and its potential effects on businesses. Following comments from concerned stakeholders and engagement by officials, the SIC released in August 2017 the final circular, which included the United States on the list of countries that provide an adequate level of data protection. This document brought regulatory clarity to concerned stakeholders, addressing both data transfers and transmissions. The United States will continue to monitor any efforts to roll back or alter Colombia s current regulatory framework with respect to data protection, including the status of draft legislation that could introduce new concerns. Other Issues A recent Constitutional Court Case that directed a large provider of the Internet-enabled services to register with the Colombian government as a telecommunications service provider could have far-reaching implications for many Internet-enabled services particularly for any such services or suppliers providing a communications like functionality as part of one or more of the services offered in Colombia. In the CTPA, both Parties recognized that information services ( , the offering of a capability for generating , acquiring, storing, transforming, processing, retrieving, utilizing, or making available information via telecommunications) should not be treated as public telecommunications services and that the parties would not apply many aspects of traditional regulation of public telecommunications services to information services. The United States urges Colombia to implement this court decision in light of its obligations under the CTPA regarding information services. FOREIGN TRADE BARRIERS 119 COSTA RICA TRADE SUMMARY The goods trade surplus with Costa Rica was $ billion in 2017, a percent increase ($132 million) over 2016. goods exports to Costa Rica were $ billion, up percent ($363 million) from the previous year. Corresponding imports from Costa Rica were $ billion, up percent. Costa Rica was the United States' 38th largest goods export market in 2017. exports of services to Costa Rica were an estimated $ billion in 2016 (latest data available) and imports were $ billion. Sales of services in Costa Rica by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Costa Rica-owned firms were $50 million. foreign direct investment (FDI) in Costa Rica (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Costa Rica is led by manufacturing, information, and prof., scientific, and tech. services. TRADE AGREEMENTS Dominican Republic-Central America-United States Free Trade Agreement The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR, or the Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in 2006; for the Dominican Republic in 2007; and, for Costa Rica in 2009. The CAFTA-DR significantly liberalizes trade in goods and services, as well as includes important disciplines relating to customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, transparency, labor, and environment. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Cosmetics, Nutritional and Dietary Supplements The Costa Rican Ministry of Health requires a Good Manufacturing Practices (GMP) certificate or a License of Operation as a prerequisite for approval of cosmetics and toiletries registrations in Costa Rica. However, manufacturers have difficulty in complying with this requirement because a Federal Government certificate of this kind does not exist. companies have been able, in some cases, to comply with the requirement by submitting documents from State or Local Government authorities or trade organizations. However, for manufacturers unable to obtain such documents, the regulation results in an inability to gain the approval necessary to sell in the Costa Rican market. The United States has explained to the relevant authorities in Costa Rica that the Federal Government does not issue the GMP certificate, but the issue persists. Instead of a GMP certificate, the Government issues export certificates for cosmetic products that are legally marketed in the United States, when required for export. These certificates can be issued for a specific product or list of products, or for a firm. cosmetic firms need to submit a request to the FOREIGN TRADE BARRIERS 120 Food and Drug Administration for such certificates. The Government has established a system for foreign governments to verify if it has issued an export certificate to a cosmetic firm. Beginning in 2014, producers of dietary supplements have expressed concerns regarding Costa Rican product registration and technical regulations related to nutritional and dietary supplements. Because the United States does not regulate nutritional and dietary supplements as pharmaceuticals, manufacturers of these products generally do not have the certification and product analysis required under the Central American Technical Regulation for Natural Medicines. In one medicine-related area, the Government has established GMP regulations for dietary supplements marketed in the United States. These GMP regulations are similar to those available under GMP regulations for pharmaceuticals products. dietary supplement firms that market their products in the United States and export their products should be able to demonstrate their compliance with regulations, if required. Telecommunications Equipment Costa Rica s telecommunications regulator (SUTEL) imposes a requirement for what can be frequent retesting and recertification of telecommunications hardware, which are required following some categories of updates. The Government continues to raise with Costa Rica the concerns that stakeholders have raised: that Costa Rica does not follow international procedures for testing and certification of mobile handsets and other information and communications technology (ICT) products; that these country-specific requirements can lead to redundant testing, particularly when products are required to undergo testing in both exporting and importing countries; and, that these requirements are burdensome on software developers, posing an obstacle to international trade. Costa Rica continues to argue in support of these measures. Sanitary and Phytosanitary Barriers Costa Rica has decreased the use of sanitary and phytosanitary (SPS) measures as a tool to obstruct trade in the past year. exporters and Costa Rican importers reported a normal flow of the issuance of Import Permits for sensitive commodities. The Animal and Plant Health Inspection Service (APHIS) and the Ministry of Agriculture of Costa Rica conduct frequent bilateral meetings to discuss regulatory procedures for the import and export of new products, promoting market access for new products. exporters are complaining regarding the high cost of quarantine fumigations at Costa Rican ports of entry. Quarantine fumigations are a remediation measure needed when shipments are intercepted with quarantine pests. Excessive fumigation costs have prompted exporters to forego this option and to send the containers back to the United States. APHIS is addressing this issue with Costa Rica s Quarantine Department. In September 2013, Costa Rica banned the import of fresh potatoes from the United States, allegedly due to excess soil in some shipments and the presence of zebra chip, a disease that causes striping of potatoes. Costa Rica reopened the market to chipping potatoes in February 2016 after the negotiation of new import requirements. Imports resumed in September 2016. According to industry sources, there were problems with the implementation of the import protocol by the Costa Rican government. However, those problems have been resolved, and the Costa Rican government is permitting imports of chipping potatoes under the negotiated protocol. During the first half of 2016, importers complained that the Ministry of Agriculture used phytosanitary import permits as a tool for stopping or delaying imports of onions from the United States without clear phytosanitary concerns, and that the Ministry of Agriculture s failure to issue permits in a timely manner resulted in the loss of market access for onions last year. Although Costa Rica eventually issued all pending FOREIGN TRADE BARRIERS 121 permits, the untimely release of the permits during local harvest time caused a temporary (and unnecessary) glut of onions in the market. The United States will continue to monitor this issue to avoid this type of delay from occurring in the future. IMPORT POLICIES Tariffs As a member of the Central American Common Market, Costa Rica applies a harmonized external tariff on most items at a maximum of 15 percent, with some exceptions. Under the CAFTA-DR, however, 100 percent of originating consumer and industrial goods have entered Costa Rica duty free since January 1, 2015. Nearly all textile and apparel goods that meet the Agreement s rules of origin also enter Costa Rica duty free and quota free. In addition, more than half of agricultural exports currently enter Costa Rica duty free under the Agreement. Costa Rica will eliminate its remaining tariffs on virtually all agricultural products by 2020, on chicken leg quarters by 2022, on rice by 2025, and on dairy products by 2028. For certain agricultural products (rice, pork, dairy, and poultry), tariff-rate quotas (TRQs) permit duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount expanding during that period. Costa Rica s CAFTA-DR commitments provide for liberalizing trade in fresh potatoes and onions through continual expansion of a TRQ, rather than by the reduction of the out-of-quota tariff. The Costa Rican government is required under the CAFTA-DR to make TRQs available on January 1 of each year. Costa Rica monitors its TRQs through an import licensing system, which the United States is carefully tracking to ensure Costa Rican issuance of these permits occurs in a timely manner. Nontariff Measures Customs and Trade Facilitation Under the Agreement, all CAFTA-DR countries, including Costa Rica, committed to improve transparency and efficiency in administering customs procedures. The CAFTA-DR countries also committed to ensuring greater procedural certainty and fairness in the administration of these procedures, and agreed to share information to combat illegal transshipment of goods. Costa Rica s Information Technology Customs Control (TICA) system is designed to allow for a single automated customs declaration process, with a centralized database, including electronic payment, integrated risk analysis, and connectivity with public and private institutions. However, Costa Rican Customs continues to require that SPS documents be submitted in hard copy at the time of import. The Government continues to encourage Costa Rica to expand the use of electronic processing, in the interest of further facilitating trade. Costa Rica ratified the WTO Trade Facilitation Agreement (TFA) on April 20, 2017, which later was approved by the Costa Rican Legislative Assembly and the Costa Rican Constitutional Court. The law approving the ratification includes provisions to assist with TFA implementation, including the establishment of a trade facilitation council, which would include private sector representatives and have the authority to make decisions. The implementation of the TFA requires strengthening the quality and control over customs process and procedures with the support of the TICA system, which Costa Rican Customs is currently addressing. In addition, as required in the TFA, Costa Rica established and launched in September 2017 a National Committee on Trade Facilitation (CONAFAC) to help internal coordination and the applications of its provisions. This committee, made up of six public sector and five private sector FOREIGN TRADE BARRIERS 122 representatives, is responsible for the coordination and dialogue among public institutions with responsibilities regarding foreign trade and the private sector. Internal Taxes on Distilled Spirits Costa Rica currently assesses a specific excise tax on distilled spirits that is calculated as a percentage of alcohol per liter, based on three specific rates (Law 7972). The highest rate applies to spirits bottled at a rate above 30 percent alcohol-by-volume (abv). While the locally produced spirit (produced in the largest volume by the state-owned alcohol company) is bottled at 30 percent abv, the vast majority of internationally traded spirits is bottled at 40 percent. Breakpoints for the tax rates based on alcohol content appear to result in a lower tax rate on spirits produced locally. Furthermore, local producers pay the tax within the first 15 days of each month on sales made during the prior month, while importers must pay the tax prior to release of their product from customs. GOVERNMENT PROCUREMENT The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including advance notice of purchases and timely and effective bid review procedures, for procurements covered by the Agreement. Under the CAFTA-DR, suppliers can bid on the procurements of most Costa Rican government entities, including those of key ministries and state-owned enterprises, on the same basis as Costa Rican suppliers. The anticorruption provisions in the CAFTA-DR require the Costa Rican government to ensure under its domestic law that bribery in matters affecting trade and investment, including in government procurement, is treated as a criminal offense or is subject to comparable penalties. There is no requirement that firms act through a local agent to participate in public tenders. companies have indicated that the private sector (foreign and domestic) appears to be increasingly disadvantaged in public bids when competing against Costa Rican state-owned enterprises in the ICT and insurance sectors. A leading business association is currently pursuing administrative action against the government s use of Article 2 of the Administrative Contracting Law to preferentially contract state-owned entities, using as an example the Finance Ministry award of an electronic billing contract to a public entity at well above the costs offered by private sector players. Private sector insurance companies and brokers believe that the Costa Rican government preferentially contracts the state-owned insurance company, INS, despite a requirement from the General Controller s office that decentralized government entities, such as the state-owned electricity company ICE, get competitive quotes for insurance policies. The Social Security Administration ( CCSS ) contracted a private insurance policy in what may be a trend towards competitive insurance contracting by government entities. The United States will continue to monitor Costa Rica s government procurement practices to ensure they are applied consistent with CAFTA-DR obligations. The electronic procurement platform Mer-link, now known as SICOP, provides a single purchasing platform for all participating ministries with an entirely paperless procurement process based on a secure database, allowing enhanced levels of transparency and competition in the procurement process. More than 100 government entities have adopted the program to date. However, implementation has been slow. Costa Rica is not a signatory to the WTO Agreement on Government Procurement. Costa Rica became an observer on June 3, 2015. EXPORT SUBSIDIES Under the CAFTA-DR, Costa Rica may not adopt new duty waivers or expand existing duty waivers that are conditioned on the fulfillment of a performance requirement ( , the export of a given level or percentage of goods). Costa Rica has modified its free trade zone regime in order to conform to this FOREIGN TRADE BARRIERS 123 requirement. Tax holidays are available for investors in free trade zones. The Free Trade Zone Regime is defined in Costa Rica as a set of incentives and benefits granted by the country to companies making new investments and complying with local requirements and obligations. This regime is governed by the Free Zone Regime Law, Number 7210, and its regulations. Costa Rica s tax incentives and benefits are standardized. They apply to all companies equally, so that there is no need for individual negotiations. Companies that base operations in areas outside the Greater Metropolitan Area (GMA) can enjoy greater benefits, such as (a) a 100 percent income tax exemption for the first 12 year period, instead of the first eight year period for companies inside the GMA; and (b) a 50 percent income tax exemption for the following six year period instead of the four year period for companies inside the GMA. INTELLECTUAL PROPERTY RIGHTS PROTECTION Costa Rica remained on the Special 301 Report Watch List in 2017. The United States welcomes Costa Rica s ongoing commitment to engage with the United States on efforts to strengthen its intellectual property rights (IPR) regime. The United States welcomes increased intra-governmental coordination on IPR and the increase in the number of ongoing criminal investigations. Outstanding concerns include the need to provide greater transparency and clarity as to the scope of protections for Geographical Indications to alleviate market access uncertainty and to end government use of unlicensed software. The United States urges Costa Rica to take effective action against any notorious online markets within its jurisdiction that specialize in unlicensed works and to address the concern that Costa Rican law still permits online service providers up to 45 days to forward infringement notices to subscribers. Costa Rica also needs to otherwise bolster IPR enforcement against high levels of online piracy and physical piracy and address cumbersome border measure processes to deter counterfeit and pirated goods. The United States strongly encourages Costa Rica to build on these initial positive steps it has taken to protect and enforce IPR, and to continue with bilateral discussions of these issues and the development of a clear plan that will demonstrate additional progress to tackle longstanding problems. SERVICES BARRIERS Insurance Private insurance companies continue to face challenges in light of the market power that INS derives from its former monopoly position. Specific concerns relate to deceptive advertising by INS and a cumbersome and nontransparent product approval process. Telecommunications The Telecommunications Superintendence (SUTEL) successfully completed the auction of 70 Megahertz (MHz) of 1800 MHz and 1900/2100 MHz bands of radio spectrum in July 2017 for an aggregate price of $43 million. The Ministry of Science and Technology (MICIT) will subsequently award the spectrum. The winners Telefonica and Claro were the only competitors in the auction and split the spectrum while together paying the minimum base price. In September 2017, SUTEL declared the mobile market, at the retail level, to be sufficiently competitive to obviate economic regulation, pursuant to Article 73 of the Law No. 7593 on the Regulatory Authority of Public Services. In October 2017, SUTEL affirmed its finding despite a challenge by the Ombudsman Office of Costa Rica that the decision did not comply with the General Telecommunications Law, and suffered from serious and insurmountable defects in motive. SUTEL previously had made a similar determination for four other markets: international telephony, fixed Internet, international roaming, and telecommunications transit. FOREIGN TRADE BARRIERS 124 INVESTMENT BARRIERS Costa Rica s regulatory environment can pose significant barriers to investment. One common problem is inconsistent action between institutions within the central government or between institutions in the central and municipal levels of government. The resulting inefficiency in regulatory decision-making is especially noticeable in infrastructure projects, which can languish for years between the award of a tender and the start of project construction. OTHER BARRIERS Some firms and citizens have found corruption in the government, including in the judiciary, to be a concern and a constraint to successful investment in Costa Rica. Administrative and judicial decision-making appear at times to be inconsistent, nontransparent, and very time consuming. In July 2009, Costa Rica notified levels of agricultural domestic support to the WTO for 2007 that were above its $ million Total Aggregate Measurement of Support (TAMS) ceiling on trade-distorting domestic support. Costa Rica s subsequent notifications to the WTO for the years 2008 through 2012 listed domestic support expenditures at ever increasing levels, reaching $ million in 2010. Notifications for 2014 and 2015 listed domestic support expenditures of $ million and $4 million, respectively. Between 2009 and 2015, Costa Rica s price support for rice accounted for most of its notified TAMS, and rice accounted for a majority of its notified TAMS prior to 2009. In May 2013, the government of Costa Rica issued Decree 37699-MEIC, which reduced the price support by a modest amount and stated that the then- current price support mechanism for rice would be eliminated starting in March 2014. However, in January 2014, Costa Rica delayed that deadline by a year, until March 2015. In January 2015, Costa Rica announced a four-year safeguard, imposing an additional percent tariff on pounded rice. The safeguard amount declined annually to a final tariff of percent for 2018. The safeguard affected out-of-quota rice imports from the United States. On February 27, 2015 the government of Costa Rica published Executive Decree 38884-MEIC, which established producer prices for dry and clean paddy rice and also set the minimum and maximum price for different presentations and qualities of milled rice, either locally produced or imported. Those prices took effect on June 8, 2015. The overarching issue of excessive domestic support for rice remains, as the reference price system does nothing to change the effective level of the support, but only changes its classification. As the Costa Rican government has increased tax collection efforts in recent years, several companies have found themselves facing what they consider to be novel or inconsistent interpretations of tax regulations and principles. Adoption of a new set of transfer-pricing regulations in September 2013 represented a significant advance by the Costa Rican government in the area of transparency and predictability. The measure, Decree 37898-H, protects the principle of free competition. In June 2016, the Costa Rican General Direction of Taxation released for public consultation the draft rules concerning annual transfer pricing. In September 2016, Resolution DGT-R-44-2016 was published in the official gazette to finalize the rules concerning the filling of an annual transfer pricing return in Costa Rica. It established that the first transfer pricing return for 2015, and the transfer pricing return for 2016 would be due on June 30, 2017. However, one week before the deadline, implementation was delayed (Resolution DGT-R-28-2017). This new resolution states that the deadline for submitting the tax return will be suspended until the Tax Administration communicates the date and the electronic means for meeting the requirement. Costa Rica s transfer pricing rules follow guidelines set by the Organization for Economic Cooperation and Development (OECD). The United States will continue to monitor implementation of the regulations and other tax measures. FOREIGN TRADE BARRIERS 125 DOMINICAN REPUBLIC TRADE SUMMARY The goods trade surplus with the Dominican Republic was $ billion in 2017, a percent decrease ($30 million) over 2016. goods exports to the Dominican Republic were $ billion, up percent ($37 million) from the previous year. Corresponding imports from the Dominican Republic were $ billion, up percent. The Dominican Republic was the United States' 33rd largest goods export market in 2017. exports of services to the Dominican Republic were an estimated $ billion in 2016 (latest data available) and imports were $ billion. Sales of services in the Dominican Republic by majority affiliates were $ billion in 2015 (latest data available). foreign direct investment (FDI) in the Dominican Republic (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in the Dominican Republic is led by wholesale trade, information, and nonbank holding companies. TRADE AGREEMENTS Dominican Republic-Central America-United States Free Trade Agreement The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in 2006; for the Dominican Republic in 2007; and, for Costa Rica in 2009. The CAFTA-DR significantly liberalizes trade in goods and services, as well as includes important disciplines relating to customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environment. TECHNICAL BARRIERS TO TRADE Technical Barriers to Trade Regulation of Steel Rebar Multiple exporters of steel rebar used for construction have complained that a Dominican technical regulation (RTD 458) administered by the Ministry of Industry and Commerce s (MIC) and the Dominican Institute for Quality (INDOCAL) constitutes a barrier to trade. Since 2012, RTD 458 has required that imported steel rebar be subject to conformity assessment procedures in the form of sampling at the discharge port and testing by third party laboratories. Although steel rebar is produced by certified mills in the United States, Dominican authorities have required imported rebar to be sampled and tested by third party laboratories. Because no suitable third party laboratories are present in the Dominican Republic, samples have had to be sent back to the United States for testing. These conformity assessment procedures appear to present unnecessary obstacles to international trade, deviate from international standards, lack transparency in their application, and have unduly increased the cost and time required for commercialization of rebar in the Dominican Republic. RTD 458 also raises significant national treatment concerns, as domestic steel rebar producers are not subject to the same type of testing required for imports. According to RTD 458, both imported and locally FOREIGN TRADE BARRIERS 126 produced steel rebar are subject to random sampling and inspection of production plants; however, only imported rebar is additionally subject to third party testing by accredited laboratories. The United States has repeatedly engaged the Dominican government on this issue, and raised the issue on the margins of the WTO Technical Barriers to Trade Committee. Extensive bilateral discussion during 2017 yielded some progress. However, the Dominican government stepped back from constructive engagement and the discussions have stalled. Dominican authorities have yet to reform the regulations and practices to eliminate obstacles to international trade and ensure that rebar imported from the United States is treated no less favorably than domestically manufactured rebar. Food Labeling On July 12, 2016, the Dominican government issued a statement announcing the enforcement of NORDOM 53, a local regulation for labeling prepackaged foods. As of April 1, 2017, the Spanish language label on prepackaged products must be applied at the point of origin, instead of in the destination country as was the usual practice. Enforcement of the regulation initially focused on dairy products, but it is expected to be extended to other products. The United States will continue to monitor the situation and continue to encourage the Dominican government to enforce its regulations in a manner that does not distort trade. IMPORT POLICIES Tariffs Under the CAFTA-DR, 100 percent of originating consumer and industrial goods have entered the Dominican Republic duty free since January 1, 2015. Nearly all textile and apparel goods that meet the Agreement s rules of origin also enter the Dominican Republic duty free and quota free creating economic opportunities for and regional fiber, yarn, fabric, and apparel manufacturing companies. Also under the CAFTA-DR, the Dominican Republic will eliminate tariffs on nearly all agricultural goods by 2020, and on chicken leg quarters, some dairy products, and rice by 2025. Tariff-rate quotas (TRQs) permit duty-free access during the tariff-phase out period for specified quantities of 47 different agricultural products, including ice cream, selected cuts of beef, cheddar cheese, and yogurt, with the duty-free quantity progressively increasing during the tariff phase-out period. The Dominican Republic government is required under the CAFTA-DR to make TRQs available on January 1 of each year. However, the Dominican Republic often does not issue quota allocations until several months into the year. In addition, both the issuance of quotas for sensitive products and the distribution of import licenses, which allow importers to exercise their quota rights, have frequently been delayed. While the Ministry of Agriculture made substantial improvements to its administration of TRQs in 2013 and 2014, the 2015 CAFTA-DR TRQs were not issued until March 2015, while 2016 TRQs were not issued until February 5, 2016. For 2017, TRQ s were issued on December 28, 2016, but the National Commission for Agricultural Imports also issued Resolution 08/2016, under which the Dominican Republic restricted the availability of TRQs for rice and powdered milk, and bean imports in general, to certain months of 2017. For 2018, the timing of TRQ issuance was improved. However, the United States will continue to engage on these issues with the Dominican Republic and will monitor its performance with regard to the timely opening and availability throughout the calendar year of the TRQs, the timely distribution of import licenses, the distribution of appropriate quota volumes, and the ability of TRQ products to enter the Dominican Republic from January 1 of each year. FOREIGN TRADE BARRIERS 127 Nontariff Measures The Dominican Ministry of Agriculture continues to administer the issuance of import licenses as a means to manage trade in sensitive commodities. The United States continues to raise concerns regarding this matter with Dominican authorities and is working to eliminate this practice. This is a regular concern with respect to trade in some sensitive products ( , dry beans and dairy products), but intermittently with respect to other products as well. The Dominican Republic maintains a ban on imports of all used vehicles over five years old, and took an exception under the CAFTA-DR to the obligation not to impose import restrictions for this measure. Since late 2011, importers of used vehicles less than five years old have reported that the Dominican customs service has frequently challenged the eligibility of those vehicles to be considered as originating and therefore eligible for preferential tariff treatment under the CAFTA-DR, citing technical difficulties in demonstrating compliance with the rules of origin. The United States continues to engage with the Dominican Republic to address complaints received from exporters of used cars of manufacture. Customs and Trade Facilitation Under the Agreement, all CAFTA-DR countries, including the Dominican Republic, committed to improve transparency and efficiency in administering customs procedures. All CAFTA-DR countries, including the Dominican Republic, also committed to ensuring greater procedural certainty and fairness in the administration of these procedures, and all CAFTA-DR countries agreed to share with each other information to combat illegal transshipment. In February 2017, the Dominican Republic formally ratified the WTO Trade Facilitation Agreement (TFA), which contains provisions for expediting the movement, release, and clearance of goods, and sets out measures for effective cooperation for customs compliance and trade facilitation issues. The government of the Dominican Republic has yet to pass legislation to establish a National Trade Facilitation Committee (NTFC). GOVERNMENT PROCUREMENT The Dominican Republic is not a signatory to, nor an observer of, the WTO Agreement on Government Procurement. The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including advance notice of purchases and timely and effective bid review procedures, for procurements covered by the Agreement. Under the CAFTA-DR, suppliers are permitted to bid on procurements of most Dominican government entities, including key ministries and state-owned enterprises, on the same basis as Dominican suppliers. The anticorruption provisions in the CAFTA-DR apply inter alia to government procurement. Nevertheless, suppliers have complained that Dominican government procurement is not always conducted in a transparent manner and that corruption is a problem. The Government has engaged with the Dominican government on this issue and transparency has increased in its procurement system over the last few years. The United States will continue to monitor the Dominican Republic s government procurement practices to ensure that they are applied in a manner consistent with CAFTA-DR obligations. In June 2017, the Dominican government and the Trade and Development Agency executed a Memorandum of Understanding whereby the latter will conduct its Global Procurement Initiative (GPI) training program for Dominican procurement officials commencing in the first quarter of 2018. The GPI offers tailored instruction on best-value procurement, designed to reduce the incidence of inside-dealing and sole reliance on low price as a selection criteria. FOREIGN TRADE BARRIERS 128 EXPORT SUBSIDIES Under the CAFTA-DR, the Dominican Republic may not adopt new duty waivers or expand existing duty waivers that are conditioned on the fulfillment of a performance requirement ( , the export of a given level or percentage of goods). The Dominican Republic does not have export promotion schemes other than tariff waivers for inputs imported by firms in the free trade zones. Under Law 139 of 2011, the Dominican Republic levies a percent tax on goods sold from free trade zones into the local market. INTELLECTUAL PROPERTY RIGHTS PROTECTION In 2017, the Dominican Republic remained on the Watch List in the Special 301 Report. Despite a strong legal framework put in place to implement CAFTA-DR commitments, government agencies lack political will, resources and trained personnel required for effective intellectual property rights (IPR) protection and enforcement. Positive developments include some efforts to address satellite signal piracy and a modest reduction in the large backlog of pending patent applications. Nevertheless, ongoing concerns include widespread satellite signal piracy, production and transit of counterfeit goods, widespread availability of pirated and counterfeit goods, government and private sector use of unlicensed software, and blanket administrative denials of requests for patent term adjustment. The United States will continue to work with the Dominican Republic to address these and other issues. SERVICES BARRIERS Telecommunications The United States remains concerned that the telecommunications regulator in the Dominican Republic, INDOTEL, is not effectively carrying out its obligations under CAFTA-DR and the WTO General Agreement on Trade in Services, including its failure to ensure a prompt and transparent process for the renewal of concession agreements; and that dominant service suppliers do not charge termination rates that are above cost, which puts competitors and new entrants at a significant disadvantage. firms have also expressed concerns that the adoption by the Dominican government in July 2017 of a new tax on carriers for international voice and SMS traffic to the Dominican Republic to fund the national emergency system (911) has the effect of raising termination rates above cost and unfairly targets and other foreign consumers. The United States continues to work with the Dominican Republic to ensure that it fulfils its obligations for an open and competitive telecommunications sector. OTHER BARRIERS Many firms and citizens have expressed concerns that corruption in government, including in the judiciary, continues to constrain successful investment in the Dominican Republic. Administrative and judicial decision-making at times is perceived as inconsistent, nontransparent, and overly time-consuming. FOREIGN TRADE BARRIERS 129 ECUADOR TRADE SUMMARY The goods trade deficit with Ecuador was $ billion in 2017, a percent decrease ($305 million) over 2016. goods exports to Ecuador were $ billion, up percent ($625 million) from the previous year. Corresponding imports from Ecuador were $ billion, up percent. Ecuador was the United States' 43rd largest goods export market in 2017. Sales of services in Ecuador by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Ecuador-owned firms were $2 million. foreign direct investment (FDI) in Ecuador (stock) was $509 million in 2016 (latest data available), a percent increase from 2015. direct investment in Ecuador is led by mining, manufacturing, and finance/insurance. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Batteries and Secondary Cells A revision of Ecuadorian Regulation RTE INEN 105 (1R) dealing with batteries and secondary cells (rechargeable batteries) entered into force on December 28, 2016. The revision provides alternatives for testing for batteries, including by laboratories located in the United States; allows any testing method to be used to comply with the maximum allowed limits for mercury and cadmium; and, provides three options to file for the conformity assessment certificate, including self-certification by the importer. Exporters have found the revised regulation resolved their concerns regarding compulsory standards. Processed Foods Quality Compliance and Prior Authorization Requirements Ecuador imposes a variety of standards-related measures depending on the type of processed food. Executive Decree No. 4522, issued in November 2013 by the Ministry of Public Health s (MoPH) National Agency for Regulation, Control, and Sanitary Surveillance, requires that all processed and packaged food products include a label with a set of colored bars indicating low, medium, or high content of salt, sugar, and fat. Ecuador requires a certificate demonstrating compliance with the labeling provisions pursuant to Committee of Foreign Trade (COMEX) Resolution 116 issued December 4, 2013. A separate certificate of recognition is required for food products for which the Ecuadorian Standards Institute (INEN) has issued a standard. Implementation of this requirement reduced the imports of dozens of high value added food products from the United States, including preserved meat and vegetable products, jams, sauces, and other food products, because certification is more onerous for imports than for domestic products. In addition, processed food products of animal origin require prior authorization from three government agencies within the Ministry of Agriculture and Livestock, including the animal and plant health authority AGROCALIDAD, the Undersecretary of Commercialization, and the Undersecretary of Livestock Development. In the case of processed meat products, an assessment is conducted by both the Undersecretary of Commercialization and the Undersecretary of Livestock Development, resulting in unnecessary redundancy and delay. The United States will continue to work with Ecuadorian authorities to explore alternatives to the certificates, including the use of State or Federal Certificates of Free Sale, a Supplier s Declaration of Conformity, or a determination of equivalence with INEN s requirements. FOREIGN TRADE BARRIERS 130 Sanitary and Phytosanitary Barriers Agricultural products Quality Compliance and Prior Authorization Requirements Ecuador maintains a lengthy and burdensome sanitary certification process, which may require several different approvals for a single product. COMEX Resolution 116 requires all agricultural imports to be accompanied by a sanitary certificate issued by AGROCALIDAD. For over 50 food and agricultural products, Ecuador also requires prior import authorization from the Ministry of Agriculture (MAG) or the MoPH, or both, depending on the particular product. The MAG authorization itself requires several internal approvals. Ecuador s prior authorization system is vulnerable to lobbying by domestic producers seeking to block or impede imports, and raises questions regarding the underlying scientific justification and consistency with World Organization for Animal Health (OIE) and Codex Alimentarius Commission standards. In addition to prior authorization, COMEX Resolution 019 mandates that imported agricultural products must be accompanied by a sanitary certificate or be shipped from a plant that AGROCALIDAD has previously inspected and authorized. This requirement applies to all imported agricultural products, including products of animal origin that are not considered to present a high food safety risk in the United States. Poultry Products AGROCALIDAD lifted a 2015 ban on poultry products related to highly pathogenic avian influenza (HPAI) in August 2017, but the National Customs Service of Ecuador (SENAE) has yet to update its database to allow for poultry imports from the State of Tennessee. As a result, some producers are still unable to export poultry products to Ecuador. Establishment of Registration Requirements AGROCALIDAD issued Resolution 217 in September 2016, which requires registration of foreign establishments that export animals or animal products to Ecuador. Although Ecuador notified this measure to the WTO, no time was allowed for trading partners to review and provide comments prior to the measure entering into force. This resolution is problematic for exporters because the information needed to register is not readily available since much of the information required by AGROCALIDAD is proprietary and not customarily required for export to other countries. In all cases, AGROCALIDAD reserves the right to request a site inspection with costs covered by the party interested in exporting to Ecuador. IMPORT POLICIES Ecuador has imposed a broad range of tariff and nontariff restrictions on trade in goods and services. This trend began several years ago, but accelerated in 2014 and 2015 as Ecuador s balance of payments circumstances worsened and economic growth declined. These measures, such as tariff surcharges implemented in March 2015 that remain in effect, contributed to sharply reduced exports to Ecuador. The measures also created uncertainty in Ecuador s market, which can discourage investment, penalize Ecuadorian workers and businesses, and limit consumer choices of competitively priced, high quality goods and services. However, Ecuador eliminated certain import quotas beginning January 1, 2017, which improved the competitive environment for automobiles and cell phones. As part of its import policies, Ecuadorian officials sought commitments from companies to increase local production and decrease imports. According to Ecuador s Coordinating Minister for Production, Employment, and Competitiveness, over 900 companies signed import substitution agreements with the FOREIGN TRADE BARRIERS 131 government in 2014 and 2015. According to local importers, this policy seeking import substitution agreements was discontinued beginning in mid-2015, but many of the agreements remain in effect. The United States has objected to Ecuador s restrictions on trade in a variety of fora bilaterally, through various WTO committees, and in coordination with other countries. The United States will continue to press Ecuador to reverse these policies in light of its international commitments. Tariffs and Customs Fees In 2015, Ecuador levied tariff surcharges on imported products. COMEX Resolution 011-2015 placed tariff surcharges of 5 percent to 45 percent on about 3,000 tariff lines, effective March 2015. In June 2015, Ecuador informed other WTO Members that it would phase out all tariff surcharges by June 2016. In April 2016, Ecuador postponed the elimination of the surcharges until June 2017, when they were finally removed. When Ecuador joined the WTO in January 1996, it bound most of its tariff rates at 30 percent ad valorem or less, except for agricultural products covered by the Andean Price Band System (APBS). Ecuador agreed to phase out its participation in the APBS when it joined the WTO; however, to date, Ecuador has taken no steps to phase out use of the APBS. Ecuador s applied simple average MFN tariff rate was percent for industrial products and percent for agricultural products in 2016 (latest data available). However, in light of trade restrictions Ecuador has implemented since its most recent WTO Trade Policy Review in 2011, the actual average applied MFN tariff rates might be higher. As a member of the Andean Community of Nations (CAN), Ecuador grants and receives exemptions from tariffs, , reduced ad valorem tariffs and no application of the APBS for products from the other CAN Countries. Specific tariff changes by sector in recent years include those described below. Consumer goods COMEX Resolution 023, issued July 17, 2014, created a $42 tariff on packages shipped via international courier. Consumers may receive no more than five packages per year, and each package must weigh less than four kilograms and be valued at less than $400, with a total value for all five packages not to exceed $1,200. COMEX Resolution 033, issued September 19, 2014, modified Resolution 023 to provide a waiver of the $42 tariff for packages sent by Ecuadorian residents abroad, up to a limit of 12 packages or $2,400. In addition, according to Resolution CDE-EP-CDE-EP-2017-0012-R from Empresa Publica Correos de Ecuador (Ecuadorian Post Office), dated September 15, 2017, all international online shipments up to 2,000 grams must pay a $ fee plus a value-added tax (VAT). Agricultural products Ecuador s continued use of the APBS affects many agricultural exports. exports such as wheat, barley, malt barley, and soybeans faced significantly higher total duties in 2017 than in previous years because of a variable levy or surcharge (on top of an ad valorem tariff) which increases as world prices decrease. Total duties, for example, might be as high as 45 percent for pork and 86 percent for chicken parts. The APBS has had a particularly adverse impact on soybean meal. Although in the past Ecuador has granted a renewable three-year tariff exemption for imports of soybean meal, the preference was scheduled to expire on December 31, 2016. This exemption was renewed only toward the end of 2016, but uncertainty around its renewal caused many importers in the domestic livestock and aquaculture industries to shift purchase of soybean meal from to other suppliers. This uncertainty has benefitted South American trading partners, which increased market share in 2017 due to the preferential market access they enjoy with Ecuador. FOREIGN TRADE BARRIERS 132 Customs Service Fee SENAE issued a Resolution establishing the Customs Control Service Fee, effective November 13, 2017. SENAE underscored the need to strengthen the customs control service, to combat smuggling and fraud as a reason for the implementation of this measure. The fee applies to all products entering the country, with specific exceptions such as traveler personal effects, technical aids, donations, and relief shipments (among others). The fee became effective on January 1, 2018 for postal and courier shipments. The charge, which is calculated by dividing the weight of the imported item in grams by an arbitrarily decided unit of control and then multiplying by $ , allows SENAE to raise or lower the fees on individual items by manipulating the unit of control. Despite SENAE s statements that the rate has no effect on the prices of imported products because it is neither a tariff nor a safeguard, the business sector has expressed serious concerns about the fee s calculation method; the wide margin of discretion in the setting of a control unit; and, the lack of information about the use of the funds collected. Furthermore, they argue that the fee is not compliant with either tax or transparency principles. Nontariff Measures Importers must register with Ecuador s National Customs Service to obtain a registration number for all products. Agriculture Enacted in June 2013, COMEX Resolution 102 and MAGAP Resolution 299-A impose a mandatory, cumbersome process for allocating import licenses for cheese, butter, milk, potatoes (including French fries), beef, pork, chicken, turkey, beans, sorghum, and corn. Resolution 299-A specifies that import licenses are not granted automatically, but rather are issued based on the level of domestic production relative to demand. Resolution 299-A requires importers to present to MAG their yearly import requirements for review. The review results are shared with domestic producers. Resolution 299-A prohibits imports during periods of high domestic production. Andean Community members are excluded from this requirement. For a number of agricultural products, MAG has established consultative committees. These committees are composed of private sector representatives and government officials. Originally conceived as advisory bodies for recommending production and agricultural development policies, these committees reportedly now seek to block imports to encourage domestic production. Industry stakeholders report that import permits are issued in a trade impeding manner deliberately. A non-automatic issuance policy has been implemented that, due to the difficultly of obtaining import permits, incentivizes domestic sourcing of products. While all food and agricultural products are subject to this policy, beef, pork and dairy products are particularly targeted. For these products, an importer s total import allowance cannot surpass an amount determined by MAG. For dairy products, MAG also requires that interested parties also provide sales and consumption forecasts before it will authorize imports. Automotive On September 30, 2016, the Ministry of Foreign Trade announced the elimination of quotas for automobile imports beginning on January 1, 2017. This action removed a major restriction on automobile exports to Ecuador. The vehicle quotas were established in June 2012. Car sales peaked in 2011 with 139,000 units sold, and the number of total vehicles sold then contracted to 81,309 units in 2015 and 63,555 units FOREIGN TRADE BARRIERS 133 in 2016. The industry rebounded in 2017, selling 105,077 units. Tariff surcharges also affected the sale of motorcycles, trucks and spare parts, but sales have recovered after cancellation of the surcharges in June 2017. Ecuador accepts Federal Motor Vehicle Safety Standards (FMVSS) in conjunction with the Blue Ribbon Letter, issued by the Department of Transportation s National Highway Transportation Safety Administration, as proof of compliance with FMVSS for automobiles manufactured in the United States. Cellular Telephones Quotas on imports of cellular telephones that had been in effect since 2012 were eliminated effective January 2017. The elimination of the quotas was announced in bulletin number 38-2017 published by Ecuador s customs authority. Cellphone imports dramatically peaked to $15 million in 2017 from $7 million in 2016 (both years, January June). Although the elimination of the quota was a positive sign for importers, high tariffs and taxes are still an issue. Consumer Goods Ecuador applies a special consumption tax (ICE) on a number of products, including alcohol, perfumes, video games, firearms, airplanes, helicopters, boats, and cable television service. Many of the products to which the ICE applies are imported, while many products that are domestically produced are excluded. In October 2016, reportedly in order to facilitate approval by the European Union of Ecuador s accession to the Trade Agreement between the European Union and its Member States and Colombia and Peru, Ecuador modified the calculation of the ICE on alcoholic beverages to equalize the treatment of imported and domestic beverages. Footwear Ecuadorian law (INEN 013) requires footwear companies to make a special label on every pair of shoes imported into Ecuador, including content information and an Ecuadorian tax ID number. footwear companies need to make special production runs, specifically for Ecuador, to attach labels to the shoe upper during manufacture or attach a label after manufacture in a labor intensive manner. These requirements far exceed typical local language labeling requirements. In 2017 this requirement was updated to require sewn labels only to include the material composition (percentage), country of origin, and safety instructions. For all other labeling requirements an adhesive tag suffices to comply with the law. GOVERNMENT PROCUREMENT Ecuador is not a signatory to the WTO Agreement on Government Procurement, but is subject to government procurement disciplines in the Trade Agreement between the European Union and its Member States and Colombia, Peru, and Ecuador, following its accession on January 1, 2017. Bidding on government procurement can be cumbersome and nontransparent. The lack of transparency poses a risk that procuring entities will manipulate the process to the advantage of a preferred supplier. For example, public enterprises have broad flexibility to make procurements. Ecuador s Public Procurement Law establishes exceptions for procurements made according to special rules established by presidential decrees, for exploration and exploitation of hydrocarbons, for emergency situations, and for national security contracts. Article 34 of the Public Procurement Law allows public enterprises to follow special procurement rules, provided the National Public Procurement Service issues an open ended authorization for purchases considered within the nature of the enterprise. FOREIGN TRADE BARRIERS 134 Ecuador also requires that preferential treatment be given to locally produced goods, especially those produced under the framework of the constitutionally-created social and solidarity economy, as well as micro and small enterprises. Foreign bidders are required to register and submit bids for government procurement through an online system ( ). Foreign bidders must have a local legal representative in order to participate in government procurement. INTELLECTUAL PROPERTY RIGHTS PROTECTION Ecuador was moved to the Special 301 Watch List from the Priority Watch List in 2016 in recognition of the passage in August 2015 of an amendment that reinstated some criminal procedures and penalties for intellectual property crimes. However, in January 2017, Ecuador withdrew from the Intellectual Property Agreement signed with the United States in 1993. It remained on the Watch List in 2017. Enforcement of IPR against widespread counterfeiting and piracy remains weak (including in marketplaces such as La Bahia Market in Guayaquil). With respect to the pharmaceutical and agricultural chemical industries, Ecuador does not appear to adequately protect against the unfair commercial use or the unauthorized disclosure of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. The Code of the Social Economy of Knowledge, Creativity, and Innovation (COESC), legislation covering wide ranging intellectual property matters, entered into force on December 9, 2016. As of November 2017, the Ecuadorian Institute of Intellectual Property (IEPI) and the National Secretary of Higher Education, Science and Technology (SENESCYT) initiated a 30-day process of information gathering, inclusion and citizen participation in order to identify those topics of COESC that should lead to secondary regulations. IEPI expects to have the draft implementing regulations ready for SENESCYT review by the end of March; once they are approved by SENESCYT, they will be published. stakeholders have expressed concerns that the COESC legislation could negatively affect intellectual property protections and foreign investment in Ecuador, but also have recognized that legislation went through changes that revised many negative aspects, and that participation in developing underlying regulations will help balance and clarify several provisions in the law. On August 16, 2016, IEPI issued Resolution 001-2016-CD-IEPI, which lowered exorbitant fees for registration and maintenance of patents, bringing them back into line with international practice. On August 22, 2016, Ecuador issued a Presidential Decree (1159) to amend Presidential Decree 522, which affects the labeling of off-patent medicines. Some stakeholders continue to express concerns that the Decree may prejudice the legitimate interests of affected trademark holders. Also during 2016, Ecuador reevaluated and suspended several compulsory licenses of pharmaceutical related patents that it had issued in previous years. Industry reported last year that decrees 522 and 1159 were to be cancelled at the end of 2017, but to date they remain in effect. The United States will continue to engage Ecuador on these issues in 2018, including through the Special 301 process. SERVICES BARRIERS Credit Bureaus FOREIGN TRADE BARRIERS 135 In September 2014, Ecuador enacted the Monetary and Financial Code, which regulates the financial, insurance, and capital markets. Article 357 of the law established the National Data Registry as the only depository of credit information to be allowed in Ecuador, but no date had been established for when Article 357 takes effect. Upon the government s determination that the National Data Registry is operational, the law, as written, would force and other foreign credit agencies to close upon 90 days notice from the government. In December 2017, the National Assembly approved the Economic Reactivation Law, which includes a provision that the credit data registry will become the exclusive competence of the Superintendent of Banks, and that the Superintendent of Banks will control the credit data registry and be responsible for all credit rating services and restricts the private provision of credit rating services. Should the law be fully implemented, it would cause the only private-sector bureau operational in Ecuador to close. Telecommunications Article 34 of Ecuador s Organic Telecommunications Law requires telecommunications and subscription television service suppliers with at least a 30 percent market share to pay percent of their revenue to the government and an additional 1 percent of their revenue for each additional 5 percent market share they hold above 30 percent. However, Corporaci n Nacional de Telecomunicaciones (CNT) is exempt from the fees. CNT is owned by the government of Ecuador, is the dominant provider of fixed telecommunications services, and is the second largest supplier of subscription television services. In addition to the fee exemption, the government of Ecuador maintains policies that favor CNT over other competitors, including exemptions from paying certain license taxes and fees. INVESTMENT BARRIERS Ecuador s investment climate remains marked by uncertainty, owing to unpredictable and frequently restrictive economic policies. The Moreno administration, which took office in May 2017, has said it intends to address these concerns. Withdrawal from Bilateral Investment Treaties (BITs) investors have complained, during 2017 and in previous years, that Ecuador has failed to comply with the terms of the BIT, including with respect to compliance with arbitral decisions under the agreement. On May 3, 2017, Ecuador s National Assembly voted to terminate 12 of the country s bilateral investment treaties, including its agreement with the United States. The move was attributed to a conflict with Ecuador s 2008 constitution, which prohibits Ecuador from entering into treaties that cede sovereign jurisdiction to international arbitration entities outside of Latin America in contractual or commercial disputes between Ecuador and individuals or private companies. The BIT remains in force but will terminate on May 18, 2018, one year after the official notification. The sunset provisions of the agreement will protect current investors for 10 years following the date of termination. Investment Climate Regulations and laws since 2007 limit private sector participation in sectors deemed strategic, most notably in the extractive industries. In 2010, the Ecuadorian government enacted a hydrocarbons law that required all contracts in the extractive industries to be in the form of service, or for fee contracts, rather than production sharing agreements. After the fall in global oil prices in mid-2014, the Ecuadorian government began relaxing its extractive industries regulatory framework to attract foreign investment in the petroleum and mining sectors. The 2015 Mining Law allows the state to grant mining exploitation rights to private and foreign entities, depending on national interests. Between 2015 and 2017, the government established incentives for mining sector investments, including fiscal stability agreements, limited VAT reimbursements, and remittance tax exceptions. The government plans to hold two licensing FOREIGN TRADE BARRIERS 136 rounds in 2018 to auction 16 oil blocks through production sharing agreements, the first such contracts the government will have offered since 2006. Ecuador s National Assembly approved a public-private partnership law on December 15, 2015, intended to attract investment. The law allows increased private participation in some sectors and offers incentives, including the reduction of income tax, value added tax, and capital exit tax for investors in certain projects. No firms have indicated that they have signed a public-private partnership agreement with the Ecuadorian government since passage of the law. OTHER BARRIERS Many firms and citizens have expressed concerns that corruption among government officials can be a hindrance to successful investment in Ecuador. FOREIGN TRADE BARRIERS 137 EGYPT TRADE SUMMARY The goods trade surplus with Egypt was $ billion in 2017, a percent increase ($359 million) over 2016. goods exports to Egypt were $ billion, up percent ($501 million) from the previous year. Corresponding imports from Egypt were $ billion, up percent. Egypt was the United States' 47th largest goods export market in 2017. Sales of services in Egypt by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Egypt-owned firms were $4 million. foreign direct investment (FDI) in Egypt (stock) was $ billion in 2016 (latest data available), a percent decrease from 2015. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Vehicles vehicle and automotive parts exports face significant barriers in Egypt, and exports declined by 47 percent since 2015. Since June 2014, Egypt has applied European Union (EU) regional emissions and safety regulatory standards for vehicles and replacement parts. This has made it difficult to export vehicles and parts to the market that meet Federal Motor Vehicle Safety Standards. Further, Egypt is only enforcing these standards for imports. Another restrictive element of Egypt s law prohibits the importation of used vehicles for commercial purposes. The United States is seeking to address the decline in exports by encouraging Egypt to accept Federal emissions and safety regulatory standards for vehicles. After persistent engagement by the United States, Egypt confirmed in 2016 that it would reconsider Federal emissions and safety regulatory standards for vehicles if Morocco were to accept Federal emissions and safety regulatory standards, which Morocco did in July 2016. As of March 2018, Egypt has not accepted these standards, and, in fact, formally backtracked on the issue, saying at the December 2017 Trade and Investment Framework Agreement (TIFA) meeting in Cairo that it was not aware that any such understanding was reached. In May 2014, the Egyptian Ministry of Trade and Industry issued a decree banning the importation of motorcycles and three wheel vehicles except for tricycles and chassis. The decree bans the importation of completely built units citing security concerns, yet allows the importation of semi-knocked down motorcycle chassis and engines. The United States continues to engage but the ban remains in place. Poultry Parts and Poultry Offal Since 2003, Egypt has imported poultry from all origins, but has only permitted imports of whole, frozen birds, banning imports of poultry parts and offal. Although Egypt cites halal slaughter concerns as the reason for the ban, Egypt s General Organization for Veterinary Services (GOVS) inspected and approved 22 poultry establishments for export to Egypt in September 2013, certifying that slaughtering processes and food safety measures are in accordance with Islamic halal practices. The United States raised this issue at the December 2017 TIFA meeting in Cairo. FOREIGN TRADE BARRIERS 138 Foreign Manufacturers Registration Decree 43/2016, in effect since March 16, 2016, requires foreign entities that export finished consumer products to Egypt, , dairy products, furniture, fruits, textiles, confectioneries, and home appliances, to register their trademarks with Egypt s General Organization for Exports and Imports Control (GOEIC). Egypt does not allow imports of goods from nonregistered entities. Despite Egypt's announcement at the December 2017 TIFA meeting that all companies in the queue have been approved, companies are concerned about a lack of transparency in the process. The burden of registration can take up to 18 months, adds costs and uncertainty to the export process, and over time, may discourage exports to Egypt. The United States raised these concerns with Egypt multiple times in 2017, most recently at the December 2017 TIFA meeting. Sanitary and Phytosanitary Barriers In recent years, the Egyptian government has made limited progress in taking a more scientific approach to sanitary and phytosanitary measures. However, importers of agricultural commodities continue to face unwarranted barriers. Agricultural Biotechnology In March 2012, Egypt s Ministry of Agriculture and Land Reclamation issued a decree suspending the cultivation of corn seeds developed through agricultural biotechnology. This suspension followed media reports critical of agricultural biotechnology products. Seed Potatoes The United States remains unable to export seed potatoes to Egypt because the Ministry of Agriculture s Central Administration for Plant Quarantine (CAPQ) has failed to officially designate the United States as an approved origin for exporting seed potatoes. According to Ministry of Agriculture s regulations, CAPQ approves origins only after completing a pest risk analysis. While the pest risk analysis for seed potatoes was completed over two years ago, Egypt continues to raise concerns to delay approval of the United States as an origin for exporting seed potatoes to Egypt. IMPORT POLICIES Tariffs and Taxes On January 26, 2016, Egypt issued Presidential Decree 26, which increased already high tariffs on approximately 100 non-essential items, including sunglasses, nuts, cut flowers, fireworks, grapes, strawberries, apples, pineapples, video games, chewing gum, watches, and seafood (including shrimp and caviar). On December 1, 2016, Egypt issued a second Presidential Decree, Decree 538/2016, which further increased tariffs from 40 percent to 60 percent on certain luxury items, some of which were included in the earlier decree. While the new tariffs are within Egypt s WTO bound rates, they exacerbate the disadvantage products face in Egypt vis- -vis European goods given that such EU products benefit from preferential rates granted under the EU-Egypt Free Trade Agreement. Egypt also has maintained high tariffs on a number of other products. Egypt s tariff on passenger cars with engines with 1,600 cubic centimeters (cc) or less is 40 percent, and its tariff on cars with engines of more than 1,600 cc is 135 percent. Tariffs on a number of processed and high-value food products, including poultry meat, range from 20 percent to 30 percent. There is a 300 percent tariff on alcoholic beverages for use in the tourism sector, including for hotels, plus a 40 percent sales tax. The tariff on alcoholic beverages FOREIGN TRADE BARRIERS 139 for use outside the tourism sector ranges from 1,200 percent on beer, 1,800 percent on wine, and 3,000 percent on sparkling wine and spirits, effectively ensuring that these beverages are comprised of foreign unrefined inputs that are reconstituted and bottled in Egypt. Foreign movies are subject to tariffs amounting to 46 percent. They are also subject to sales taxes and box office taxes higher than those for domestic films. Customs Procedures Egypt has not implemented modern information technology systems, making it difficult for its Customs Authority efficiently to target suspect shipments for inspection. The delays affect the Customs Authority s capability to process manifests and entry documentation, including for customs valuation. The lack of automated manifest collection and internal coordination, in addition to inefficient inspection procedures, has resulted in significant customs delays. Also, Egypt s practice of consularization, which requires that exporters secure a stamp from Egyptian consulates on all documents for goods exported to Egypt at a cost of $100 to $150 per document adds significant costs in money and time to such exports. In June 2017, Egypt s Parliament endorsed Presidential Decree No. 149/2017 ratifying Egypt s accession to the WTO Trade Facilitation Agreement, which is expected to expedite the movement of goods across borders and improve customs cooperation. However, Egypt has yet to officially deposit the article of ratification to the WTO. Import Bans and Barriers The National Nutrition Institute or the Drug Planning and Policy Center of the Ministry of Health and Population (MoHP) must register and approve all nutritional supplements, specialty foods, and dietary foods. Importers must apply for a license to import specialty food products and renew the license every one to five years, at a cost of up to $1,000 per renewal, depending on the product. Finally, while there is no law that prohibits the importation of nutritional supplements in finished pill form, import licenses for these products are not provided. The MoHP must approve the importation of new, used, and refurbished medical equipment and supplies. The MoHP approval process consists of a number of steps, which some importers have found burdensome. Importers must submit a form requesting the MoHP s approval to import, provide a safety certificate issued by health authorities in the country of origin, and submit a certificate of approval from the Food and Drug Administration or the European Bureau of Standards. The importer also must present an original certificate from the manufacturer indicating the production year of the equipment and, if applicable, certifying that the equipment is new. All medical equipment must be tested in the country of origin and proven safe. The importer must prove it has a service center to provide after-sales support for the imported medical equipment, including spare parts and technical maintenance. GOVERNMENT PROCUREMENT A 1998 law regulating government procurement requires procuring entities to consider technical factors, along with price, in awarding contracts. A preference is granted to Egyptian companies whose bids are within 15 percent of the price of other bids. Also, in the 2004 small and medium sized enterprises (SMEs) development law, Egyptian SMEs were given the right to supply 10 percent of the goods and services in every government procurement contract. Moreover, the Prime Minister retains the authority to determine the terms, conditions, and rules for procurement by specific entities and may grant authorities the right to use sole-source contracting for a project. Egypt is neither a signatory to, nor an observer of, the WTO Agreement on Government Procurement. FOREIGN TRADE BARRIERS 140 INTELLECTUAL PROPERTY RIGHTS PROTECTION Egypt remained on the Watch List in the 2017 Special 301 Report. The United States remains concerned about the lack of enforcement of intellectual property rights (IPR), particularly with respect to the usage of pirated and counterfeit goods, including software, music, unlicensed satellite TV broadcasts, and videos. The United States continues to recommend that Egypt provide deterrent-level penalties for IPR violations, provide customs officials with ex officio authority to seize counterfeit and pirated goods at the border, and provide necessary additional training for enforcement officials. Further, the lack of clarity and effectiveness in processing trademark and patent applications remain obstacles for growth. Egypt notably fails to provide a transparent and reliable patent registration system and lacks an effective system for notifying interested parties of applications for marketing approval of follow-on pharmaceuticals in a manner that would allow for the early resolution of potential patent disputes. The United States urges Egypt to clarify its protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. SERVICES BARRIERS Egypt imposes barriers on service suppliers across a range of industries. In 2017, Egypt adopted a new investment law (No. 72/2017) in which the limit on non-national workers increased from 10 percent to 20 percent. In addition, Egypt restricts foreign equity in construction and transport services to 49 percent, and in information technology related industries, Egypt requires that 60 percent of senior executives be Egyptian citizens within three years of the startup date of the venture. A decree published in September 2015 obliges freight forwarding companies to be at minimum 51 percent Egyptian-owned to be eligible for a license from the Civil Aviation Authority to operate in Egyptian airports. Licenses are issued every two years. The terms of this decree affects approximately 20 foreign companies, including several firms, providing over 80 percent of the airfreight services in Egypt. Despite this decree, however, at least one 100 percent-owned foreign company had its license renewed in 2016 without difficulty. The United States will continue to engage Egypt on these issues. Banking Foreign banks are able to buy shares in existing banks, but are not able to secure a license to establish a new bank in Egypt, as new commercial banking licenses have not been issued to foreign banks since 1979. Three state-owned banks (Banque Misr, Banque du Caire, and the National Bank of Egypt) control approximately 40 percent of the banking sector s total assets. In 2011, Egypt put in place strict controls on the movement of foreign currency. Despite these ongoing concerns, in 2017, the Central Bank of Egypt revived inter-bank transfers, and eliminated withdrawal and deposit caps for foreign currency for retail and corporate clients. The Central Bank also lifted all previously-imposed restrictions on dollar deposits and withdrawals for importers of non-essential goods, another sign that bank liquidity is improving as a result of Egypt s $12 billion three-year IMF program and a currency flotation. Telecommunications The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance, and international telecommunication services in 2005. Nevertheless, Telecom Egypt continues to hold a de facto monopoly in the fixed line sector, primarily because the National Telecommunications Regulatory FOREIGN TRADE BARRIERS 141 Authority (NTRA) has not approved additional licenses to compete in this sector. The lack of competition among internet service and fixed landline providers has contributed to high prices, low Internet speeds, and poor service quality. Courier and Express Delivery Services The Egyptian National Post Organization (ENPO) must grant special authorization to foreign-owned private courier and express delivery service suppliers seeking to operate in Egypt. In addition, although express delivery services constitute a separate, for-profit, premium delivery market, ENPO requires private express operators to pay a postal agency fee of 10 percent of annual revenue on shipments of less than 20 kilograms. ENPO imposes an additional fee on private couriers and express delivery services of 5 EGP ($ ) on all shipments under 5 kilograms. INVESTMENT BARRIERS Egypt adopted a new investment law (No. 72/2017), which was implemented in October 2017, to address longstanding complaints of foreign investors. The law now allows foreign investors to operate sole proprietorships and partnerships. In addition, the law relaxed local hiring requirements, allowing firms to increase the number of non-nationals working at any business, from 10 percent of the work force to 20 percent. Further regulatory changes also allow foreigners to act as importers for their own businesses, albeit with some limitations on the items that can be imported and the purposes for which they can be imported. BARRIERS TO DIGITAL TRADE The Egyptian Parliament is considering a draft law that would require app-based transportation services to establish local servers and provide real-time data on riders and drivers to Egyptian security authorities. Infrastructure localization requirements add unnecessary costs to innovative services, while data disclosure requirements could undermine consumer trust in such services. FOREIGN TRADE BARRIERS 142 FOREIGN TRADE BARRIERS 143 EL SALVADOR TRADE SUMMARY The goods trade surplus with El Salvador was $580 million in 2017, a percent increase ($143 million) over 2016. goods exports to El Salvador were $ billion, up percent ($118 million) from the previous year. Corresponding imports from El Salvador were $ billion, down percent. El Salvador was the United States' 51st largest goods export market in 2017. exports of services to El Salvador were an estimated $ billion in 2016 (latest data available) and imports were $726 million. Sales of services in El Salvador by majority affiliates were $ billion in 2015 (latest data available). foreign direct investment (FDI) in El Salvador (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. FREE TRADE AGREEMENTS Dominican Republic-Central America United States Free Trade Agreement The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in 2006; for the Dominican Republic in 2007; and, for Costa Rica in 2009. The CAFTA-DR significantly liberalizes trade in goods and services, as well as includes important disciplines relating to customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environment. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Since 2013, companies have been disadvantaged by onerous labeling regulations issued by the Ministry of Health. El Salvador requires a Certificate of Free Sale to register food products, cosmetics, and hygienic products in El Salvador. As no such equivalent certificate exists in the United States for these products, companies located in El Salvador seeking to import and sell products at times have difficulty complying with this requirement. The Department of Agriculture (USDA) has negotiated with the Ministry of Health the acceptance of the Food Safety Inspection Service (FSIS) 9060-5 certificate for meat and meat products in lieu of the Certificate of Free Sale. However, the Ministry of Agriculture (MAG) requires an original FSIS 9060-5 certificate for meat and meat products. USDA is working with MAG to accept a notarized copy of the original and allow importers to use the original certificate to meet Ministry of Health requirements. The Ministry of Health has drafted implementing regulations without adhering to its domestic procedures for consultation and notification, and then has attempted to enforce such regulations via unofficial notifications. For example, the Ministry has inserted new labeling requirements that are not contemplated by laws into implementing regulations. The most recent case is the registration requirement for bulk frozen poultry based on a Central American Technical Regulation (RTCA) for processed products. USDA is working with Ministries of Economy and Health to resolve this issue. Under the CAFTA-DR, El Salvador FOREIGN TRADE BARRIERS 144 granted equivalence to the sanitary inspection system for poultry and poultry products, making the registration requirement duplicative and unnecessary. In 2015, El Salvador issued the implementing regulation for the Act for the Promotion, Protection and Support of Breast Feeding, which defines requirements for sanitary registration, restricts marketing and advertising, and sets out labeling requirements for breast milk substitutes. This measure was published and entered into force in the same month, without notification to the WTO, and still lacks certainty as to what information must appear on the label. The United States is monitoring the implementation of the measure and has requested El Salvador notify it to the WTO Technical Barriers to Trade Committee to allow WTO Members a comment period and reasonable interval for implementation. Internal Taxes on Distilled Spirits El Salvador, under its general alcoholic beverage law, assesses a specific excise tax on distilled spirits that is applied on a per-liter of alcohol basis, with four specific rates (currently $ , $ , $ and $ ). The lowest rate applies only to Aguardientes, a locally bottled spirit made from cane sugar. Whiskey, which is exclusively imported, is assessed at the highest rate. Arbitrary breakpoints based on the type of distilled spirit or tariff classification appear to result in a significantly lower tax rate on locally-produced spirits. Sanitary and Phytosanitary Barriers Since 2015, animal product exporting facilities are subject to MAG inspection and certification every three years. As the CAFTA-DR grants equivalence to the beef, pork, and poultry inspection systems, the inspection and certification requirements only apply to animal products not covered by the equivalence agreement such as animal feed and pet food additives/probiotics. The MAG started to apply this measure to imports in November 2017. USDA continues discussions with MAG to allow imports of products based on broader recognition of inspection programs, rather than requiring plant-by-plant inspection. El Salvador is implementing the 2011 Central American Technical Regulation on sanitary and phytosanitary (SPS) Measures and Procedures (COMIECO Resolution 271-2011), which requires the inspection by Salvador authorities of packing plants that are first time exporters of non-processed products that have high sanitary risks, as determined by the government of El Salvador. This import requirement was not notified to the WTO SPS Committee by any of the Central American countries, including El Salvador. exporters have complained that this import requirement significantly increases trade costs since the exporters must incur all costs associated with plant inspections, including the travel expenses of Salvadoran technicians to the United States. Under this regulation, MAG requires Salvadoran officials to conduct on-site inspections of all facilities exporting seafood to El Salvador as a condition for import. authorities continue trying to reach an agreement with MAG to allow all origin seafood to be exempt from the plant-by-plant inspection requirement. El Salvador does not distinguish between low- and high-risk products. Therefore, extensive laboratory tests are mandatory for all food products, even for those low-risk products that would be permitted into other markets without testing. These testing requirements also apply to samples. To register product samples, the Ministry of Health requires large quantities of the product for testing, including samples of different flavors of the same product. In February 2017, the Ministry of Health notified companies that laboratory testing must be conducted at the Ministry s laboratory, rather than private laboratories, resulting in a backlog in processing new product registrations. USAID and USDA are working with the Ministry of Agriculture to strengthen its technical capabilities to use a science-based approach for sanitary and phytosanitary standards. FOREIGN TRADE BARRIERS 145 IMPORT POLICIES Tariffs As a member of the Central American Common Market, El Salvador applies a harmonized external tariff on most items at a maximum of 15 percent, with some exceptions. However, under the CAFTA-DR, as of January 1, 2015, 100 percent of originating consumer and industrial goods enter El Salvador duty free. Nearly all textile and apparel goods that meet the Agreement s rules of origin also now enter El Salvador duty free and quota free, creating economic opportunities for and regional fiber, yarn, fabric, and apparel manufacturing companies. Eighty-four percent of agricultural product exports by product line are eligible for duty-free treatment in El Salvador under the CAFTA-DR as of 2015. El Salvador will eliminate its remaining tariffs on nearly all agricultural products by 2020, on rice and chicken leg quarters by 2023, and on dairy products by 2025. For certain agricultural products, tariff-rate quotas (TRQs) will permit duty-free access for specified quantities as the tariffs are eliminated, with the in-quota amount expanding during this time. El Salvador will liberalize trade in yellow corn through a 5 percent annual expansion of the initial 350,000 metric ton TRQ for 15 years, after which unlimited quantities will be permitted. The Salvadoran government is required under the CAFTA-DR to make TRQs available on January 1 of each year. El Salvador monitors its TRQs through an import licensing system, which the United States is carefully tracking to ensure Salvadoran issuance of these permits occurs in a timely manner. Nontariff Measures All CAFTA-DR countries, including El Salvador, committed to improve transparency and efficiency in administering their customs procedures as part of the free trade agreement. The CAFTA-DR countries also committed to ensuring greater procedural certainty and fairness in the administration of these procedures, and agreed to share proposed measures with the public and the other CAFTA-DR countries for comment, and to share information with the other CAFTA-DR countries to combat the illegal transshipment of goods. In 2013, Salvadoran Customs implemented nonintrusive inspections with x-rays at border crossings. These inspections have resulted in detection of over 2,000 cases of anomalies, ranging from the trafficking of drugs to the false declarations of goods. At the same time, while designed to facilitate cross-border movements, the procedures have resulted in considerable delays that cause financial losses to exporters and importers. Customs also has increased the number of penalties for differences between a shipment s weight and that presented on the entry documentation, without taking into account standard weight variation and potential shipping losses or provide an opportunity to amend the entry documentation. The private and public sector Inter-union Commission for Trade Facilitation (Cifacil) has been promoting the implementation of measures to streamline trade, but has not made progress despite years of engagement with the government. The customs integration process between Guatemala and Honduras began in June 2017. In July 2017, El Salvador announced its intention to join the Customs Union with Guatemala and Honduras with the intention of completing negotiations by July 2018. In 2015, El Salvador s Legislative Assembly approved a new amendment to the Customs Simplification Law, including a required $18 per shipment processing fee for incoming packages and cargo. GOVERNMENT PROCUREMENT El Salvador is not a signatory to the WTO Agreement on Government Procurement, but the CAFTA-DR contains disciplines on government procurement. The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including advance notice of purchases and timely and effective FOREIGN TRADE BARRIERS 146 bid review procedures for procurements covered by the Agreement. In accordance with the CAFTA-DR, suppliers are permitted to bid on procurements of most Salvadoran government entities, including key ministries and state-owned enterprises, on the same basis as Salvadoran suppliers. The anticorruption provisions in the CAFTA-DR apply inter alia to government procurement. EXPORT SUBSIDIES El Salvador has eliminated its Export Processing Zones and Marketing Act, an export subsidy program with permanent tax exemptions based on export performance, and instituted El Salvador s Free Trade Zone Law, which grants tax credits based on the number of workers employed and investment levels. Under the CAFTA-DR, El Salvador may not adopt new duty waivers or expand existing duty waivers that are conditioned on the fulfillment of a performance requirement ( , the export of a given level or percentage of goods). INTELLECTUAL PROPERTY RIGHTS PROTECTION To implement its CAFTA-DR intellectual property rights (IPR) obligations, El Salvador undertook legislative reforms providing for stronger IPR protection and enforcement. Despite these efforts, trafficking in counterfeit products remains high, as does music and video piracy. The United States has expressed concern about insufficient efforts to prevent the unlicensed use of software as well as inadequate enforcement against cable and satellite signal piracy. The United States continues to monitor El Salvador as they implement reforms to their Copyright law related to Collection Management Organizations that were adopted by the Legislative Assembly in 2017. The United States remains concerned about the adequacy of implementing regulations to protect against the unfair commercial use, as well as unauthorized disclosure, of test and other data generated for pharmaceutical products. The effectiveness of the intellectual property system to address patent issues expeditiously in connection with applications to market pharmaceutical products is unclear. The United States is engaging El Salvador to ensure geographical indication (GI) protections do not negatively impact the existing rights and market access of stakeholders. The United States will continue to monitor El Salvador s implementation of its IPR obligations under the CAFTA-DR. SERVICES BARRIERS Telecommunications In 2015, El Salvador eliminated its discriminatory $ per minute tax on international calls. On October 29, 2015, however, the Legislative Assembly passed the Law of Special Contribution for Citizen Security and Coexistence (CESC), which imposed a special tax of 5 percent on fixed and mobile telecommunications services, pay television services, fixed and wireless Internet access services, and the transfer and import of telecommunications equipment, the proceeds of which were to be used to fund government security initiatives. The tax has been challenged in Salvadoran court as unconstitutional double taxation, and is pending review by the Supreme Court. The CESC is still being applied while the case is pending. The United States continues to monitor this issue. INVESTMENT BARRIERS The Millennium Challenge Corporation (MCC) is working with the Salvadoran government to systematically improve the ease and cost of doing business in El Salvador. The Salvadoran government created a new public entity to improve regulations and processes in areas such as public administration, foreign trade and public-private infrastructure investment. The first reforms package, which included FOREIGN TRADE BARRIERS 147 critical regulatory reform to El Salvador s Commercial Code, was accepted and adopted by executive entities in September. In addition, the Salvadoran government unveiled changes to its online business registration portal designed to give entrepreneurs a one-stop shop for registering new companies. Specifically, the online site allows new business entrepreneurs the ability to formalize registration within three days and maintain administrative operations all through the online platform. OTHER BARRIERS Some firms and citizens have found corruption in government, including in the judiciary, to be a significant concern and a constraint to successful investment in El Salvador. Administrative and judicial decision-making appear at times to be inconsistent, nontransparent, and very time consuming. Bureaucratic requirements reportedly have at times been excessive and unnecessarily complex. A proposed Sovereignty and Food and Nutrition Security Law may include trade protectionist measures; the National Association of Private Enterprise (ANEP) is also concerned that this law may impose onerous advertising restrictions under the guise of protecting public nutritional health. In 2015, the Legislative Assembly approved reforms to the Law on Credit History, which, among other changes, reduced from three years to one the maximum period that credit rating agencies could retain negative credit information in their databases, once a debt was paid in full. When the original debt is less than half of the monthly minimum wage in the trade/services sector (at this time, a debt of $120), the negative information cannot be retained for more than six months. Credit rating agencies state that the reforms will increase their costs, raise interest rates, and hinder access to credit. There is also concern in some quarters that the Office of the Superintendent of the Financial System, which regulates credit rating agencies and can access their data, is not subject to these maximums. In July 2016, the Legislature amended the Law to establish objective criteria for the imposition of fines on rating agencies. The Ministry of Finance requires vendors to pay a two percent charge on credit card purchases made by their customers, which the Ministry refunds to vendors through offsets on value-added taxes paid by the vendors on local purchases. However, the Ministry of Finance has not found a way to refund the two percent charge to those vendors who sell imported goods and make few or no local purchases. The United States has raised this issue with the government of El Salvador. FOREIGN TRADE BARRIERS 148 FOREIGN TRADE BARRIERS 149 ETHIOPIA TRADE SUMMARY The goods trade surplus with Ethiopia was $582 million in 2017, a percent decrease ($8 million) over 2016. goods exports to Ethiopia were $873 million, up percent ($47 million) from the previous year. Corresponding imports from Ethiopia were $291 million, up percent. Ethiopia was the United States' 83rd largest goods export market in 2017. SANITARY AND PHYTOSANITARY BARRIERS In August 2015, an amendment to the Biosafety Proclamation established a legal framework to support the cultivation of genetically engineered (GE) cotton. The government subsequently revised the proclamation s implementing directives to specify requirements for introducing GE cotton, and it is in the process of conducting field trials. Commercialization of GE cotton is expected within the next couple of years. Meanwhile, stakeholders have reported that the approval process for commercial imports of GE grains and oilseeds for food and feed remains overly burdensome. Imports of processed food products, including soybean and corn oils, and breakfast cereals made from GE ingredients are subject to mandatory labelling requirements. Food aid shipments that may contain GE ingredients are exempted. IMPORT POLICIES Tariffs According to WTO Tariff Profiles, Ethiopia s average applied tariff rate is percent. High tariffs limit participation in the market and insulate priority sectors of the economy, such as textiles and leather, from outside competition. Nontariff Measures An importer must obtain a letter of credit for the total value of an import transaction and apply for an import permit before an order can be placed. Even with a letter of credit, however, import permits are not always granted, and there can be delays for several months before acquiring foreign exchange. Foreign Exchange Controls The Central Bank of Ethiopia administers a strict foreign currency control regime, and the local currency (birr) is not freely convertible. All imports, exports, and outgoing foreign payments require a foreign exchange permit. The commercial banks are licensed to issue these permits, except for coffee. Private banks are required to manage their foreign exchange transactions through offshore accounts. The central bank carefully monitors the foreign exchange holdings of these banks and closely manages the exchange rate. For the past six years, the central bank has allowed five percent to six percent depreciation of the domestic currency per year. The central bank unexpectedly devalued the domestic currency by 15 percent in early October 2017, following a serious foreign currency shortage. The central bank also has allowed exporters, foreign investors, and domestic investors that generate foreign currency to acquire external loans and suppliers credit upon prior registration and approval by the bank. Larger firms, state-owned enterprises, enterprises owned by the ruling party, and businesses that import goods prioritized by the government s development plan, as well as priority manufacturing export sectors (textiles, leather, and agro-processing), and emergency food importation generally have priority access to foreign exchange. Despite priority status, they too are affected by the chronic foreign exchange shortage in the economy. In FOREIGN TRADE BARRIERS 150 comparison, investors in non-priority sectors and less well-connected importers, particularly smaller, new-to-market firms, face long delays in arranging trade-related payments. The unreliability of foreign currency supply in Ethiopia s banks hampers the ability of all manufacturers to import and restricts repatriation of profits. GOVERNMENT PROCUREMENT Ethiopia is not a party to or an observer of the WTO Agreement on Government Procurement. However, Ethiopia has joined the Trade and Development Agency s Global Procurement Initiative which provides support for public officials in emerging economies to better understand the total cost of ownership for procurement of goods and services related to infrastructure projects, and to establish procurement practices and policies that integrate life-cycle cost analysis and best-value determination in a fair and transparent manner. Tender announcements are usually public, but a number of major procurements do not go through a transparent tendering process. Complicated procedures, delays in decision-making, lack of public information, and the need for personal connections pose obstacles to foreign participation in government procurement. Additionally, reports of corruption in the procurement process are on the rise. firms have complained about the abrupt cancellation of procurement awards and a widespread perception of favoritism toward Chinese competitors with access to financing packages at terms unavailable on the open market. Another obstacle is the frequent requirement for potential suppliers to appear in-person to collect solicitation packages, which business associations complain creates an advantage for state-owned enterprises. firms have expressed concerns about the failure of procurement agencies to respect tender terms. However, at least one firm has successfully utilized the government appeals process to reverse an unfair tendering decision. INTELLECTUAL PROPERTY RIGHTS PROTECTION While Ethiopia is a member of the World Intellectual Property Organization and has demonstrated an interest in strengthening its intellectual property rights (IPR) regime, it has not joined most of the major IPR treaties. Trademark infringement and misuse, especially in the hospitality sector, continues to be a growing problem. Given the lack of enforcement capacity and coordination amongst Ethiopian government agencies, IPR enforcement is unpredictable. Although the Ethiopian Intellectual Property Office is responsible for the administration and arbitration of IPR cases, action to confiscate or impede the sale of pirated foreign works remains inadequate. Moreover, the government of Ethiopia does not publicly track seizures of counterfeit goods, so no statistics are available. SERVICES BARRIERS Banking and Financial Services Ethiopia s investment code prohibits foreign investment in banking, insurance, and financial services. Foreign nationals of Ethiopian origin who own bank shares, even if purchased while they were Ethiopian citizens, have been required to surrender their shares at par value. This is part of a continued effort by the government of Ethiopia to maintain a closed financial sector. The sector is composed of 16 private commercial banks and two public banks. Financial transactions are predominately in cash. Ethiopia s Automatic Teller Machine (ATM) network has expanded rapidly and has become accessible to customers of all banks and credit card holders. In addition, agent-banking services tied to mobile phones have been introduced by several providers, and more than a million users of agent-banking services are registered. Few international banks maintain representative offices, and all trade financing must go through an Ethiopian bank. This creates significant challenges for foreign investors with offshore accounts. Following FOREIGN TRADE BARRIERS 151 the 15 percent devaluation of the Ethiopian birr, the National Bank of Ethiopia (NBE) increased the minimum saving interest rate from four percent to seven percent, and limited the outstanding loan growth rate in commercial banks to percent, which limits their loan provision for business other than export and manufacturing sectors to percent from the preceding year. Moreover, banks are instructed to transfer 30 percent of their foreign exchange earnings to the account of NBE so that the regulator can use the foreign exchange to meet the strategic needs of the country, such as payments made to procure petroleum and sugar as well as to cover transport costs of imported items. Telecommunications The state-owned Ethio-Telecom maintains a monopoly on wired and wireless telecommunications services. The sector is closed to private investment, although the Value Added Service Directive No. 3/2011 of August 2011 allows private companies to provide many value-added services. Many multinational companies assert that the current quality of service in Ethiopia impedes information transfer and general business operations. The Ministry of Communication and Information Technology allows companies and organizations whose operations are Internet-dependent or located in remote areas of the country to use Very Small Aperture Terminals (VSATs), but it does not allow the general public to use VSATs, which can facilitate satellite-based Internet access in rural or remote regions. Logistics Logistics backlogs occur regularly, in part because the customs process remains paper-based, and also because of structural inefficiencies and alleged corruption at Ethiopian customs. Private sector contacts reported that logistics costs comprise approximately 22 percent to 27 percent of the product cost. Equally important, 95 percent of the land-locked country s foreign trade passes through a single port in neighboring Djibouti, the Port of Djibouti, which has incomplete infrastructure projects that contribute to the delay in the movement of goods from the container, dry goods, and oil terminals to the newly completed railhead. In addition, most goods are transported by trucks; Ethiopia s government-owned trucking companies dominate the market, and the overall number of trucks is insufficient to meet demand. In November 2017, the Addis Ababa Djibouti railway began operating on a very small scale but the additional rail services should help to alleviate some of the transportation delays. Plans to expand Ethiopia s rail systems beyond the Addis Ababa-Djibouti link have been finalized, but construction, except for the Awash Mekele rail line, has not begun due to a lack of financing. The government announced a new Ethiopian National Logistics Strategy in 2015 that may yet open opportunities for private enterprise and provide greater efficiencies overall, but improvements have not materialized to date. A new regulation, which allows private freight forwarders to engage in a multimodal transportation system for cargo shipped in and out of Hawassa Industrial Park, is under discussion. This regulation, according to the government, serves as a pilot project to allow private companies to participate fully in the multimodal transportation system. BARRIERS TO DIGITAL TRADE In August and October 2016, the government of Ethiopia used its ownership of Ethio-Telecom to shut down mobile and fixed Internet services in response to protests and political unrest. After restoring access to the Internet, some websites remained blocked. The government again shut down all telecommunications networks in May and June 2017, following unrest related to the conviction of two human rights activists. A new round of protests in December 2017 led the government to block access to certain social media services. Such shutdowns slow growth, weaken innovation, dampen investment, and undermine economic confidence. FOREIGN TRADE BARRIERS 152 INVESTMENT BARRIERS A number of formal and informal barriers impede foreign investment in Ethiopia. Investment in the telecommunications services and defense industries is permitted only in partnership with the Ethiopian government. The banking, insurance, and micro-finance industries are restricted to domestic investors. Foreign investors also are barred from investing in a wide range of retail and wholesale enterprises ( , printing, non-specialized restaurants, and beauty shops). Some government tenders are open to foreign participation, although the process is not always transparent. All land in Ethiopia belongs to the state; there is no private land ownership, and land cannot be collateralized. Land may be leased from local and regional authorities for up to 99 years. However, current land-lease regulations place limits on the duration of construction projects, allow for revaluation of leases at a government-set benchmark rate, place previously owned land ( old possessions ) under leasehold, and restrict the transfer of leasehold rights. OTHER BARRIERS State of Emergency A State of Emergency (SOE) was initiated in October 2016 after a wave of violent protests affected more than 68 large-scale investments. It was first extended in March 2017 and then lifted on August 4, 2017. Under the SOE, an executive body called the Command Post managed security policy under the leadership of the Minister of Defense. During the SOE, the Command Post held broad powers, including the ability to detain individuals, restrict speech, and restrict movement. Also under the SOE, the government authorized detention without a warrant; limited mobile data and blocked access to a wide range of Internet sites including social media, news outlets, YouTube, and Skype; and prohibited public gatherings and demonstrations. The restrictions on Internet access, although eased weeks after imposing the SOE, affected businesses and demonstrated that access could be cut at any time, for undetermined periods and without notice. Following the lifting of the SOE, armed conflicts erupted along the boundary of Ethiopia s Oromia and Somali regions. These led collectively to hundreds losing their lives and hundreds of thousands of people becoming internally displaced. This conflict took place at numerous points along the 1,400-kilometer boundary. There is no single catalyst for the conflicts and they do not appear related to the protests of 2015/2016 that led to the imposition of the SOE. Nevertheless, at times transportation in the affected regions was disrupted and/or halted with some goods unable to transit the border. Parastatal and Party-affiliated Companies Ethiopian and foreign investors alike complain about patronage networks and preferences shown to businesses owned by the government. These businesses receive preferential access to bank credit, foreign exchange, land, and procurement contracts, as well as favorable import duties. Judiciary Companies that operate businesses in Ethiopia assert that the judicial system remains inexperienced and inadequately staffed, particularly with respect to commercial disputes. While property and contractual rights are recognized, and there are commercial and bankruptcy laws, judges often lack understanding of commercial matters and the scheduling of cases often face extended delays. Contract enforcement remains weak, though Ethiopian courts will at times reject spurious litigation aimed at contesting legitimate tenders. Ethiopia has not yet ratified key international arbitration agreements, such as the New York Convention, FOREIGN TRADE BARRIERS 153 although the government stated that the ratification is under consideration. Ethiopia is in the process of reforming the country s Commercial Code to bring it in line with international best practices. The draft legislation appears to address many concerns raised by the business community, including a proposal to introduce a commercial court under the regular court system to improve resolution of commercial disputes. FOREIGN TRADE BARRIERS 154 FOREIGN TRADE BARRIERS 155 EUROPEAN UNION TRADE SUMMARY The goods trade deficit with the European Union (EU) was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to the EU were $ billion, up percent ($ billion) from the previous year. Corresponding imports from the EU were $ billion, up percent. exports of services to the EU were an estimated $ billion in 2017 and imports were $ billion. Sales of services in the EU by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority EU-owned firms were $ billion. foreign direct investment (FDI) in the EU (stock) was $ trillion in 2016 (latest data available), a percent increase from 2015. direct investment in the EU is led by nonbank holding companies, finance/insurance, and manufacturing sectors. OVERVIEW The United States and the 28 Member States of the EU share the largest economic relationship in the world. Trade and investment flows between the United States and the EU are a key pillar of prosperity on both sides of the Atlantic. Transatlantic trade flows (goods and services trade plus earnings and payments on investment) averaged $ billion each day of 2017, and the total stock of transatlantic investment was $ trillion in 2016. exporters and investors nonetheless face persistent barriers to entering, maintaining, or expanding their presence in certain sectors of the EU market. Some of the most significant barriers, which have endured despite repeated efforts at resolution through bilateral consultations or WTO dispute settlement, have been highlighted in this report for many years. Many are highlighted again in this year s report. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Transparency and Notification The United States faces a proliferation of technical barriers to trade in the EU. This is attributable in part to more recent regulatory development processes adopted by the EU, such as for what the EU calls implemented and delegated acts. These processes lack clarity and efficacy with respect to ensuring that technical regulations, guides, or recommendations within the scope of the WTO Agreement on Technical Barriers to Trade (TBT Agreement) are properly notified. The United States regularly raises concerns, both in bilateral engagement and in the context of the WTO Committee on Technical Barriers to Trade, in cases where notification of certain measures that may have a significant effect on trade have not taken place at an appropriate stage, when amendments can still be introduced and comments may be taken substantively into account. In particular, if notification takes place, it often happens at a procedural stage when it is too late to revise the measure to take into account any concerns, including substantive or scientific, raised by other WTO Members. FOREIGN TRADE BARRIERS 156 This has been observed during chemical evaluation under the EU s regulatory processes (Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) and Classification and Labeling (CLP)) where the controls on products are typically notified after scientific review committees have convened, providing affected parties with no reasonable procedural gateway for the input of additional scientific or technical data. In still other cases, measures are simply not notified at all, as is with the case of a series of country of origin labeling (COOL) measures. Improvement and greater consistency in EU notification of measures, particularly implementing and delegated acts that may have a significant effect on trade, could reduce the emergence of technical barriers to trade by ensuring that the EU takes significant concerns into consideration before it finalizes measures. European Standardization and Conformity Assessment Procedures The EU s approach to standards-related measures, including its conformity assessment framework, and its efforts to encourage governments around the world to adopt its approach, including European regional standards, creates a challenging environment for exporters. In particular, the EU s approach impedes market access for products that conform to international standards as opposed to European regional standards (called European harmonized standards or ENs), even though international standards may meet or exceed the EU (or third country) regulatory requirements. producers and exporters thus face additional burdens in accessing the EU or other markets not faced by EU exporters and producers in accessing the market. In 1985, the EU adopted what is known as the New Approach to the use of standards for The New Approach was updated in 2008 and rebranded as the New Legislative Framework (NLF). The NLF represents a package of measures meant to clarify EU product marking requirements, establish a common legal framework for industrial products, and improve market Product requirements in a variety of sectors ( , toys, machinery, medical devices) are regulated through NLF legislation. Under the NLF, EU legislation sets out the essential requirements that products must meet in order to be placed in the EU market and benefit from free movement within the EU. Products that conform to ENs under the NLF are presumed to be in conformity with the essential ENs, however, can only be developed through the European Standards Organizations (ESOs), CEN,5 CENELEC,6 and ETSI,7 as directed by the European Commission through a standardization request. These products can bear what is known as a CE mark and can be sold throughout the EU. While the NLF does not explicitly prohibit other standards from being used to meet the EU s essential requirements, the practical effect of the EU system discourages the use of other standards. Specifically, the costs and uncertainty associated with not using an EN and attempting to demonstrate that use of an alternative standard will fulfill essential requirements is often prohibitive. For example, if a manufacturer chooses not to use an EN, it needs to assemble a technical file through a costly and burdensome process demonstrating how the product meets the essential requirements. Even if a manufacturer assembles such a file, there is no certainty that Member State authorities will treat the product as conforming to the EU s essential requirements. As a result, producers often feel compelled to use the relevant EN developed by the ESOs for the products they seek to sell on the EU market. This is the case even where products 2 Official Journal of the European Communities, C 136, , p. 1. 3 Official Journal of the European Union (OJEU), L 218, , p. 30 47; OJEU, L 218, , p. 82 128; OJEU, L 218, , p. 21 29. 4 Moreover, an EN must be implemented at the national level by an EU Member State, including through the withdrawal of any conflicting national standard. 5 European Committee for Standardization. 6 European Committee for Electrotechnical Standardization. 7 European Telecommunications Standards Institute. FOREIGN TRADE BARRIERS 157 produced according to relevant international standards provide similar or higher levels of safety and performance. The CEN or CENELEC technical committees that draft the European standards generally exclude non-EU In the limited instances where non-EU nationals do participate, they are not allowed to vote. Accordingly, when a producer uses an EN, it is typically using a standard that has been developed through a process in which it had no meaningful direct or representational opportunity to participate or provide technical input. This has a pronounced impact on small and medium sized enterprises and other companies that do not have a European presence. The opportunity for stakeholders to influence the technical content of EU legislation setting out essential requirements ( , technical regulations) is also limited. This is because when the EU notifies proposed legislation containing essential requirements to the WTO, it does not identify the specific CEN or CENELEC standards for which the presumption of compliance will be given. Furthermore, the EU only notifies legislation after the Commission has transmitted it to the Council and Parliament and is no longer in a position to revise the directive in light of comments received. Consequently, stakeholders often do not have the opportunity to comment on critical technical elements of proposed technical regulations and conformity assessment procedures contained in EU legislation, or on the standards that may be used to fulfill that legislation s essential requirements. In other words, they are precluded from participating in the development of requirements as well as the means by which those requirements will be fulfilled. Additionally, the United States has serious concerns regarding the EU s conformity assessment framework, as set out in Regulation (EC) No 765/2008 and Decision 768/2008. Regulation 765 requires each Member State to appoint a single national accreditation body and prohibits competition among Member States national accreditation bodies. Under the EU system, an accreditation certificate from one Member State accreditation body suffices throughout the EU. The regulation further specifies that national accreditation bodies shall operate as public, not-for-profit entities. This regulation effectively bars use of trade-facilitative international accreditation schemes and precludes accreditation bodies from offering their services in the EU with respect to any mandatory third-party conformity assessment requirements. Decision 768 sets out reference provisions to be used in EU legislation establishing conformity assessment requirements for products falling within the NLF. Legislation applying Decision 768 requires that any mandatory third-party conformity assessment be performed by a body that has been designated as a Notified Body and permits only bodies established under national law to become Notified Bodies. In practice, the EU interprets established under national law as a requirement that any entity seeking designation as a Notified Body must be established in the EU and, in particular, in the Member State from which it is seeking such designation. This raises serious market access concerns for producers, whose products may have been tested or certified by conformity assessment bodies located outside the EU, and denies conformity assessment bodies the opportunity to test and certify products for the EU market. This lack of reciprocal treatment of conformity assessment bodies, in contrast to the approach to conformity assessment, which provides national treatment to EU bodies, adds increased time to market, increases costs for manufacturers, and requires testing and certification bodies to establish operations in the EU to remain competitive. The EU also promotes adoption of ENs in other markets and often requires the withdrawal of non-EU standards as a condition of providing assistance to, or affiliation with, other countries, which can give EU manufacturers commercial advantages in those markets. Where the withdrawn standards are international standards that producers use, which may be of equal or superior quality to the ENs that replaced them, producers must choose between the cost of redesigning or reconfiguring their products or exiting the market. Further, EU trade policy seeks to narrow the definition of what is considered an international 8 For example, CEN/TC 438 is the technical committee for CEN that develops and publishes standards for additive manufacturing. FOREIGN TRADE BARRIERS 158 standard within the meaning of the TBT Agreement. For instance, as part of its free trade agreements, the EU seeks commitments affirming that any standard issued by a subset of specific standards developing organizations, none of which are domiciled in the United States, be considered an international This practice accords preferential treatment to organizations in which the EU tends to carry an outsized influence ( , the World Forum for Harmonisation of Vehicle Regulations within the framework of the United Nations Economic Commission for Europe s 1958 Agreement) or with which the ESOs have existing cooperation agreements ( , the International Organisation for Standardisation and the International Electrotechnical Commission). Furthermore, this attempt to reinterpret which standards should be deemed international within the meaning of the TBT Agreement is contrary to relevant decisions of TBT Committee, which would recognize that standards developed by organizations domiciled in the United States can be deemed international provided they are developed in accordance with relevant WTO principles. Civil Nuclear Technologies: stakeholders argue that the development of civil nuclear sector technology regulations, standards, or conformity assessment should not require the use of certain EU technologies when technologies, which meet civil nuclear safety standards, are equally safe. In the nuclear industry, local standards in the EU may not always conform to international nuclear safety norms, placing exporters at a disadvantage in markets where they must compete with firms using substandard parts. EU Member States are also under pressure to adopt French civil nuclear regulatory standards, which could potentially create a bias against firms that adhere to international standards developed by standards developing organizations ( , American Society of Mechanical Engineers (ASME)) and want to enter the European market. Furthermore, the EU s approach of explicitly referencing particular standards potentially undermines innovation and eschews more effective means of addressing potential regulatory objectives. Chemicals: Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) The EU regulation concerning the use of chemicals known as REACH entered into force on June 1, 2007. REACH imposes extensive registration, testing, and data requirements on all chemicals manufactured or imported into the EU in quantities greater than one metric ton. It also requires manufacturers or users of certain hazardous chemicals to obtain authorizations for those chemicals. Furthermore, REACH impacts virtually every industrial sector because each entity registering a chemical under the legislation must account for the uses of that chemical in the products it places or intends to place on the EU market. The United States agrees on the importance of regulating chemicals to ensure public safety. The United States is concerned, however, that REACH appears to impose requirements that are either more onerous for foreign producers than EU producers or simply unnecessary. For example, stakeholders have raised concerns that they must provide data as part of the registration process under REACH that is irrelevant to health and environmental concerns. Additionally, there appears to be inconsistent and insufficiently transparent application of REACH by Member States. The United States and many other WTO Members have raised concerns regarding various aspects of REACH at nearly every WTO TBT Committee meeting for years. WTO Members have emphasized the need for greater transparency in the development and implementation of REACH requirements and frequently cite the need for further information and clarification, as well as problems producers have in understanding and complying with REACH s extensive registration and safety data information requirements. 9 For example, EU-Japan Economic Partnership Agreement, Article (International Standards): FOREIGN TRADE BARRIERS 159 Community Rolling Action Plan The United States and stakeholders also have concerns about a lack of transparency associated with the Community Rolling Action Plan (CoRAP). CoRAP is part of the REACH substance evaluation process and is updated every March. Its purpose is to allow Member States and the European Chemicals Authority (ECHA) to prioritize substances they suspect of being hazardous to human health or the environment. Depending on the outcome of the evaluation, a substance evaluated under CoRAP may be considered for classification as a substance of very high concern and become subject to authorization and restriction procedures. It is also possible that after evaluation, a substance will be found to pose no such risk. ECHA has established criteria for selecting substances for placement on the list. These criteria address concerns about hazard, exposure, and tonnage. Member States are encouraged, but not obliged, to use the ECHA criteria. ECHA published the most recent CoRAP list on March 21, 2017. It contains 115 substances, which either have been evaluated or will be evaluated through 2019. CoRAP preliminary reports should be made available to interested companies, even if they have not yet registered the particular substance, but the reports are currently made available only to registrants. The EU should undertake greater transparency concerning the CoRAP process, including publication of CoRAP preliminary reports, which would both facilitate the EU s objectives and help reduce costs and address stakeholders concerns. Substances of Very High Concern (SVHC) Roadmap The United States also has continued to raise concerns bilaterally with the EU on the lack of public notice and comment associated with the Risk Management Options (RMO) analysis phase of the SVHC Roadmap. Under the Commission s Roadmap for evaluation of individual SVHCs, at the request of the Commission, a Member State competent authority or ECHA will conduct an RMO analysis to determine whether regulatory risk management is required for a given substance and to identify the most appropriate regulatory instrument to address a concern. The regulatory decision may be to pursue authorization or restriction, address the concern via other legislation, or take no action. The Commission s SVHC Roadmap identifies five minimum criteria for the RMO analysis and states that the RMO is not meant to be public. Beyond this, the Member State authority drafting the RMO has discretion with respect to the level of detail provided in its analysis and whether or not stakeholder consultation is appropriate. ECHA has said that documenting the RMO analysis and sharing it with other Member States and the Commission promotes early discussion and should ultimately lead to a common understanding on the regulatory action pursued. The United States supports the EU s efforts to conduct RMO analyses and believes the RMO analysis should be implemented in a harmonized and consistent manner by Member States. To prevent or minimize unnecessary potential adverse effects on trade, the RMO analysis should be subject to public notice and comment, with the views expressed by commenters taken into account by the Member State or ECHA irrespective of the domicile of the commenter. Court of Justice of the European Union, Judgment in Case C-106/14 On September 10, 2015, in case C-106/14, the Court of Justice of the European Union (CJEU) released an important ruling on the notification and information duties applicable to the producers and importers of articles under REACH. The CJEU held that the notification and information duties apply to each individual component article, and not just to the whole assembled or finished article, for producers and importers that deal with more than one ton per year of any SVHC present in articles over percent by weight. The court s conclusion was contrary to the existing ECHA guidance, which only required notification for SVHCs on the article-level. In June 2017, following a two-step update to the applicable Guidance on Requirements for Substances in Articles initiated in 2011, ECHA published new guidance on requirements for substances in articles to assist companies in meeting the requirements of the court ruling. The United States continues to assess the trade impact to manufactured products such as vehicles, information and FOREIGN TRADE BARRIERS 160 communication technology (ICT) equipment, and medical devices, and remains concerned that requiring notification of components rather than the final good will increase burdens on both producers and importers. Cosmetics: Scientific Committee on Consumer Safety (SCCS) Ingredient Reviews & Amendments to the EU Cosmetics Regulation Regulation (EC) No 1223/2009 of the European Parliament and of the Council on cosmetic products (EU Cosmetics Regulation) provides that the SCCS conduct risk assessments for all ingredients approved for use in cosmetics in the EU market. Based on SCCS assessments, the European Commission rules on whether the use of the ingredient should be restricted and, if so, in which Annex within the EU Cosmetics Regulation it should be listed. The United States and stakeholders have concerns as to the transparency of the process under which the SCCS defines the scope of its risk assessments. While the initial request for stakeholder participation and input into SCCS reviews is public once an assessment starts, changes in scope or the information being considered in the assessment may not be publically notified. According to SCCS Rules of Procedure, the Committee solicits additional information on an invitation-only basis. In practice, this process can prevent non-EU interested parties from providing input and can translate into assessment determinations that are made on the basis of risk assessments that do not fully consider available scientific evidence or relevant uses of a particular cosmetics ingredient. Furthermore, the process of petitioning an opinion from SCCS can often entail significant and unexplained delays, with the overall process often taking two or more years for completion. Renewable Fuels: Renewable Energy Directive The EU Renewable Energy Directive (RED) requires that biofuels and biofuel feedstocks obtain a Proof of Sustainability (POS) certification to qualify for tax incentives and national use targets. To that end, RED also establishes a methodology and accounting system by which Member States may record and calculate required greenhouse gas emission (GHG) savings as compared to a baseline for fossil fuels. The United States has expressed its concern to the Commission that the RED and its paperwork and verification requirements disrupt trade in products (specifically soybeans for biofuel and corn ethanol). For instance, one method to meet the sustainability and GHG savings requirements of RED is to certify biofuel production through a voluntary certification system. In April 2015, after having been positively benchmarked against the European Feed Manufacturers Federation (FEFAC) Soy Sourcing Guidelines through the independent International Trade Center (ITC) customized benchmark, the Soybean Export Council (USSEC) submitted an application to the Commission to recognize the Soybean Sustainability Assurance Protocol (SSAP) as a voluntary certification scheme. Although SSAP also has met the Dutch Feed Industry Association s requirements for sustainable feedstuffs, the Commission has indicated it requires additional information and analysis by the soybean industry before it can determine whether SSAP meets the RED sustainability criteria. As recently as December 2017, the Commission has continued to raise issues with USSEC s voluntary scheme application regarding traceability and GHG calculations. Under Article 18(4) of RED, the United States requested that the Commission enter into a bilateral agreement to accept exports of biofuel feedstock as compliant with the sustainability goals of RED. The Commission has responded that conservation laws and programs must correspond exactly to those outlined in the RED sustainability criteria if the EU is to consider exports of biofuel feedstock as compliant with RED sustainability criteria. The Commission presented a new Renewable Energy Directive (RED II) for the period 2020-2030 as part of a comprehensive Winter Energy Package of legislative proposals that includes initiatives on bioenergy sustainability (liquid biofuels and biomass). RED II was adopted by the Commission on November 30, FOREIGN TRADE BARRIERS 161 2016, and the Council published its proposal on December 18, 2017. The Parliament then adopted its position on January 17, 2018. It is expected the legislative process will be complete by mid-2018. Currently, provisions in these drafts introduce onerous and complex sustainability criteria for biomass and could be extremely problematic for exports of sustainable wood pellets. Although there is uncertainty about the future standards, forest management costs could increase due to increased certification requirements, logger training and monitoring. If the wood cannot be recognized as meeting the sustainable standards for renewable energy, it could lose its competitive advantage to export. The United States exported $655 million of wood pellets to the EU in 2017. Member State Sustainability Criteria The Netherlands: In the Netherlands, local organizations and the Dutch government are adopting and implementing standards and standard-related measures that are impeding or threatening to impede trade. For example, local organizations, such as the Sustainable Trade Initiative (IDH) and the Forest Stewardship Council (FSC) have developed standards for soybeans and wood pellets, respectively, that have been supported by the Dutch government and effectively require producers to meet onerous certification requirements. After China, the Netherlands is the second largest importer of soybeans and derivatives in the world. In addition, on March 30, 2015, the Dutch government published a notice amending its regulation governing sustainability requirements for solid biomass and implementing onerous sustainability criteria for wood pellets. In particular, the criteria include a requirement for sustainability certification at the forest level, which effectively precludes reliance on the risk-based approach to sustainable forest management. As a result of the implementation of the criteria, wood pellet exports to the Netherlands have dropped from 7 percent of total wood pellet exports in 2014 to currently less than 1 percent. Transport Fuel: Fuel Quality Directive The EU s revised Fuel Quality Directive (FQD), adopted in 2009 as part of the EU s Climate and Energy package, requires fossil fuel suppliers to reduce the lifecycle greenhouse gas intensity of transport fuel by 6 percent by 2020 and to report on the carbon intensity of these fuels. The directive granted the Commission the power to develop a methodology for calculating GHG life-cycle emissions for transport fuels. The United States has raised concerns with the Commission about the lack of transparency and opportunity for public comment in the development of the Commission proposal for the methodology for calculating GHG life-cycle emissions for transport fuels. The FQD also carries implications for biofuel exports stemming from differing definitions of the term biodiesel . The practical impact of the diverging definition is a limit or exclusion of the amount of soybean, palm, and sunflower oil feedstocks that can be utilized as a blend with rapeseed oil, diminishing trade opportunities and adding costs to biodiesel exports from the United States to the EU. The EU has not provided a technical justification for this exclusionary definition. Country of Origin Labeling (COOL) Eight European Member States Finland, France, Greece, Italy, Lithuania, Portugal, Romania, and Spain are in the process of developing and implementing a variety of national COOL schemes that apply to different types of ingredients and finished products, have varying implementation times, and require different wording on labels. The information required on packaging varies according to each individual Member State and can include the country of birth, fattening, and slaughter of animals; country of milking, packaging, or processing for dairy products; and country of cultivation and processing for wheat. FOREIGN TRADE BARRIERS 162 Affected industries have raised concerns that these national COOL requirements could impede market access for imported ingredients. In addition, some of the measures could favor goods produced in certain countries by selectively eliminating the requirements for processed foods produced in EU Member States, Turkey, or EFTA countries that are part of the European Economic Area. The United States has raised concerns about these measures at the past five TBT Committee meetings. In particular, the United States noted concerns including the treatment of EU versus non-EU origin products, the amount of recordkeeping that may be required to comply with the measures, the apparent favoring of select countries, the impact on exports, and the failure of the EU or the Member States to notify the measures under the TBT Agreement, solicit and take into account feedback from interested stakeholders, and allow a reasonable interval of time between publication and entry into force of the various measures. On January 4, 2017, the Commission published a draft implementing regulation laying down common rules regarding the indication of the country of origin or place of provenance of primary ingredients. Where appropriate, efforts should be made to harmonize regulations or standards related to prepackaged foods or non-alcoholic beverages. Member State Measures Italy: On April 18, 2017, Italy began implementing mandatory labeling requirements for the country of milking, packaging and processing of milk and milk used in dairy products. On May 12, 2017, Italy notified to the European Commission two draft decrees to require COOL for rice and wheat used to make pasta. Under Article 45 of Regulation (EU) No 1169/2011, the notification process requires that there be a three-month waiting period in order for the Commission to consult the Standing Committee on the Food Chain and Animal Health. However, on July 20, 2017, Italy s Ministers for Agriculture and Economic Development signed two inter-ministerial decrees ordering the provisional implementation of the COOL measures, preempting a decision by the European Commission. Both decrees entered into force in February 2018, and will be in effect for two years on a trial basis. Italy s Agriculture Minister has noted publicly that these COOL measures put Italy at the forefront of European countries using labelling as a competitive tool in the agricultural sector. The Economic Development Minister said the measures would support the Made in Italy brand and make Italian products more competitive in international markets. On October 21, 2017, Ministers signed a similar decree on tomato products. wheat exports to Italy totaled approximately $117 million in 2017. France: In early 2017, after receiving Commission approval, France implemented a COOL scheme for processed food products that contain dairy and meat. The scheme will remain in force until December 31, 2018. For meat ingredients, the relevant measure requires that the label mention the country of the animal s birth, the country of rearing, and the country of slaughter. For dairy ingredients, the label must mention country of milking, processing, and packaging. Spain: On September 5, 2017, Spain notified to the Commission a Draft Royal Decree on the indication of the origin of milk used as a raw material on the labelling of milk and milk products. This notification followed a February 2017 national public consultation period on the proposed measure. In its consultation, Spain notes that the purpose of such a measure would be to avoid the loss of competitiveness of milk and milk products produced in Spain that could result from the application of mandatory rules in this area that have already been implemented in other countries in the EU. The consultation document notes further that the measure would be implemented on a two-year trial basis; however, to date, Spain has not moved forward with implementation. Romania: Effective January 1, 2018, Romania will require dairy processors to specify the country of milking, packaging, and processing for milk and food products containing dairy. FOREIGN TRADE BARRIERS 163 Greece: On October 12, 2017, the Parliament in Greece validated COOL requirements for milk, dairy, and meat products. Law 4492/18-10-2017 mandates that processors specify the country of milking, processing, and packaging for processed food products containing dairy. Traceability is mandatory for all meat products during production and distribution. Greece s milk, dairy, and meat products COOL law will enter into force 180 days from the date of publication in the Gazette (April 16, 2018) and will be in effect for 30 months on a trial basis. Portugal: On July 27, 2016, Portugal notified to the Commission a draft decree on the mandatory indication of the country of milking and the country of processing for milk or milk used in dairy products. The mandatory measures were approved by the Commission and entered into effect in July 2017 for an initial 18-month period. Finland: On September 28, 2016, Finland notified to the Commission a draft decree on mandatory origin labelling for milk, milk used as an ingredient in dairy products, and meat used as an ingredient. The measures entered into force on June 1, 2017. The measures apply to pre-packed foodstuffs produced in Finland for a fixed pilot term of two years. Lithuania: On July 13, 2016, Lithuania notified to the Commission a draft order on mandatory origin labeling for milk and certain dairy products. The measure entered into force on January 1, 2017, and will remain in force on a trial basis until December 31, 2018. At that time, Lithuania is to have provided a report to the European Commission detailing the implementation of the measure. Nutritional Labeling EU framework Regulation 1169/2011 on the provision of food information to consumers went into effect on December 13, 2014, except for the provision on mandatory nutrition labeling, which became effective December 13, 2016. The measure regulates the display of product information on product packaging and online stores ostensibly to provide consumers with information related to nutrition, ingredients, and allergens. The United States has concerns that Regulation 1169/2011 appears to provide wide latitude for Member States to adopt non-uniform and potentially inconsistent implementing regulations. stakeholders are thus concerned about the burden of meeting multiple labeling requirements, particularly if those requirements cannot be met through stickering or supplemental labeling. During the consultative process, the United States has sought assurances that imported products will be subject to harmonized EU requirements, regardless of port of entry, and that compliance with national schemes (such as the United Kingdom s and Ireland s traffic light nutrition labeling requirements) would remain voluntary. The United States will continue to monitor this issue closely. Member State Health Labeling Ireland: On June 9, 2016, Ireland notified its proposed Public Health (Alcohol) Bill 2015 to the WTO s TBT Committee. The proposal contains a range of provisions, including minimum unit pricing of alcohol products; health labelling of alcohol products; regulation of advertising and sponsorship; structural separation of alcohol products in mixed trading outlets; and the regulation of the sale and supply of alcohol in certain circumstances. These proposed measures, which diverge from EU-wide requirements, have the potential to generate additional administrative costs and detrimentally impact the ability of exporters to reallocate product in the European market. Further, in late 2017 a number of amendments were made to the bill, including with respect to health labelling. The United States has asked Ireland to notify those amendments to the WTO in accordance with the transparency provisions of the WTO TBT Agreement. FOREIGN TRADE BARRIERS 164 Agriculture Quality Schemes In 2012, the EU adopted Regulation 1151/2012 on quality schemes for agricultural products and foodstuffs. Regulation 1151/2012 combines into one regulation rules for two different EU schemes and adds new rules on optional terms. The regulation applies to a range of agricultural products, covering: Protected Designations of Origin (PDO) and Protected Geographical Indications (PGI); Traditional Specialties Guaranteed (TSG); and optional quality terms. Optional quality terms are intended to provide additional information about product characteristics such as first cold-pressed extra virgin olive oil and virgin olive oil. A separate measure addressing the marketing standards for wine and spirits was notified to the WTO on September 11, 2011. The schemes covered by the regulation are: (1) certification schemes for which detailed specifications have been laid down and are checked periodically by a competent body; and (2) labeling schemes, which are subject to official controls and communicate the characteristics of a product to the consumer. Schemes can indicate that a product meets baseline requirements but can also be used to show value-adding qualities, such as specific product characteristics or farming attributes ( , production method, place of farming, mountain product, environmental protection, animal welfare, organoleptic qualities, Fair Trade, etc.). The United States remains concerned that place of farming requirements are unclear, difficult to comply with, and lack a basis in international standards. International standards promulgated by the Codex Alimentarius Commission (Codex), for instance, maintain no recommendation for place of farming designations and has rejected proposals that would have expanded country of origin designations to foods with multiple ingredients, because such labeling caused consumer confusion. Further, the United States remains concerned over certain aspects of the TSG requirements, including whether prior use of a name includes a trademark or prior geographical indication (GIs). The United States also is seeking clarification of the manner of precedence used in determining TSG requirements relative to trademarks. Despite assurances from the EU that the provisions of EU 1151/2012 ensure that a prior trademark is not affected by the registration of a TSG, it remains unclear whether prior use of a trademark will be grounds for opposing registration of a TSG. Finally, stakeholders have expressed concern about the EU s decision to shorten the comment period to oppose a registration from six months to two months. The United States continues to stress to the Commission that common names of products should not be absorbed into quality schemes, whether for wine or other products. For instance, if a Codex standard exists, or if a name is used in a tariff schedule or by the World Customs Organization, the United States believes that the name should be excluded from the quality schemes. The United States takes issue with the Commission s allowing two PGI applications for danbo and havarti to proceed, despite the existence of Codex standards and objects to the 2017 registration of danbo as a PGI. The United States has further argued that new certification and labeling quality schemes not be required for market access; however, where the EU implements such schemes, efforts should be made to acknowledge voluntary industry definitions. Similarly, processes and procedures should be acceptable for labeling requirements, and system and process comparability with industry definitions should be sought in order to minimize any negative market access impact for exports. Wine Traditional Terms Separate from its regulation on agricultural quality schemes, the EU continues to aggressively seek exclusive use for EU producers of traditional terms, such as tawny, ruby, and chateau, on wine labels. Such exclusive use of traditional terms impedes wine exports to the EU, including wines that include these traditional terms within their trademarks. wines sold under a trademark that includes FOREIGN TRADE BARRIERS 165 one of the traditional terms can only be marketed in the EU if the trademark was registered before May 2002. In June 2010, stakeholders submitted applications to be able to use the terms in connection with products sold within the EU. In 2012, the EU approved the applications for use of two terms, cream and classic, but the EU s delayed application approval process for other terms continues to be a significant concern. The United States has repeatedly raised this issue in the WTO TBT Committee in recent years and also has pursued bilateral discussions. Beyond approving the two terms, the EU has not taken any visible steps to address concerns. In 2013, the Commission started discussions with the Member States on a possible simplification of wine labeling set out in Regulation 607/2009, but appears to be facing resistance to any changes that would lessen the protection of traditional terms. Distilled Spirits Aging Requirements The EU requires that for a product to be labeled whiskey (or whisky ), it must be aged a minimum of three years. The EU considers this a quality requirement. whiskey products that are aged for a shorter period cannot be marketed as whiskey in the EU market or other markets that adopt EU standards, such as Israel and Russia. The United States has a long history of quality whiskey production, particularly by micro-distillers, which has not entailed minimum aging requirements, and views a mandatory three-year aging requirement for whiskey as unwarranted. Recent advances in barrel technology enable micro-distillers to reduce the aging time for whiskey while producing a product commensurate in quality. In 2017, the United States continued to urge the EU and other trading partners to end whiskey aging requirements that are restricting exports of whiskey from being labeled as such. Certification of Animal Welfare The EU requires animal welfare statements on official sanitary certificates. The EU s certification requirements do not appear to advance any food safety or animal health objectives and thus do not belong on sanitary certificates. The position is that official sanitary and phytosanitary certificates the purpose of which is broadly limited to prevent harm to animal, plant, or human health and life from diseases, pests, or contaminants should only include statements related to animal, plant, or human health, such as those recommended by Codex, World Animal Health Organization (OIE), and the International Plant Protection Convention, or have scientific justification. Sanitary and Phytosanitary Barriers The United States remains concerned about a number of measures the EU maintains ostensibly for the purposes of food safety and protecting human, animal, or plant life or health. Specifically, the United States is concerned that these measures unnecessarily restrict trade without furthering their safety objectives because they are not based on scientific principles, maintained with sufficient scientific evidence, or applied only to the extent necessary. Moreover, the United States believes there are instances where the EU should recognize current food safety measures as equivalent to those maintained by the EU because they achieve the same level of protection. If the EU recognized the equivalence of measures, trade could be facilitated considerably. Hormones and Beta Agonists The EU maintains various measures that impose bans and restrictions on meat produced using hormones, beta agonists, and other growth promotants, despite scientific evidence demonstrating that such meat is safe for consumers. producers cannot export meat or meat products to the EU unless they participate in a FOREIGN TRADE BARRIERS 166 costly and burdensome process verification program to ensure that hormones, beta agonists, or other growth promotants have not been used in their production. For example, the EU continues to ban the use of the beta agonist ractopamine, which promotes leanness in animals raised for meat. The EU maintains this ban even though international standards promulgated by the Codex have established a maximum residue level (MRL) for the safe trade in products produced with ractopamine. The Codex MRL was established following scientific study by the Food and Agriculture Organization of the United Nations (FAO)/World Health Organization (WHO) Joint Expert Committee on Food Additives (JECFA) that found ractopamine at the specified MRL does not have an adverse impact on human health. The EU s ban on growth promotant hormones in beef is inconsistent with its WTO obligations. Specifically, in 1996, the United States brought a WTO dispute settlement proceeding against the European Communities (the EU predecessor entity) over its ban on beef treated with any of six growth promotant hormones. A WTO dispute settlement panel concluded and a subsequent report of the WTO Appellate Body affirmed that the ban was maintained in breach of the EU s obligations under the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). Following the failure by the EU to implement the recommendations of the WTO Dispute Settlement Body (DSB) to bring itself into compliance with its WTO obligations, the United States was granted authorization by the WTO in 1999 to suspend concessions. Accordingly, the United States levied ad valorem tariffs of 100 percent on imports of certain EU products. The value of the suspended concessions, $ million, reflected the damage that the hormone ban caused to beef sales to the EU. In September 2009, the United States and the Commission signed a Memorandum of Understanding (MOU), which established a new EU duty-free import quota for grain-fed, high quality beef (HQB) as part of a compromise solution to the hormone beef dispute. Since 2009, Argentina, Australia, Canada, New Zealand, and Uruguay have also begun to ship under the HQB quota. As a result, the market share of beef in the HQB quota has decreased and accounted for only 35 percent of the quota in the 2016-2017 quota year. Since 2014, the United States has engaged in discussions with the EU on the future operation of the MOU to ensure that producers are compensated through increased export benefits in the EU market in exchange for the continued suspension of WTO-sanctioned trade action. In December 2016, the United States sought public comments related to a request from the beef industry to reinstate trade action against the EU. The United States also held a public hearing in connection with this request on February 15 to 16, 2017. The United States considered the various views and points in the public comment submissions and testimony at the public hearing. The United States continues to engage the EU regarding the unscientific ban on meat and animal products produced using hormones, beta agonists, and other growth promotants. Animal Cloning Currently, the EU Novel Foods and Novel Food Ingredients Regulation (Novel Foods Regulation) issued in 1997 is the only EU measure that potentially addresses the use of animal cloning for food The Novel Foods Regulation would appear to encompass food products derived directly from cloned Food products subject to the Novel Foods Regulation require a pre-market authorization by the EU Member State decision and potentially the Commission in order to be imported or sold in the EU. 10 Regulation (EC) No 258/97. 11 The Novel Foods Regulation covers certain types of foods and food ingredients which have not hitherto been used for human consumption to a significant degree within the Id. FOREIGN TRADE BARRIERS 167 In January 2008, the Commission proposed a revision of the Novel Foods Regulation to simplify the authorization procedure for placing new food products on the market. The proposed revision failed in significant part due to a disagreement among the Commission, the Parliament, and the Council regarding the need for specific rules on food from cloned animals. In December 2013, the Commission published two new proposals on animal cloning, in conjunction with a new proposal for a novel foods regulation. One of the proposed directives (the Cloning Technique Proposal) would ban animal cloning for food purposes in the EU and the import of cloned animals or embryos, while the other (the Cloning Food Proposal) would ban the marketing of food, both meat and dairy, from cloned animals, but not from their offspring. However, both of these proposals appear to be inconsistent with risk assessments done by competent authorities in the EU and other countries that show no differences in terms of food safety between food products produced from cloned animals or their offspring and those produced from conventionally-bred animals. In June 2015, the European Parliament s Agriculture and Rural Development (AGRI) Committee and Environment, Public Health and Food Safety (ENVI) Committee, adopted a joint report proposing amendments to the Commission s aforementioned proposals that would vastly extend their scope and impact and change the measure from a directive into a regulation. The substance of these proposed amendments included permanent bans on clones and their offspring for all farmed animals, including fish and poultry, as well as bans on all agricultural products derived from them, including food, semen, and embryos. The proposed amendments also included a ban on cloning of animals for sports. In September 2015, the full Parliament, or Plenary, approved the AGRI/ENVI report and amendments. A new EU framework regulation 2015/2283 on Novel Foods was adopted in November 2015 and published in Official Journal L 327 on December 11, 2015. Most provisions of the new Novel Foods Regulation became applicable on January 1, 2018. Food from clones but not offspring will continue to fall within the scope of the Novel Foods Regulation until separate legislation on cloning is adopted. Although the EU proposal on animal cloning was approved by the EU Parliament in September 2015, the file is still at the technical level in the Council and has reportedly seen no progress. The United States believes the use of cloning technologies are beneficial for herd improvement and that no differences have been demonstrated in terms of food safety between food products produced from cloned animals or their offspring and those produced from conventionally-bred animals. Agricultural Biotechnology Delays in the EU s approval process for genetically engineered (GE) crops have prevented GE crops from being placed on the EU market even though the GE events have been approved (and grown) in the United States. Moreover, the length of time taken for EU approvals of new GE crops appears to be increasing. As of January 2017, the United States is tracking 25 agricultural biotechnology product applications of corn, soybean, canola, and cotton submitted to the European Food Safety Authority (EFSA) for a scientific review, and eight such product applications waiting approval action by the EU Commission. Additionally, in the last year, EFSA has issued five inconclusive opinions, keeping these events out of risk analysis procedure until the applicant responds to new questions from EFSA. In 2017, the EU Commission authorized 11 GE products for food or feed import use: four soybean, four corn (two were an authorization renewal), two cotton, and one rapeseed. While these new authorizations and renewals are welcome, these approvals took an average of over seven years to complete from the time the applications were submitted. The EU s own legally prescribed approval time for biotechnology imports is 12 months (six months for the review with the EFSA and six months for the political committee process (comitology)). FOREIGN TRADE BARRIERS 168 Exports of corn and rice to the EU continue to be adversely impacted. Due to extensive EU approval delays of GE corn products, industry continues to express concerns that exports containing a low-level presence (LLP) of unapproved GE crops (LLP is the result of asynchronous approvals, where the GE product is approved and cultivated in the country of export, yet not approved for use in the country of import) are at risk. For instance, the United States continues to export distillers dried grains and corn gluten feed (corn byproducts), yet such shipments could be disrupted at any moment by an LLP incident. Although three GE rice events (LL601, LL62, and LL06) are approved for cultivation in the United States, no GE rice varieties are grown for commercialization. In 2006, due to an exposure of LL601 to commercial channels before it was approved for use by producers, the EU suspended progress on the approval of LL62. Since that time, rice exports to the EU from the United States remain well below former levels and commercial uncertainty continues with LLP concerns. The application for rice event LL62, which was originally requested in the EU in 2004, has been pending with the European Commission since 2007. The United States continues to work with the EU to support trade in corn byproducts and rice, but success will depend on the EU addressing the larger issue of delays in the biotechnology approval process. The United States continues to urge the EU to participate in discussions of a practical approach to LLP under the auspices of the Global Low-Level Presence Initiative. Pathogen Reduction Treatments The EU maintains measures that prohibit the use of any substance other than water to remove contamination from animal products unless the substance has been approved by the Commission. exports of beef, pork, and poultry to the EU have been significantly hurt, because the Commission has failed to approve several pathogen reduction treatments (PRTs) that have been approved for use in the United States. PRTs are antimicrobial rinses used to kill pathogens that commonly exist on meat after slaughter. The PRTs at issue have been approved by the Department of Agriculture (USDA), after establishing their safety on the basis of scientific evidence. In 1997, the EU began blocking imports of products that had been processed with PRTs, which have been safely used by meat producers for decades. After many years of consideration and delay, in May 2008 the Commission prepared a proposal to authorize the use of the four PRTs during the processing of poultry, but imposed unscientific highly trade restrictive conditions with respect to their use. Member States rejected the Commission s proposal in December 2008. In June 2013, USDA submitted an application dossier for the approval of peroxyacetic acid (PAA) as a PRT for poultry. In March 2014, EFSA published a favorable Scientific Opinion on the safety and efficacy of PAA solutions for reduction of pathogens on poultry carcasses and meat. After a long period of inaction, the Commission eventually put forward the authorization of PAA as one part of a three-pronged strategy to mitigate campylobacter in poultry. It later withdrew the proposal from the Standing Committee agenda in December 2015, citing lack of evidence of PAA s efficacy against campylobacter. The Commission has no plans to put forward the proposal for approval at the Standing Committee at this time. The United States believes the use of PRTs is a critical tool during meat processing that helps further the safety of products being placed on the market. The United States has engaged the EU to share scientific data regarding the safe use of PRTs, and the United States will continue to engage the EU regarding the approval of PRTs for beef, pork, and poultry. In March 2017, the National Pork Producers Council submitted an application for the approval of two organic acids, lactic and acetic, for use on pork. The application was submitted to EFSA by the Commission in September and the dossier is currently under review. FOREIGN TRADE BARRIERS 169 Export Certification EU certification requirements are limiting agricultural exports such as fish, meat, dairy, eggs, processed products, and animal byproducts, adding unnecessary costs to the movement of exports in Europe, irrespective of whether these goods are destined for commercial sale in the EU, transiting through the EU, or even intended for cruise ships or military installations located in the EU. These requirements often appear inconsistent with international standards and to have been implemented without scientific evidence or a risk assessment. Moreover, the certificates are often very complex and burdensome to the point that it is very difficult to verify the applicable certification requirements. For example, the level of detail required on the certificate ( , the specific attestation language) necessitates a multitude of forms for each product containing references to multiple levels of EU legislation that in turn cites other legislation. This creates enormous confusion and burden for manufacturers and exporters, as well as regulatory agencies, EU Member State authorities, and EU importers. Codex guidance and ongoing work in the Asia Pacific Economic Cooperation (APEC) forum seek to limit certification to the minimum amount of information necessary to ensure the safety of the product being traded. The United States continues to engage the EU in various international fora and bilaterally to find a resolution of these concerns regarding the EU s certification requirements. Somatic Cell Count Somatic cell count (SCC) refers to the number of white blood cells in milk. The count is used as a measure of milk quality and an indicator of overall udder health; however, it does not have any bearing on the safety of the milk itself. Since April 1, 2012, the EU has required imports of dairy products that require EU health certificates to also comply with EU SCC requirements. Specifically, the EU requires certification to establish that the SCC does not exceed 400,000 cells per milliliter, a threshold that is significantly lower than the requirement for Grade A milk of 750,000 cells per milliliter. The certification necessary to meet the EU requirement is burdensome, requiring farm level sampling and a Certificate of Conformance. Accordingly, while dairy products can continue to be shipped to the EU, the EU s SCC requirements hinder trade by adding unnecessary costs. The United States continues to engage the EU regarding their SCC requirement in the appropriate technical working groups. EU Flavorings In the EU, the food industry can only use flavoring substances that are on the EU flavoring On July 29, 2015, five substances (1-methylnaphthalene, furfuryl methyl ether, difurfuryl sulphide, difurfuryl ether, and ethyl furfuryl ether) were deleted from the list. These five substances are generally recognized as safe (GRAS) by the Flavor and Extract Manufacturers Association (FEMA) for their intended use as flavoring substances. FEMA makes a GRAS determination following an expert panel s evaluation of the substance. The expert panel includes experts in toxicology, organic chemistry, biochemistry, metabolism, and pathology. Accordingly, the United States and other countries, including China, Japan, Brazil, and Mexico, accept the use of flavorings deemed by FEMA to be GRAS. In addition, these five substances have already been evaluated, or are under consideration by, other safety assessment bodies such as JECFA. The United States will continue to raise this issue with the EU. Animal Byproducts, Including Tallow The EU considers all animal byproducts sourced from animals raised under conditions not essentially identical to those in the EU to be hazardous materials (category 1 and 2 materials). Between 2002 and the present, the EU has made modifications to its regulations and implementation practices governing animal 12 See Annex I of Regulation 1334/2008) & Regulation 872/2012. FOREIGN TRADE BARRIERS 170 byproducts that have resulted in the treatment of products as being considered hazardous. The current EU interpretation of the animal byproducts regulations could potentially prevent most exports of animal byproducts. Several Member State border inspection posts have already begun to block consignments of various technical blood products. Tallow exported to the EU must meet criteria that are not scientifically justified and significantly exceed the recommendations of the OIE. The United States has requested that tallow be allowed entry into the EU for any purpose without verification other than that the tallow and derivatives made from this tallow contain no more than a maximum level of insoluble impurities consistent with international recommendations. Specifically, tallow with less than percent insoluble impurities does not pose any risk of bovine spongiform encephalopathy (BSE). Tallow under these specifications should be allowed for import without any animal health-related requirements according to the OIE s international and scientifically based recommendation. Used cooking oil (UCO) is used for the production of biodiesel. Currently, individual Member States implement national measures for the importation of UCO. However, in 2016 the EU circulated a draft regulation to harmonize requirements EU-wide. The draft requirements follow the EU s non-science based approach regarding importation of tallow and would curtail exports of UCO to the EU. The United States provided feedback in writing to the EU on their proposed measure and is working with the EU to resolve these concerns. Live Cattle Live cattle from the United States are not authorized to be exported to the EU, or transited through the EU on route to third countries, due to EU certification requirements for several bovine diseases. Although the Animal and Plant Health Inspection Service (APHIS) successfully resolved issues related to bovine leucosis and bluetongue in 2003, the EU subsequently established certification requirements for BSE that precluded exports. Since then, the EU model certificate has been amended to align the BSE requirements with the OIE Code. Although the United States can now meet the BSE certification requirements, exporters remain blocked because the United States and EU have not agreed on the conditions and format for the export certificate. APHIS continues to work with the EU to resolve the remaining import health conditions and agree on a mutually acceptable certificate through the Animal Health Technical Working Group. Certification Requirements for Marinated Pork The EU meat preparations certificate for marinated pork includes the condition that the product must be frozen. The United States is concerned that this condition has resulted in a de facto ban on shipments of chilled marinated pork, which by definition is not frozen. The United States will continue to engage with the EU on this issue. Specified Risk Materials Certification Requirement The EU has a different definition of specified risk materials (SRM) than the United States for the animal tissues most at risk of harboring the transmissible spongiform encephalopathies. The EU requires that materials exported to the EU meet the EU s SRM definition and be derived from carcasses of animals that can be confirmed as never having been outside of regions that the EU considers to be of negligible risk for BSE. Although the United States has been recognized by OIE as having negligible risk, the source cattle for ruminant origin animal byproduct exports may not necessarily come from negligible risk countries. The SRM requirement thus unnecessarily impedes exports of ruminant origin animal byproducts and would potentially limit the market for ovine/caprine meat were other market impediments removed. FOREIGN TRADE BARRIERS 171 This requirement otherwise has not been an issue for bovine meat for human consumption, because the special EU required production controls in the non-hormone treated cattle (NHTC) program already provides the necessary verifications regarding the history of the animal. The United States has requested the removal of the EU s born and raised requirement for all commodities. Consistent with the recommendations of OIE, it is the BSE status of the country of export that should determine whether SRMs have to be removed. The United States continues to raise this issue in the appropriate bilateral technical working groups and the WTO SPS Committee. Agricultural Chemicals Hazard-based Cutoff Criteria - Categorization of Compounds as Endocrine Disruptors Regulation (EC) No. 1107/2009, which governs the registration of crop protection products, establishes several hazard-based cut-off criteria that exclude certain categories of products from consideration for normal authorization for use in the EU. For such products, the EU will not perform a risk assessment. Rather, it will discontinue EU authorization for a particular product at the time of re-approval, as has already happened for some substances, or, in the case of new products, declare them to be ineligible for authorization, based solely on their intrinsic properties, without taking into account important risk factors such as level of exposure or dosage. The United States is concerned that increasing numbers of safe and widely-used substances will not be reapproved or not have reasonable import tolerances set for their use due to these arbitrary cut-off criteria when current registrations expire. One category of crop protection products subject to this hazard-based approach includes substances classified as endocrine disruptors (EDs). EDs are naturally occurring or man-made substances that may mimic or interfere with hormone functions. While the United States has programs to evaluate possible endocrine effects associated with the use of certain chemicals to ensure protection of public health and the environment, the United States is concerned that the EU appears to be contemplating approaches to regulating these compounds that are not based on scientific principles and evidence, thereby restricting trade without improving public health. On June 15, 2016, the European Commission presented two draft legal acts outlining scientific criteria to identify EDs in agricultural products, one falling under the Biocidal Products legislation and the second under the Plant Protection Products legislation. In the draft legal acts, the Commission proposes to use the WHO definition of endocrine disruptors and include examination of all available information in order to base decisions on weight of evidence. However, the proposal does not specifically state that it will include consideration of other hazard characterizations such as potency, severity, and reversibility in these examinations. Without such considerations, the EU may potentially block substances regardless of the actual level of risk to human health. In December 2016, the Commission produced a revised proposal that split the issue into two components: establishing criteria to classify a substance as an endocrine disruptor; and a proposal to amend the derogation to allow for substances classified as endocrine disruptors to be used under limited circumstances. There was no consensus among Member States at the December 2016 meeting on the EC proposal. For the February 2017 Standing Committee on Plants, Animals, Food and Feed (SCoPAFF) meeting, the Commission chose to put only the proposal for the criteria up for discussion. However, the Committee again failed to reach a qualified majority on the criteria proposal. Many of the Member States asked for the re-introduction of the derogation that would allow for maximum residue levels and import tolerances to be set if a critical plant protection product is banned under the criteria. In July 2017, the SCoPAFF voted to approve the proposed criteria. Many countries supported the approval because the Commission committed to discussing the question of the derogation once the criteria were adopted. However, as the criteria went through the regulatory process with scrutiny, the Parliament in October 2017 rejected the FOREIGN TRADE BARRIERS 172 criteria on legal grounds, sending the draft back to the Commission for further revision. On December 14, 2017, Member States voted to adopt the newly revised criteria. The plant protection products criteria have been under scrutiny by the European Parliament and Council since that time, which have until April 2018 to raise any objections prior to final adoption. The biocidal products criteria have been published and will apply from June 7, 2018. and the plant protection products criteria have been under scrutiny by the European Parliament and Council. The United States continues to monitor this issue and raise concerns in international and bilateral fora. Pesticide Maximum Residue Limits Maximum Residue Limits (MRLs) and import tolerances are established under separate legislation, Regulation (EC) No. 396/2005, which is risk-based rather than hazard-based. The United States is concerned that for substances not approved under Regulation 1107/2009 due to the cut-off criteria, the EU has the authority and mandate to ignore the risk assessment process established under Regulation 396/2005 and automatically reset MRLs and import tolerances to the default level of mg/kg, which is not commercially viable. The EU is currently conducting an evaluation of existing legislation on plant protection products and pesticide residues, through a Regulatory Fitness and Performance (REFIT) process. Through this process it is unclear whether the EU may choose to adjust Regulation 396/2005 to bring it in line with the hazard based principles of Regulation 1107/2009. As the number of substances ineligible for reauthorization by the EU increases, and as the EU resets the corresponding MRLs and import tolerances to the default level, the significant negative effect on agricultural production and trade is likely to increase. exports valued at over $5 billion and global trade amounting to $75 billion are at risk of significant damage. Discontinuing the use of critical substances without a proper science-based risk assessment to provide justification would have serious adverse effects on agricultural productivity and global markets. Fosetyl-aluminum (Fosetyl-al) Fosetyl-al is a fungicide that is not authorized to be used on nut trees in the United States. The United States does allow the use of phosphonate fertilizers on nut trees, however, because such fertilizers have low toxicity. Residues of phosphonic acid on crops such as tree nuts could result from the use of fungicides or fertilizers containing phosphonic acid. In late 2013, the Commission changed the designation of phosphonates as both a fertilizer and pesticide to only a pesticide. In doing so, residue levels detected on crops resulting from either pesticide or fertilizer use would be covered under the same MRL. However, after changing the designation, the Commission did not extend the number of crops covered by the MRL to include those crops that might be grown with phosphonate fertilizers. The application of the existing fosetyl-al MRL without extending the crops covered by the MRL could result in several nuts and fruits exceeding the MRL and thus being prohibited from the EU market. On November 9, 2015, the PAFF approved the draft Commission Regulation to extend the temporary MRL of 75 mg/kg for almonds, cashew nuts, hazelnuts, macadamia, pistachios, and walnuts but not pecans until March 1, 2019. Under the higher MRL, trade is able to continue. The draft act was formally adopted by the Commission on January 25, 2016, but made retroactive to January 1, 2016, to minimize trade disruptions. The Commission instructed Member States to follow this guidance for import checks and sampling. An import tolerance application to replace the temporary MRL for tree nuts is under currently under review in the EU. The United States was pleased by the extension of the temporary MRL for certain tree nuts. However, a number of other producers were affected as a result of the temporary fosetyl-al MRL reverting to the default level of 2 mg/kg. For example, exports of fresh and processed commodities such as stone fruits (apricots, cherries, peaches, and plums), blueberries, figs, and papayas became subject to the default MRL as of January 1, 2016. The berry industry is gathering residue monitoring data and preparing a dossier to FOREIGN TRADE BARRIERS 173 submit to the Commission in support of a higher MRL in early 2018, but in the meantime, more than $100 million of fresh and dried fruit and berry exports (including $68 million of dried plums alone) may no longer be able to enter the EU. Diphenylamine In 2009, the EU removed Diphenylamine as a plant protection product authorized for use within the EU. Subsequently, the EU established a temporary MRL of parts per million (ppm) for Diphenylamine on apples and pears. The United States and Codex have a harmonized standard of 10 ppm for apples and 5 ppm for pear. The EU MRL was implemented on March 2, 2014, and affects both domestic and imported products. In January 2016, the MRL was extended for two additional years and will be reviewed in accordance with monitoring data available by January 22, 2018, after which time the EU may set an even lower MRL. The MRL of ppm already greatly limits the use of Diphenylamine on products destined for the EU. Further reducing the MRL below ppm has no basis in public health protection, given that the United States and Codex have found residue levels ten times higher than the current EU MRL for apples to be safe for consumers. Such a low MRL could also result in rejection of untreated fruit due to inadvertent cross-contamination during handling and storage. Without the use of Diphenylamine or a workable MRL that accounts for cross contamination, the European market is significantly limited for apple and pear exports. The United States will continue to engage the EU regarding this issue. Agriculture Biotechnology Cultivation Opt-Out In March 2015, the EU adopted a directive that allows Member States to ban the cultivation of GE plants in their respective territories for non-scientific reasons. Under the transitional measures, the Member States had until October 3, 2015, to request to be excluded from the geographical scope of the authorizations already granted or in the pipeline. Nineteen Member States opted-out of GE crop cultivation for all or part of their territories. These decisions have not led to a change in the field, since none of the five Member States (Spain, Portugal, the Czech Republic, Slovakia, and Romania) that grew GE corn opted As of 2017, only Spain and Portugal cultivate GE corn. Seventeen Member States and four regions in two countries have opted-out of cultivation using biotechnology seeds. The 17 Member States that requested their entire territory to be excluded from the geographical scope of biotechnology applications are Austria, Bulgaria, Croatia, Cyprus, Denmark, France, Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Slovenia, and Poland. The four regions are Wallonia in Belgium and Northern Ireland, Scotland, and Wales in the United Kingdom. All of these Member States and regions have decided to ban the cultivation of Monsanto 810 corn (MON810) and the seven varieties of corn that were in the pipeline in 2015, apart from Denmark and Luxembourg that have only banned MON810 and three of the seven varieties of corn in the pipeline. Member State SPS Measures: Austria: The Austrian government implemented its right to opt-out of GE cultivation through the Biotechnology Cultivation Framework Law, promulgated in August 2015. Austria also maintains earlier cultivation bans (most importantly, Monsanto s MON810 corn) although such bans have been rendered obsolete by the opt-out clause and the 2015 legislation. In addition, Austria s import and processing bans for Monsanto GT73 rapeseed and Monsanto 863 corn are still in force. Bulgaria: In 2015, Bulgaria decided to ban entirely the cultivation of MON810, seven varieties of corn, soybeans 40-3-2, and carnation Moonshadow 1. The ban also extended to field research. 13 Source: USDA FAS, GAIN Report: EU28: 19 European Countries Restrict the Cultivation of GE Crops. FOREIGN TRADE BARRIERS 174 France Ban on Food Packaging Containing Bisphenol A: The production or import of food containers containing Bisphenol A (BPA) has been banned in France since January 1, 2015. The law applies to all products manufactured using BPA, where BPA is intentionally used to manufacture part or all of the final product, or where the BPA comes from an environmental or adventitious source. The French law contradicts a January 21, 2015, EFSA opinion, which stated that BPA does not present any risk to consumers. Noting differences in interpretation concerning the methodological limitations of toxicity studies on BPA, the French Agency for Food, Environmental and Occupational Health and Safety (ANSES) recommended on October 12, 2017, that specific objective criteria be defined and harmonized between EFSA and national health agencies, taking into account the new EFSA assessment launched in 2017 on risks associated with BPA. France Ban on Cherries from Countries that Authorize Dimethoate: On April 27, 2017, France reinstated an April 22-December 31, 2016, ban on the import and sales of cherries from countries where dimethoate a pesticide and acaricide (kills mites and ticks) can be used on cherries and cherry trees. France s decision followed a ban on domestic production of this chemical compound, which France claims is harmful to human health. France imports roughly one-fifth of its cherry consumption, the bulk coming from EU countries including some (such as Spain and Germany) that have already banned dimethoate. Under the ban, the United States is not allowed to export cherries to France, even if the producer has never applied dimethoate. This ban ignores information provided by the United States documenting that dimethoate is not used in certain cherry producing states, or that it is used post harvest when there is no possibility for residues, and thus no risk to consumers. The dimethoate ban potentially sets a precedent for France to unilaterally ban products from countries using compounds approved for use in the EU but banned only in France under safeguard measures intended for short-term emergency cases. For example, France in late 2017 announced its intention to ban glyshosate in three years, despite the fact that the EU reauthorized the chemical s use for five years. Greece: Greece has banned cultivation under various procedures and has opted out of GE corn cultivation under EU Directive 2015/412. Greece does not have a coexistence policy and maintains a de facto ban on both the cultivation and importation of GE products and has yet to adopt national legislation to officially implement the cultivation opt out provision. Poland: The Feed Act of 22 July 2006 (OJ 2006 No. 144, item 1045) includes a prohibition on the manufacture, marketing, and use of GE feed and GE crops intended for feed use. The Polish parliament voted to prolong this suspension until January 1, 2019. MARKET ACCESS Tariffs The EU s average applied MFN tariff rate is percent. The average agricultural tariff rate is percent, and the average non-agricultural rate is percent. All of the EU s tariffs are bound at the WTO. Although the EU s tariffs are generally low for non-agricultural goods, there are some high tariffs that affect exports, such as rates up to 26 percent for fish and seafood, 22 percent for trucks, 14 percent for audio-visual equipment, 14 percent for bicycles, 10 percent for passenger vehicles, 10 percent for processed wood products, and percent for fertilizers and plastics. FOREIGN TRADE BARRIERS 175 Non-Agriculture Member State Measures: Pharmaceutical Products pharmaceutical stakeholders have expressed concerns regarding several Member State policies affecting market access for pharmaceutical products, including non-transparent procedures and a lack of meaningful stakeholder input into policies related to pricing and reimbursement, such as therapeutic reference pricing and other price controls. Such policies reportedly create uncertainty and unpredictability for investment in these markets and can undermine incentives to market and innovate further. These policies have been identified in several Member States, including: Austria, Belgium, Cyprus, the Czech Republic, France, Hungary, Italy, Lithuania, Poland, Portugal, Romania, and Slovakia. Additional detail on some of these Member State policies is set out below. Pharmaceutical firms also have expressed concern regarding recent changes to European Medicines Agency (EMA) policy regarding disclosures of clinical trial data, including potential disclosure of confidential commercial information submitted to EMA by pharmaceutical firms seeking marketing authorization. The United States continues to engage with the EU and individual Member States on these matters. Austria: pharmaceutical companies have expressed concern regarding non-transparent decisions by the Austrian Social Insurance Carriers Association (HVB). In a system approved in 2016, the EU average price was set as a ceiling for price negotiations, essentially ensuring a below-average price outcome for pharmaceutical products. The HVB also agreed to a rebate agreement with producers of branded medicine (not demanded of generic drug producers), which requires a so-called solidarity contribution for the sector ($148 million in 2016, and even up to $190 million subject to a growth-related calculation method in 2017 and again in 2018). This contribution is a de facto prerequisite to receiving reimbursement for prescribed drugs. Belgium: Over the past 15 years, pharmaceutical companies have repeatedly expressed concerns about the Belgian government s lack of adequate transparency in the decision-making process related to cost-containment measures in the pharmaceutical sector. The Pact for the Future, signed between the federal government and the pharmaceutical industry in July 2015, addressed some of these concerns. Still, the budget measures of the Pact are very strict, while the initiatives that purported to lead to faster access of new innovative drugs are being implemented at a much slower pace. The companies have identified several tax-related measures, such as a percent turnover tax, the 1 percent crisis tax, the percent marketing tax, an orphan drug tax, and the claw back tax (an additional percent of turnover as initially defined in 2017), as exemplifying such concerns. The claw back tax system was changed in 2017, and since is defined as percent of the total reimbursable drug budget, instead of a fixed cap of 100 million ($ million). This has led to a small increase of the claw back tax to million ($ million). In 2017, these taxes amounted to 370 million ($ million). The Belgian government revoked a plan to abolish a 1 percent crisis tax during the 2017 budget discussions and imposed an additional 187 million ($ million) savings in order to respect the budgetary trajectory set in the Pact for the Future. Overall, pharmaceutical companies contributed about 80 percent of the budget cuts in the Belgian healthcare system in 2017. The United States continues to highlight the need for a continued dialogue with the government and meaningful opportunities for stakeholder input into budget and pricing decisions. Bulgaria: pharmaceutical companies also expressed concerns about the government s one-year moratorium on payments for newly-patented and innovative treatments, which the government introduced for 2018 in an effort to contain healthcare costs. The first Bulgarian government e-health tender was fast-tracked in 2017 for hospital purchase of cancer pharmaceuticals worth $518 million, but it is currently on hold pending litigation. companies have reported that the tender specifics were narrowly written to exclude some branded biotech medicine and included strict sanctions for products with shorter shelf life. FOREIGN TRADE BARRIERS 176 Czech Republic: While pharmaceutical approvals in the Czech Republic often exceed the EU timetables, stakeholders report that the time required for such approvals has decreased incrementally in recent years. Regarding the Czech Republic s system for determining pricing and reimbursement levels for pharmaceutical products, stakeholders continue to express concerns about such determinations. For example, stakeholders continue to raise questions regarding the Czech government s practice of setting maximum medicine prices based on the average of the three lowest prices in a basket of countries (a group of 17 Member States as of January 1, 2018). Such determinations should be made transparently and with meaningful opportunities for stakeholder input, as well as engagement by Czech authorities with stakeholders regarding concerns about whether such determinations reflect market circumstances in the Czech Republic or adequately incentivize innovation in research and development of pharmaceutical products. Additionally, the United States urges the Czech Republic to engage meaningfully with stakeholders regarding their concerns that such policies incentivize third parties to re-export pharmaceuticals to third-country markets, where they are sold at a profit. In early 2017, Czech insurance companies, including the largest provider, VZP, started to use internal guidelines to put budget limits on drug payments. This new requirement, over and above the EU law, complicates the reimbursement process by essentially requiring a company to obtain an agreed budget for the drug from VZP before the State Institute for Drug Control (SUKL) can determine the reimbursement price. Czech medical societies and patient groups publically oppose these limits as they believe they limit access to new, innovative medicines. The Government continues to engage with insurance companies and the Czech government on this issue. France: Pharmaceutical industry stakeholders continue to raise concerns about the French pharmaceutical market, including with respect to the significant tax burden on the industry and the constraints facing the sales of reimbursable medicines, sales of which dropped by percent from 2015 to 2016 and by 2 percent per year over the previous four years. As an example of such constraints, stakeholders have expressed concern that market access for drugs in France is slower than elsewhere in Europe, resulting from delays in reimbursement approvals of as much as 405 days after marketing authorization, compared to the 180 days required by EU law. Hungary: Pharmaceutical industry stakeholders express concern that the Hungarian government s pricing and reimbursement policies, which include extended delays in decision-making and reimbursement, and frequent changes to the list of drugs approved for reimbursement, cause considerable unpredictability in the Hungarian market. stakeholders also raise concern with high sector-specific taxes, including a $35,000 per year tax levied on each sales representative employed by pharmaceutical companies and a claw back tax that requires firms to pay for any government spending on drugs that exceeds the pharmaceutical budget. Finally, industry experts note that a government procurement process for eight oncological therapies is based on cost, rather than medical benefit, and fails to adequately consult with physicians and patient groups or with industry. Italy: healthcare companies face an unpredictable business environment in Italy, which includes highly variable implementation of complex budget policies. One such policy is the payback system for hospital pharmaceutical purchases, which was first applied in 2013. It requires that pharmaceutical companies pay back 50 percent of the amount spent over budgetary limits for pharmaceutical spending. The pharmaceutical companies pay back the overspending to the national government through the Italian Drug Agency (AIFA), which is the organization in charge of calculating the overspending and collecting return payments. The Italian central government determines the overall annual budget for pharmaceutical products, which is then transferred to each region responsible for managing the healthcare system locally. Industry estimates that the Italian government has asked for roughly $ billion from pharmaceutical companies between 2013 and 2015 as part of this policy. pharmaceutical firms account for 30 percent of the market but are asked to contribute 50 percent of the payback amount. Several and European FOREIGN TRADE BARRIERS 177 companies have prevailed on appeal to the Regional Administrative Court when challenging the 2013, 2014, and 2015 payback calculations. The 2018 budget law requires companies to refund the overrun on 2016 pharmaceutical expenditures and to conclude the settlement agreements defined with the AIFA for the payback amounts for 2013, 2014 and 2015. In August 2015, the Italian government published a law ( 78/2015) applying the payback system to hospital purchases of medical equipment. That same law authorized hospitals to renegotiate signed agreements with medical device suppliers in order to reduce the unit price or purchase volume as previously defined in the contract. Since this law was introduced, the government has not provided further guidance or legislation on its implementation, creating significant uncertainty among medical device companies operating in Italy, forcing them to hold excessive amounts of capital in reserve. Stakeholders also have raised concerns regarding delays in market approval for pharmaceutical products and payments for medical devices. For example, it can take more than two years for new pharmaceutical products to reach the Italian market. The average payment time from public hospitals to medical devices suppliers in Italy continues to exceed the EU average as well as the maximum period permitted by EU law. Lithuania: The United States continues to engage with the Lithuania government regarding pharmaceutical market access issues. Discussions between the Health Ministry and stakeholders have made little progress to add innovative drugs to the government s reimbursement list. Stakeholders remain concerned about the lack of transparency in the pricing and reimbursement process for innovative drugs. Poland: stakeholders have expressed concern regarding the tendering processes and the transparency of, and opportunity for meaningful stakeholder input in, reimbursement rules and determinations for biosimilar pharmaceutical products. Private hospital owners complain that a new hospital network law enacted on October 1, 2017 makes it difficult to get reimbursed by the national health fund for lifesaving procedures, forcing the closure of some private hospitals, particularly in cardiology. Poland is in the process of drafting a new reimbursement law that would move from a cost recovery pricing model to a price justification pricing model for so-called orphan drugs. The United States urges Poland to engage meaningfully with stakeholders regarding their concerns that the new law could potentially put confidential commercial information at risk of disclosure. Romania: Innovative pharmaceutical producers have identified several significant challenges in Romania resulting from the Romanian government s failure to update, despite repeated requests, the lists of innovative pharmaceuticals that are eligible for reimbursement under the national health system. According to stakeholders, Romania added several new innovative drugs to the reimbursement list in 2017 and concluded the process of developing treatment protocols to make 19 new drugs available to patients. Numerous applications remain pending with no progress. This severely undermines the ability of pharmaceutical companies to introduce newer drugs in Romania because the National Health Insurance House will not pay reimbursement for drugs that are not included on the reimbursement list. Both innovative and generic pharmaceutical companies also have started to withdraw drugs from the Romanian market, as the low official prices set in Romania can fall below production costs and create parallel trade problems. The claw back tax, equivalent to percent of total gross sales for the third quarter of 2017, is another major challenge for stakeholders. This tax rate is determined on the basis of the difference between the state s budget for reimbursable drugs and the amount actually spent on the drugs. stakeholders continue to raise concerns regarding a lack of transparency, particularly in pricing and computation of the claw back tax. Slovakia: The process for marketing approval of new pharmaceutical products in Slovakia reportedly lacks transparency and deadlines are reportedly missed with some frequency. Medicine prices in Slovakia are capped based on the average of the three lowest prices within the EU. stakeholders report that this FOREIGN TRADE BARRIERS 178 methodology incentivizes third parties to re-export pharmaceuticals to third-country markets, where they are sold at a profit. Until 2016, the Slovak State Institute for Drug Control had the right to monitor and ban the export of certain pharmaceutical products. As a result of legal proceedings launched by the Commission against Slovakia, this law was amended in January 2017, scrapping the option to ban export of pharmaceuticals and instead banning distribution companies from exporting pharmaceutical products unless they have approval of the producer or the license holder. Uranium The United States is concerned that non-transparent EU policies may restrict the import into the EU of enriched uranium, the material from which nuclear power reactor fuel is fabricated. The EU appears to limit imports of enriched uranium in accordance with the terms of the Corfu Declaration, a joint 1994 European Council and European Commission policy statement that has never been made public or notified to the WTO. The Corfu Declaration appears to limit the acquisition of non-EU sources of supply of enriched uranium, reportedly by reserving 80 percent of the EU civilian enriched uranium market for European suppliers. The United States has conveyed to the Commission its concerns about the non-transparent nature of the Corfu Declaration and its application. Agriculture Bananas In June 2010, the United States and the EU signed an agreement designed to lead to a settlement of the longstanding dispute over the EU s discriminatory bananas trading regime. In the agreement, the EU agreed not to reintroduce measures that discriminate among foreign banana distributors and to maintain a nondiscriminatory, tariff-only regime for the importation of bananas. The agreement complements a parallel agreement, the Geneva Agreement on Trade in Bananas (GATB), between the EU and several Latin American banana-supplying countries (also signed in June 2010), which provides for staged EU tariff cuts to bring the EU into compliance with its WTO obligations. The agreements marked the beginning of a process that, when completed, will culminate with the resolution of all of the various banana disputes and claims against the EU in the WTO. The GATB entered into force on May 1, 2012, and certification by the WTO of the EU s new tariffs on bananas was completed on October 27, 2012. On November 8, 2012, the EU and the Latin American signatories to the GATB announced that they had settled their disputes and claims related to bananas. On January 24, 2013, the bananas agreement entered into force. stakeholders have expressed concerns about actions taken by Italian customs authorities since 2013, and related decisions taken by Italian courts, challenging the use of certain EU banana import licenses under pre-2006 EU regulations. The United States has pressed the Commission to clarify its position on this matter. Meursing Table Tariff Codes Many processed food products, such as confectionary products, baked goods, and miscellaneous food preparations, are subject to a special tariff code system in the EU. Under this system, often referred to as the Meursing table, the EU charges a tariff on each imported product based on the product s content of milk protein, milk fat, starch, and sugar. As a result, products that the United States and other countries might consider equivalent for tariff classification purposes sometimes receive different rates of duty in the EU depending on the particular mix of ingredients in each product. The difficulty of calculating Meursing FOREIGN TRADE BARRIERS 179 duties imposes an unnecessary administrative burden on, and creates uncertainty for, exporters, especially those seeking to ship new products to the EU. Subsidies for Fruit and Vegetables The EU Common Market Organization (CMO) provides a framework for market measures under the EU s Common Agricultural Policy (CAP), including for measures related to the promotion of fruit and vegetables. Implementing rules, covering fresh and processed products, are designed to encourage the development of producer organizations (POs) as the main vehicle for crisis management and market promotion. The CMO makes payments to POs for dozens of products, including peaches, citrus fruits, and olives. In 2015 a new basic payment scheme and greening payments were introduced, replacing the single payment scheme. Direct payments also are paid to support certain processing sectors, including, for example, peaches for juicing in Greece. The general lack of transparency around the distribution of EU subsidies at the Member State level in the fruit and vegetable industry raises questions about whether the payments are decoupled from production, and producers remain concerned about potential hidden subsidies. The United States continues to monitor and review EU assistance in this sector, evaluating potential trade-distorting effects. INTELLECTUAL PROPERTY RIGHTS PROTECTION As part of its Digital Single Market (DSM) Strategy, on September 14, 2016, the European Community issued a package of proposals aimed at updating and reforming EU rules related to copyright with the stated goal of addressing legal uncertainty for both rights holders and users with regard to certain uses of copyright-protected works in the digital environment. Discussions on proposals in the package continue, including a proposed directive on Copyright in the DSM (COM(2016) 593 final) and a draft regulation laying down rules applicable to certain online transmissions of broadcasting organizations and retransmissions of television and radio programs (COM(2016) 594 final). In addition, the Commission published a communication on promoting a fair, efficient, and competitive European copyright-based economy in the DSM (COM(2016) 592 final). The United States continues to work with the EU and its Member States on copyright issues, which may raise concerns from a trade perspective, and is following implementation of the copyright package closely including the following provisions: A new right for press publishers: According to the Commission, the contribution of publishers in producing press publications needs to be recognized and further encouraged to ensure the sustainability of the publishing industry. The Commission proposed the introduction of harmonized rights and remuneration for publishers related to copyright for the reproduction and making available to the public of press publications in the online environment. Value gap provision: Online service providers that store and provide access to the public to copyright-protected works uploaded by their users would be obligated to deploy means to automatically detect songs or audiovisual works that rights holders have identified and agreed with the platforms either to authorize or remove. Mandatory exceptions in the field of research and education: The proposal includes an exception for public interest research institutes regarding the use of text and data mining technologies for the purposes of scientific research, as well as exceptions for illustrations used for teaching in the online environment and for digitization of works by cultural heritage institutions. Rules regarding online broadcasting: Aimed at removing perceived obstacles to the creation of a FOREIGN TRADE BARRIERS 180 DSM, this proposal has two main provisions, which would: (1) apply a country of origin principle to online services related to an initial broadcast; and (2) require rights holders to license certain retransmission rights through collective rights management societies. As these proposals continue through the decision-making process in the Parliament and Council, the United States will continue to follow developments and engage with various EU entities to ensure that the equities of stakeholders are protected. Additionally, two DSM regulations may negatively affect territorial licensing, including the proposed Regulation laying down rules on the exercise of copyright and related rights to online transmissions of broadcasting organizations and retransmissions of television and radio programs. Contractual freedom to license on a territorial basis and respect for international copyright norms are of paramount importance to the audiovisual sector, where the exclusive rights to authorize or prohibit the distribution of creative works through licensing is the basis for recouping substantial upstream production costs, often through pre-sales of exploitation rights. The Portability Regulation (EU) 2017/1128 was formally adopted on June 14, 2017, and will become applicable in all Member States as of April 1, 2018. This legislation seeks to give EU subscribers to online content services the ability to access this content when temporarily present in another Member State. In January 2016, a new trademark directive (2015/2436) entered into force. Member States were given three years to transpose the directive into their national laws. A trademark regulation (2015/2424) also entered into force in early 2016. The United States continues to work with the EU and its Member States on trademark issues and is following implementation of the trademark package closely. Regarding trade secrets, a Directive on the Protection of Undisclosed Know-How and Business Information (Trade Secrets) Against Their Unlawful Acquisition, Use and Disclosure (2016/943) was adopted by the Parliament and Council on June 8, 2016. The aim of the directive is to standardize the national laws of Member States against the unlawful acquisition, disclosure, and use of trade secrets. The directive also harmonizes the definition of trade secrets. Member States must bring the laws and administrative provisions necessary to comply with the directive into force by June 2018. The United States is monitoring the implementation of the directive closely. With respect to Geographical Indications (GIs), the United States remains troubled with the EU system that provides overbroad protection of GIs, adversely impacting the protection of trademarks and market access for products that use generic names in the EU and third country markets. Regulation 1151/2012, for example, contains numerous problematic provisions with respect to the protection and enforcement of protected designations of origin (PDOs) and protected geographical indications (PGIs). Troubling provisions include those governing the scope of protection of PDOs and PGIs, including expansive rules addressing evocation, extension, co-existence, and translation, among others, which not only adversely affect trademark rights and the ability to use generic names, but also undermine access to the EU market for rights holders and producers. As confirmed in the recital to Regulation 1151/2012, this measure also serves as the basis for the EU s international GI agenda, which includes requiring EU trading partners to protect and enforce in their markets lists of specific EU GIs, according to EU rules, with often only limited due process requirements to safeguard existing producers, rights holders, consumers, importers, and other interested parties. Regulation 1151/2012 replaced the former GI regulation for food products, Council Regulation (EC) 510/06, which was adopted in response to WTO DSB findings in a successful challenge brought by the United States (and a related case brought by Australia) that asserted that the EU GI system impermissibly discriminated against non-EU products and persons. The DSB also agreed with the United States that the FOREIGN TRADE BARRIERS 181 EU could not create broad exceptions to trademark rights guaranteed by the TRIPS Agreement. Regulation 1151/2012 sped up the registration procedure for registering GIs, reduced the opposition period from six to three months, and expanded the types of products capable of being registered as a GI. The United States continues to have concerns about the EU s GI regulations and monitors carefully its implementation and effects on bilateral trade. These concerns also extend to the EU s attempts to restrict common terms for wine in third country markets; to Council Regulation (EC) 479/08, which relates to wines; and to Commission Regulation (EC) 607/09, which relates, inter alia, to GIs and traditional terms of wine sector products. The United States is carefully monitoring the implementation of each of these regulations. The EU also continues to consider expanding the scope of GI protection in the EU territory to include non-agricultural products. At present, EU law only harmonizes the protection of GIs in the EU for wines, spirits, foodstuffs, and agricultural products. On July 15, 2014, the Commission issued a green paper entitled Making the most out of Europe s traditional know-how: a possible extension of geographical indication protection of the European Union to non-agricultural products (COM(2014) 469 final). This was followed by the Parliament s adoption of a resolution inviting the Commission to propose legislation providing for such extension. The United States is closely monitoring EU proposals and developments relating to the possible extension of GI protection beyond existing product categories. Finally, the United States remains extremely concerned by the conduct and outcome of the 2015 World Intellectual Property Organization (WIPO) negotiations to expand the Lisbon Agreement for the Protection of Appellations of Origin and their International Registration to include GIs. Of particular concern to the United States was the manner of engagement in these negotiations by the European Commission and by several EU Member States, including the Czech Republic, France, Greece, Italy, and Portugal, which took precedent-setting steps to deny the United States and the vast majority of WIPO countries full negotiating rights, and to depart from longstanding WIPO practice regarding consensus-based decision-making in this international organization. Likewise, the resulting text the Geneva Act of the Lisbon Agreement raises numerous and serious legal and commercial concerns, including with respect to the degree of inconsistency with the trademark systems of many WIPO countries, and could have significant negative commercial consequences for trademark holders and exporters that use generic terms. Member State Measures Generally, Member States maintain high levels of intellectual property rights (IPR) protection and enforcement. While some Member States made improvements in 2017, the United States continues to have concerns with respect to the IPR practices of several countries. The United States actively engages with the relevant authorities in these countries and will continue to monitor the adequacy and effectiveness of IPR protection and enforcement, including through the annual Special 301 review process. Austria: With regard to trade secrets, companies report gaps in criminal liability, insufficient specialization of judges, low criminal penalties, and procedural obstacles, which limit efforts to effectively combat trade secret theft and misappropriation. As Austria drafts legislation to implement the EU trade secrets directive, the United States will monitor developments closely and urge Austria to adopt model EU language on trade secrets. Bulgaria: Bulgaria continues to be listed on the Special 301 Watch List in 2017. stakeholders report continued concerns about IPR enforcement, including with respect to online and cable television piracy, despite alternative paid options for both music and films. Rights holders and police try to restrict unauthorized releases of new films and music online, but IP enforcement is not a priority and administrative capacity remains low. The Special 301 Report also notes a need for legal reform to address gaps in FOREIGN TRADE BARRIERS 182 Bulgaria s law with respect to the exclusive rights granted to right holders, a specialized IP prosecutorial unit, and improvements to the efficiency of the judicial system in dealing with IP cases. Czech Republic: While sale of copyright-infringing media in physical form continues at a modest level in outdoor markets, the Czech Republic has not been included on a Special 301 Watch List since 2009. Digital piracy in the Czech Republic, as elsewhere, has migrated primarily online, where right holders have identified several online sites, including cyberlockers that feature pirated material for download and streaming. Rights holders have had positive outcomes in a number of instances when they have gone to court, although websites often reappear under a new name. Also commendable is the Czech government interagency IPR task force, led by the Ministry of Industry and Trade, which coordinates policy and oversees implementation of laws involving IPR. France: Online piracy continues to be a concern; however, the French government s efforts to reduce online piracy have yielded some successes. While civil proceedings in French courts continue to provide the most effective channel for enforcement against piracy, non-deterrent sentencing in criminal proceedings remains a problem. Greece: Greece remained on the Watch List in the 2017 Special 301 Report. The United States acknowledges some improvements in IPR protection and enforcement in Greece, including actions taken to address online piracy. However, inadequate IPR enforcement continues to pose barriers to exports and investment. Key issues cited in the 2017 Special 301 Report include widespread copyright piracy and limited and inconsistent IPR enforcement. Greece has introduced draft legislation to address online piracy but the Greek parliament has yet to pass the legislation. The Greek public sector, including the Ministry of Defense, continues to be a significant consumer of pirated software. Italy: Italy passed robust regulations to combat online piracy violations in 2014. These regulations established a notice and takedown system managed by Italy s communications regulator. This framework has been widely praised by stakeholders. While copyright protection is improving, industry stakeholders report social attitudes towards online piracy remain a challenge. Additionally, the Mercato dei Venerdi in Ventimiglia was added to the 2017 Notorious Markets List as an example of a market where counterfeit and pirated goods are widespread and enforcement has been ineffective. Poland: Stakeholders continue to identify copyright piracy online and counterfeit seeds as a significant concerns in Poland. Romania: Romania remained on the Watch List in the 2017 Special 301 Report. While some categories of infringement, such as street sales of counterfeit goods and piracy of optical discs, have continued to decline in past years, online piracy remains a serious concern. Some notorious pirate sites have connections to Romania. Criminal IPR enforcement remains generally inadequate, with questions arising regarding Romania s commitment to resolute enforcement, reflected in reduced cooperation among enforcement authorities and a lack of meaningful sanctions. Additional resources are also needed to achieve effective enforcement in Romania, such as increased training of law enforcement and prosecutors. Spain: Spain was the subject of a Special 301 Out-of-Cycle Review from 2013 to 2017, after Spain was removed from the Watch List in the 2012 Special 301 Report. In 2015, Spain took several positive legislative steps, including amending its civil and criminal copyright laws. In December 2015, Spain s Prosecutor General also issued a new circular with respect to copyright piracy over the Internet. Spain took additional steps in 2017 to implement these amendments and increase staff and resources of Section 3 of the Intellectual Property Commission. However, Els Limits de La Jonquera in Girona was added to the Notorious Markets List in 2017 for widespread sales of counterfeits and ineffective enforcement. The FOREIGN TRADE BARRIERS 183 United States will continue to carefully monitor developments and work closely with Spain to address these issues. Sweden: Sweden continues to grapple with widespread online piracy. Government enforcement efforts have shown positive results, and right holders report that court cases to enforce their rights are successful in the vast majority of cases. Meanwhile, levels of illegal streaming remain high. As a result, the movie, television, and live sports telecast industries continue to lose revenue. However, legal sales of music and film have increased dramatically in recent years, in part because of Swedish enforcement efforts and increased political awareness of the importance of IPR to Sweden. SERVICES BARRIERS Telecommunications Electronic Communications Code Telecommunications in the EU are currently regulated through five directives and one regulation: the Framework Directive; the Access Directive; the Authorization Directive; the Universal Service Directive; the Directive on Privacy and Electronic Communications; and the Regulation on Roaming. Each Member State has its own independent national regulatory authority (NRA) for the telecommunications sector. The Body of European Regulators for Electronic Communications (BEREC) consists of the heads of these independent regulators and provides advice to the Commission regarding measures affecting telecommunications. As part of the EU s DSM strategy, in September 2016, the Commission released a proposal for a common European Electronic Communications Code (Code) that would update and merge four existing telecommunications directives (Framework, Authorization, Access, and Universal Service) into a single measure that would include rules on network access, spectrum management, communication services, universal service, and institutional governance. The Commission asserts that the proposed Code will promote infrastructure competition, greater investment in high-speed broadband networks, and greater harmonization of spectrum management across the EU. suppliers welcomed the Commission s attempt to reduce market fragmentation, promote the development and introduction of innovative services, and harmonize spectrum management. Negotiation on the Code in the so-called trilogue mechanism (discussions involving the EU Commission, Council, and Parliament) is currently ongoing. The proposed Code would extend European telecommunications regulations to over the top (OTT) Internet services, such as voice, messaging, and other communications applications. Most of the obligations in the Code would apply to number-based Internet services that enable communications with mobiles and landlines. These obligations would address requirements relating to access to emergency services, duration of contracts, quality of service, number portability, and switching rules for service bundles. All covered Internet services, including those that do not use public numbering, would be bound by rules on security and integrity of services that govern their risk management strategies and their reporting of security incidents to competent authorities. suppliers have expressed significant concerns with the proposed expanded scope of EU telecommunications law and have highlighted that Internet services face low barriers to entry by new competitors, while traditional telecommunications services providers enjoy high barriers to new entry and little direct competition, thus justifying asymmetrical regulation. In addition, this extension of NRA authority to Internet services raises concerns given that most traditional telecommunications services suppliers historically serve one or a limited number of Member State markets, whereas most Internet interpersonal communications services are available in every Member State, thereby potentially subjecting them to conflicting NRA jurisdiction. FOREIGN TRADE BARRIERS 184 Regulation on Privacy and Electronic Communications In January 2017, the Commission proposed a new Regulation on Privacy and Electronic Communications, which would replace the e-Privacy Directive of 2002. The Commission has stated that the proposed Regulation will align rules for telecommunications services in the EU with the General Data Privacy Regulation (GDPR) and cover confidentiality of business-to-business communication and communication between individuals. The proposal gives Member State Data Privacy Authorities (DPAs) the authority to enforce its requirements. While it would remove existing inconsistencies between Member State rules, it would also expand regulatory coverage intended for traditional telecommunications services providers to Internet-enabled communication and messaging services ( , OTT services), thereby imposing additional costs on those suppliers. The Commission originally aspired to have a new regulation in place by May 2018, when the GDPR is scheduled to take effect. While the Parliament adopted its final amendments and voted on a mandate for the trilogue on October 26, 2017, the Council is continuing technical discussions as many Member States have not yet formed their final position on the Commission s proposal. Consequently, it is unlikely that the Commission s self-imposed May 2018 deadline for replacing the 2002 e-Privacy Directive will be met. International Termination Rates One of the main cost components of an international telephone call from the United States to an EU country is the rate a foreign telecommunications operator charges a operator to terminate the call on the foreign operator s network and deliver the call to a local consumer. The GATS Telecommunications Services Reference Paper includes disciplines designed to ensure that the charge for terminating a call on a network of a major supplier (which in most countries is the largest or only fixed line telecommunications supplier) is cost oriented. This ensures that a major supplier is not able to gain an unfair competitive advantage from terminating foreign or competitive carriers calls, and also helps to ensure that carriers can offer reasonable and competitive international rates to consumers located in the United States. Termination rates for both fixed and wireless traffic should be set in relationship to the costs of providing termination, as would be reflected in a competitive market. Where competition does not discipline the costs of termination services, governments should ensure that the termination rates charged by its operators are not unreasonably higher than cost. Most of the EU Member State NRAs permit major suppliers to charge different rates for the termination of international traffic originating outside of the EU, or in some cases outside the European Economic Area (EEA, which is comprised of the EU plus Iceland, Liechtenstein, and Norway), than for international traffic between sovereign states within the EU or EEA. Only a few Member States prohibit such differentiation (Denmark, Ireland, and Sweden), and two Member State NRAs are considering adopting such a prohibition (Romania and the United Kingdom). Several other Member States allow for different rates based on reciprocating rates in the other country (Austria, France, Luxemburg, the Netherlands), and one Member State NRA is considering such an approach (Spain). A number of suppliers in the remaining Member States, however, are currently charging suppliers differentiated rates that are higher than the rates charged for terminating traffic originating in one of the other Member States. These Member States include: Croatia, Cyprus, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Portugal, and Slovenia. Neither the Commission nor BEREC have made efforts to resolve this issue. These discrepancies in termination rates do not appear to reflect incremental costs for termination of such traffic. Termination rate increases also disadvantage enterprises in those foreign markets for which foreign communications is a key part of business ( , traders, hotels). The United States remains concerned that the Commission and Member States appear to endorse, explicitly or implicitly, a two-tier approach to the termination of international traffic. These actions adversely affect the ability of telecommunications FOREIGN TRADE BARRIERS 185 operators to provide affordable, quality services to consumers calling Europe and may raise questions regarding the treatment of suppliers by certain Member States. United Kingdom: In 2017, the Office of Communications (Ofcom) published two consultations for comment: the Narrowband Market Review and the Mobile Call Termination Review. In both consultations, Ofcom proposes not to allow UK operators to apply differential termination charges for calls originating outside the EU/EEA, but instead to require them to apply the same termination rate to all calls regardless of the country of origin. The United States encourages the United Kingdom to adopt these proposals. Roaming Germany: In November 2017, the German government imposed a regulation requiring that any devices that will be permanently located in Germany and that use a foreign telephone country code be registered with the telecommunications regulator (BNetzA). This regulation raises concerns for companies providing global machine to machine (M2M) and Internet-of-Things (IoT) services because it appears to impose additional requirements that will not apply to domestic providers of such services. The United States will monitor the implementation of this new regulation. Television Broadcasting and Audiovisual Services Audiovisual Media Services Directive A legislative proposal amending the 2007 Audiovisual Media Services Directive (AVMSD) (COM/2016/ 0287 final) was issued by the Commission on May 25, 2016. This proposal aims to update the 2007 Directive to reflect developments in the audiovisual and video on-demand markets. The 2007 directive established minimum content quotas for broadcasting that must be enforced by all Member States. Member State requirements are permitted to exceed this minimum quota for EU content, and several have done so, as discussed below. The AVMSD did not set any strict content quotas for on-demand services, but it still required Member States to ensure that on-demand services encourage production of, and access to, EU works. This could be interpreted to refer to the financial contribution made by such services to the production and rights acquisition of EU works, or to the prominence of EU works in the catalogues of video on-demand services. The proposed updated AVMSD includes provisions that would impose on Internet-based video-on-demand providers, which already must promote European works under current rules, a minimum 20 percent threshold for European content in their catalogs and require that they give prominence to European content in their offerings. The proposal also provides Member States the option of requiring on-demand service providers not based in their territory, but whose targeted audience is in their territory, to contribute financially to European works, based on revenues generated in that Member State. On May 18, 2017, the Parliament s Culture Committee, which took the lead on the proposal, voted to increase the quota of European content to 30 percent. Member States could also choose to go higher. In addition, the Parliament voted to extend the scope of the directive to video-sharing platforms that tag and organize content, which raised concerns among social media platforms. Trilogue discussions among the Commission, Parliament, and Council were still under way in early 2018, but the three institutions had not yet reached agreement on a number of important issues, such as financial requirements to promote EU works and potential measures applied to video-sharing platforms. FOREIGN TRADE BARRIERS 186 Satellite and Cable Directive The 1993 Satellite and Cable Directive (SatCab) governs satellite broadcasting and cable retransmission. It was enacted to promote cross-border satellite broadcasting of programs and their cable retransmission from other Member States and to remove obstacles arising from disparities between national copyright provisions. Under SatCab s country-of-origin principle, the satellite broadcasting of copyrighted works requires the authorization of the rights holder, and such rights may only be acquired by agreement. In 2016, the Commission carried out a review (REFIT) of the 1993 directive, with the aim of enhancing cross border access to broadcasting and related online services across the EU. This review was followed by a Commission proposal for a Regulation laying down rules on the exercise of copyright and related rights applicable to certain online transmissions of broadcasting organizations and retransmissions of television and radio programmes (Broadcasting Regulation), which as of March 2018 was still going through the decision-making process in the European Parliament and Council. The proposed Broadcasting Regulation seeks to extend the country-of-origin principle to online programming, a development strongly opposed by the film and commercial television sectors. studios are particularly concerned that the proposed regulation would interfere with the ability of rights holders to continue licensing on a country-by-country basis and tailor audiovisual content for specific cultural audiences at different price points. There is also increasing concern about the proposed expansion of mandatory collective rights management in relation to re-transmission, which is viewed by commercial producers as another encroachment on freedom to contract. Member State Measures Several Member States maintain measures that hinder the free flow of some programming or film exhibitions. A summary of some of the more significant restrictive national practices follows. France: France continues to apply AVMSD in a restrictive manner. France s implementing legislation, approved by the Commission in 1992, requires that 60 percent of programming be of EU origin and 40 percent include French-language content. These requirements exceed AVMSD thresholds. Moreover, these quotas apply to both the regular and prime time programming slots, and the definition of prime time differs from network to network. The prime time restrictions pose a significant barrier to programs in the French market. Internet, cable, and satellite networks are permitted to broadcast as little as 50 percent EU content (the AVMS Directive minimum) and 30 percent to 35 percent French-language content, but channels and services are required to increase their investment in the production of French-language content. In addition, radio broadcast quotas require that 35 percent of songs on almost all French private and public radio stations be in French. The quota for radio stations specializing in cultural or language-based programing is 15 percent. A July 2016 regulation specifies that only if the top ten most played French songs on a station account for less than 50 percent of the songs played are they counted towards the quota. France s Broadcasting Authority, Conseil sup rieur de l audiovisuel, oversees implementation of the quotas. Beyond broadcasting quotas, cinemas must reserve five weeks per quarter for the exhibition of French feature films. This requirement is reduced to four weeks per quarter for theaters that include a French short subject film during six weeks of the preceding quarter. Operators of multiplexes may not screen any one film in such a way as to account for more than 30 percent of the multiplex s weekly shows. While they are in theatrical release, feature films may not be shown or advertised on television. France also maintains a four-month waiting period between the date a movie exits the cinema and the date when it can be shown on video-on-demand. FOREIGN TRADE BARRIERS 187 Italy: The Italian Broadcasting Law, which implements EU regulations, provides that the majority of television programming time (excluding sports, news, game shows, and advertisements) be EU-origin content. Ten percent of transmissions (and 20 percent for state broadcaster RAI) must be reserved for EU works produced within the past five years. Poland: Television broadcasters must devote at least 33 percent of their broadcasting time each quarter for programming originally produced in the Polish language, except for information services, advertisements, telesales, sports broadcasts, and television quiz shows. Radio broadcasters are obliged to dedicate 33 percent of their broadcasting time each month and 60 percent of broadcasting time between 5:00 and midnight to Polish language programming. Television broadcasters must dedicate at least 50 percent of their broadcasting time quarterly to programs of EU origin, except for information services, advertisements, telesales, sports broadcasts, and television quiz shows. Television broadcasters must devote at least 10 percent of their broadcasting time to programs by EU independent producers, and compliance is reviewed every three months. As of July 5, 2017, Poland implemented an EU directive that allows concession-holders to apply for an exception allowing for 25 percent Polish and 40 percent EU content in some specific cases. On-demand audiovisual media services providers also must promote content of EU origin, especially content originally produced in Polish, and dedicate at least 20 percent of their catalog to EU content. Portugal: Television broadcasters must dedicate at least 50 percent of air time to programming originally produced in the Portuguese language, with at least half of this produced in Portugal. Music radio broadcasters must dedicate between 25 percent to 40 percent of programming time to music produced in the Portuguese language or in traditional Portuguese genres, with at least 60 percent of this produced by citizens of the EU. Slovakia: Since January 2017, private radio stations have been required to allocate at least 25 percent of airtime to Slovak music, and state-run radio at least 35 percent. In addition, at least one-fifth of the Slovak songs must have been recorded in the past five years. Spain: For every three days that a film from a non-EU country is screened, one EU film must be shown. This ratio is reduced to four days to one if the cinema screens a film in an official language of Spain other than Spanish and keeps showing the film in that language throughout the day. In addition, broadcasters and providers of other audiovisual media services annually must invest 5 percent of their revenues in the production of EU and Spanish films and audiovisual programs. In 2010, the Autonomous Community of Catalonia passed the Catalan Cinema Law, legislation that requires distributors to include the regional Catalan language in any print of any movie released in Catalonia that had been dubbed or subtitled in Spanish, but not any film in Spanish. The law also requires exhibitors to exhibit such movies dubbed in Catalan on 50 percent of the screens on which they are showing. In 2012, the European Commission ruled that the law discriminated against European films and must be amended. Additionally, the Spanish constitutional court ruled in July 2017 that the law was disproportionate, and reduced the requirements of movies to be dubbed in Catalan to 25 percent. To date, the law has not been amended, nor has the issue been brought before the CJEU. Although the Catalan Cinema Law technically came into force in January 2011, the Catalan regional government has not yet approved its implementation, giving the law no effect. In the absence of the regulation, in 2012 the regional government and major movie studios agreed to dub 20 films in Catalan annually, in addition to 20 independent films, with dubbing financed by the regional government. In 2010, the Spanish government revised its audiovisual law and imposed restrictions on non-EU ownership (limited to no more than 25 percent share) and leasing of audiovisual licenses, and investors report that they have been negatively impacted. Following the 2010 amendment, several investors signed agreements with Spanish audiovisual license holders to provide content for free-to-air television channels. FOREIGN TRADE BARRIERS 188 These investments were disrupted by a 2012 decision by the Spanish Supreme Court, which annulled the nine digital terrestrial television (DTT) broadcasting licenses of these Spanish firms on the basis that the government had not followed the proper public tender process in allocating the licenses in 2010. In 2014, all of the annulled DTT channels ceased broadcasting, and in 2015 the Spanish government awarded six new licenses through a public tender process. investors were unable to participate directly in this tender process due to restrictions on foreign ownership. The United States continues to engage on these issues with the Spanish government. Video-on-demand services in Spain must reserve 30 percent of their catalogs for European works (half of these in an official language of Spain) and contribute 5 percent of their turnover to the funding of audiovisual content. Legal Services Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Greece, Hungary, Latvia, Lithuania, Malta, and Slovakia require EU or EEA nationality or citizenship for full admission to the bar, which is necessary for the practice of EU and Member State law. In many cases, non-EU lawyers holding authorization to practice law in one Member State face more burdensome procedures to obtain authorization in another Member State than would a similarly situated lawyer holding EU citizenship. Member State Measures Bulgaria: The Bulgarian Bar Act allows law firms registered in the EU to practice in Bulgaria under their original name after they register with the local bar association. However, at least one of the partners has to be registered both in Bulgaria and in another Member State if the local partnership is to use an internationally recognized name. Czech Republic: Unlike EU-based law firms, law firms cannot establish Czech branches to practice law ( , operate directly through their home legal entities). However, attorneys from law firms admitted as foreign lawyers may establish a business entity to engage in the practice of law under the company name. Hungary: lawyers may provide legal services only under a cooperation agreement with a Hungarian law firm, and may only provide information to their clients on or international law. Accounting and Auditing Services The European Commission has taken the position that its directive on statutory auditing prohibits Member States from considering professional experience of foreign auditors acquired outside of the EU when considering whether to grant statutory auditing rights. This interpretation has hampered movement of experienced professionals and inhibited Member States from participating in the growing movement towards mutual recognition in this field. The United States will continue to advocate for Member States to take into account experience of CPAs acquired in the United States. FOREIGN TRADE BARRIERS 189 Member State Measures Czech Republic: The Czech Republic requires that at least a majority of the voting rights in an audit firm must be held by auditors licensed in the EU or by a firm licensed to perform statutory audits in a Member State. Hungary: Foreign investors must have a Hungarian partner in order to establish accounting companies. Slovakia: Slovakia requires that companies providing auditing services be registered in a Member State, and requires that at least a majority of the voting rights in an audit firm be held by auditors licensed in the EU or by a firm licensed to perform statutory audits in a Member State. Retailing Member State Measures EU nationality is required for operation of a pharmacy in Austria, France, Germany, Greece, and Hungary. Hungary: A 2015 law requires that food retail chains with annual revenue of $55 million or greater shut down if they incur losses for two consecutive years. In 2016, the European Commission started infringement proceedings against Hungary, seeking the repeal of the law. While the EU forced Hungary to repeal a sanitation tax levied only on large, multinational supermarkets, Hungarian government officials have stated they will find new ways to make foreign retailers pay more tax. Romania: In July 2016, Romania passed a law requiring large supermarkets to source from the local supply chain at least 51 percent of the total volume of their merchandise in meat, eggs, fruits, vegetables, honey, dairy products, and baked goods. The law vaguely defined the local supply chain and is intended to favor Romanian products. This law applies to high-volume supermarkets with more than 2 million ($ million) in annual sales, affecting all major chains. The law also bans food retailers from charging suppliers for any services, including on-site marketing services, thereby preventing producers from influencing how stores market or display their products and injecting greater unpredictability into the business environment. The government has not yet implemented the 51 percent provision by passing the required secondary legislation, although it announced its intention to do so even after the European Commission notified Romania of possible infringement proceedings on February 15, 2017. The parliament has yet to finalize the implementing legislation. EU Enlargement After each of the three most recent rounds of EU enlargement, the EU has submitted notifications to WTO Members concerning the modification of existing commitments under the GATS by the newly acceded EU Member States. In accordance with GATS Article XXI, the EU was required to enter into negotiations with any other WTO Member that indicated that it was affected by the modification of existing commitments. In connection with the largest of these rounds of enlargement (the expansion to 25 members in 2004), the United States and the EU agreed to a compensation package on August 7, 2006. To date, however, the Commission has failed to secure the approval of all Member States, which is necessary to implement the agreement. The United States will continue to monitor this process to ensure the agreement is implemented before the EU s modifications enter into effect. FOREIGN TRADE BARRIERS 190 INVESTMENT BARRIERS With few exceptions, EU law generally requires that any company established under the law of one Member State must receive national treatment in all other Member States, regardless of the company s ultimate ownership. Laws and regulations pertaining to the initial entry of foreign investors, however, are largely still the purview of individual Member States. As discussed below, the policies and practices of the EU and its Member States can have a significant impact on investment. Member State Measures Bulgaria: Weak corporate governance remains a problem in Bulgaria. While legislative protection for minority shareholders has improved through insolvency rules in Bulgaria s Commercial Code and changes to its Law on Public Offering of Securities, enforcement of these statutory provisions remains inadequate. Inadequate judicial mechanisms for resolution of commercial disputes and a perception that foreign investors are unlikely to receive impartial treatment in Bulgaria s judicial system create further barriers to investment. The natural gas market in Bulgaria remains largely closed to competition, with gas supplied almost entirely by Russia s Gazprom under a long-term contract and domestic distribution dominated by Bulgaria s state-owned company, Bulgargaz. These conditions have led to antitrust actions by the European Commission against both Gazprom and Bulgargaz s parent company, Bulgaria Energy Holding, which the Commission alleges is conspiring to restrict would-be competitors from accessing key gas infrastructure in Bulgaria. With respect to the supply of gas into Bulgaria from foreign markets, a sharp increase of entry-exit tariffs by the Bulgarian energy regulator beginning on October 1, 2017, has made commercial gas trade unviable, including for liquefied natural gas. The higher tariff does not apply to Russia s Gazprom, raising concerns about discrimination. Croatia: companies doing business in Croatia complain that their operations are negatively affected by frequent, unexpected legislative changes. Investors reportedly find it difficult to make sound, long-term business plans due to the unpredictable legislative environment. Although Croatian law calls for mandatory regulatory impact assessments of proposed legislation, that requirement is not strictly observed. In 2014, for example, less than 10 percent of the laws enacted were subject to proper regulatory impact assessments. The Croatian government has presented no clear commitment or timeline to increase meaningfully its conduct of such impact assessments. Cyprus: Cypriot law imposes restrictions on the foreign ownership of real property and construction-related businesses. Non-EU residents may purchase no more than two independent housing units (apartments or houses), or one housing unit and a small shop or office. Exceptions are available for projects requiring larger plots of land, but are difficult to obtain and rarely granted. Separately, only EU citizens have the right to register as construction contractors in Cyprus, and non-EU investors are not allowed to own a majority stake in a local construction company. Non-EU residents or legal entities may bid on specific construction projects, but only after obtaining a special license from the Cypriot Council of Ministers. France: Pursuant to a December 2004 law that streamlined the French Monetary and Financial Code, the State Council designated a number of sensitive sectors in which prior approval is required before foreign acquisition of a controlling equity stake is permitted. In a December 2005 decree, the French government identified 11 business areas in which such approval would be required, and in which the Ministry of Economy and Finance must authorize in advance investment activity related to foreign ownership. In May 2014, the government expanded these areas to include energy, water, health, transportation, and telecommunications, as well as any installation, facility, or structure deemed to be vital under the Defense FOREIGN TRADE BARRIERS 191 Code. In addition to being able to restrict foreign ownership through the prior approval process, France also takes ownership stakes in companies in strategic sectors, which serves as a buffer against foreign takeovers. Greece: All purchases of land in border areas and on certain islands require approval from the Ministry of Defense. The definition of border areas is broader for non-EU purchasers of land than for purchasers from within the EU, and obtaining approval for such purchases is more burdensome. Greek authorities consider local content and export performance criteria when evaluating applications for tax and investment incentives, although such criteria are not prerequisites for approving investments. Hungary: Investors have expressed concern that Hungary passes tax laws and regulations that disproportionately impact foreign-owned firms, often with limited consultation with affected businesses and stakeholders, and that tax larger (primarily foreign-owned) firms at a far higher rate. In 2016, the Commission determined that Hungary s advertising and tobacco taxes, as well as supermarket inspection fees, unfairly discriminate against large companies. While Hungary suspended the tobacco tax and food inspection fee, it maintains the advertising tax. Transparency experts have expressed concern that confidential strategic agreements that the Hungarian government has signed with over 70 major companies are a hidden forum for lobbying and preferential treatment. Italy: Some companies claim to have been targeted adversely by the Italian Revenue Authority by virtue of the fact that they engage in international operations. Tax rules in Italy change frequently and are interpreted inconsistently. companies report long delays in receiving VAT refunds to which they are legally entitled. Tax disputes are resolved slowly, and initial findings are frequently reversed, which reduces certainty and increases compliance costs. oil and gas companies have also faced lengthy delays in obtaining necessary permits from the Italian government for exploration and drilling. Latvia: The judicial system in Latvia can present significant challenges to investors. Insolvency proceedings, for example, can take several years to resolve, and there have been reports of large-scale abuse by both insolvency administrators and bad-faith creditors who have manipulated the proceedings to seize control of assets and companies and to extract unwarranted settlements and fees. In a recent study, percent of business owners said they believe insolvency proceedings in Latvia are not transparent and fair and percent said they had encountered insolvency abuse. stakeholders have similarly voiced concerns about the duration of civil cases, while the nature and opacity of judicial rulings have led some investors to question the fairness and impartiality of some judges. In 2017, Latvia enacted amendments to its Law on Land Privatisation in Rural Areas that, among other things, prohibit foreigners who are not permanent residents in Latvia from purchasing agricultural land. These amendments also require that any person wishing to purchase agricultural land possess a working knowledge of the Latvian language and be able to present in Latvian their plans for the future use of the land. Poland: Financial service institutions and retailers have expressed concerns about recent tax measures directed at companies operating in those sectors. With respect to the retail sector, Poland in July 2016 adopted a new tax on companies engaged in the retail sale of goods, one that would impose progressively higher rates of taxation based on the size of a company s turnover. In June 2017, the European Commission ruled that the measure breached EU rules on state aid by unduly favoring certain companies over others, and Poland subsequently suspended implementation of the tax indefinitely. With respect to financial institutions, Poland in January 2016 imposed a new percent tax on the assets of banks, consumer lending companies, and insurances companies. International ratings agencies expressed concern that the FOREIGN TRADE BARRIERS 192 tax, which was estimated to cost companies in the sector 1 billion ($ million) in 2016, would reduce banks ability to absorb shocks, hurt credit growth, and adversely affect Poland s economic growth. Similar concerns have also been raised with respect to proposals that would require banks holding mortgages denominated in Swiss Francs to convert these loans into local currency, or that would require these lenders to make mandatory contributions to a fund that would make payments to mortgage borrowers. Romania: Uncertainty and a lack of predictability in legal, fiscal, and regulatory systems pose a continuing impediment to foreign investment in Romania. Many companies report experiencing long delays in receiving VAT refunds to which they are legally entitled, with deadlines stipulated by law for the processing and payment of refunds often not being respected. Slovenia: Weak corporate governance and a lack of transparency, particularly with respect to state-owned enterprises, continue to present significant challenges for investors in Slovenia. Potential investors have reported that opaque decision-making processes in the government s privatization program have discouraged investment. GOVERNMENT PROCUREMENT Government procurement is governed by EU public procurement directives. In 2014, the European Parliament approved revised directives addressing general public procurement and procurement in the utilities sector. The Parliament also approved a new directive on concessions contracts. Member States were required to transpose the new directives into national legislation by April 2016. The directive on procurement procedures in the utilities sector covers purchases in the water, transportation, energy, and postal sectors. This directive requires open and competitive bidding procedures, but it permits Member States to reject bids with less than 50 percent EU content for tenders that are not covered by an international or reciprocal bilateral agreement. The EU content requirement applies to foreign suppliers of goods and services in water (the production, transport, and distribution of drinking water); energy (gas and heat); urban transport (urban rail, automated systems, trams, buses, etc.); and postal services. Subsidiaries of companies may bid on all public procurement contracts covered by the EU directives. The EU is a member of the WTO Agreement on Government Procurement (GPA). companies are allowed to bid on public tenders covered by the GPA. The EU s lack of country of origin data for winning bids makes it difficult to assess the level of and non-EU participation. Nevertheless, a 2011 report commissioned by the EU noted that only percent of total Member State procurement contracts were awarded to firms operating and bidding from another Member State or a non-EU country, demonstrating that in practice the value of direct cross-border procurement awards even among Member States was very small. The same study said that firms not established in the EU received just percent of total EU direct cross-border procurement awards. Member State Measures Lack of transparency in certain Member State public procurement processes continues to be an almost universally cited barrier to the participation of firms. firms seeking to participate in procurements in Bulgaria, the Czech Republic, France, Greece, Hungary, Italy, Lithuania, Romania, Slovakia, and Slovenia have all proactively voiced concerns over a lack of transparency, including with respect to overly-narrow definition of tenders, language and documentation barriers, and implicit biases toward local vendors and state-owned enterprises. The Commission s 2014 EU Anti-Corruption Report asserts that Member FOREIGN TRADE BARRIERS 193 State public procurement is one of the areas most vulnerable to Additional Member State-specific trade barriers to participation in public procurement processes are cited below. Bulgaria: Stakeholders report that the public procurement process in Bulgaria is frequently discriminatory and unfair. There are persistent complaints that tenders are too narrowly defined and are tailored to a specific company. For example, a company seeking to sell nuclear fuel to Bulgaria s state-owned Kozloduy Nuclear Power Plant (KNPP) is facing substantial barriers imposed by KNPP and by Bulgaria s nuclear regulator. In order to participate in a 2018 procurement of nuclear fuel, Bulgaria s nuclear regulator would have to grant KNPP a license to use the fuel from the vendor. However, the regulator has refused to define the requirements for licensing KNPP to use the new fuel type, and KNPP s Board of Supervisors has refused to sign a contract that KNPP s management has reached with vendor to conduct the safety analysis that KNPP expected that it would have to provide the regulator. In contrast, in 2016 a Russian state-owned company, and the incumbent supplier to KNPP, was permitted to load a new nuclear fuel type prior to completing comparable tests. Without a process in place to license KNPP to use the nuclear fuel from the vendor and with short time remaining before the launch of the tender for KNPP s post 2020 nuclear fuel contract, the supplier will be unable to compete in the 2018 procurement. France: France continues to maintain ownership shares in several major defense contractors ( percent of Airbus, formerly EADS, shares; 14 percent of Safran shares and percent of its voting rights; and percent of Thal s shares). It is generally difficult for non-EU firms to participate in French defense procurement, and even when the competition is among EU suppliers, French companies are often selected as prime contractors. Greece: firms have complained that Greece often requires suppliers to source services and production locally or partner with Greek manufacturers as a condition for the awarding of some defense contracts. Additional complaints center on onerous certification and documentation requirements on firms. Italy: firms continue to cite widespread corruption in procurements, especially at the local level. In 2012, the Italian parliament approved an anti-corruption bill that introduced greater transparency and more stringent procedures to the public procurement process. Law 69/2015, an additional anti-corruption law passed in 2015, has strengthened the powers of the National Anti-Corruption Authority (ANAC) and sanctions for offenses committed against the Public Administration became more severe. Law 69/2015 also inserted Article 322 ( Riparazione pecuniaria ) in the Criminal Code, which provides for the restitution of assets illegally obtained by public officers. According to Transparency International Italia s October 2017 Anticorruption Report, Italian legislation to combat corruption is adequate, though enforcement remains weak. The report cites the lack of adequate whistleblower protection and the absence of laws regulating lobbying activities as key challenges for anti-corruption enforcement. However, a whistleblower protection law was approved by the Italian parliament in November 2017, shortly after the report s publication. Poland: firms reported disappointment that lowest cost remains the main criterion Polish officials use to award contracts, often overlooking other important factors in bid evaluation, such as quality, company reputation, and prior experience in product and service delivery. Defense companies indicate that the Ministry of Defense uses statutory exclusions bypassing tendering procedures in signing contracts. 14 Report from the Commission to the Council and the European Parliament, EU Anti-Corruption Report, February 3, 2014. FOREIGN TRADE BARRIERS 194 Slovenia: firms report short timeframes for bid preparation, tendering documentation that is difficult to understand, and opacity in the bid evaluation process as major impediments. Slovenia s quasi-judicial National Revision Commission (NRC), which reviews all disputed public procurement cases, has received multiple complaints. The NRC has the authority to review, amend, and cancel tenders, and its decisions are not subject to judicial appeal. In the instances where companies alleged improprieties in the procurement process, Slovenian authorities directed them to the NRC, which is not required to justify its decisions. SUBSIDIES Various financial transactions and equity arrangements throughout the EU raise questions as to the role of state funding in supporting or subsidizing private or quasi-private organizations, including in the manufacture of civil aircraft. Beginning in June 2014, the Commission announced that certain transfer pricing rulings given by Member States to particular taxpayers may have violated EU restrictions on state aid. The EU initiated a series of state aid investigations primarily involving companies. As the Department of the Treasury explained in a white paper dated August 24, 2016, the United States remains deeply concerned with the Commission s approach in these investigations. This approach is new, and departs from prior EU case law and Commission decisions. The Commission s actions also undermine the international consensus on transfer pricing standards, call into question the ability of Member States to honor their bilateral tax treaties, and undermine the progress made under the OECD/G20 Base Erosion and Profit Shifting project. Government Support for Airbus Over many years, Belgium, France, Germany, Spain, and the United Kingdom have provided subsidies to their Airbus-affiliated companies to aid in the development, production, and marketing of Airbus s large civil aircraft. These governments have financed between 33 and 100 percent of the development costs (launch aid) of all Airbus aircraft models and have provided other forms of support, including equity infusions, debt forgiveness, debt rollovers, marketing assistance, and research and development funding, in addition to political and economic pressure on purchasing governments. The EU aeronautics research programs are driven significantly by a policy intended to enhance the international competitiveness of the EU civil aeronautics industry. Member State governments have spent hundreds of millions of euros to create infrastructure for Airbus programs, including 751 million ($ million) spent by the city of Hamburg to drain the wetlands that Airbus is currently using as an assembly site for the A380 superjumbo aircraft. French authorities also spent 182 million ($ million) to create the AeroConstellation site, which contains additional facilities for the A380. After having given the Airbus A380 more than $5 billion in subsidies, the relevant Member State governments have also provided launch aid in comparable amounts for the new Airbus A350 XWB aircraft. Airbus SAS, the successor to the original Airbus consortium, is owned by the Airbus Group, now the second largest aerospace company in the world. This entity was previously known as the European Aeronautic, Defense, and Space Company (EADS). The name change accompanied a reorganization of the company s ownership structure, resulting in the governments of France and Germany each owning up to 11 percent of the shares, the government of Spain approximately 4 percent, and the remaining approximately 72 percent of shares trading on open markets. The reorganization also ended these governments rights to veto strategic decisions and to appoint directors to the Airbus board. Instead, the governments only have the right to veto board members appointed by the company. The Airbus Group accounted for more than half of worldwide deliveries of new large civil aircraft over the last few years and is a mature company that should face the same commercial risks as its global competitors. FOREIGN TRADE BARRIERS 195 On May 31, 2005, the United States requested establishment of a WTO panel to address its concern that Member State subsidies were inconsistent with the WTO Agreement on Subsidies and Countervailing Measures. The WTO established the panel on July 20, 2005. In 2010, the dispute settlement panel found in favor of the United States on the central claims, and the Appellate Body upheld the finding of WTO inconsistency in 2011. On December 1, 2011, the EU submitted a notification to the WTO asserting that it had taken appropriate steps to bring its measures into conformity with its WTO obligations. On December 9, 2011, the United States requested consultations with the EU to address its concern that the EU had failed to bring its Airbus subsidies into conformity with WTO rules. The WTO compliance panel issued its report on September 22, 2016, finding that the EU Member States had not withdrawn the past subsidies conferred by $17 billion in past launch aid to Airbus, and that the launch aid of nearly $5 billion for the A350 XWB was also contrary to WTO rules. The EU appealed that finding to the WTO Appellate Body. Government Support for Airbus Suppliers Member State Measures Belgium: The Belgian federal government coordinates with Belgium s three regional governments on the funding of Non-Recurring Costs to be financed by Belgian manufacturers in order to be able to supply parts to Airbus. The Belgian Government has, in this context, decided in 2000 to set aside a budget of 195 million ($ million) for Belgian industrial participation in the A380 program and in 2008, a budget of 150 million ($ million) for Belgian industrial participation in the A350 XWB program. Belgium has always stated that these were refundable advances, partially covering nonrecurring costs in accordance with the European regulations. Both in 2006 and in 2009, the Commission initially disputed that view, but later acquiesced. Only industrial research or experimental development projects linked to the A350 XWB and A380 programs can be (partially) financed through reimbursable loans in accordance with European regulations. For the A380-program, the average intervention level is 47 percent and for the A350 XWB program, 54 percent. These interventions are not considered grants but reimbursable advances based on sales forecasts for each aircraft. This constitutes as such a risk-sharing between the related companies and the Belgian Government. Statistics indicate that the total reimbursement level is more than 60 percent of the total sum of state interventions for all the Airbus-programs, excluding the most recent ones (A380, A350 XWB, and A400M), where production started relatively recently. This level is also influenced by elements outside the control of the Belgian authorities ( , Airbus stopped the production of A340 much earlier than initially planned). Eurostat, the Commission s statistical unit, notified the Belgian government in 2014 that these amounts should not be considered as reimbursable advances but subsidies, because they were never totally reimbursed. Beginning in 2016, Belgian federal and regional governments were supposed to include the Airbus interventions as subsidies in their budgets, but that has not been the case to date. For the A350 XWB and A380 programs, the price distortion resulting from Belgian subcontractors is estimated to be a minimum of 370 million ($ million). For the A400M program, the Belgian federal government in 2016 agreed on a 45 million ($50 million) grant for the 2017-2020 period. France: In addition to the seed investment that the French government provided for the development of the A380 and A350 XWB aircraft, France provides assistance in the form of reimbursable advances for the development by French manufacturers of products such as airplanes, aircraft engines, helicopters, and onboard equipment. In February 2013, the government confirmed billion ($ billion) in reimbursable advances for the A350 over the period 2009-2017 and a similar scheme for the helicopter X6 to be built by Airbus Helicopter. The government s 2018 budget includes million ($ million) in reimbursable advances for aeronautical/aviation products, up from 164 million ($ million) in the 2017 budget. French appropriations for new programs include million ($ million) in support FOREIGN TRADE BARRIERS 196 of research and development in the civil aviation sector in 2018, up from million ($ million) in 2017. In July 2008, Airbus, the parastatal Caisse des D p ts et Consignations, and the Safran Group announced the launch of the Aerofund II equity fund, capitalized with 75 million ($ million) destined for the French aeronautical sector. The equity fund s objective is to support the development of small and medium sized subcontractors that supply the aeronautical sector. The Aerofund III equity fund was launched in 2013 with a fundraising target of 300 million ($400 million) and an objective of becoming the leading aerospace industry investment fund in Europe. Germany: Between 2010 and 2015, the German government provided Airbus with a billion ($ billion) loan package for the new A350 XWB wide-body jet. The loan runs until 2031 and covers deliveries of 1,500 aircraft. In addition to the A350 XWB loan package, Airbus continues to receive funds from the German government s aeronautics research program for a number of projects. In its last coalition agreement (2013), the German government pledged further support for the aeronautics program. Spain: On October 23, 2015, Spain s government authorized the Ministry of Industry, Energy and Tourism to grant ALESTIS Aerospace aid amounting to 19 million ($ million) for its participation in the development program of the Airbus A350 XWB. Aid corresponds to the schedule for 2013, which was not paid initially because the company was bankrupt at that time. Measures taken in connection with ALESTIS ensure the successful outcome of its participation in the A350 XWB program, which is considered strategic for the aviation industry in Spain. In 2015, the industry had a turnover of billion ($ billion) and directly employed approximately 54,400 people. In the case of Airbus commercial programs, ALESTIS supplies parts and components for the A380, A330, A320, and A350 XWB aircraft, among others. Regarding Airbus military programs, ALESTIS supplies parts and components for the CN235/C295 and A400M. It is also a supplier for Embraer and Boeing. Headquartered in Seville, ALESTIS has seven production facilities (six in Spain and one in Brazil) and employs approximately 1,600 people. CUSTOMS ADMINISTRATION Notwithstanding the existence of customs legislation that governs all Member States, the EU does not administer its laws through a single customs administration. Rather, there are separate agencies responsible for the administration of EU customs law in each of the 28 Member States. Institutions or procedures are not currently in place to ensure that EU rules and decisions on classification, valuation, origin, and customs procedures are applied uniformly throughout the Member States. (The Binding Tariff Information program provided for by EU-level law, but administered at the Member State level, does provide for advance rulings on tariff classification and country of origin.) EU rules do not require the customs agency in one Member State to follow the decisions of the customs agency in another Member State with respect to materially identical issues. In some cases, where the customs agency of a Member State administers EU law differently, or disagrees with the Binding Tariff Information issued by another Member State, the matter may be referred to the Customs Code Committee (CCC). The CCC consists of Member State representatives and is chaired by a Commission representative. Although a stated goal for the CCC is to help reconcile differences among Member States and thereby help to achieve uniformity of administration, in practice its success in this regard has been limited. The CCC and other EU-level institutions do not provide transparency in decision-making or opportunities for participation by traders, which might make them more effective tools for achieving the uniform administration and application of EU customs law. FOREIGN TRADE BARRIERS 197 In addition, the EU lacks tribunals or procedures for the prompt review and EU-wide correction of administrative actions relating to customs matters. Instead, review is provided in the tribunals of each Member State; the rules regarding these reviews vary from Member State to Member State. A trader encountering differing treatment in multiple Member States must bring a separate appeal in each Member State whose agency rendered an adverse decision. Ultimately, a question of interpretation of EU law may be referred to the CJEU. Although the judgments of the CJEU apply throughout the EU, referral of a question to the CJEU is generally discretionary, may take many years, and may not afford sufficient redress. Thus obtaining corrections with EU-wide effect for administrative actions relating to customs matters is frequently cumbersome and time-consuming. The United States has raised concerns regarding the uniform administration of EU customs law with the EU in various forums, including in the WTO DSB. The Commission has sought to modernize and simplify customs rules and processes. The Union Customs Code (UCC), adopted by the Commission in 2013, entered into force in 2016. While the UCC contains a number of procedural changes, the key element of a harmonized information technology infrastructure has yet to be completed; Member States continue to use different data templates. Full implementation of harmonized customs systems is not expected to be complete before the end of 2020. The Commission has published delegated and implementing acts on the procedural changes set forth in the UCC. These include Delegated Regulation (EU) 2015/2446, Delegated Regulation (EU) 2016/341, and Implementing Regulation (EU) 2015/2447. In April 2016, the Commission published another implementing decision (2016/578) on the work program relating to the development and deployment of the UCC s electronic systems. The United States will continue to monitor the UCC implementation process, focusing on its impact on the consistency of customs treatment under EU customs law. BARRIERS TO DIGITAL TRADE In May 2017, the European Commission issued a Mid-Term Review document, describing work to date on the Commission s Digital Single Market (DSM) strategy, intended to eliminate barriers to digital trade within the EU. The Commission has tabled 24 legislative proposals for the DSM, but only six of those proposals have successfully completed the trilogue process with the European Parliament and European Council. As the EU continues its work on the DSM, the United States encourages the Commission to ensure predictable and consistent market conditions, which will support growth in transatlantic trade and investment. The effects of the proposed EU rules on innovative services and digital trade will be of particular interest to the United States. The well-intentioned goal of creating a harmonized single market for digital trade in the EU, if implemented through flawed regulation, could seriously undermine transatlantic trade and investment, stifle innovation, and undermine the Commission s own efforts to promote a more robust, EU-wide digital economy. Data Localization The free flow of data has been critical to the continued growth of digital trade. The United States monitors and works to eliminate data localization requirements, which are unfortunately a growing global trend. Current EU law restricts the transfer of the personal data of EU citizens outside of the territory of the EU, except to countries that the EU has determined provide adequate data protection under EU law or that have met other specific requirements, such as the use of standard contract clauses or binding corporate rules. FOREIGN TRADE BARRIERS 198 The United States remains concerned that the implementation and administration of current and proposed EU law ( , the General Data Protection Regulation, or GDPR) create disproportionate barriers to trade, not only for the United States, but for all countries outside of the EU. Although the United States has received a determination of partial adequacy from the EU (see discussion of the Privacy Shield below), there are many other countries, including Japan, Korea, and India, that have expressed interest in obtaining an adequacy determination to facilitate the exchange of data with the EU. Restrictions on the flow of data have a significant effect on the conditions for the cross-border supply of numerous services and for support to the functionality embedded in trade in intelligent goods ( , smart devices). The EU has so far found only a handful of countries to provide adequate data protection under EU law, which means that suppliers in the large majority of EU trading partners must rely on other arrangements or criteria to transfer data with suppliers in the EU. Moreover, legal challenges in the EU continue to create uncertainty around the transfer of data for and other foreign companies. As of the end of 2017, two legal challenges had been filed directly against the Privacy Shield in the EU s General Court (lower court). The use of standard contract clauses are also under judicial review in Ireland and expected to be referred to the CJEU. Privacy Shield On July 12, 2016, the United States and the EU concluded the Privacy Shield Framework (the Framework ), which provides organizations a mechanism to comply with EU data protection requirements when transferring personal data from the EU to the United States in support of transatlantic commerce. The Framework replaced the Safe Harbor Framework of 2000, following an October 2015 CJEU ruling striking down the Commission decision that found Safe Harbor adequate under the EU s 1995 Data Protection Directive. As of January 2018, over 2,600 companies had completed their certification to the Privacy Shield. The first annual review of the Privacy Shield was held in Washington, , in September 2017. participants included officials from the Department of Commerce, the Federal Trade Commission, the State Department, and other federal agencies. The European Commission s Directorate General for Justice led the EU delegation, with active participation from a select group of Member State DPAs, representing the Article 29 Working Party (a committee of Member State regulators). The White House issued a statement reaffirming the Administration s support for the program, and the participants issued a joint statement expressing the shared interest in the success of the Framework and a commitment to continue collaboration. On October 18, 2017, the Commission released its report on the first annual review of the functioning of the Framework. The report concludes that the Framework continues to provide an adequate level of privacy protection under EU law and the necessary structures have been established to ensure the functioning of the Framework. Proposed EU Regulation on the free flow of non-personal data On September 13, 2017, the Commission released a proposal for a regulation on a framework for the free flow of non-personal data within the EU. The proposed regulation focuses on non-personal data, , data that is outside the broad scope of the GDPR. The proposal would prohibit data localization requirements within the EU, unless they are justified on the grounds of public security. The proposal also includes provisions concerning data portability. The EU and United States share the goal of ensuring that there is a free flow of data in the transatlantic and global economy. In fact, the United States strongly encourages the EU to examine barriers not only within the EU, but also between the EU and the rest of the world. General Data Protection Regulation The GDPR will take effect on May 25, 2018, replacing the 1995 Data Protection Directive (DPD). The Commission and Member State DPAs are expected to issue a number of implementing measures before FOREIGN TRADE BARRIERS 199 May 2018, including some addressing elements of the GDPR explicitly left to Member States to determine ( , age of consent). In addition, Member States must adopt legislation that repeals the national laws that implemented the DPD. The United State will be monitoring this work closely. Under the GDPR, the Commission and Member State DPAs can impose fines of up to 4 percent of annual global revenue on firms that breach the new data protection rules. For multinational corporations, such fines could amount to billions of dollars. The GDPR also introduces joint liability for controllers (the company that controls the processing of personal data) and processors (generally contractors hired by the controller to provide services using the data). Under the DPD, only the controller was liable for data breaches. Many companies are concerned that joint liability would require them to monitor other companies data protection practices, which would increase administrative costs and burdens. Such monitoring requirements could make controllers and processors transfer more personal data more frequently between them, thereby increasing potential vulnerabilities to unauthorized disclosure. The new regulation also requires companies to have a data protection officer or a representative present in the EU. It adds new requirements for accountability, data governance, and notification of a data breach. In addition, the GDPR provides expanded rights to EU data subjects, including data portability and more stringent consent requirements. The GDPR also codifies the 2014 decision of the CJEU that imposed a right for EU citizens to demand that search engines remove information that is inaccurate, inadequate, irrelevant, or excessive for the purposes of data processing ( right to be forgotten ). Companies have continued to express concern over the right to be forgotten and its potential to infringe on free speech and to restrict access to information of legitimate public interest. The GDPR will create a new European Data Protection Board. The Board will be tasked with minimizing disparities in implementation and enforcement between individual Member State DPAs, and it will be entrusted to resolve disputes between DPAs. The GDPR includes provisions intended to minimize the bureaucratic hurdles of dealing with DPAs in multiple Member States by allowing EU residents to file complaints with the DPA in their home country and to allow companies to deal only with the DPA in the Member State where the company has its primary establishment. While companies welcomed the goals of this initiative, some have expressed disappointment that the proposed mechanism may be too complex and cumbersome and may still leave too much room for DPAs to take divergent approaches in different Member States. France. The French DPA (CNIL) ordered one search supplier to remove information under a right to be forgotten matter from all its domains on a worldwide basis. The CNIL order was appealed to the State Council, France s highest administrative court, and in July 2017 the State Council referred the matter to the CJEU, noting the scope of the right to be de-listed posed several serious difficulties with respect to the interpretation of EU law. If CNIL s order is upheld, France and presumably other Member State DPAs would maintain that they have the authority to restrict what non-EU businesses and individuals would be able to access on the Internet. This could set a worrisome precedent, empowering governments to apply their domestic law extraterritorially on the Internet, and would create significant market uncertainty for businesses worldwide. Interactive Computer Services Aggregation Services Over the past several years, certain Member States have adopted copyright-related measures requiring remuneration or authorization for certain content associated with online news aggregation services. Specifically, the measures require news aggregators, which provide short excerpts ( snippets ) of text from FOREIGN TRADE BARRIERS 200 other news sources and/or images, to either remunerate those other sources or obtain authorization for their use. One Member State has also introduced a similar measure with respect to digital images. Additionally, as described above, the European Commission proposed a new neighboring right for press publishers that is under discussion as part of the Directive on Copyright in the DSM (COM(2016) 593 final). The Commission recommends expanding the reproduction right and making available right to press publishers with respect to the digital use of their press publications. Although certain and EU stakeholders, particularly from the publishing industry, have supported this proposal, online news aggregators, including but not limited to service suppliers, have raised concerns regarding the potential impact of this proposed directive, in part because of their experiences with the German and Spanish laws described below. These measures are intended to address publishers and visual artists challenges in adapting to the digital marketplace. stakeholders have expressed a range of competing views on these issues. Measures that disproportionately affect only one group of foreign-based service suppliers in the digital ecosystem may exacerbate those challenges to the detriment of all participants in the marketplace. These measures and proposals warrant careful monitoring in light of the interests and concerns of these stakeholders. Spain: A 2014 amendment to the Spanish intellectual property law (Article ), which took effect in 2016, imposed upon commercial news aggregators a mandatory compensation regime for the use of fragments of news publications. News aggregators are required to remunerate publishers via a rights management organization for the use of non-significant fragments of their news publications. The remuneration rate is negotiable via the collective management organization but there are no means by which a covered news publisher can waive this right or independently license directly with a news aggregator should it so desire ( , if the news publisher wishes to allow readers to find and access such publications through such aggregators). Faced with this measure, at least one leading supplier suspended its news aggregation service in the Spanish market. A 2015 economic study conducted for the Spanish Association of Publishers of Periodical Publications (AEEP) predicted that the amendment would raise barriers to entry for Spanish publishers, would decrease innovative access online for users, and could cost publishers an estimated 10 million ($ million) per year, with a disproportionate impact on smaller publishers (although publishers have not yet had to pay). Germany: A 2013 German law ( Leistungsschutzrecht f r Presseverleger ) creates a neighboring right for press publishers that permits news publishers and news aggregators to negotiate terms of individual licenses (including the option to opt out of requirement payment under the law). It does not apply to short extracts of news publications. Implementation of the German law has reportedly been less disruptive than in the case of the Spanish measure, and at least one leading supplier obtained a royalty-free license from a German collecting society for the display of short extracts of news publications. There are continuing stakeholder concerns regarding the legal uncertainty created by the law and its effect on innovative businesses in Germany. France: In July 2016, France passed the Freedom of Creation Act, a set of measures designed to bolster suppliers of cultural products through subsidies and other governmental interventions. The so-called thumbnail amendment in the Freedom of Creation Act, found in Article 30, requires automated image referencing services to remunerate French rights collecting societies for the right to reproduce and represent an image. Individual artists or photographers cannot opt out of this licensing regime. France s main copyright collecting societies have pursued negotiations for the payment of royalties for the reproduction of photographs and images in thumbnails with foreign search engines and social networks. FOREIGN TRADE BARRIERS 201 Other Issues Geo-blocking The Commission defines geo-blocking as a market segmentation practice whereby traders treat their customers differently, based on the Member State in which they reside or are located, by applying different contract terms, directing them to different websites, or offering different prices, usually based on the customer s IP address, physical address, or nationality, or on the issuer of the customer s credit or debit card. The final regulation to bar unjustifiable geo-blocking will take effect on December 3, 2018. The regulation sets forth disclosure requirements for businesses that engage in geo-blocking or re-routing to justify these practices. businesses that rely on market segmentation or exclusive distributor agreements as part of their overall strategy have expressed concerns that the pricing transparency requirements will make it possible for EU consumers to purchase goods and services from any Member State, potentially interfering with the freedom to contract. For example, a Swedish consumer would be able to price compare across the entire EU and bypass the exclusive Swedish distributor of a product, potentially obtaining the product at a lower price from a distributor in another Member State market. Creative industries are strongly opposed to what they see as another attack on territorial licensing, and this aspect of the proposal has been contested by some Member States. The Commission affirmed in an official statement that its first evaluation of the regulation will take account of the increasing expectations of consumers especially of those that lack access to copyright protected services. The European Parliament s Internal Market Committee also included a provision to consider the inclusion of all audiovisual services three years after the law s entry into force. Cross-Border Contract Rules In December 2015, the European Commission tabled legislative proposals on contract rules on the supply of digital content ( , streaming music) and on contract rules on the online sale of physical goods ( , buying a camera online). The two proposed directives are still going through the legislative process. The European Parliament lead committees adopted the final Parliament amendments to the proposed text on supply of digital content, opening the way for trilogues with the Commission and the Council, once the latter finalizes its own amendments. The other proposal addressing contracts for the online and other distance sales of goods is still under debate by the relevant committees and working groups in Parliament and Council. The proposals seek to address concerns over a perceived relative lack of legal remedies in certain cases, such as for defective digital content purchased online. Specific provisions include expanding the cases in which vendors may rely on their own national laws when selling to other EU markets and improving coordination and monitoring for infringement of consumer protection rules. It is not yet known whether, and to what extent, greater regulatory harmonization would be beneficial for online providers selling in the EU. The Commission s proposal to create harmonized EU rules for online purchases of digital content should reduce burdens for all sellers, including providers. In particular, this should help smaller players to scale up in the EU, requiring fewer resources to manage legal differences between markets. It is not clear, however, what impact regulatory harmonization in the final directives will have on other aspects of cross-border electronic commerce, potentially burdening providers of digital content. These include possible new rules affecting contracts between such providers and users, remuneration for damage done by defective digital content, and data portability requirements. FOREIGN TRADE BARRIERS 202 FOREIGN TRADE BARRIERS 203 GHANA TRADE SUMMARY The goods trade surplus with Ghana was $136 million in 2017, a percent decrease ($375 million) over 2016. goods exports to Ghana were $886 million, up percent ($54 million) from the previous year. Corresponding imports from Ghana were $750 million, up percent. Ghana was the United States' 81st largest goods export market in 2017. foreign direct investment (FDI) in Ghana (stock) was $ billion in 2016. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Ghana issues its own standards for most products under the auspices of the Ghana Standards Authority (GSA). The GSA has 2,485 national standards on, inter alia, building materials, food and agricultural products, household products, electrical goods, and pharmaceuticals. The Ghanaian Food and Drugs Authority is responsible for enforcing standards for food, drugs, cosmetics, and health items. Some imports are classified as high risk goods (HRG) that must be inspected by GSA officials at the port to ensure they meet Ghanaian standards. The GSA classifies these HRGs into 20 broad groups, including food products, electrical appliances, and used goods. stakeholders have found this classification system vague and confusing. For example, the category of alcoholic and nonalcoholic products could include anything from beverages to pharmaceuticals to industrial products. According to GSA officials, these imports are classified as high risk because they pose potential hazards, although that phrase remains undefined in law or regulation. Importers of HRGs must register and obtain approval from GSA prior to importing any of these goods. In particular, as part of this approval, the importer must submit to GSA a sample of the good, accompanied by a certificate of analysis (COA) or a certificate of conformance (COC) from an accredited laboratory in the country of export. Frequently, GSA officials will conduct a physical examination of the goods and check labeling and marking requirements to ensure that they are released within 48 hours. Currently, the fee for registering the first three HRGs is GH 100 (about $25) and GH 50 (about $ ) for each additional product, valid for one year and subject to renewal. Any HRG presented to enter Ghana without a COC or COA from an accredited laboratory is detained and subjected to testing by the GSA. If the product is detained, the importer is required to pay the testing fee based on the number of products and the parameters tested. Labelling Requirements The GSA requires that all food products carry expiration and shelf life dates. Expiration dates must extend at least to half the projected shelf life at the time the product reaches Ghana. Goods that do not have half of their shelf life remaining are seized at the port of entry and destroyed. The United States has raised this latter requirement with Ghana in recent years and questioned the requirement s consistency with the Codex Alimentarius Commission General Standard for Labeling of Pre-packaged Foods. To address human health risks, Ghana prohibits the importation of meat with a fat content by weight greater than 25 percent for beef, 25 percent for pork, 15 percent for poultry, and 30 percent for mutton. Imported FOREIGN TRADE BARRIERS 204 turkeys must have their oil glands removed. Ghana also restricts the importation of condensed or evaporated milk with less than 8 percent milk fat by weight, and dried milk or milk powder containing less than 26 percent by weight of milk fat, with the exception of imported skim milk in containers. IMPORT POLICIES Tariffs The Economic Community of West African States (ECOWAS) Common External Tariff (CET), which was formally adopted by ECOWAS in 2013, entered into force in Ghana on February 1, 2016. The CET has five tariff bands: zero duty on essential social goods ( , medicine); five percent duty on essential commodities, raw materials, and capital goods; 10 percent duty on intermediate goods; 20 percent duty on consumer goods; and 35 percent duty on certain goods that the Ghanaian government elected to afford greater protection, such as poultry and rice. Ghana has bound all agricultural tariffs in the WTO at an average rate of percent, more than five times the average level of its MFN applied rates on agricultural goods. Almost all of Ghana s tariffs on industrial goods are unbound at the WTO. As such, Ghana could raise tariffs on those products to any rate at any time, which creates uncertainty for importers and exporters. Nontariff Measures Importers are confronted by a variety of fees and charges in addition to tariffs. Ghana levies a 15 percent value-added tax (VAT)-like tax on all refined petroleum products. In addition, Ghana imposes a percent ECOWAS levy on all goods originating from non-ECOWAS countries and charges a levy of percent of the free on board (FOB) value of goods (including VAT) for the use of the Ghana Community Network, an automated clearing system. Under the Ghana Export-Import Bank Act, which came into effect on January 3, 2017, Ghana imposes a percent levy on all non-petroleum products imported in commercial quantities. This levy replaces the Export Development and Agricultural Investment Fund levy of percent. Ghana also applies a one percent processing fee on all duty-free imports. Effective through the end of 2019, Ghana in addition imposes a special import levy of two percent of the cost, insurance, and freight (CIF) value on all imports, except for machinery and equipment listed under chapters 84 and 85 of the Harmonized System and some petroleum products and fertilizers. Finally, in November 2017, Ghana s Parliament passed a new percent levy on imports from outside African Union (AU) member states to fund the AU. Ghana applies an examination fee of one percent to imported vehicles. Imported used vehicles that are more than 10 years old incur an additional tax ranging from percent to 50 percent of the CIF value. The Customs Division of the Ghana Revenue Authority uses a price list to determine the value of imported used vehicles for tax purposes. This system is not transparent; the price list used for valuation is not publicly available. The Ghanaian government requires certificates for imports of food, cosmetics, pharmaceuticals, and agricultural goods. Since 2014, Ghana has banned the importation of tilapia in order to protect local fishermen, limited the quantity of import permits issued for poultry and poultry products, and imposed a domestic poultry purchase requirement as a condition for importation. All communications equipment imports require a clearance letter from the National Communications Authority. Securing a clearance letter prior to importation can reduce delays at the port of entry. FOREIGN TRADE BARRIERS 205 Customs Procedures Ghanaian port practices continue to present major obstacles to trade. Officials have introduced risk-management approaches, such as the Pre-Arrival Assessment Reporting System. However, the majority of imports are still subject to inspection on arrival, causing delays and increased costs. Importers report erratic application of customs and other import regulations, lengthy clearance procedures, and corruption. The resulting delays contribute to product deterioration and result in significant losses for importers of perishable goods. Additionally, Ghana s ports suffer from congested roads and lack a functioning rail system to transport freight, creating long waits for ships to berth at cargo terminals and for containers to be transported out of the ports. Ghana Ports and Harbor Authority (GPHA) is working to modernize both the Ports of Tema and Takoradi. In November 2016, Ghana launched a $ billion public-private partnership between GPHA and Meridian Port Services, a partnership representing interests from the Netherlands and France, to quadruple the capacity of the Tema Port. This port expansion project is expected to be completed in 2019. Ghana also has launched several initiatives over the past couple of years to support online information and processing of trade transactions, including the development of a National Single Window. In September 2017, Ghana introduced electronic ( paperless ) cargo clearance at ports to reduce clearance times. The Customs Division of the Ghana Revenue Authority has taken on the inspection and valuation role once occupied by five licensed destination inspection companies, who many believed were the source of the long clearance delays. However, the one percent fee associated with the inspections is still collected. Ghana has ratified the WTO Trade Facilitation Agreement and identified Category A commitments. GOVERNMENT PROCUREMENT Some large public procurements are conducted with open tendering and allow the participation of nondomestic firms. However, single source procurements are common on many government contracts. A guideline that applies to current tenders gives a margin of preference of percent to 20 percent to domestic suppliers of goods and services in international competitive bidding. Notwithstanding the public procurement law, companies report that locally funded contracts lack full transparency. Supplier- or foreign government-subsidized financing arrangements appear in some cases to be a crucial factor in the award of government procurements. Allegations of corruption in the tender process are fairly common. Ghana is neither a signatory to nor an observer of the WTO Agreement on Government Procurement. INTELLECTUAL PROPERTY RIGHTS PROTECTION In 2016, Ghana launched its national intellectual property rights (IPR) policy and strategy. Further, Ghana has taken action to enforce IPR, including periodically conducting raids on physical markets for pirated works and inspections of import shipments. Despite these efforts to strengthen its IPR regime, enforcement remains weak and unreasonable delays in infringement proceedings discourage IPR owners from filing new claims in local courts. SERVICES BARRIERS Telecommunications For licenses for 800 MHz spectrum for mobile telecommunications services, Ghana restricts foreign participation to a joint venture or consortium that includes a minimum of 35 percent indigenous Ghanaian FOREIGN TRADE BARRIERS 206 ownership. Applicants that do not reach 35 percent Ghanaian ownership within 13 months from the effective date of the license risk severe penalties. Following legislation enacted in 2009, Ghana requires a minimum rate of $ per minute for terminating international calls into Ghana, which is significantly higher than the average rate prior to 2009. This rate increase has correlated with a decrease in call volume from the United States to Ghana, and a decrease in termination payments to carriers in Ghana. INVESTMENT BARRIERS All foreign investment projects must be registered with the Ghana Investment Promotion Center. While the registration process is designed to be completed within five business days, the process often takes significantly longer. Foreign investments are also subject to the following minimum capital requirements: $200,000 for joint ventures with a Ghanaian partner; $500,000 for enterprises wholly-owned by a non-Ghanaian; and $1 million for trading companies (firms that buy or sell imported goods or services) that are wholly owned by non-Ghanaian entities. Trading companies are also required to employ at least 20 skilled Ghanaian nationals. Ghana s investment code excludes foreign investors from participating in eight economic sectors: petty trading; the operation of taxi and car rental services with fleets of fewer than 25 vehicles; lotteries (excluding soccer pools); the operation of beauty salons and barber shops; printing of recharge scratch cards for subscribers to telecommunications services; production of exercise books and stationery; retail of finished pharmaceutical products; and the production, supply, and retail of drinking water in sealed pouches. Mining Ghana restricts the issuance of mining licenses based on the size of the mining operation. Foreign investors are prohibited from obtaining a Small Scale Mining License for mining operations that equal an area less than 25 acres (10 hectares). Non-Ghanaians may only apply for a mineral right in respect of industrial minerals for projects involving an investment of at least $10 million. The Minerals and Mining Act (2006, Act 703) mandates compulsory local participation, whereby the government acquires a 10 percent equity stake in ventures at no cost. In order to qualify for a license, a non-Ghanaian company must be registered in Ghana, either as a branch office or a subsidiary that is incorporated under the Ghana Companies Code or Private Partnership Act. Oil and Gas The oil and gas sector is subject to a variety of state ownership and local content requirements. The Petroleum (Exploration and Production) Act (2016, Act 919) mandates local participation. All entities seeking petroleum exploration licenses in Ghana must create a consortium in which the state-owned Ghana National Petroleum Company holds a minimum 10 percent stake. The Petroleum Commission issues all licenses, but exploration licenses must be approved by Parliament. Further, local content regulations specify in-country sourcing requirements with respect to goods, services, hiring, and training associated with petroleum operations. These regulations also require mandatory local equity participation for all suppliers and contractors. The Minister of Energy must approve all contracts, subcontracts, and purchase orders above $100,000. Non-compliance with these regulations may result in a criminal penalty, including imprisonment for up to five years. FOREIGN TRADE BARRIERS 207 The Petroleum Commission applies registration fees and annual renewal fees on foreign oil and gas service providers, which, depending on a company s annual revenues, range from $70,000 to $150,000, compared to fees of between $5,000 and $30,000 for local companies. Insurance The National Insurance Commission (NIC) imposes nationality requirements with respect to the board and senior management of locally-incorporated insurance and reinsurance companies. At least two board members must be Ghanaians, and either the Chairman of the board of directors or the Chief Executive Officer (CEO) must be Ghanaian. If the CEO is not Ghanaian, the NIC requires that the Chief Financial Officer be Ghanaian. OTHER BARRIERS Foreign investors experience difficulties and delays in securing required work visas for their non-Ghanaian employees. The process for obtaining required work permits can be unpredictable and take several months from application to delivery. Obtaining access to land may also be challenging for foreign investors. Non-Ghanaians are only permitted to acquire interests in land on a long-term leasehold basis, and Ghana s complex land tenure system makes establishing clear title on real estate difficult. Foreign investors in Ghana must also contend with a politicized business community and a lack of transparency in certain government operations. Entrenched local interests can derail or delay new entrants. The political leanings of the Ghanaian partners of foreign investors are often subject to government scrutiny. Corruption among government and business figures also remains a concern. Ghanaian law enforcement and judicial bodies have robust legal powers to fight corruption in the country, but the government does not implement anticorruption laws effectively. FOREIGN TRADE BARRIERS 208 FOREIGN TRADE BARRIERS 209 GUATEMALA TRADE SUMMARY The goods trade surplus with Guatemala was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to Guatemala were $ billion, up percent ($ billion) from the previous year. Corresponding imports from Guatemala were $ billion, up percent. Guatemala was the United States' 35th largest goods export market in 2017. exports of services to Guatemala were an estimated $ billion in 2016 (latest data available) and imports were $997 million. Sales of services in Guatemala by majority affiliates were $796 million in 2015 (latest data available), while sales of services in the United States by majority Guatemala-owned firms were $5 million. foreign direct investment (FDI) in Guatemala (stock) was $ billion in 2016 (latest data available), a percent decrease from 2015. FREE TRADE AGREEMENTS Dominican Republic-Central America United States Free Trade Agreement The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in 2006; for the Dominican Republic in 2007; and, for Costa Rica in 2009. The CAFTA-DR significantly liberalizes trade in goods and services, as well as includes important disciplines relating to customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environment. SANITARY AND PHYTOSANITARY BARRIERS Guatemala is implementing the 2011 Central American Technical Regulation on Sanitary and Phytosanitary (SPS) Measures and Procedures (Council of Ministers of Economic Integration of Central America - Resolution 271-2011), which requires the inspection by Guatemalan authorities of packing plants that are first time exporters of non-processed products that have high sanitary risks, as determined by the government of Guatemala. This import requirement was not notified to the WTO SPS Committee by any of the Central American countries, including Guatemala. Guatemalan sanitary and phytosanitary import requirements change frequently, often without any prior WTO notification. Import permit requirements frequently change, resulting in an 80 percent initial rejection rate, requiring re-application, delays between five and 20 days, and associated demurrage costs. Guatemala also imposes burdensome certification requirements state-by-state for exports. Although Guatemala published an official list of quarantine pests in November 2016, there is no science-based protocol for treating these pests. Unlike in the United States, Guatemala fumigates and then denies entry to containers with quarantine pests, regardless of whether another treatment is possible. FOREIGN TRADE BARRIERS 210 IMPORT POLICIES Tariffs As a member of the Central American Common Market, Guatemala applies a harmonized external tariff on most items at a maximum of 15 percent, with some exceptions. Under the CAFTA-DR, as of January 1, 2015, all originating consumer and industrial goods enter Guatemala duty free. Nearly all textile and apparel goods that meet the Agreement s rules of origin also enter Guatemala duty free and quota free, promoting new opportunities for and regional fiber, yarn, fabric, and apparel manufacturing companies. In addition, over 95 percent of agricultural exports enter Guatemala duty free under the CAFTA-DR. Guatemala will eliminate its remaining tariffs on nearly all agricultural products by 2020, on rice by 2023, and on dairy products by 2025. In 2017, Guatemala eliminated its out-of-quota tariff for fresh, frozen and chilled chicken leg quarters, five years early. For certain products, tariff-rate quotas (TRQs) permit duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount expanding during that period. Guatemala will liberalize trade in white corn through continual expansion of a TRQ, rather than by the reduction of the out-of-quota tariff. The Guatemalan government is required under the CAFTA-DR to make TRQs available on January 1 of each year. Nontariff Measures All CAFTA-DR countries, including Guatemala, committed to improve transparency and efficiency in administering customs procedures. The CAFTA-DR countries also committed to ensuring greater procedural certainty and fairness in the administration of these procedures, and agreed to share information to combat illegal transshipment of goods. Customs information for Guatemala is available at: Guatemala s occasional denial of claims for preferential treatment for products under CAFTA-DR continues to be a source of difficulty in exporting to Guatemala. companies have raised concerns that the Guatemalan Customs Administration (part of the Superintendence of Tax Administration) is using reference prices, such as prices from imports in previous months, to adjust invoice price declarations. Throughout 2016 and 2017, Customs was using a reference price for certain chicken products that was more than twice as high as the market price. These imports were stopped at port for up to 25 days while Customs performed a revaluation investigation (despite valuation not posing an admissibility question). Many of the investigations are still pending a final finding and of those that were finalized, not one was ruled in favor of the importer. Stakeholders report that Guatemalan customs authorities also occasionally challenge declared tariff classifications, including for products for which the tariff classifications should be straightforward, and attempt to reclassify the products so that they are subject to a higher tariff. These practices raise concerns that the customs administration might be denying CAFTA-DR preferential tariff treatment to qualifying exports, as a means of increasing revenue. The United States will continue to raise these concerns with Guatemala. GOVERNMENT PROCUREMENT The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including advance notice of purchases as well as timely and effective bid review procedures, for procurement covered by the Agreement. Under the CAFTA-DR, suppliers are permitted to bid on procurements of most Guatemalan government entities, including government ministries and sub-central and state-owned entities, FOREIGN TRADE BARRIERS 211 on the same basis as Guatemalan suppliers. The anticorruption provisions in the CAFTA-DR apply, inter alia, to government procurement. Reforms of Guatemala s Government Procurement Law in 2009 simplified bidding procedures, eliminated the fee previously charged to suppliers for bidding documents, and provided an additional opportunity for suppliers to raise objections to the bidding process. Furthermore, the Guatemalan Congress approved reforms to the Government Procurement Law in November 2015 that improved procurement transparency and efficiency by barring government contracts for financers of political campaigns and parties, members of Congress, other elected officials, government workers, and their family members. The 2015 reforms expanded the scope of procurement oversight to include public trust funds and all institutions (including NGOs) expending public funds, and also eliminated some of the special-purpose mechanisms used to avoid competitive bidding processes. However, foreign suppliers must still submit their bids through locally registered representatives, a process that places foreign bidders at a competitive disadvantage. Guatemala is neither a signatory to nor an observer of the WTO Agreement on Government Procurement. EXPORT SUBSIDIES Guatemala employed an export incentive program in the Law for the Promotion and Development of Export Activities and Drawback through December 31, 2015. Guatemala provided tax exemptions and duty benefits to companies that imported over half of their production inputs or components and exported their completed products. Investors were granted a 10-year exemption from both income taxes and the Solidarity Tax, which is Guatemala s temporary alternative minimum tax. Additionally, companies were granted an exemption from the payment of tariffs and value-added taxes on imported machinery and a one-year suspension (extendable to a second year) of the same tariffs and taxes on imports of production inputs and packing material. Taxes were waived when the goods were re-exported. The Guatemalan Congress amended the Law for the Promotion and Development of Export Activities and Drawback in February 2016 to replace the tax incentive program that expired in December 2015. The new tax exemptions are applied to apparel and textile companies as well as to information and communication technology service providers, such as call centers and business processes outsourcing (BPO) operations. INTELLECTUAL PROPERTY RIGHTS PROTECTION Guatemala remained on the Watch List in the 2017 Special 301 Report. While Guatemala s National Police and Attorney General s Office significantly increased intellectual property (IP) prosecutions in 2016, IP enforcement activities remain limited and inadequate in relation to the scope of the problem due to resource constraints and lack of coordination among law enforcement agencies. The United States continues to urge Guatemala to strengthen enforcement, including criminal prosecution, and administrative and customs border measures. Pirated and counterfeit goods continue to be widely available and Guatemala has reportedly become a source of counterfeit pharmaceutical products. Trademark squatting is of significant concern, affecting the ability of legitimate businesses to use their trademarks, as administrative remedies are inadequate and relief through the courts is slow and expensive. Cable signal piracy and government use of unlicensed software are also serious problems that remain largely unaddressed. Additionally, the United States continues to urge Guatemala to provide greater clarity in the scope of protection for GIs, including by ensuring that all producers are able to use common food names, including any that are elements of a compound GI. The United States will continue to engage Guatemala on these and other concerns, including through the Special 301 process, and will continue to monitor Guatemala s implementation of its IPR obligations under the CAFTA-DR. FOREIGN TRADE BARRIERS 212 SERVICES BARRIERS Professional Services Foreign enterprises may provide licensed professional services in Guatemala only through a contract or other relationship with an enterprise established in Guatemala. Additionally, public notaries must be Guatemalan nationals. INVESTMENT BARRIERS Some companies operating in Guatemala have raised concerns that complex and unclear laws and regulations constitute barriers to investment. Resolution of business and investment disputes through Guatemala s judicial system is extremely time-consuming and civil cases can take many years to resolve. In addition, government institutions in Guatemala can be prone to third-party influence. firms and citizens have found corruption in the government, including in the judiciary, to be a significant concern and a constraint to investment. Delays and uncertainty in obtaining licenses from relevant Guatemalan authorities for exploration and operation in extractive industries have the effect of inhibiting current and potential investments from firms. FOREIGN TRADE BARRIERS 213 HONDURAS TRADE SUMMARY The goods trade surplus with Honduras was $501 million in 2017, a percent increase ($289 million) over 2016. goods exports to Honduras were $ billion, up percent ($253 million) from the previous year. Corresponding imports from Honduras were $ billion, down percent. Honduras was the United States' 41st largest goods export market in 2017. exports of services to Honduras were an estimated $ billion in 2016 (latest data available) and imports were $634 million. Sales of services in Honduras by majority affiliates were $534 million in 2015 (latest data available). foreign direct investment (FDI) in Honduras (stock) was $ billion in 2016 (latest data available), a percent decrease from 2015. direct investment in Honduras is led by manufacturing, nonbank holding companies, and information. TRADE AGREEMENTS Dominican Republic-Central America United States Free Trade Agreement The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR or the Agreement) entered into force for the United States, El Salvador, Guatemala, Honduras, and Nicaragua in 2006; for the Dominican Republic in 2007; and, for Costa Rica in 2009. The CAFTA-DR significantly liberalizes trade in goods and services, as well as includes important disciplines relating to customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, transparency, and labor and environment. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Product Registration Product registration is a legal requirement for marketing products in Honduras. Registration of products with the Ministry of Health is particularly burdensome for importers. Following a July 20, 2017 Government-supported regional conference, the government of Honduras shifted management of product registration from the Ministry of Health to the newly launched Sanitary Regulatory Agency (Agencia de Regulacion Sanitaria ARSA). By the end of 2017, the agency had granted 9,000 of 13,000 pending sanitary registrations, nearly 70 percent of the backlog. The creation of ARSA and the increased efficiency of registrations required to commercialize products facilitates exports. Sanitary and Phytosanitary Barriers Honduras is implementing the 2011 Central American Technical Regulation on sanitary and phytosanitary (SPS) Measures and Procedures (COMIECO Resolution 271-2011), which requires the inspection by Honduran authorities of packing plants that are first time exporters of non-processed products that have high sanitary risks, as determined by the government of Honduras. This import requirement was not notified to the WTO by any of the Central American countries, including Honduras. FOREIGN TRADE BARRIERS 214 IMPORT POLICIES Tariffs As a member of the Central American Common Market, Honduras applies a harmonized external tariff on most items at a maximum of 15 percent, with some exceptions. Under the CAFTA-DR, 100 percent of consumer and industrial goods enter Honduras duty free. Nearly all textile and apparel goods that meet the Agreement s rules of origin also enter Honduras duty free and quota free, creating opportunities for fiber, yarn, fabric, and apparel manufacturers. In addition, most agricultural exports enter Honduras duty free. Honduras will eliminate its remaining tariffs on nearly all agricultural products by 2020. Honduras will eliminate remaining tariffs on rice and chicken leg quarters by 2023 and on dairy products by 2025. For certain products, tariff-rate quotas (TRQs) permit some duty-free access for specified quantities during the tariff phase-out period, with the duty-free quantities expanding during that period. Honduras will liberalize trade in white corn through continual expansion of a TRQ, rather than by the reduction of the out-of-quota tariff. The Honduran government is required under the CAFTA-DR to make TRQs available on January 1 of each year. Honduras monitors its TRQs through an import licensing system, which the United States is carefully tracking to ensure Honduran issuance of these permits occurs in a timely manner. Nontariff Measures In July 2017, the Honduran government implemented a voluntary local purchase requirement for pork importers. The program requires each importer to purchase locally a quantity of Honduran live hogs that depends on how much pork the importer will import. The goal of the program is to ensure the purchase of all domestically-produced hogs. Customs and Trade Facilitation Under the Agreement, all CAFTA-DR countries, including Honduras, committed to improve transparency and efficiency in administering customs procedures. All CAFTA-DR countries, including Honduras, also committed to ensuring greater procedural certainty and fairness in the administration of these procedures, and all CAFTA-DR countries agreed to share with each other information to combat illegal transshipment. In March 2016, the government of Honduras restructured its customs and tax agency, the Executive Tax Authority (DEI), and significantly reduced its workforce. A new Tax Administration System (SAR) has replaced DEI and assumed DEI s role in verifying that claims of origin meet the requirements of the CAFTA-DR and other international agreements. The SAR has implemented a much stricter approach to customs compliance, which has initially resulted in increased fines against Honduran importers, whose paperwork may contain errors, in addition to delays in customs processing. On November 21, 2016, the government of Honduras launched the Presidential Commission for Integral Reform of the Customs System (COPRISAO) in response to recurrent private sector complaints involving procedural delays for entry and release of goods at Honduran customs. Public and private sector representatives administer COPRISAO with the aim of simplifying import/export procedures and improving relevant efficiency aspects of Honduran customs services. To assist the Honduran government in building COPRISAO s technical capacity, the Embassy launched a Customs Task Force. assistance includes site visits to view port operations, trainings and workshops for customs personnel, and technology exhibitions with companies. FOREIGN TRADE BARRIERS 215 In July 2016, Honduras formally ratified the WTO Trade Facilitation Agreement (TFA), which contains provisions for expediting the movement, release, and clearance of goods, and sets out measures for effective cooperation for customs compliance and trade facilitation issues. The government of Honduras has yet to pass legislation to establish a National Trade Facilitation Committee (NTFC). USAID has supported the development of the NTFC organizational charter, governance of the committee, and mediation of the government of Honduras and private sector in drafting the originating legislation. As a means to improve customs and trade facilitation within the Northern Triangle, the government of Honduras has formally signed a cooperation agreement with USAID to identify and alleviate trade bottlenecks along its border with El Salvador. Guatemala and Honduras initiated a Customs Union on June 26, 2017, to foster and increase efficient cross-border trade. The two countries inaugurated a bi-national facility located at the Corinto port-of-entry (POE) in Cortes, Honduras, as the first joint POE in the Americas to incorporate the transmission of advanced information to facilitate cargo processing. During 2017 s presidential election campaign, President Juan Orlando Hernandez revived the Zona de Empleo y Desarrollo Econ mico (ZEDE) initiative to boost foreign investment and job creation. The government of Honduras originally proposed the semi-autonomous administrative zones in 2011 and signed a ZEDE law in 2013, but momentum slowed after a backlash from local and international nongovernmental organizations concerned about labor rights, land issues, and environmental protection. Then in August 2017 as part of his reelection campaign platform, President Hernandez proposed ZEDEs as a catalyst to economic development and reducing unemployment. On October 23, the government of Honduras announced plans to develop seven ZEDEs throughout Honduras. Planning for some ZEDEs is underway, including one in West Bay, Roatan, which seeks to resolve critical infrastructure problems and install more efficient services and regulations. GOVERNMENT PROCUREMENT The CAFTA-DR requires that procuring entities use fair and transparent procurement procedures, including advance notice of purchases and timely and effective bid review procedures, for procurements covered by the Agreement. Under the CAFTA-DR, suppliers can bid on the procurements of most Honduran government entities, including those of key ministries and state-owned enterprises, on the same basis as Honduran suppliers. The anticorruption provisions in the CAFTA-DR apply, inter alia, to government procurement. Efforts to strengthen Honduran procurement systems are also underway. On January 9, 2017, the government of Honduras launched the National Procurement Office s (ONCAE s) new procurement certification program to improve the accountability and competency of its staff. The program is part of the Millennium Challenge Corporation s Threshold program to support President Hernandez s efforts to create a more transparent, fair, and efficient procurement process. As part of ONCAE s State Contracting and Procurement Efficiency Program to simplify the bidding process, Honduras implemented a national Standard Bidding Document, which has been deemed acceptable to multilateral financing entities such as the Inter-American Development Bank and the World Bank. In 2018, Honduras will implement an e-procurement system to improve efficiency and require online bidding. Honduras is not a party to, nor an observer of, the WTO Agreement on Government Procurement. FOREIGN TRADE BARRIERS 216 EXPORT SUBSIDIES Under the CAFTA-DR, Honduras may not adopt new duty waivers or expand existing duty waivers that are conditioned on the fulfillment of a performance requirement ( , the export of a given level or percentage of goods). However, Honduras may maintain such duty waiver measures for such time as it is an Annex VII country for the purposes of the WTO Agreement on Subsidies and Countervailing Measures. Honduras provides tax exemptions to firms in free trade zones. Honduras currently employs the following export incentive programs: Free Trade Zone of Puerto Cortes (ZOLI), Export Processing Zones (ZIP), and Temporary Import Regime (RIT). INTELLECTUAL PROPERTY RIGHTS PROTECTION The United States worked closely with the government of Honduras as it developed a Work Plan, finalized in early 2016, to improve the protection and enforcement of intellectual property in Honduras. Proper implementation of the Work Plan will help address the need for more effective administrative and criminal enforcement against intellectual property violations, including by combatting cable and satellite signal piracy and ensuring that the scope of geographical indication protections does not negatively impact stakeholders prior rights and market access. Greater clarity is needed to improve procedures relating to customs enforcement, including developing a trademark recordation system, and relating to the scope of protection for geographical indications, among other issues. SERVICES BARRIERS firms and citizens report a significant concern with obtaining government permits, particularly in real estate transactions, and meeting regulatory requirements in the telecommunications, health, and energy sectors. INVESTMENT BARRIERS Honduran law places certain restrictions on foreign ownership of land within 40 kilometers of the country s coastlines and national boundaries. However, the law allows foreigners to purchase properties (with some acreage restrictions) in designated zones established by the Ministry of Tourism in order to construct permanent or vacation homes. Inadequate land title procedures have led to investment disputes involving nationals who are landowners in Honduras. Corruption The Honduran government has undertaken several measures in an effort to address corruption, including pursuing indictments against current and former government officials; partnering with the Organization of American States, beginning in 2016, to create the independent Mission to Support the Fight against Corruption and Impunity in Honduras (MACCIH); signing international transparency initiatives, such as the Construction Sector Transparency Initiative; and, dedicating resources to bolster existing commitments under initiatives such as the Open Government Partnership and the Extractive Industry Transparency Initiative. Despite these efforts, firms and citizens continue to report corruption in the government, including in the judiciary, to be a significant concern and a constraint to successful investment in Honduras. These reports suggest that corruption is pervasive in government procurement, the issuance of government permits, real estate transactions (particularly land title transfers), and the regulatory system in general. The telecommunications, health, and energy sectors appear to be particularly problematic. FOREIGN TRADE BARRIERS 217 HONG KONG TRADE SUMMARY The goods trade surplus with Hong Kong was $ billion in 2017, a percent increase ($ billion) over 2016. goods exports to Hong Kong were $ billion, up percent ($ billion) from the previous year. Corresponding imports from Hong Kong were $ billion, up percent. Hong Kong was the United States' 9th largest goods export market in 2017. exports of services to Hong Kong were an estimated $ billion in 2017 and imports were $ billion. Sales of services in Hong Kong by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Hong Kong-owned firms were $ billion. foreign direct investment (FDI) in Hong Kong (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Hong Kong is led by wholesale trade, nonbank holding companies, and information. OVERVIEW Hong Kong is a special administrative region (SAR) of the People s Republic of China, and the Hong Kong Basic Law provides for a high degree of autonomy in all matters but defense and foreign affairs. For trade, customs and immigration purposes, Hong Kong is an independent administrative entity with its own trade laws and regulations and is a separate Member of both the WTO and APEC. TECHNICAL BARRIERS TO TRADE The Hong Kong Code of Marketing of Formula Milk and Related Products and Food Products for Infants and Young Children ( Infant Formula Marketing Code ) became effective in June 2017. While the Hong Kong government maintains that the Infant Formula Marketing Code is based on World Health Organization guidance and purportedly voluntary, industry is concerned that the Infant Formula Marketing Code will become de facto mandatory if the Hong Kong Hospital Authority requires it as part of any tender. IMPORT POLICIES The Hong Kong government pursues a market-oriented approach to commerce. Hong Kong is a duty- free port, with few barriers to trade in goods and services and few restrictions on foreign capital flows and investment. INTELLECTUAL PROPERTY RIGHTS PROTECTION Hong Kong generally provides robust intellectual property rights (IPR) protection and enforcement and for the most part has strong laws in place. Hong Kong also maintains a dedicated and effective enforcement capacity, a judicial system that supports enforcement efforts with deterrent fines and criminal sentences, and youth education programs that discourage IPR-infringing activities. On the other hand, Hong Kong s failure to modernize its copyright system has allowed it to become vulnerable to digital copyright piracy. Lacking an updated copyright system, industry groups are making efforts to develop an Infringing Website List (IWL) to raise awareness of websites offering pirated content among advertisers. Devices enabling illegal streaming of digital content are also available in Hong Kong. While the Hong Kong Customs and Excise Department routinely seizes IPR-infringing products arriving from mainland China and elsewhere, stakeholders FOREIGN TRADE BARRIERS 218 report that counterfeit pharmaceuticals, luxury goods and other infringing products continue to transit through Hong Kong in significant quantities. Such transits are typically destined for both the local market and places outside of Hong Kong. FOREIGN TRADE BARRIERS 219 INDIA TRADE SUMMARY The goods trade deficit with India was $ billion in 2017, a percent decrease ($ billion) over 2016. goods exports to India were $ billion, up percent ($ billion) from the previous year. Corresponding imports from India were $ billion, up percent. India was the United States' 15th largest goods export market in 2017. exports of services to India were an estimated $ billion in 2017 and imports were $ billion. Sales of services in India by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority India-owned firms were $ billion. foreign direct investment (FDI) in India (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in India is led by prof., scientific, and tech. services, manufacturing, and wholesale trade. OVERVIEW The primary bilateral forum for discussing trade issues with India is the United States - India Trade Policy Forum (TPF), held annually and co-chaired by Trade Representative Robert Lighthizer and Minister of Commerce and Industry Suresh Prabhu, with senior-level intersessional meetings in between ministerial-level ones. The most recent TPF was held in October 2017 in Washington, TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade In addition to discussing technical barriers to trade (TBT) matters with Indian officials under the TPF, the United States discusses TBT issues with India during Committee meetings at the World Trade Organization (WTO), as well as on the margins of those meetings. Toys On September 1, 2017, the Indian Ministry of Commerce and Industry announced a new measure, Amendment in Policy Condition No. 2 to Chapter 95 of ITC (HS), 2017 Schedule 1 (Import Policy). The new requirement, which went into effect immediately, requires all toy imports to be tested using a conformity assessment facility accredited by India s National Accreditation Board for Testing and Certification (NABL) to demonstrate compliance with newly updated Indian toy safety standards. The only such laboratories are located in India, and no laboratories were accredited at the time of implementation. Before the enactment of the measure, producers could test their products to the applicable ISO, ASTM, or EN toy safety standard at any laboratory accredited under the International Laboratory Accreditation Corporation (ILAC) system. manufacturers have reported significant increases in costs and delays. In some cases, certain products have been prevented from accessing the Indian market entirely due to a lack of testing capacity and approvals. Compulsory Registration Order for Electronics and Information Technology Goods In September 2012, India published the Electronics and Information Technology Goods Compulsory Registration Order (CRO), which requires electronic and information technology (IT) equipment to meet FOREIGN TRADE BARRIERS 220 Indian product safety standards by, among other things, being tested by a laboratory recognized by the Bureau of Indian Standards (BIS). Since the enactment of the original requirement, India continues to expand the list of products subject to the measure, which now covers 44 different types of electronic and information technology (IT) equipment. Most IT products receive certification under the International Electrotechnical Commission (IEC) System of Conformity Testing and Certification for Electrotechnical Equipment and Components (IECEE), making this secondary testing unnecessarily duplicative. In 2016, India permitted foreign laboratories to be recognized by BIS, but only if such labs were physically located in India. In 2017, BIS also revoked previously approved CRO registrations on multiple IT products for what appear to be administrative or discretionary reasons rather than issues related to compliance with the safety standards. According to equipment producers, the unnecessary testing and registration requirements, as well as registration cancelations under the CRO, have caused significant disruption to supply chains and costly delays. Telecommunications Equipment - Security Regulations In 2009 and 2010, India promulgated a number of regulations negatively impacting trade in telecommunications equipment, including mandatory transfer of technology and source code as well as burdensome testing and certification requirements for telecommunications equipment. India removed most of these measures in response to international stakeholders concerns, but is expected to implement regulations requiring the testing of all security-sensitive telecommunications equipment in India in April 2018. It is unclear whether India will have the domestic testing capacity to implement the testing criteria. officials continue to urge India to reconsider the domestic testing policy and to adopt the use of the Common Criteria Recognition Arrangement. In 2017, the United States raised concerns related to India s telecommunications security testing requirements bilaterally under the TPF and in the WTO TBT Committee. Food - Package Size and Labeling Requirements The government of India mandated standard retail package sizes for 19 categories of foods and beverages effective November 1, 2012, via amendment to the Legal Metrology (Packaged Commodities) Rules, 2011. This rule to date has not been notified to the WTO, nor has there been any reference to a specific comment period for domestic stakeholders since implementation. As the United States does not impose specific standards for packaging size, and package sizes tend to be in English rather than metric units, the list of package sizes effectively prevents many origin products from entering India. Attempts to import products in the affected categories have resulted in rejection at the port of entry. These standards have a negative effect on trade, with numerous brands effectively excluded from the Indian market. The United States continues to raise concerns about these standards in various bilateral and multilateral fora in an effort to ensure that products have access to the Indian market. Foods Derived from Biotechnology Crops Biotechnology products must be approved by India s Genetic Engineering Appraisal Committee (GEAC) before importation or domestic cultivation. India s biotechnology approval processes are slow, opaque, and subject to political influences. Despite signs of progress, the GEAC s steps in 2017 towards approving a public sector, domestically developed genetically engineered (GE) mustard plant variety for commercial cultivation was further delayed pending additional government review; the government has yet to take a decision on its approval. Soybean oil and canola oil, derived from GE soybeans and canola, remain the only biotechnology food or agricultural products currently approved for import into the Indian market, and Bt cotton is the only biotechnology crop approved for commercial cultivation in India. This slow and FOREIGN TRADE BARRIERS 221 uncertain approval process continues to negatively impact product registrations needed to facilitate trade in biotechnology products. Without enhanced capacity for science based decision making, India s acceptance and approval of additional agricultural biotechnology products will remain limited. In the event that additional biotechnology products are approved for import in the future, the labeling requirements for packages containing genetically modified foods remain unclear. Lack of clarity regarding jurisdictional authority between the Food Safety and Standards Authority of India (FSSAI) and the GEAC could also have negative effects on crops and products derived from biotechnology entering the Indian market. Also, the Ministry of Agriculture and Farmers Welfare (MAFW) has issued regulations that have significantly limited the incentive for research and development, as well as investment in the agriculture biotechnology sphere. These include the December 2015 Cotton Seed Price Control Order, the March 2016 Notification that established the maximum sale price of Bt cottonseed packets (including the royalty fee), and the May 2016 Licensing and Formats for GM Technology Agreement Guidelines. Livestock Genetics The Department of Animal Husbandry, Dairying, and Fisheries (DAHDF) of the Ministry of Agriculture imposes restrictions on imports of livestock genetics and establishes quality standards. Importation of animal genetics also requires a no objection certificate (NOC) from the state government, import permission from the Directorate General of Foreign Trade, and an import permit from the DAHDF. The entire procedure for obtaining permission to import generally takes more than four months. Similarly, certain sanitary requirements are also restrictive, including animal disease regulations and testing requirements for imports of animal genetics. Neither the burdensome progeny testing nor the NOC are required of domestic producers of animal genetics. The United States discussed these requirements in technical level meetings of animal health experts held in November 2016 and August 2017 with the DAHDF. India has recently accepted the United States proposed veterinary health certificates for exports of in vivo derived bovine embryos, live bovine semen, and live equines. Dairy Products India imposes onerous requirements on dairy imports. India continues to require that dairy products be derived from animals which have never consumed any feeds containing internal organs, blood meal, or tissues of ruminant origin. India has explained that its position is based on religious and cultural grounds. This requirement, along with high tariff rates, continues to prevent market access for milk and dairy product exports to India, one of the largest dairy markets in the world. In order to address India s religious and cultural concerns, in 2015, the United States proposed a labeling solution to allow for consumer choice between dairy products derived from animals that have or have not consumed feeds with ruminant protein. India has so far rejected that proposal, and the United States continues to press India to provide access to the Indian dairy market. Alcoholic Beverage Standards In 2015 and 2016, India notified three different standards that apply to alcoholic beverages to the WTO, including the Food Safety and Standards (Food Additives) Regulations; the Food Safety and Standards (Alcoholic Beverage Standard) Regulations and the Food Safety and Standards (Food Imports) Regulations. Since then, revisions of all three regulations have been either notified to the WTO or published in The Gazette of India. The Government and industry representatives have provided comments on each these measures. The United States still has a range of potential concerns, including potential India-specific labelling requirements, certain product definitions, production method specifications, compositional requirements and ingredient limits, alcohol by volume limits, serving size criteria that are inconsistent with standard international practice, a limited list of approved additives, and maximum residue levels for many FOREIGN TRADE BARRIERS 222 chemical contaminants for which standards do not exist in Codex Alimentarius. The Alcoholic Beverage Standard has been implemented and published in the Gazette, and the United States continues to take every opportunity to raise its concerns in order to improve the restrictive approach to the regulation of alcoholic beverages in India. Sanitary and Phytosanitary Barriers The United States has raised concerns about India s sanitary and phytosanitary (SPS)-related trade restrictions in bilateral and multilateral fora including the TPF, the WTO SPS Committee, and Codex. The United States will continue to make use of all available fora with a view to securing the entry into the Indian market of poultry, pork, and other agricultural products, including alfalfa hay, cherries, strawberries, and pet food. As part of the TPF, the United States and India met for a Plant Health bilateral meeting in July 2017 and an Animal Health bilateral meeting in August 2017. Food - Product Testing Importers have expressed concerns with FSSAI s batch-by-batch inspections at the port because of high cost and the detention of cargo for indeterminate periods of time, which is particularly costly with respect to perishable products. In June 2015, India announced a plan to transition its imported food inspection protocol from batch-by-batch inspections and sampling to a risk based approach. During discussions at the 2016 TPF, Indian officials noted that they are actively working to develop and implement a risk based inspection system and provided a general overview of their approach. The United States is collaborating with India on developing more specific guidance and a timeline to transition its inspections protocols. On April 1, 2016, the Indian Central Board of Excise and Customs (CBEC) launched its Single Window Interface for Facilitating Trade (SWIFT) system. This is an initiative by the government of India to streamline clearances for inbound consignments and to improve the ease of doing business. Along with SWIFT, the CBEC also introduced an Integrated Risk Management facility for partner government agencies, which is designed to ensure that consignments are selected for testing based on the principle of risk management ensuring that foods that present actual food safety risks are tested while goods that pose little to no risk can avoid becoming subject to unnecessary procedures by inspection agencies. In the modified Food Import Regulations published September 2, 2016, FSSAI stated that a risk based random sampling will be followed wherein the samples will be drawn randomly based on the risk factor and compliance history of the importer identified by the newly introduced SWIFT system software. However, market sources report that the risk based inspection system is not yet fully operational as software linking with SWIFT and mapping by CBEC is still in process. Customs and FSSAI officials are working together in this evolving process and hope to fully implement the system in the coming years. Food - Product Approval FSSAI s product approval process has been under intense media and political scrutiny since August 2015 when the Supreme Court of India upheld an earlier decision by the High Court of Bombay that FSSAI did not have the legal authority to maintain its product approval regime. FSSAI stopped issuing product approvals in order to come into compliance with the Supreme Court s decision and is seeking a new approach to regulate new food and beverage products. On October 4, 2016, FSSAI published its new draft regulation called the Food Safety and Standards (Approval for Non-Specified Food and Food Ingredients) Regulations, 2016. On September 11, 2017, FSSAI published the final Regulation on product approval called the Food Safety and Standards (Approval for Non-Specified Food and Food Ingredients) Regulations, 2017. The final regulation lists the categories of food or food ingredients, mainly novel foods, requiring approval. Despite the final Regulation being in place, the pathway to product approval remains non-transparent. Because the requirements and process for new product approvals remain uncertain, FSSAI FOREIGN TRADE BARRIERS 223 could effectively block market innovations, product launches, and affect trade by not approving products for unspecified reasons. Pork In November 2015, India released a revised universal veterinary health certificate for import of pork and pork products detailing requirements for processing facilities, veterinary drug residues, and animal disease restrictions. In September 2016, the United States proposed a letterhead certificate to supplement the standard veterinary health certificate with additional attestations that address India s universal certificate. At the 2017 TPF, both sides agreed that technical discussions on the export of pork to India were at an advanced stage. In October 2017, the United States responded to India s request for more information, and India assured expedited examination of the information with the goal of finalizing an export certificate as soon as possible. The United States continues to work with the government of India to resolve the issue. Poultry Since 2007, India has banned imports of poultry, live swine, and related products due to the detection of low pathogenic and highly pathogenic avian influenza in the United States. The ban is applied on a countrywide basis, and thus does not take into account regional conditions including areas free of avian influenza in the United States. The United States repeatedly raised concerns about India s measures in the WTO SPS Committee, discussed them bilaterally with India, and in 2012, filed a dispute settlement case at the WTO. The panel found and the Appellate Body affirmed that India s avian influenza measures breach numerous provisions of the WTO SPS Agreement. On June 19, 2015, the WTO Dispute Settlement Body (DSB) adopted the panel and Appellate Body reports. On July 17, 2015, India indicated it would bring its measures into compliance with the adverse findings. The United States and India agreed that India had until June 19, 2016, to comply with the DSB s recommendations and rulings. India did not take any action by that date, and on July 7, 2016, the United States requested the authorization of the DSB to suspend concessions because India had failed to comply with the recommendations and rulings of the DSB. On July 18, 2016, India objected to the level of suspension of concessions. At the DSB meeting on July 19, 2016, this matter the appropriate level of concessions to be suspended was referred to arbitration. On March 2, 2017, India informed the DSB that it had taken all required measures to comply with the DSB's rulings and recommendations in this dispute and insisted the United States terminate the arbitration proceedings for the suspension of concessions. On April 6, 2017, India requested the establishment of a compliance panel. At its meeting on May 22, 2017, the DSB agreed to refer the matter raised by India to the original panel, if possible. The United States responded to India s claim of compliance before the WTO during the fall and winter of 2017. The United States and India presented arguments before the WTO panel in early December 2017. On July 8, 2017, India announced that it had adopted a new measure for avian influenza. The United States has concerns with how this measure will operate, and has attempted technical engagement with India concerning this new measure, and subsequent amendments India made to it. In November 2017, Indian officials visited the United States to discuss the health certificate for poultry and poultry products and conducted an audit visit. The United States continues to work with India to open market access for poultry products into India consistent with the WTO ruling. Until then, the United States considers the dispute unresolved. FOREIGN TRADE BARRIERS 224 Plant Health India maintains zero tolerance standards for certain plant quarantine pests, such as weed seeds and ergot, that are not based on risk assessments and result in blocked imports of wheat and barley. Bilateral discussions to resolve these issues, including at the senior official level, have achieved little success to date. India s requirement of methyl bromide (MB) fumigation at the port of origin as a condition for the import of pulses is not feasible in the United States, because of the phase-out of MB due to its demonstrated negative impact on the environment. In August 2004, the United States requested India to permit entry of peas and pulses subject to inspection and fumigation at the port of arrival. India has granted a series of extensions allowing MB fumigation on arrival, but has offered no permanent solution. On December 29, 2017, India s Ministry of Agriculture confirmed the extension of the fumigation-upon-arrival waiver for peas and pulses, including chickpeas, until June 30, 2018. While these extensions have avoided formal bans on trade, they are frequently last minute and create uncertainty for exporters. IMPORT POLICIES The United States has actively sought bilateral and multilateral opportunities to open India s market, and the government of India has pursued ongoing economic reform efforts. Nevertheless, exporters continue to encounter tariff and nontariff barriers that impede imports of products into India. Tariffs and other Charges on Imports In July 2017, India implemented the Good and Services Tax (GST) system in an effort to unify Indian states into a single market and improve the ease of doing business. The GST is designed to simplify the movement of goods within India, but it also applies to imports. Before the GST implementation, imports could be subject to an additional duty, a special additional duty, an education cess (tax), state level value added or sales taxes, the Central Sales Tax, and/or various other local taxes and charges. The new GST system subsumed a number of these charges, including the additional duty and the special additional duty, that were previously levied on imports into the single GST. The tariff (or basic customs duty ) continues to be assessed on imports separately and has not been incorporated into the GST. The GST is a two-part system: a State and Central GST that is levied simultaneously on every transaction of goods and services in India, and an Integrated GST that covers goods and services sold between all Indian states. Both the Integrated GST and the GST are applied to imported goods. Under the new system, goods and services are taxed under four basic rates 5 percent, 12 percent, 18 percent and 28 percent. Some items, like vegetables and milk, have been exempted from the GST. The price of most goods and services increased in the immediate aftermath of the tax, and as expected, economic growth slowed for several months following GST implementation. The GST does not apply to alcoholic beverages, and stakeholders have identified various state-level taxes and other charges on imported alcohol that appear to be higher than those imposed on domestic alcohol. As part of its computerization and electronic services effort, in 2009, India initiated a web based Indian Customs Electronic Commerce/Electronic Data Interchange Gateway, known as ICEGATE ( ). It provides options for calculating duty rates, electronic filing of entry documents (import goods declarations) and shipping bills (export goods declarations), electronic payment, and online verification of import and export licenses. However, while India publishes applied tariffs and other customs duty rates applicable to imports, no single publicly available official publication includes all relevant and up to date information on tariffs, fees, and tax rates on imports. India adjusts applied tariffs in numerous ways that make it difficult to determine the current applied rate, including in the annual budget as well as FOREIGN TRADE BARRIERS 225 on an ad hoc basis through notifications in the Gazette of India. The notifications through the Gazette contain numerous exemptions that vary according to the product, user, or specific export promotion program, rendering India s customs system complex to administer and open to administrative discretion. India s tariff regime is also characterized by pronounced disparities between bound rates ( , the rates that under WTO rules generally cannot be exceeded) and the most favored nation (MFN) applied rates charged at the border. According to the latest WTO data, India s average bound tariff rate was percent, while its simple MFN average applied tariff for 2016 was percent. Many of India s bound tariff rates on agricultural products are among the highest in the world, averaging percent, and the highest tariffs range from 100 percent to 300 percent. Applied agricultural tariff rates are also high, and average percent. On a trade-weighted basis, the average agricultural tariff is 38 percent. In addition, while India has bound all agricultural tariff lines in the WTO, over 25 percent of India s non-agricultural tariffs remain unbound ( , there is no WTO ceiling on the rate). The large gap between bound and applied tariff rates allows India to use tariff policy to make frequent adjustments to the level of protection provided to domestic producers, creating uncertainty for importers and exporters. Tariff adjustments are regularly made in the agricultural sector. For example, in November 2017, India issued a customs notification announcing an immediate 50 percent tariff increase on dried pea imports from an applied rate of zero. On December 21, 2017, India raised the tariff rate for lentil and chickpea imports from zero to 30 percent. Together, the uncertainty and potential for large jumps in India s agricultural applied tariff rates present a significant barrier to trade in agricultural goods and processed foods ( , potatoes, citrus, almonds, pecans, walnuts, apples, grapes, canned peaches, chocolate, cookies, frozen French fries, and other prepared foods used in quick-service restaurants). India maintains very high tariffs on a number of other goods, including flowers (60 percent), natural rubber (70 percent), automobiles and motorcycles (60 percent to 100 percent), raisins and coffee (100 percent), alcoholic beverages (150 percent), and textiles (some ad valorem equivalent rates exceed 300 percent). India also operates a number of complicated schemes for imports, including duty drawback, duty exemption, and duty remission. Eligibility to participate in these schemes is usually subject to a number of conditions. India also maintains very high tariffs, in some cases exceeding 20 percent, on drug formulations, including lifesaving drugs and finished medicines listed on the World Health Organization s list of essential medicines. Despite its goal of moving toward Association of Southeast Asian Nations (ASEAN) tariff rates (approximately 5 percent on average), India has not systematically reduced tariffs and in recent years has generally been increasing tariff rates across sectors. India has raised tariffs on specified telecommunication equipment (from zero to 10 or 15 percent) and on other high-tech information and communication technology products (from zero to 10 and 20 percent). The tariff was raised from percent to 10 percent on reverse osmosis membrane element for filters. Among agricultural goods, the import tariff was increased from 30 percent to 45 percent for roasted and/or salted cashew nuts. Tariffs on other products were increased in March 2016 as well, including on industrial solar water heaters (from percent to 10 percent) and solar tempered glass/solar tempered (anti-reflective coated) glass for use in manufacture of solar cells/modules/panels (from zero to 5 percent). India also increased its tariffs on medical devices in 2016 from 5 percent to percent. The increased tariff applies to devices such as pacemakers, coronary stents and stent grafts, and surgical instruments, and also to parts of medical devices, such as medical grade polyvinyl chloride sheeting for the manufacture of sterile Continuous Ambulatory Peritoneal Dialysis bags for home dialysis. India s tariffs on finished medical devices also can be higher than on intermediate goods and parts, benefiting Indian manufacturers at the expense of importers and disadvantaging Indian patients. companies have raised significant concerns with these actions. FOREIGN TRADE BARRIERS 226 Import Licenses India maintains various forms of nontariff regulation on three categories of products: banned or prohibited items ( , tallow, fat, and oils of animal origin); restricted items that require an import license ( , livestock products and certain chemicals); and canalized items ( , some pharmaceuticals) which can be imported only by government trading monopolies and are subject to cabinet approval regarding import timing and quantity. These requirements are often not fully transparent as the timing and quantity restrictions are infrequently published in its Official Gazette or notified to WTO committees. For purposes of entry requirements, India has distinguished between goods that are new, and those that are secondhand, remanufactured, refurbished, or reconditioned. India allows imports of secondhand capital goods by the end users without an import license, provided the goods have a residual life of at least five years. The Indian government s Foreign Trade Policy (FTP) 2015-2020, announced on April 1, 2015, categorizes remanufactured goods in a similar manner to secondhand products, without recognizing that remanufactured goods have typically been restored to original working condition and meet the technical and safety specifications applied to products made from new materials. Refurbished computer spare parts can only be imported if an Indian chartered engineer certifies that the equipment retains at least 80 percent of its life, while refurbished computer parts from domestic sources are not subject to this requirement. India requires import licenses for all remanufactured goods. stakeholders report that meeting this requirement, like other Indian import licensing requirements, has been onerous. Stakeholders report problems including: excessive details required in the license application; quantity limitations set on specific part numbers; and long delays between application and grant of the license. India subjects boric acid imports to stringent restrictions, including arbitrary import quantity approval restrictions and other requirements that only apply to imports. No objection certificates (NOCs) are required before applying for import permits from the Ministry of Agriculture s Central Insecticides Board and Registration Committee. In order to receive an NOC from the relevant Indian government ministries and departments and an import permit from the Ministry of Agriculture, traders ( , wholesalers) of boric acid for non-insecticidal use must identify end users of the product, which is often not possible in advance of a shipment. In addition, importers must obtain certificates from the Central Excise Authorities confirming the last three years of the company s purchases of boric acid, separated out by the quantity imported and quantity procured locally in India, as well as data on the total output of the finished product that utilized the boric acid. Meanwhile, local refiners continue to be able to produce and sell boric acid for non-insecticidal use subject only to a requirement to maintain records showing they are not selling to end users who will use the product as an insecticide. In August 2017, India announced quantitative restrictions on all pesticides and insecticides. While it later rescinded the restrictions, in part, because of its inability to deploy the relevant software, there is uncertainty as to the possible implementation of these restrictions in the future. The United States has urged India to eliminate its import licensing requirements on boric acid in meetings of the WTO Import Licensing Committee and at the 2017 TPF. Customs Procedures exporters have raised concerns regarding India s application of customs valuation criteria to import transactions. India s valuation procedures allow Indian customs officials to reject the declared transaction value of an import when a sale is deemed to involve a lower price than the ordinary competitive price, effectively raising the cost of exporting to India beyond applied tariff rates. companies have also faced extensive investigations related to their use of certain valuation methodologies when importing computer equipment. Companies have also reported being subjected to excessive searches and seizures of imports. Through Notification No. 91/2017-Customs ( ) dated 26 September 2017, India amended Rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, which modified what is FOREIGN TRADE BARRIERS 227 included when determining the assessable value of an imported good. Prior to this amendment, the cost of loading, unloading and handling charges, and the cost of transportation and insurance were included in the assessable value at the place of importation (the customs station where the goods are brought for clearance) at one percent of the sum of Free On board (FOB) value irrespective of the actual cost. With the 2017 amendments, the one percent inclusion has been eliminated and the actual cost is assessable. If the cost of transportation, loading, unloading and handling charges is not ascertainable, then it will be taken as 20 percent of the FOB value. In case of import of goods by air, this cost is restricted to 20 percent of the FOB value where actual cost is more. This modification will increase the assessable value of most imported goods and, as a result, raise the effective tariff rate. Also of note is that previously, only the freight charges for movement of imported goods by sea from the port of entry to the Inland Container Depot or Container Freight Station were excluded from the computation of transaction value. With the 2017 amendment, the cost of insurance, transport, loading, and unloading and handling charges associated with transshipment of goods will be excluded when goods imported by sea or air are transshipped to another customs station in India. India s customs officials generally require extensive documentation, inhibiting the free flow of trade and leading to frequent and lengthy processing delays. In large part, this is a consequence of India s complex tariff structure, including the provision of multiple exemptions, which vary according to product, user, or intended use. While difficulties persist, India has shown improvement in this area through the automation of trade procedures, including through the ICEGATE ( ) portal and other initiatives. The government of India is increasing use of electronic forms and only three documents are now required for importers and exporters for 13 separate government agencies. This has reduced wait times from weeks to days. India has also integrated an Indian Trade Portal for one-stop import and export information. A Customs Clearance Facilitation Committee was established in April 2015, bringing together at major ports representatives from each of the regulatory agencies commonly involved in clearing shipments. After ratifying the WTO Agreement on Trade Facilitation (TFA) in April 2016, India established the National Committee on Trade Facilitation (NTFC) in August 2016. In July 2017, the NTFC developed the road map for trade facilitation for India, which will facilitate domestic coordination and implementation of TFA provisions. The United States and India held a joint workshop covering best practices in trade facilitation in October 2016. The two-day trade facilitation workshop, which included strong attendance from Indian and private industry, provided a forum for stakeholders to exchange views and best practices on customs issues. The CBEC and the Office of the United States Trade Representative are working on another TFA Workshop in 2018. GOVERNMENT PROCUREMENT India lacks an overarching government procurement policy and, as a result, its government procurement practices and procedures vary among the states, between the states and the central government, and among different ministries within the central government. Multiple procurement rules, guidelines, and procedures issued by multiple bodies have resulted in problems with transparency, accountability, competition, and efficiency in public procurement. There are a wide variety of contract formats used by the state owned Public Sector Undertakings, each with different qualification criteria, selection processes, and financial requirements. In 2015, the government mandated that 20 percent of its public procurements be awarded to Indian based micro, small, and medium enterprises, and in 2017, the Indian cabinet approved a public procurement policy encouraging preferences for Indian manufactured goods with a view to promote the Make in India initiative. The move is aimed at facilitating local manufacturing and boosting domestic demand for locally manufactured products. India s National Manufacturing Policy calls for increased use of local content FOREIGN TRADE BARRIERS 228 requirements in government procurement in certain sectors ( , information communications technology and clean energy). Consistent with this approach, India issued the Preferential Market Access notification, which requires government entities to meet their needs for electronic products in part by purchasing domestically manufactured goods. Subsequently, in June 2017, the Department of Industry Policy and Promotion (DIPP) issued two notifications under the Public Procurement Preferential Electronics Order and Cyber Notification, which require local content for all state and central government procurements mandating preferences for domestically manufactured electronic goods (including medical devices) and cyber-security software products. This notification is the culmination of similar Indian policy proposals over the past year that have outlined discriminatory government procurement policies designed to stimulate domestic manufacturing of electronics and telecommunications equipment. Moreover, India s defense offset program requires companies to invest 30 percent or more of the acquisition cost of contracts above the threshold value in Indian produced parts, equipment, or services. In March 2016, the Indian Ministry of Defense announced a new Defense Procurement Procedure that increased the offset threshold to 20 billion Indian rupees (approximately $300 million) for defense industry companies contracting with the Indian government and also increased indigenous content requirements, although flexibility may exist for certain projects. India is not a signatory to the WTO Government Procurement Agreement, but is an observer. EXPORT SUBSIDIES The Indian government s Foreign Trade Policy (FTP) 2015-2020 is primarily focused on increasing India s exports of goods and services to raise India s share in world exports from 2 percent to percent. The FTP consolidated several of India s existing export promotion programs into two main export incentive schemes: the Manufactured Goods Exports Incentive Scheme (MEIS) and the Service Exports Incentive Scheme (SEIS). In December 2017, India released a mid-term review of its FTP and outlined a renewed focus on promoting Indian exports, while acknowledging the need to eliminate export subsidies in a manner consistent with its WTO commitments. Nevertheless, the FTP retains its programs to promote exports, including the MEIS and SEIS. India maintains additional export subsidy programs, including exemptions from taxes for certain export-oriented enterprises and for exporters in Special Economic Zones. Numerous sectors ( , textiles and apparel, steel, paper, rubber, toys, leather goods, and wood products) receive various forms of subsidies, including exemptions from customs duties, which are tied to export performance. In 2017, India graduated from Annex VII of the WTO s Subsidies and Countervailing Measures Agreement. Consequently, it should now eliminate all of its export subsidies in all sectors of its economy without exception. Despite its graduation from Annex VII, India has not publicly articulated a timeline for elimination of any export subsidy programs. India also maintains a large and complex series of programs that form the basis of India s public food stockholding program. India maintains stocks of food grains not only for distribution to poor and needy consumers but also to stabilize prices through open market sales. India uses export subsidies to reduce stocks and has permitted exports of certain agricultural commodities from government public-stockholding reserves at below the government s costs. For example, between August 2012 and May 2014, the government authorized the exportation of million tons of wheat from government-held stocks at varying minimum export prices significantly below the government s acquisition cost of $306 per ton, plus storage, handling, inland transportation cost, and other charges for exports. The United States, along with FOREIGN TRADE BARRIERS 229 other interested WTO Member countries, has raised concerns in the WTO Committee on Agriculture regarding Indian exports at prices procured below the government acquisition cost. Agriculture Programs India provides a broad range of assistance to its agricultural sector, including market price support, credit subsidies, debt waiver, and subsidies for inputs, such as fertilizer, fuel, electricity, and seeds. These subsidies, which are of substantial cost to the government, lower the cost of production for India s producers and have the potential to distort the market in which imported products compete. Producers of 25 agricultural products benefit from the government program to sell to the government at minimum support prices. Rice and wheat account for the largest share of products procured by the government and distributed through India s public distribution system. Cotton is also a product that benefits in a significant way from the program. Purchases made through these operations at above market prices significantly increase the cost to the government and may have the effect of providing a subsidy to those products, as well as distorting market prices and planting decisions. Moreover, in certain years, some of the subsidized crops procured under market prices support programs may have been exported through private sector merchants and traders. Such high guaranteed minimum support prices and extensive government procurement can distort domestic market prices and incentivize over production, which restricts demand for imports and distorts international markets. INTELLECTUAL PROPERTY RIGHTS PROTECTION India remained on the Priority Watch List in the 2017 Special 301 Report because of concerns regarding weak protection and enforcement of intellectual property rights (IPR), as well as its vocal encouragement and propagation of initiatives that promote the erosion of IPR around the world through multilateral and other forums. Through the High-level Working Group on Intellectual Property under the TPF, the United States and India held numerous and regular dialogues in 2017 on the range of IPR challenges facing companies in India with the intention of creating stronger IPR protection and enforcement in India. Among the notable developments over the past year, the Department of Industrial Policy and Promotion (DIPP) took steps to promote IPR awareness in schools and increase capacity building for police officers to combat counterfeiting and piracy. DIPP also continues to undertake important administrative work to reduce the time for processing patent and trademark applications. Additionally, DIPP took important steps to amend patent examination guidelines for computer-related inventions to help increase certainty for applicants. In the field of copyright, procedural hurdles and effective enforcement remain a concern. The Cinematographic Bill has not been re-introduced since 2010 and online piracy and illegal camcording continue to proliferate. In April 2017, India announced that the Copyright Board would merge with the Intellectual Property Appellate Board (IPAB), and that both boards would have one Chair. However, the IPAB has been non-functional since 2015, and the continued lack of a functioning copyright board has so far created uncertainty regarding how royalties are to be collected and distributed. Finally, the expansive granting of licenses under Chapter VI of the Indian Copyright Act and overly broad exceptions for certain uses have raised concerns about the strength of copyright protection. In the area of patents, a number of factors negatively affect stakeholders perception of India s overall IPR regime, investment climate, and innovation goals. While certain administrative decisions in 2017 upheld patent rights, and certain tools and remedies to support patent holders rights exist in India, concerns remain over revocations and other challenges to patents, particularly patents for pharmaceutical products. The United States also continues to monitor India s application of its compulsory licensing law. Furthermore, in 2013, the Indian Supreme Court stated that India s Patent Law creates a second tier of requirements for FOREIGN TRADE BARRIERS 230 patenting certain technologies, like pharmaceuticals, and this interpretation may have the effect of limiting the patentability of an array of potentially beneficial innovations. India currently lacks an effective system for protecting against unfair commercial use, as well as unauthorized release of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural products. The Government and stakeholders have also raised concerns with respect to infringing pharmaceuticals being marketed without advance notice or opportunity for parties to resolve their IPR disputes. With respect to trade secrets, and Indian companies have expressed interest in eliminating gaps in India s trade secrets regime, such as through the adoption of standalone trade secrets legislation. The National IPR Policy called for trade secrets to serve as an important area of study for future policy development, and the United States and India held a positive workshop on trade secrets issues in October 2016. Following the workshop, both countries announced important new work under the TPF to advance bilateral efforts on trade secrets. SERVICES BARRIERS The Indian government has a strong ownership presence in major services industries such as banking and insurance. Foreign investment in businesses in certain major services sectors, including financial services and retail, is subject to limitations on foreign equity. Foreign participation in professional services is significantly restricted, and in the case of legal services is prohibited entirely. Insurance In March 2015, India s Parliament enacted the Insurance Laws (Amendment) Act, 2015, which lifted the statutory cap on foreign investment in Indian insurance companies from 26 percent to 49 percent, but subject to a new requirement that all insurance companies be Indian controlled. Subsequent guidelines promulgated by the Insurance Regulatory and Development Authority of India (IRDAI) prescribed conditions for satisfying the Indian control requirement. These include: (1) a mandatory requirement that a majority of directors be nominated by Indian investors; (2) limitations on the rights of foreign-nominated board members; (3) requirements for how key management persons are to be appointed; and (4) requirements on the manner in which control over significant policies of the enterprise must be exercised. Foreign investors continue to express concern that the requirements stipulated in the IRDAI guidelines create a rigid structure that ignores operational realities and makes additional foreign direct investment (FDI) in the sector unattractive. As the new guidelines apply to all companies operating in the insurance sector (whether or not they received injections of new foreign investment following lifting of the 26 percent equity cap), the net impact of India s reforms since 2015 for many investors has been to create more negative conditions for doing business in the insurance sector. In January 2016, the IRDAI issued an amendment to regulations governing the operation of foreign providers of reinsurance services in India. The amendment requires that local Indian reinsurers be afforded a mandatory first order of preference (or right of first refusal) for reinsurance business in India, a requirement that severely restricts the business for which foreign reinsurers can compete, with resulting negative impacts to the supply and cost of reinsurance services in the Indian market. IRDAI committed to undertake a review of this measure one year after its imposition ( , beginning in January 2017). IRDAI s Reinsurance Expert Committee issued its report in November 2017 and noted concerns regarding the mandatory first order of preference. We continue to encourage IRDAI to eliminate this requirement in order to facilitate market-based placement of reinsurance business. FOREIGN TRADE BARRIERS 231 Over the last two years, and other international investors have expressed concerns about other proposed measures by IRDAI, including with respect to mandatory listing of companies operating in the insurance sector and the remuneration of insurance agents and intermediaries. Although not brought forward into formal regulation, these proposals some of which may remain under consideration have contributed to perceptions of an unpredictable and adverse climate for foreign investment in the insurance sector. Banking Although India allows privately held banks to operate in the country, the banking system continues to be dominated by state owned banks, which account for approximately 72 percent of total market share and 84 percent of all Indian bank branches. Under India s branch authorization policy, foreign banks are required to submit their internal branch expansion plans on an annual basis, and their ability to expand is hindered by non-transparent limitations on branch office expansion. Total foreign investment in an Indian private bank cannot exceed 74 percent. Audiovisual Services companies continue to face difficulties with India s Downlink Policy. Under this policy, international content providers that transmit programming into India using satellite must establish a registered office in India or designate a local agent. companies have reported that this policy is overly burdensome. India also requires that foreign investors have a net worth of Rs. 50 million (approximately $800,000) in order to be allowed to downlink one content channel. A foreign investor must have an additional Rs. 25 million (approximately $400,000) of net worth for each additional channel that the investor is allowed to downlink. The Telecommunications Regulatory Authority of India has introduced new regulations on content aggregation and distribution that eliminate bundling of channels and certain types of distribution partnerships. Content aggregation is commonly used internationally, as it allows niche and foreign content to be bundled into and sold by domestic partners without a large local presence or sales force. The new regulations are particularly difficult for small and international content providers because these companies must now interact with each of the 60,000 local cable operators, radio, and TV broadcasters that they seek to target. There are also a number of limits on foreign investment in enterprises in the audiovisual and media sectors, including FM radio (49 percent); news broadcasting (49 percent); and newspapers dealing with news and current affairs (26 percent). Additionally, pending litigation related to audiovisual services, including the acquisition of content and telecasting rights and advertising revenue of foreign telecasting companies, is causing uncertainty for companies considering market entry. Legal Services At present, membership in the Bar Council of India (BCI), the governing body for the legal profession, is mandatory to practice law in India and is limited to Indian citizens. Foreign law firms are not allowed to open offices in India. Some industry and government actors in India are reviewing the merits of liberalization of the legal services market in India. In June 2016, BCI published draft rules that would liberalize the legal services sector in India. The rules proposed opening India s market to non-litigation services ( , services in foreign and international law) and advisory, arbitration, and other services relating to domestic law. However, on September 29, 2016, the BCI rescinded the draft rules on liberalization. FOREIGN TRADE BARRIERS 232 Telecommunications Services and Equipment Barriers to Entry India eliminated a 74 percent cap on FDI in Indian wireless and fixed telecommunications providers in August 2013, though government approval is required for FDI above 49 percent. companies note that India s one-time licensing fee (approximately $500,000 for a service-specific license, or $ million for an all India Universal License) for telecommunications providers serves as a barrier to market entry for smaller companies. The government of India continues to hold equity in multiple telecommunications firms, which raises concerns about the fairness of India s telecommunications policies. For example, valuable wireless spectrum was set aside for Mahanagar Telephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited (BSNL), two state owned telecommunications service providers, instead of being allocated through competitive bidding. Although it does not appear that MTNL and BSNL paid a preferential price, they did receive their spectrum allocation well ahead of privately-owned firms. Remote Access Policy India requires that telecommunications service providers receive pre-approval of each of their network operations centers (NOCs) before those NOCs may remotely access networks in India. Many global telecommunications service providers routinely provide network services from numerous NOCs distributed globally, requiring providers to seek numerous approvals from the government of India. Service providers have encountered bureaucratic delays and other obstacles to receiving the required approvals, which hampers the ability of foreign telecommunications operators to efficiently operate networks, and dis-incentivizes investment in telecommunications in India. Satellite Services Ministry of Information and Broadcasting (MIB) guidelines establish a preference for Indian satellites in the provision of Direct-to-Home (DTH) subscription television services. Authorized DTH licensees have not been permitted to contract directly with foreign satellite operators and have encountered procedural and contracting delays when they have sought to do so. Instead, DTH licensees must procure any foreign satellite capacity through Antrix, the commercial arm of the Indian Space Research Organization (ISRO), which, in turn, only permits such procurements if it does not have available capacity on its own system for purchase. When ISRO does permit the use of foreign satellite capacity, the foreign satellite operator must sell the capacity to ISRO, which then resells the capacity to the end user after adding additional costs. Foreign satellite operators are thus prevented from developing direct relationships with DTH licensees. This is a particular concern to the United States, as it puts satellite operators at a competitive disadvantage and prevents DTH licensees from offering a fuller range of services from satellites. This issue is compounded by a lack of transparency regarding ISRO s plans for future transponder capacity, which creates uncertainty for DTH service providers looking to expand in India over time. The United States continues to encourage India to adopt an open skies satellite policy to allow consumers the flexibility to select the satellite capacity provider that best suits their business requirements and to promote market access for foreign satellite service providers. India also imposes onerous licensing requirements on foreign satellite-based personal communications services. Licenses require high application fees and bank guarantees as well as prohibitively expensive capitalization requirements. Further, licensees must construct local ground station facilities before offering service. Together, these requirements make it economically unfeasible for many foreign satellite communications providers to offer services in India. FOREIGN TRADE BARRIERS 233 Distribution Services Prior to January of 2018, India required government approval for investors seeking to own more than 49 percent of a retail enterprise engaged in selling a single brand of product. In January 2018, India allowed 100 percent FDI through the automatic route for single brand retail. Foreign investment is also contingent on, among other things, a requirement to source from Indian sources at least 30 percent of the value of products, preferably from small and medium sized enterprises. A temporary exception to this local sourcing requirement was previously possible for enterprises engaged in the retail of state-of-art or cutting edge technology and where local sourcing is not possible, but the revised policy requires that companies source 30 percent of their global operations from Indian sources. India permits up to 51 percent foreign ownership in companies in the multi-brand retail sector, but leaves to each Indian state the final decision on whether to authorize such FDI in its territory. In addition, where FDI is allowed, it is subject to conditions, including: (1) a minimum investment of approximately $100 million, at least 50 percent of which must be in back end infrastructure ( , processing, distribution, quality control, packaging, logistics, storage, and warehouses); (2) a requirement to operate only in cities that have been identified by the relevant state government; and (3) a requirement to source at least 30 percent of the value of products sold from small Indian enterprises that have a total investment in plant and machinery not exceeding $2 million. Several foreign companies have reported that these local sourcing requirements and other conditions on foreign investment have diminished the commercial case for expanding investment in India s retail sector. Indian states have periodically challenged the activity of direct selling ( , the marketing and selling of products to consumers away from fixed locations) as violations of the Prize Chits and Money Circulation Schemes (Banning) Act of 1978 (Prize Chits Act), creating uncertainty for companies operating in this sector. This central government legislation contains no clear distinction between fraudulent activities and legitimate direct-selling operations. Enforcement of the Prize Chits Act is reserved to the states, which have adopted varying implementation guidelines and taken unexpected enforcement actions on the basis of the ambiguous provisions of the Act, including the arrest of a chief operating officer of a direct selling company. In September 2016, after extensive advocacy by the Government and private industry, India approved new guidelines governing direct selling that established clear legal definitions of direct selling, but enforcement and application of the new guidelines will still be left to state authorities. EDUCATION Foreign suppliers of higher education services interested in establishing a presence in India face a number of barriers, including a requirement that representatives of Indian states sit on university governing boards; quotas limiting enrollment; caps on tuition and fees; policies that create the potential for double-taxation; and difficulties repatriating salaries and income from research. In June 2016, India s former planning commission, NITI Aayog, submitted its report to the Prime Minister s Office (PMO) and the Human Resource Development (HRD) Ministry calling for foreign universities to be invited to set up campuses in India. The report made three suggestions to facilitate the entry of foreign education providers into India: (1) the operation of foreign universities in the country should be regulated by law; (2) the University Grants Commission (UGC) Act of 1956 should be amended along with the relevant regulations on universities, to allow foreign universities to be deemed universities; and (3) to facilitate joint ventures between Indian and foreign institutions, the UGC and the All India Council for Technical Education (AICTE) regulations should be modified to add viable co-beneficial arrangements and twinning programs. However, no action has been taken to date with respect to the report s recommendations. FOREIGN TRADE BARRIERS 234 BARRIERS TO DIGITAL TRADE Data Localization While it has not yet been implemented, India s 2015 National Telecom M2M ( machine to machine ) Roadmap (Roadmap) would require all M2M gateways and application servers serving customers in India to be located within India. The Roadmap also recommends that foreign subscriber identity modules (SIMs) be permitted in devices to be used in India only if they fulfill traceability criteria, and that machines sold and manufactured in India should only be equipped with SIMs of Indian telecommunications providers. The 2012 National Data Sharing and Accessibility Policy, issued by the Ministry of Science & Technology, requires that all data collected using public funds be stored within the borders of India. Data and server localization requirements are also imposed by different regulatory bodies and procurement contracts. For example, 2015 guidelines require that cloud computing service providers must store all data in India to qualify for government contracts. Such localization requirements reduce productivity, dampen domestic investment, and undermine the ability of information and communications technology companies to offer cutting-edge services. In December 2017, the Ministry of Electronics and Information Technology (MEITY) issued a lengthy white paper requesting public comment and input on a Data Protection Framework for India that is intended to inform the discussion leading to the development of a data protection law. The United States welcomes India s effort to ensure effective data protection, while cautioning against restrictions on cross-border data flows or requirements to store data locally. Such rules are unnecessary and often counterproductive in protecting privacy, and have significant negative impacts on cross-border digital trade. Technology Indian Internet providers must obtain government approval from the Telecom Regulation Authority of India (TRAI) to employ encryption stronger than 40-bit encryption. This requirement continues to create regulatory uncertainty for providers of ICT services and equipment seeking to use strong encryption. Most other countries allow the use of strong encryption standards to ensure the security of sensitive information exchanged via the Internet and other networks. India is currently working on a new draft encryption policy; MEITY has allowed public comments and stakeholder input during the policymaking process. It is unclear when the policy will be finalized. Internet Services Intermediary Liability India s 2011 Information Technology Rules fail to provide a robust safe harbor framework to shield online intermediaries from liability for third party user content. Any citizen can complain that certain content is disparaging or harmful, and intermediaries must respond by removing that content within 36 hours. Failure to act, even in the absence of a court order, can lead to liability for the intermediary. The absence of a safe harbor framework discourages investment to Internet services that depend on user generated content. Taxation India assesses a six percent withholding tax on foreign online advertising platforms on income generated in India, with the ostensible goal of equalizing the playing field between resident service providers and non-resident service providers. However, India does not provide credit for taxes paid in other countries for FOREIGN TRADE BARRIERS 235 the service provided in India. Further, this equalization levy will result in taxes on business income even when a foreign service provider does not have a permanent establishment in India or when underlying business activities are not carried out in India. The current structure of the equalization levy represents a shift from internationally accepted principles, which provide that digital taxation mechanisms should be developed on a multilateral basis in order to prevent double taxation, and raises the costs of cross-border digital trade. Electronic commerce India allows for 100 percent FDI in business-to-business (B2B) electronic commerce, but largely prohibits foreign investment in business-to-consumer (B2C) electronic commerce transactions. In practice, this has meant that foreign companies can only invest in marketplaces where they connect buyers and sellers; they cannot establish online enterprises that own inventory. The only exception allowing for B2C foreign investment in electronic commerce was published in November 2015 by the Ministry of Commerce and Industry, DIPP, Press Note No. 12 (2015 Series) and states that single brand retailers that meet certain conditions, including the operation of physical stores in India, may undertake retail trading through electronic commerce. This narrow exception limits the ability of the majority of potential B2C electronic commerce foreign investors to access the Indian market. OTHER BARRIERS Price Controls on Medical Devices On February 13, 2017, India s National Pharmaceutical Pricing Authority (NPPA) announced a price control order on all coronary stents for sale in India. The order set price categories that do not fully differentiate for advanced technologies within a product class, requiring newer technology stents be sold at the same prices as older technology products, resulting in some technologically advanced stents selling at a loss. Several companies have applied to withdraw their most technologically advanced products from the Indian market due to the policy, but those requests have been repeatedly rejected by Indian regulators. stakeholders claim they must continue to sell their products at a loss in the Indian market for up to 18 months. The United States has asked that India further differentiate the price controls for advanced products, allow the withdrawal of products, and not extend the policy to additional products. Despite these concerns, on August 16, 2017, NPPA issued an additional price control order on 15 different orthopedic knee implant systems. Solar Cells and Modules In 2010, India initiated the Jawaharlal Nehru National Solar Mission (JNNSM), which currently aims to bring 100,000 megawatts of solar-based power generation online by 2022 as well as promote solar module manufacturing in India. Under the JNNSM, India imposes certain local content requirements (LCRs) for solar cells and modules and requires participating solar power developers to use solar cells and modules made in India in order to enter into long-term power supply contracts and receive other benefits from the Indian government. The United States challenged these requirements through the WTO dispute settlement system. In February 2016, a WTO panel found India s LCRs inconsistent with multiple WTO requirements. These findings were affirmed by the Appellate Body on September 16, 2016, and the DSB adopted the Appellate Body and Panel reports at a special meeting of the DSB on October 14, 2016. In November 2016, India provided formal notice that it would bring the challenged measures into WTO compliance within a reasonable period of time. On June 16, 2017, India and the United States informed the DSB that they had agreed that the reasonable period of time to implement the DSB's recommendations and rulings would be 14 months. Accordingly, the reasonable period of time was set to expire on December 14, 2017. FOREIGN TRADE BARRIERS 236 On December 14, 2017, India informed the DSB that it had ceased imposing any measures found inconsistent with the DSB's findings and recommendations. On December 19, 2017, the United States requested the authorization of the DSB to suspend concessions pursuant to Article of the DSU on the grounds that India had, in fact, failed to bring the challenged measures into WTO compliance. On January 3, 2018, India objected to the United States' request pursuant to Article of the DSU. At the DSB meeting on January 12, 2017, the matter was referred to arbitration pursuant to Article of the DSU. An arbitration panel has yet to be established. On January 23, 2018, India requested the establishment of a WTO compliance panel, pursuant to Article of the DSU, to determine whether India has brought the challenged measures into WTO compliance. The DSB has yet to take any action on India s request. Other Issues India has steadily increased export duties on iron ore and its derivatives. In February 2011, India increased the export duty on both iron ore fines and lumps from 5 percent and 15 percent, respectively, to 20 percent on both, and increased that export duty to 30 percent in January 2012. Since January 2014, it has levied a five percent ad valorem export duty on iron ore pellets. Since May 2015, it has levied a ten percent export duty on iron ore containing less than 58 percent of iron. In recent years, certain Indian states and stakeholders have increasingly pressed the central government to ban exports of iron ore. To improve availability of iron ore for the local steel producers, in March 2016, the government of India enhanced and unified the rate of export duty for all types of iron ore (other than pellets) at 20 percent; earlier a 15 percent export tax was applicable on lumps and 5 percent on fines. In February 2012, India changed the export duty on chromium ore from Rs. 3,000 per ton (approximately $46) to 30 percent ad valorem, an increase at current chromium ore price levels. In March 2017, India imposed a 15-percent export duty to conserve domestic resources of aluminum ores, including laterite. India s export duties can impact international markets for raw materials used in steel production. Lack of uniform notice and comment procedures and inconsistent notification of these measures to the WTO inhibit the ability of traders and foreign governments to provide input on new proposals or to adjust to new requirements. In February 2014, India s Ministry of Law and Justice issued a policy on pre-legislative consultation, which was to be applied by all Ministries and Departments of the central government before any legislative proposal was to be submitted to the Cabinet for its consideration and approval. The policy also required central government entities to publish draft legislation or a summary of information concerning the proposed legislation for a minimum period of 30 days. Issuance through electronic media was also encouraged in the policy, as were public consultations. However, despite requests, the Indian government has provided no information on the implementation of the policy, other than to clarify it is only intended to apply to draft legislation, not regulations or tariff-setting. In May 2016 the Indian Supreme Court issued a judgement concerning the Telecom Regulatory Authority of India (TRAI) in which it recommended India s parliament frame a legislation along the lines of the Administrative Procedure Act (with certain well defined exceptions) by which all subordinate legislation is subject to a transparent process by which due consultations with all stakeholders are held, and the rule or regulation making power is exercised after due consideration of all stakeholders submissions. The government of India has not yet acted upon this recommendation. stakeholders continue to report that new requirements are issued with inadequate public notice and comment periods, or consultation or notification at the WTO. This lack of transparency creates unpredictability in the Indian market, negatively affecting the ability of companies to enter or operate in that market and inhibiting India s overall business environment. The United States continues to raise concerns regarding uniform notice and comment procedures with the government of India both bilaterally in the TPF and multilaterally in the WTO and other fora. FOREIGN TRADE BARRIERS 237 INDONESIA TRADE SUMMARY The goods trade deficit with Indonesia was $ billion in 2017, a percent increase ($170 million) over 2016. goods exports to Indonesia were $ billion, up percent ($844 million) from the previous year. Corresponding imports from Indonesia were $ billion, up percent. Indonesia was the United States' 36th largest goods export market in 2017. exports of services to Indonesia were an estimated $ billion in 2016 (latest data available) and imports were $908 million. Sales of services in Indonesia by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Indonesia-owned firms were $114 million. foreign direct investment (FDI) in Indonesia (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Indonesia is led by mining, nonbank holding companies, and manufacturing. OVERVIEW The increasing number and severity of Indonesian trade and investment barriers has significantly increased the uncertainties and risks facing and foreign companies doing business in Indonesia. In recent years, Indonesia has enacted numerous regulations on imports that have increased the burden for exporters. Import licensing procedures and permit requirements, product labeling requirements, pre-shipment inspection requirements, local content and domestic manufacturing requirements, and quantitative import restrictions impede exports. In addition, the Indonesian government has adopted measures that impede imports as it pursues the objective of agricultural self-sufficiency. Beginning in late 2015, the Indonesian government introduced a series of economic reform packages designed to ease regulatory burdens, improve the business climate, and attract additional investment. However, the impact of these reforms has been limited so far because of their narrow scope and slow implementation. TRADE AGREEMENTS Indonesia has free trade agreements (FTAs) with Association of Southeast Asian Nations (ASEAN) and ASEAN plus one, and Japan. Indonesia recently completed FTA negotiations with Chile and is negotiating other FTAs, including one with Australia and one with the European Union. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Toys Standards and Testing Requirements Ministry of Industry (MOI) Regulation 24/2013 (as revised by MOI Regulation 55/2013) requires, as of April 2016, a mutual recognition agreement for the acceptance of test reports from laboratories outside Indonesia. The Government is not aware of any existing mutual recognition agreements, leaving imported toys subject to mandatory in-country testing in Indonesia to obtain certification under Indonesian National Standards (SNI) for import. FOREIGN TRADE BARRIERS 238 stakeholders remain concerned about the frequency of testing under the regulation, which is required on a per-shipment basis for imports, but only every six months for domestic products. They also are concerned about burdensome documentation requirements, as well as specific technical requirements, such as for formaldehyde, which are not based on the latest International Organization for Standardization (ISO) standard. In addition, stakeholders have asked MOI to reduce the inspection frequency once an importer demonstrates a history of compliance, along the lines of the Consumer Product Safety Commission s post-market surveillance approach. Since the regulation came into effect, importers have reported that the import testing and registration process has increased from 15 days to an average of 80 to 90 days. The United States has pressed Indonesia to amend the regulation and will continue to raise concerns over this regulation bilaterally and in the WTO Committee on Technical Barriers to Trade (WTO TBT Committee). Halal Certification In September 2014, Indonesia passed Law 33/2014 governing halal products. The law makes halal certification mandatory for food (including products derived through agricultural biotechnology), beverages, pharmaceuticals, cosmetics, and chemical products sold in Indonesia. All business processes, including production, storage, packaging, distribution, and marketing are required to comply with the halal law. The law also requires non-halal information to be placed on packaging for non-halal products. The law will go into effect on October 17, 2019, five years after its date of enactment. Initial conversations with Indonesian government officials indicated that there would be a two-phase implementation process, with food and beverage products required to comply with requirements within three years of the law going into effect (October 2022) and cosmetics, pharmaceuticals, and other products within five years (October 2024). In early 2018, however, Indonesian government officials indicated a change in policy whereby the law s requirements will go into effect immediately for all products on October 17, 2019. In the meantime, Indonesia has instructed companies to follow existing Indonesia Ulama Council (MUI) halal-certification procedures. In October 2017, the Indonesian government officially established the Halal Product Assurance Agency under the Ministry of Religious Affairs (MORA). The Halal Product Assurance Agency has recruited leadership and hired staff, and is awaiting issuance of necessary implementing regulations. MORA is reportedly finalizing government regulations on halal product assurance and the fees to be charged for halal certification, with a goal of issuing them in 2018. The United States will continue to monitor developments and engage with Indonesia on these issues. (See Import Policies Section for information on the pharmaceutical market access requirements in these regulations.) Separately, in July 2016, the Ministry of Agriculture (MOA) issued Regulation 34/2016, replacing Regulation 139/2014. As in previous regulations, all meat and poultry facilities wishing to export products to Indonesia must be fully dedicated for halal production. However, in practice this rule has only been applied to poultry. In addition, poultry slaughterhouses must be fully dedicated halal manual slaughter facilities in order for any facility to be eligible to export to Indonesia, and each of the poultry facilities must be approved by the MOA and Indonesia s religious authority for halal, MUI. Prepackaged and Fast Foods Labeling of Sugar, Salt, and Fat Requirements In September 2015, the Indonesian government delayed implementation of Regulation 30/2013 on the inclusion of sugar, salt, and fat content information on labels for prepackaged and fast foods until 2019. The regulation would require inclusion of a health message affixed to labels for processed and fast foods. Indonesia failed to notify the regulation to the WTO TBT Committee until after it was finalized and in effect. The United States supports Indonesia s regulatory and public health effort to improve nutritional literacy and raise awareness among Indonesians about healthy lifestyle choices, but is concerned about the FOREIGN TRADE BARRIERS 239 lack of an open public consultation process regarding this measure. stakeholders have raised concerns regarding the need for further technical clarification and implementing guidance including acceptable methods for performing the required nutrient conformity tests, and whether tests performed by foreign laboratories or by companies in-house laboratories would be acceptable. It is unclear whether Indonesia s testing procedure will allow de minimis variations between batches and could lead to unnecessary shipment-by-shipment inspections for label conformity. The United States submitted written comments on the regulation in 2014, a year after the regulation had gone into effect, and has raised the regulation at the WTO TBT Committee meetings, which led Indonesia to delay implementation. The regulation could affect as much as $418 million in annual prepackaged food exports to Indonesia. Label and Advertisement of Food Regulation Indonesia s food and drug regulatory agency, the National Agency of Drug and Food Control (Badan Pengawas Obat dan Makanan BPOM), issued a draft regulation in 2016, the Government Regulation Concerning the Label and Advertisement of Food, to implement provisions of the Law 18 on Food of 2012. Among other things, the regulation would prohibit advertising or promotion of milk products for children up to two years of age, as well as any functional claims on foods for children under three years of age. The regulation also would severely restrict the infant formula industry s interactions with health care providers, and the draft contains additional restrictions, including a ban on advertising for alcohol and stringent requirements for nutrition labeling. It is unclear when Indonesia intends to finalize this regulation, and the Coordinating Ministry for Economic Affairs continues to coordinate inter-ministerial feedback. The United States has asked Indonesia to notify the measure to the WTO TBT Committee before finalizing the regulation. Sanitary and Phytosanitary Barriers Beef and Pork Indonesia requires each meat establishment seeking to export to Indonesia to complete an extensive questionnaire that includes proprietary information, and to be inspected by Indonesian inspectors, before it can ship meat to Indonesia. The United States has raised concerns about this approval system with Indonesia repeatedly, including at the WTO Committee on Sanitary and Phytosanitary Measures (WTO SPS Committee) and in bilateral interactions, and will continue to raise concerns in WTO and bilateral fora. In late 2016, Indonesia conducted an audit in the United States and approved 10 new meat plants to export. However, in 2017, Indonesia subjected all animal product establishments seeking to export to Indonesia to inspection fees. (See also section on Animal-Derived Products: Inspection Fees). Animal-Derived Products Indonesia s animal health and husbandry law (Law 18/2009, as amended by Law 41/2014) requires companies that export animal derived products, such as dairy and eggs, to Indonesia to complete a pre registration process with the Indonesian MOA. The law allows imports of these products only from facilities that Indonesian authorities have individually approved. To date, Indonesia has not notified the law to the WTO SPS Committee. After a 2011 audit of the food safety system as it applies to dairy products, Indonesia agreed to a simplified questionnaire for dairy facilities seeking to pre-register for review and approval. The United States is continuing to work with Indonesia to further improve the system under which establishments become eligible to export dairy products to Indonesia. FOREIGN TRADE BARRIERS 240 Animal-Derived Products: Inspection Fees In 2017, MOA began applying inspection fees on all animal product establishments seeking to export to Indonesia under Government Regulation 35/2016 on Types and Rates of Non-Tax State Revenue Applicable to the MOA. These inspections are mandatory to obtain export eligibility certificates, and consist of a desk audit of application materials ($1,200), an on-site facility inspection ($925 per auditor, per day) and a post-audit desk review ($1,200). exporters must also pay for MOA officials transport and lodging costs while conducting inspections in the United States. In total, companies seeking to export to Indonesia could pay up to $10,000 for an inspection. Horticulture MOA Regulation 55/2016 establishes the most recent requirements for countries wishing to export Fresh Food of Plant Origin to Indonesia. The regulation specifies that Indonesia must recognize either the food safety system of an exporting country or a registered food safety testing laboratory serving that country s exporters. In 2016, Indonesia recognized the food safety system under this regulation and renewed this recognition in January 2018 for another two years. (See Customs Barriers section for more information.) IMPORT POLICIES Tariffs Indonesia s average MFN applied tariff rate is percent according to the WTO. Indonesia periodically changes its applied rates and over the last five years has increased its applied tariff rates for a range of goods that compete with locally-manufactured products, including electronic products, electrical and non-electrical milling machines, chemicals, cosmetics, medicines, wine and spirits, iron wire and wire nails, and a range of agricultural products including milk products, animal and vegetable oils, fruit juices, coffee, and tea. Since December 2011, the average tariff rate for oilseeds have fluctuated between zero percent and five percent. As of November 2017, the tariff on soybeans is zero percent, but MOA is reportedly considering increasing this duty anywhere from 10 percent to 20 percent. Indonesia s simple average bound tariff rate of percent is much higher than its average applied tariff. Most Indonesian tariffs on non-agricultural goods are bound at percent, although tariff rates exceed percent or remain unbound on automobiles, iron, steel, and some chemical products. In the agricultural sector, tariffs on more than 1,300 products have bindings at or above percent. Tariffs on fresh potatoes, for instance, are bound at 50 percent, although the applied rate is 20 percent. The high bound tariff rates, combined with unexpected changes in applied rates, create uncertainty for foreign companies seeking to enter the Indonesian market. motorcycle exports remain severely restricted by the combined effect of a maximum of 50 percent tariff, a luxury tax of a maximum 125 percent, a 10 percent value-added tax, and the prohibition of motorcycle traffic on Indonesia s highways. Under Ministry of Finance (MOF) issued Regulation 182/2016, Indonesia levies an import duty of percent on certain imported goods (known as consignment goods ) shipped by business entities regardless of the tariff rate in Indonesia s WTO and FTA schedules, if the Free On Board (FOB) customs value of the good is more than $100 but less than $1,500. Taxes and Luxury Taxes Indonesia assesses an income tax on the payment of delivery of goods and activities related to import through MOF Regulation 175/2013. Importation of certain goods listed in this regulation is subject to a FOREIGN TRADE BARRIERS 241 percent income tax rate based on the import value. Unlisted goods imported by holders of an importer identification number (Angka Pengenal Importir or API) are subject to a percent tax rate with the exception of soybeans, wheat, and wheat flour, while non-API importers are charged a percent rate. Luxury goods (defined as goods not considered necessities), imported or locally produced, may be subject to a luxury tax of up to 200 percent. Currently, however, there are no luxury goods subject to the 200 percent rate, and the applied luxury tax rates generally range from 10 percent to 75 percent, depending on the product. In March 2017, the MOF issued Regulation 35/2017, which revises Regulation 206/2015 defining the type of taxable goods classified as luxuries subject to the sales tax on luxury goods (STLG). Pursuant to Government Regulation 22/2014, the current highest luxury tax rate applied is 125 percent for special luxury cars. However, under Regulation 41/2013, the STLG base rates were lowered for motor vehicles that meet certain environmental requirements. The STLG was reduced by up to 100 percent for motor vehicles with an internal combustion engine with a cylinder capacity up to 1,200 cc and a fuel consumption rate of at least 20 kilometers per liter of fuel (about 47 miles per gallon), or a compression ignition engine (diesel or semi-diesel) with a cylinder capacity of up to 1,500 cc and a fuel consumption rate of at least 20 kilometers per liter of fuel. A luxury tax reduction of 50 percent is granted for motor vehicles using advanced technology diesel or petrol engines, biofuel engines, hybrid engines, or compressed natural gas (CNG) or liquefied gas for vehicles (LGV) dedicated engines, with fuel consumption of more than 28 kilometers per liter of fuel (about 65 miles per gallon) or other equivalent. A luxury tax reduction of 25 percent is granted for motor vehicles that use advanced technology diesel or petrol engines, dual petrol-gas engines (CNG kit converter or LGV), biofuel engines, hybrid engines, or CNG or LGV dedicated engines, with fuel consumption ranging from 20 kilometers per liter to 28 kilometers per liter of fuel. Although Indonesia has eliminated its luxury tax on imported distilled spirits, the current excise tax regime imposes higher excise taxes on imported spirits than on domestic spirits. Excise tax rates are 150 percent on spirits and 90 percent on wine. Import Licensing Indonesian importers must comply with numerous and overlapping import licensing requirements that impede access to Indonesia s market. Under Ministry of Trade (MOT) Regulation 70/2015 (which replaced MOT Regulation 27/2012), all importers must obtain an import license as either importers of goods for further distribution (API-U) or as importers for their own manufacturing (API-P), but importers are not permitted to obtain both types of licenses. In response to stakeholder concerns about the implementation of these requirements, in December 2015, MOT issued Regulation 118/2015 on complementary goods, which allows companies that operate under an API-P import license to import finished products for market testing, after sales service purposes, or completing a product line , as long as the goods are new, consistent with the company s business license, and meet import requirements. In October 2015, MOT issued Regulation 87/2015 on the Import of Certain Products (replacing Decree 56/2009, which had been extended through MOT Regulation 83/2012). Like its predecessors, Regulation 87/2015 requires pre-shipment verification by designated companies (known in Indonesia as surveyors ), at the importer s expense, and limits the entry of imports to designated ports and airports. In addition, Regulation 87/2015 maintains non-automatic import licensing requirements on a broad range of products, including electronics, household appliances, textiles and footwear, toys, food and beverage products, and cosmetics. However, for holders of an API-U license, Regulation 87/2015 appears to eliminate the additional requirement to register as an importer of certain products. MOT Regulation 82/2012 (as amended by Regulations 38/2013, 68/2015, and 41/2016) and MOI Regulation 108/2012, impose burdensome import licensing requirements for cell phones, handheld FOREIGN TRADE BARRIERS 242 computers, and tablets. Under Regulation 82/2012, importers of cell phones, handheld computers, and tablets are not permitted to sell directly to retailers or consumers, and they must use at least three distributors to qualify for a MOT importer license. MOT Regulation 41/2016 requires 4G-LTE device importers to have an API-P import license and provide evidence of contributions to the development of the domestic device industry or cooperation with domestic manufacturing, design, or research firms. In addition, companies have reported that, in some cases, MOI is informally limiting import quantities under existing licenses (issued under MOI Regulation 108/2012) to protect locally manufactured cell phones, handheld computers, and tablets. (See below Wireless Devices Import Licensing section for related information.) Import of Used Capital Goods In December 2015, MOT issued Regulation 127/2015 on Import Provisions for Used Capital Goods, replacing Regulation 75/2013. Regulation 127/2015 came into force on February 1, 2016 and will remain in effect until December 31, 2018. Under this regulation, capital goods of all types must appear on an approved list to be eligible for import and are subject to age restrictions ranging from limitations of 15 years to 30 years. Under Regulation 127/2015, used medical devices are no longer eligible for import. The regulation requires importers to apply for import approval from the MOT; the approval is effective for one year from issuance and can be extended once for a maximum of 60 days. The regulation also eliminates the provision in MOT Regulation 73/2013 that permitted non-capital goods not on the approved-used goods list to be imported in certain amounts with a recommendation from the relevant authority. The approval process for import of used capital goods not included on the list remains unclear. The regulation has made it more difficult for companies to import spare parts and refurbished equipment, disrupting their ability to provide post-sales service, as well as hampering their customers operations. Import Licensing for Agricultural Products Import licensing requirements also apply to certain horticultural products. In order to import horticultural products into Indonesia, MOA and MOT regulations require Indonesian importers to obtain: (1) an Import Recommendation of Horticultural Products (RIPH) from MOA; and (2) an Import Approval (SPI) from MOT. Beginning in 2018, import recommendations are issued on a biannual basis and are valid through the end of the calendar year. Importers can hold only one import recommendation at a time, as issuance of a subsequent permit invalidates the holder s previous permit. RIPHs specify, inter alia, the product name, Harmonized System code, country of origin, and entry point for all horticultural products the applicant wishes to import. After securing an RIPH, an importer must obtain an SPI from MOT before importing horticultural products. An SPI specifies the total quantity of a horticultural product (by tariff classification) that an importer may import during the period for which the SPI is valid. Indonesia has updated its import rules on horticultural products several times in the past year. In 2017, MOT issued Regulation 30/2017 (as amended by MOT Regulation 43/2017 and MOT Regulation 95/2017), which amends the procedures for obtaining an SPI. Under MOT Regulation 30/2017, SPIs still are required and quantities are allocated subject to the importer s cold storage capacity. MOT Regulation 30/2017 also retains a realization requirement that allows MOT to impose punitive measures ( , withholding the next period s import license) on importers that use less than the quota allotted under their import permits. In 2017, MOA also issued two revisions (MOA Regulation 16/2017 and MOA Regulation 38/2017) that amend the procedures for obtaining an RIPH. Neither these regulations nor the MOT regulations have been notified to the WTO TBT Committee. The revisions require exporters to provide production capacity information reports and packing house registration numbers to the importers for inclusion in the RIPH requests. MOA Regulation 38/2017 also introduces a new provision, whereby state-owned enterprises (SOEs) can be designated as the sole importer of fresh horticultural products for consumption in the event of supply and price stabilization. MOA Regulation 38/2017 also retains the requirement that all fresh FOREIGN TRADE BARRIERS 243 horticultural imports must have been harvested less than six months prior to importation, as well as a prohibition on imports of particular horticultural products during a set period of time before, during, and after local harvest. On November 30, 2017, MOA published a calendar showing the months during which certain fruit imports would be banned due to the local harvest. For the first time, apple imports will be banned August 2018 through September of 2018. There are also seasonal bans on oranges and lemons. Indonesia changed its requirements for importation of beef in 2016. Under MOA Regulation 34/2016, all kinds of bovine meat cuts, including variety meats and offal, are allowed for import. Additional changes include the extension of import license validity to six months and the elimination of a rule requiring importers to use at least 80 percent of their allotted import licenses. Despite these changes, the import licensing procedures continue to hinder beef exports to Indonesia. For example, import licenses are issued for specific countries of origin, and importers cannot change sourcing to respond to evolving market conditions. Also, Indonesia only issues import licenses for meat originating in approved facilities. Approvals for new facilities require on-site inspection by MOA, but MOA lacks the resources to inspect all interested facilities. Indonesia also hinders trade through practices not covered by its written regulations. For example, certain importers have reported that the MOA would only approve approximately 10 percent of the quantity of beef offal that they have requested in their import licensing application. Finally, although Indonesia has stated that it will issue import licenses to any importer at any quantity, importers report that the MOA will refuse licenses to importers who request quantities above a certain threshold determined by the Indonesian government. Similar to the prior import regulations, MOA Regulation 34/2016 also continues to restrict the import of poultry and poultry products. The regulations governing animals and animal products maintain a positive list of products that may be imported with a permit. The regulations provide for the import of whole, fresh or frozen poultry carcasses (chicken, turkey, or duck), but not for the import of poultry parts, effectively eliminating importation of poultry parts. Additionally, although the regulations provide for the import of whole-chicken carcasses, Indonesia in practice does not issue import permits covering these products. This practice also covers whole duck and turkey carcasses; Indonesia has not issued import permits for these products since December 2013. MOT Regulation 27/2017 on Farmer Level Purchase and Consumer Level Selling Reference Prices sets reference prices to ensure availability and price stability for agricultural products. The regulation covers seven commodities: rice, corn, soybeans, sugar, shallots, chilies, and beef. MOT changed the retail reference price for rice twice in 2017, leading to confusion and market distortions. According to MOT Regulation 63/2016, the Indonesian government (through Indonesia s state-owned procurement body, the Bureau of Logistics (BULOG), and other SOEs) is required to carry out market operations in the event that market prices fall below buying reference prices or rise above selling reference prices. In its initial implementation of this Regulation 63/2016, MOA assigned PD. Pasar Jaya (a provincial government-owned company) to distribute sugar to consumers at a maximum price of IDR 12,500/kg (approximately $ ). In 2017, the Indonesian government approved BULOG to import buffalo from India to sell at set prices in Jakarta s retail markets to dampen domestic prices, particularly during Ramadhan. Sales to modern retail outlets, as well as hotel, restaurant, and institutional buyers are not bound by government-set prices. Also in 2017, MOT issued Regulation 27/2017, which expands the scope of products subject to reference prices. Specifically, it removes reference prices for chili peppers, but introduces new reference prices for farm-raised chicken, chicken eggs, and cooking oil. The licensing regimes for horticultural products and animals and animal products have significant trade-restrictive effects on imports, and the United States has repeatedly raised its concerns with Indonesia bilaterally and at the WTO. Because Indonesia failed to address these concerns, in January 2013, the United States requested consultations with Indonesia under the WTO s dispute settlement procedures. After the consultations failed to resolve the concerns, the United States requested establishment of a WTO dispute FOREIGN TRADE BARRIERS 244 settlement panel, and a panel was established in April 2013. In August 2013, New Zealand joined the dispute by filing its own request for consultations to address Indonesia s measures. At the same time, the United States filed a revised consultations request to address modifications to Indonesia s measures and to facilitate coordination with co-complainant New Zealand. A panel was established in May 2015, and the panel held meetings with the parties on February 1 to 2, 2016 and April 13 to14, 2016. On December 22, 2016, the WTO issued the panel report, finding for the United States and New Zealand on 18 out of 18 claims and finding that Indonesia is applying import restrictions and prohibitions that are inconsistent with WTO rules. On February 17, 2017, Indonesia appealed the ruling. On November 9, 2017 the WTO rejected Indonesia s appeal and upheld the panel s findings that each of the challenged measures is WTO-inconsistent. Indonesia must bring its measures into compliance in accordance with the WTO Dispute Settlement Body s findings and recommendations. The United States is monitoring development of new import licensing requirements for other agriculture products, including soybeans and dairy, which were proposed in 2017. In October 2017, MOA announced a series of proposed measures to achieve self-sufficiency in soybean production by 2018. Potential policies under consideration include a duty on soybean imports (currently zero percent), requiring an import recommendation from MOA and import permit from MOT, completely banning imports during local harvest season, assigning monopoly import authority to BULOG, and mandating genetically engineered (GE) and GE free labelling/identification on bulk soybean shipments. Dairy Nontariff Measures In July 2017, MOA issued Regulation 26/2017, which requires local milk processors to procure local milk or invest in the local dairy sector. Businesses that only import are required to fund activities to promote the local dairy industry. Furthermore, all businesses in the dairy sector are required to have their own domestic dairy processing facilities by 2020. Failure to comply with these requirements will result in the inability to obtain import permits for dairy products. In January 2018, MOA began implementing Regulation 26/2017, sending letters to domestic processors and importers, requiring that they submit partnership proposals, by February 15, 2018. Pharmaceutical Market Access The United States continues to have concerns about barriers to Indonesia s market for pharmaceutical products. Ministry of Health (MOH) Decree 1010/2008 requires foreign pharmaceutical companies either to manufacture locally or to entrust another company that is already registered as a manufacturer in Indonesia to obtain drug approvals on its behalf. Among its requirements, Decree 1010/2008 mandates local manufacturing in Indonesia of all pharmaceutical products that are five years past patent expiration, and also contains a technology transfer requirement. A subsequent pair of regulations, Regulation 1799/2010 and an updated regulation on drug registration from BPOM, most recently revised in Regulation 16/2015, provide additional information about the application of the local manufacturing requirements and applicable exceptions. In May 2016, Indonesia revised its negative investment list to raise the foreign investment cap for the manufacturing of raw materials for medicines from 85 percent to 100 percent in an apparent effort to redress shortages of raw materials, which are almost exclusively imported. However, foreign investments in the finished drugs industry are still capped at 85 percent. The United States also remains concerned by Indonesian government statements indicating that Indonesia failed to abide by domestic legal procedures in issuing a compulsory license decree in 2012 and is monitoring implementation of revisions made in 2016 to its Patent Law. The United States will continue to monitor the implementation of these regulations. (See IPR Section for related information on the Patent Law. See Investment Section for related information on the Negative Investment List.) FOREIGN TRADE BARRIERS 245 Despite a 2016 determination that BPOM would not follow through with a proposal to regulate certain nutritional supplements as Foods for Special Medical Purposes, industry representatives report that the agency has again indicated it would take steps to regulate the promotion, sale, and direct distribution to the customer of such products. Indonesia s parliament passed a law in September 2014 requiring halal certification of pharmaceuticals as well as other products. The United States will continue to monitor the status of the implementing regulations for this bill, including the potential impact on market access for affected products. (See TBT Section for related information on the Halal Law.) The innovative pharmaceutical industry also has raised concerns regarding the transparency of and opportunity for meaningful stakeholder engagement within the Indonesian pricing and reimbursement system. In particular, stakeholders report a lack of clarity and certainty regarding how pharmaceutical products are selected for listing on the Indonesian National Formulary, how price caps are determined, and whether and for how long such products will remain on the formulary. The United States will continue to engage Indonesia on this issue and has requested that the MOH have regular meetings with stakeholders to discuss these issues. Market Access for Medical Devices Foreign investment in the manufacture and distribution of medical devices is now capped at 33 percent and 49 percent, respectively, while previously they were not included in the negative investment list. Medical devices sold by multinational companies in Indonesia face unclear or challenging market conditions on a number of fronts, including uncertain progress on whether (and if so, how) Indonesia will implement the ASEAN Medical Device Directive by the proposed 2020 implementation date; lack of a separate legal medical device definition so that pharmaceutical requirements (such as local manufacturing restrictions mentioned in the pharmaceutical market access section above) could potentially also apply to medical devices; and challenges in obtaining product approvals for the e-catalog system used for public procurements. (See Product Registration Section for more information). In addition, Indonesia s public procurement agency (LKPP) implemented price controls on coronary stents in July 2017, which follows India s lead for slashing prices for these products and exclusively targets major multinational medical device companies with significant operations. The United States will engage with Indonesia on these price controls and encourage the government not to extend this policy to other medical device categories. Quantitative Restrictions on Imports Indonesia imposes restrictions on feed corn imports, limiting the right to import to BULOG. However, some corn imports intended for starch manufacturing are allowed. As Indonesia s sole importer of feed corn, BULOG prioritizes corn distribution to small-holder poultry farmers. The import volume is set based on the level of domestic feed production. Other feed millers are obligated to use locally produced feed corn, but have expressed concern that they are unable to obtain feed corn in quantities sufficient to maintain the poultry industry s growth. In 2017, MOA did not allow BULOG to import any corn. Indonesia bans salt imports during the agricultural harvest season. It requires salt importers to be registered and to purchase domestic supplies as well as imports. Indonesia also maintains a seasonal ban on imports of sugar, in addition to limiting the annual quantity of sugar imports based on domestic production and consumption forecasts. Indonesia applies quantitative limits on the importation of wines and distilled spirits. Companies seeking to import these products must apply to be designated as registered importers authorized to import alcoholic FOREIGN TRADE BARRIERS 246 beverages, with an annual company-specific quota set by MOT. For spirits, MOT was supposed to issue import permits in April 2017, but delayed issuing any permits until September 2017. Product Registration BPOM has been working to improve the efficiency of its product e-registration system for low-risk products, although the MOH and the LKPP point to a lack of technical knowledge as a principal cause of the continued delay in registration of pharmaceuticals and sophisticated medical devices. Registration now takes between nine months to one year. Concerns remain, however, with proposed changes to the registration requirements and submission process that could further complicate product registration. stakeholders continue to express concern about the process to obtain product registration numbers (known as ML registration numbers). The United States will continue to monitor developments in this area. Product Testing BPOM sets out requirements for testing of heavy metals in food, drugs, and cosmetics in BPOM Regulation 17/2014. BPOM Regulation 12/2015 provides further guidance on this requirement, which is fulfilled through a certificate of analysis. A 2016 BPOM circular letter extended a certificate s validity from six months to one year. In practice, Indonesian customs requires each shipment to provide a separate test in addition to the certificate. This measure appears targeted at limiting imports and adds unnecessary costs. In addition, in the case of cosmetics, and other stakeholders have expressed concern that the pre-market testing requirement goes against the intent of the ASEAN Cosmetics Directive, which stipulates that monitoring of heavy metals should be undertaken via post-market surveillance. Customs Barriers firms continue to report that Indonesian customs relies on a schedule of reference prices to assess duties on some imports rather than using transaction values as required by the WTO Agreement on Customs Valuation. Indonesia s Director General of Customs and Excise reportedly makes a valuation assessment based on the perceived risk status of the importer and the average price of a same or similar product imported during the previous 90 days. horticultural exports continue to have access to Tanjung Priok port, based on Indonesia s recognition of the food safety system for fresh foods of plant origin (FFPO). Australia, Canada, and New Zealand, have also received FFPO recognition and have access to Tanjung Priok. In January 2018, MOA renewed the FFPO status for two years. (See also Sanitary and Phytosanitary Barriers Horticulture section.) State Trading BULOG maintains exclusive authority to import standard unbroken rice (medium grain, medium quality). Indonesia cited food security and price management considerations as the principal objectives of the authorization, but the Indonesian government separately cited its aspirations for food self-sufficiency. BULOG is not allowed to import rice before, during, or immediately after the main harvest period. Private firms are only allowed to import broken rice for processing or specialty rice varieties, such as basmati and jasmine rice, for retail and food service. Importers of broken and specialty rice must obtain a special importer identification number from MOA. Since mid-2014, Indonesia has refused to issue import recommendations to private traders for the import of japonica rice, although MOT regulations allow its import. However, according to Indonesian government sources, japonica rice falls under the same category as standard unbroken rice. FOREIGN TRADE BARRIERS 247 In 2016, BULOG was appointed as Indonesia s sole importer of feed corn, plantation white sugar and buffalo meat (carabeef). In 2017, BULOG began importing Indian buffalo meat. Additionally, BULOG is mandated to carry out local purchasing operations in order to maintain producer prices. As of early 2018, BULOG s local procurement activities were limited to rice. EXPORT RESTRICTIONS AND TAXES Indonesia s 2009 mining law requires companies to process ore locally before shipping it abroad. Indonesia has implemented this law through a series of regulations, including January 2014 regulations that ban the export of over 200 types of mineral ore, including nickel and bauxite. stakeholders have expressed serious concern about the potential impact of these measures. Until 2017, companies could export eight concentrates associated with these mineral ores (including copper, lead, and iron) as long as they paid a prohibitive export tax and met other requirements, such as building smelters in Indonesia. In January 2017, Indonesia put in place a new set of requirements for the mining industry, as specified in Regulation 1/2017. Among other things, this regulation requires companies with existing contracts of work to convert to special mining business licenses and also requires the companies to build a smelter within five years. These licenses would allow companies to export mineral concentrates. Indonesia imposes a progressive export tax on cocoa and palm oil exports. These cocoa and palm oil export taxes are calculated based on a monthly average of export prices. If the cocoa and palm oil prices are below a certain threshold, these taxes do not apply. However, there is also a standing levy of $50/metric ton for crude palm oil and $30/metric ton for processed palm oil. Indonesia also effectively bans the export of steel scrap and bans exports of raw and semi-processed rattan. The Indonesian government is considering imposing export taxes on other products, including coconut, base metals, and coal. GOVERNMENT PROCUREMENT Indonesia grants special preferences to encourage domestic sourcing and to maximize the use of local content in government procurement. It also instructs government departments, institutes, and corporations to utilize domestic goods and services to the maximum extent feasible. Presidential Regulation 54/2010 and Presidential Regulation 38/2015 both require procuring entities to seek to maximize local content in procurement, use foreign components only when necessary, and to designate foreign contractors as subcontractors to local companies. Presidential Regulation 38/2015 applies to infrastructure projects where the Indonesian government is the project manager, and the corresponding entities whether SOEs, domestic companies, or foreign companies do not receive state budget allocations or capital injections for infrastructure procurement. Presidential Regulation 54/2010 applies to projects where the government is the project manager and the corresponding entities receive state budget allocations. Both regulations provide general minimum requirements for local content and service provision. Depending on the sector or nature of the project, ministries with authority over the project may impose additional restrictions or requirements. Presidential Regulation 2/2009 stipulates that all state administrations should optimize the use of domestic goods and services and give price preferences for domestic goods and providers. Indonesia s 2012 Defense Law mandates priority for local materials and components and requires defense agencies to use locally produced defense and security goods and services whenever available. In addition, when an Indonesian government entity procures from a foreign defense supplier due to lack of availability from an Indonesian supplier, there is a requirement for trade balancing offsets, including incorporation of local content, offset production, technology transfer, or a combination thereof. The law also requires that there be no potential of an embargo as a result of the offset agreement. The amount of domestic value or local content required starts at 35 percent, and increases in 10 percent increments every five years until the value of local content is equal to 85 percent. The 35 percent to 85 percent domestic value must then be FOREIGN TRADE BARRIERS 248 compensated by counter-trade agreements, incorporation of local content, or offset production. The implementing regulations for the 2012 Defense Law are contained in Presidential Decree 76/2014, but numerous details, including specifics for multiplier values, remain undetermined. Calculations for the value of local content can include design, engineering, intellectual property rights (IPR), raw materials, facilities/infrastructure costs, education and training, labor costs, and after-sales service. Indonesia is not a signatory to the WTO Agreement on Government Procurement (GPA), but it is an observer of the GPA. SUBSIDIES Indonesia has not filed a subsidy notification under the WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) since March 1998; the United States has raised concerns with this. The United States has met bilaterally with Indonesia to urge it to submit a WTO subsidies notification and to offer technical assistance in preparing such a notification. In response to questions regarding Indonesia s most recent WTO Trade Policy Review (TPR) in 2013, Indonesia indicated that it was pursuing support policies to, inter alia, improve export performance and develop downstream industries, but it provided few details regarding specific measures. According to the WTO Secretariat Report on the 2013 TPR, Indonesia provides fiscal and non-fiscal incentives for manufacturing and exports in connection with its export processing zones and special economic zones programs. These include incentives related to corporate income tax, property tax, import duty, value-added tax, excise and luxury taxes, and local taxes, as well as assistance on land acquisition, licensing, investment, and manpower. Additionally, Indonesia provides various forms of official export financing, insurance, and guarantees through the state-owned Indonesia Eximbank and Asuransi Ekspor Indonesia. In 2013, Indonesia became subject to the WTO prohibition of export subsidies under Article (a) of the Subsidies Agreement when it graduated from the Annex VII(b) list of developing countries exempted from the prohibition. INTELLECTUAL PROPERTY RIGHTS PROTECTION Indonesia remained on the Priority Watch List in the 2017 Special 301 Report. While Indonesia has taken some positive steps in recent years, including implementation of copyright and trademark reforms and continued educational outreach to the Indonesian public to advance IPR awareness, the United States remains concerned about gaps in Indonesia s laws relating to IPR protection and enforcement. Widespread copyright piracy and trademark counterfeiting (including in physical markets, as noted in the 2018 Out-of-Cycle Review of Notorious Markets) remain key concerns. Counterfeiting activity extends to products that present serious risks to human health and safety, such as pharmaceutical products. Lack of enforcement also remains a problem, and the United States continues to urge Indonesia to increase interagency coordination and to provide for deterrent-level penalties for IPR infringement in physical markets and over the Internet. The United States also continues to encourage Indonesia to provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. In addition, revisions to Indonesia s Patent Law in July 2016 have raised concerns, including with respect to the patentability criteria for incremental innovations and computer implemented inventions; local manufacturing and use requirements; the grounds and procedures for issuing compulsory licenses; disclosure requirements for inventions related to traditional knowledge and genetic resources; and requirements to disclose the details of private licensing agreements. The United States will continue to work with the Indonesian government on IPR issues, including to develop a mutually-agreed intellectual property work plan to address deficiencies in IPR protection and enforcement, as well as measures to promote public education and outreach. FOREIGN TRADE BARRIERS 249 SERVICES BARRIERS Legal Services Only Indonesian citizens may be licensed as lawyers in Indonesia. Foreign lawyers may work in Indonesia as legal consultants with the approval of the Ministry of Justice and Human Rights. A foreign law firm seeking to enter the market must establish a partnership with a local firm. Express Delivery and Logistics Services Indonesia maintains restrictions on the provision of postal services, broadly defined to include courier, express delivery, and other logistics services. Indonesian law requires that postal service suppliers be majority-owned by Indonesians and that foreign suppliers limit their activities to provincial capitals with international airports and seaports. Under Government Regulation 15/2013 and Ministry of Communications and Information Technology (MCIT) Regulation 32/2014, only an Indonesian legal entity can apply for a license and foreign ownership of a company offering postal services may not exceed 49 percent. MCIT Regulation 9/2015, amending Regulation 32/2014, eased requirements and reduced processing time for local authorizations for postal service providers. Regulations 9/2015 and 32/2014 did not affect restrictions on foreign ownership or capital requirements. Logistics services generally remain subject to a maximum 49 percent foreign ownership, notwithstanding May 2016 reforms to the Negative Investment List that increased foreign-ownership limits in freight forwarding, warehousing and storage services, and distribution to 67 percent. Investment in cold chain storage facilities was previously capped according to geographical location, but is now fully open for foreign investment. In April 2016, Indonesia issued regulation 130/2016, amending Ministry of Transportation Regulation 74/2015 to reduce minimum capital requirements for foreign freight-forwarding companies from $10 million to $4 million. Health Services The 2016 revision of the Negative Investment List removed the outright ban on foreign ownership of certain healthcare facilities. Up to 67 percent foreign ownership is now permitted in general hospitals, private specialist clinics, dental clinics, and specialized nursing services in all regions of Indonesia, except Manado and Makassar. However, foreign ownership is still prohibited for private maternity hospitals, general medical clinics, residential healthcare, and basic health services facilities. Financial Services No single entity, foreign or Indonesian, may own more than 40 percent of an Indonesian bank. The Financial Services Authority (Otoritas Jasa Keuangan - OJK) may grant exceptions in certain cases. Indonesia s financial authorities announced in November 2015 that a foreign investor may hold a majority stake in a bank if it acquires two banks and merges them. However, this change only applies for small banks that have capital of less than IDR 1 trillion (approximately $73 million) prior to the merger. Separately, the Indonesian Parliament is debating a draft banking law that would lower the overall foreign-ownership cap on locally incorporated banks, which is currently set at 98 percent. Under Regulation No. 15/49/DPKL, adopted in 2013, Indonesia restricts foreign ownership in private credit reporting firms to 49 percent. FOREIGN TRADE BARRIERS 250 In September 2014, the Indonesian Parliament passed the Insurance Law. The law requires all insurance companies to incorporate locally as Indonesian corporate entities (Perseroan Terbatas - PT). It also states that foreign investment in PT insurance companies is permitted only through the acquisition of publicly traded shares; private equity purchases of company stock are not allowed. Joint ventures predating the 2014 Insurance Law, where foreign ownership was acquired through private equity means, were grandfathered. The Insurance Law requires changes in equity capital affecting control of a company to be reported to the OJK. The Negative Investment List, which is separate from the 2014 Insurance Law, limits foreign ownership of an insurance company to 80 percent. Previously, OJK allowed foreign owners to inject capital if needed, subject to approval, which in some cases diluted the ownership percentage of the local partner. Indonesian regulators have indicated that companies currently with more than 80 percent foreign equity will not be required to divest existing foreign equity above that threshold, although new injections of capital will be required to adhere to a foreign equity cap of 80 percent. The Insurance Law does not contain an explicit cap on foreign equity ownership, but it called for the MOF to issue a regulation clarifying the threshold for foreign investment by April 2017. In July 2017, the Indonesian legislature approved the MOF s proposal of an 80 percent foreign equity cap as well as a grandfathering clause. However, the final regulation implementing this cap has not yet been signed or made public. Nonbank financial service suppliers may do business in Indonesia as a joint venture or be partially owned by foreign investors, but cannot operate in Indonesia as a branch of a foreign entity. OJK Regulation 14/2015 came into effect January 1, 2016, with certain transition periods. It requires, among other things, insurance companies operating in the Indonesian market to cede to domestic reinsurance companies 100 percent of the reinsurance for certain products (such as vehicle, accident, health, and life insurance, and minimum amounts on other lines of insurance). The previous cession requirement was 5 percent to 15 percent. The regulation also requires insurers writing other types of risks to cede a minimum amount of reinsurance to domestic reinsurers, unless exceptions apply, such as if a domestic reinsurer is unwilling to provide reinsurance. The United States has raised concerns over mandatory cession requirements for reinsurance and will continue to engage with Indonesia on this matter. In November 2016, the central bank, Bank Indonesia (BI), issued Regulation 18/40/PBI/2016 on the implementation of payment transaction processing. The regulation governs all companies providing the following services: principal, issuer, acquirer, clearing, final settlement operator, and operator of funds transfer. The regulation caps foreign ownership of payment companies at 20 percent, though it is not retroactive. Current investments that exceed the cap are grandfathered, but some stakeholders have expressed concern that the regulation is inflexible and freezes their ownership structure. In December 2016, the OJK released Regulation 77 on peer-to-peer (P2P) lending companies. The regulation introduces various guidelines, obligations, and restrictions relevant to P2P lending services, and the organization of P2P lending service providers. This regulation caps foreign ownership of P2P services at 85 percent and mandates data localization. In July 2017, BI issued Regulation 19/08/2017 on National Payment Gateway (NPG), which promotes the adoption of electronic payments services through enhanced interoperability between bank networks. Under this regulation, all domestic retail debit and credit transactions will eventually be required to be processed through NPG switching institutions located in Indonesia and licensed by BI, starting with domestic retail debit transactions in 2018. The regulation imposes a 20 percent foreign equity cap on firms that wish to obtain a switching license to participate in the NPG preventing wholly owned foreign owned companies to provide switching services as well as prohibiting cross-border supply of electronic payment services for domestic retail debit and credit transactions. In September 2017, BI issued implementing Regulation 19/10/PADG/2017, which mandates that foreign firms wishing to process domestic retail credit and debit transactions through the NPG form partnership agreements with licensed NPG switches. BI must approve FOREIGN TRADE BARRIERS 251 such agreements, and the regulation makes approval contingent on the partner firm supporting development of the domestic industry, including technology transfer. The regulation caps the merchant discount rate for banks and payment switches and decrees that certain transactions must be executed free of charge. On December 11, 2017, the MOT announced Regulation 82/2017, which requires exporters of coal and crude palm oil, importers of rice, and importers of items for government procurement to use Indonesian national shipping and insurance companies. The regulation is scheduled to come into effect on April 26, 2018. Certain exporters and importers are granted a limited exception in the event that there is no or limited availability of Indonesian owned maritime transport or insurance companies. It remains unclear how the MOT will grant and administer these exceptions. Maritime Cabotage Indonesia s Law 17/2010 on shipping requires all vessels operating in Indonesian waters to be Indonesian flagged. In addition, it limits foreign ownership of any Indonesian-flagged vessel to 49 percent. However, the Indonesian shipbuilding industry does not have the capacity to build the variety of specialty ships its economy requires and is unlikely to have such capacity in the near to medium term. Full implementation of the law would be particularly problematic for foreign investors in Indonesia s energy and telecommunications sector, which would no longer be permitted to bring in the sophisticated rigs and specialized vessels needed to develop large upstream projects or service undersea cables. In response to concerns raised by the United States and other countries, the Ministry of Transportation issued Regulation 48/2011 allowing certain classes of non-transportation vessels to be eligible for a three-month renewable waiver from the domestic flagged vessel requirements when there is no suitable Indonesian flagged vessel available. The Ministry of Transportation issued Regulations 10/2014, 79/2014, 10/2015, 200/2015, and 100/2016 to provide further exemptions to Law 17/2010 and extended the renewable waiver period to one year for non-transport foreign vessels engaged in oil and gas surveying, drilling, offshore construction, dredging, salvage, and other underwater work. Under the regulations, treatment of other categories of specialty foreign vessels will be decided on a case-by-case basis for waivers of up to one year. In December 2017, the Ministry of Transportation issued regulation 115/2017, extending the cabotage exemption through the end of 2018. Audit and Accounting Services Foreign public accounting firms must be affiliated with a local public accounting firm to conduct business in Indonesia. A foreign accounting firm must use the name of its local affiliate in addition to the foreign firm s name in presentations and disclosures. Indonesia allows a maximum of 10 percent foreign national staff for each level of management in the affiliated local accounting firm. In affiliated accounting firms, the ratio of foreign audit signing partners to local signing partners cannot exceed one to four. Film Although Presidential Regulation 44/2016 revised the Negative Investment List to permit foreign investment in the film sector, film policy is under the purview of the Ministry of Education and Culture, which is drafting implementing regulations to the 2009 Film Law that could further restrict foreign participation in the sector. The 2009 Law on Film imposes a 60 percent local content requirement for local exhibitors and, to achieve that quota, it also provides authority to implement unspecified import restrictions, prohibitions against the dubbing of foreign films, and prohibitions against foreign companies distributing or exhibiting films. The law also restricts vertical integration across segments of the film industry. The local content requirement and integration restriction have not been fully implemented. FOREIGN TRADE BARRIERS 252 Previously, firms have raised concerns with a 2008 regulation requiring all local and imported movies, both theatrical prints and home videos, to be replicated locally, with penalties on exhibitors for failing to do so. However, because the Ministry of Education and Culture has assumed responsibility for film, the Ministry of Tourism regulation that imposed this requirement has been eliminated. Furthermore, industry representatives report that the reproduction of films has been digitized, and no longer relies on printing. industry requests that the government of Indonesia officially and permanently remove the replication regulation (then Ministry of Culture and Tourism Regulation 55 ) as it would nonetheless compromise rights holders ability to trace the source of camcording piracy. Construction, Architecture, and Engineering Prior to November 2014, foreign construction firms were only allowed to be subcontractors or advisors to local firms in areas where the Indonesian government believed that local firms are unable to do the work. Government Regulation 10/2014 permits a local firm to serve as subcontractor or advisor to a foreign construction firm if the Indonesian government determines that a local firm is not capable of managing an entire project on its own. The foreign firm must work together with a 100 percent locally owned firm, or, if it is a joint venture, the local ownership should be at least 65 percent. In addition, the regulation requires that the construction project be worth at least IDR 100 billion ($ million) (or a minimum of IDR 20 billion, approximately $ million, for a consultation project), considered high-tech (Indonesia considers projects incorporating new technology that the local market cannot provide as meeting this criteria), and that the risk ratio (the risk of project failure) should be high. Beginning in 2015, the National Construction Services Development Board certifies foreign entities as construction companies, consulting companies, or integrated (engineering, procurement, and consulting) companies. A foreign entity may have only one of these designations. Presidential Regulation 54/2010 and Ministry of Public Works Regulation 31/2015 on Government Procurement of Goods and Services regulate construction project market segmentation, which establishes project classes for construction firms seeking government projects. Small projects are those less than IDR billion (about $175,000). Medium projects are between IDR billion to IDR 50 billion in value (between $175,000 and $ million). Medium two projects are IDR 50 billion to IDR 100 billion (between $ million and $7 million). Large projects are above IDR 100 billion (approximately $ million) in value, and are the only category that may be awarded to foreign companies. Education Indonesia limits foreign investment in primary, secondary, and tertiary educational institutions through issuance of special licenses. Foreign investment in non-formal education is limited to 49 percent. A foreign national may provide educational services at the tertiary level only if authorized by the Ministry of Education and Culture and the Ministry of Manpower. Authorization is granted on a case-by-case basis and only when there are no Indonesian instructors capable of filling the position. Indonesia currently regulates its educational system using Ministry of Education and Culture Regulation 31/2014, which requires international schools and National Plus School from kindergarten to high school to become a Satuan Pendidik Kerjasama (SPK Education Unit Partnership ). Because the regulation requires all SPKs to be administered in partnership with a domestic institution or a Foreign Educational Institution already accredited or recognized in Indonesia, independent international schools are now prohibited and schools may not use the word international in their names. The number of foreign educators within a SPK is limited to 70 percent, and SPKs may use a combination of the national curriculum and their own curriculum. FOREIGN TRADE BARRIERS 253 Franchising and Retail Distribution Since 2012, MOT has made three major regulatory changes in the franchising sector that threaten to have a significant chilling impact on future operations of foreign franchisors. In August 2012, Indonesia promulgated MOT Regulation 53/2012, which establishes a local content requirement obliging an Indonesian franchisee to source at least 80 percent of its equipment and inventory domestically, unless a waiver is granted. In October 2012, MOT issued Regulation 68/2012 restricting the number of outlets that can be owned by a modern retail franchisee, such as supermarkets, to 150 before it must sub-franchise additional units to another local entity. In February 2013, MOT issued Regulation 7/2013 restricting the number of outlets that can be owned by a food and beverage franchisee to 250. In 2014, MOT issued amendments Regulations 57/2014 and 58/2014 to the existing franchising requirements. These revised regulations grandfathered franchisors or franchisees of restaurants, caf s, and bars that already had more than 250 outlets, but the existing requirements which limit the number of outlets a franchisee can own will still apply to new entrants to the Indonesian market or those that do not already have more than 250 outlets. In December 2013, MOT issued Regulation 70/2013 requiring that 80 percent of the total amount of and types of goods that are sold by modern retail establishments, such as shopping centers, minimarkets, and hypermarkets, be domestic products. The regulation also limits the inventory of these establishments to a maximum of 15 percent private label products. In September 2014, MOT issued Regulation 56/2014, which came into effect in September 2016, providing an exception to the domestic product requirement for standalone brands or specialty stores selling products that meet any one the following criteria: (1) products requiring uniformity of production and sourcing from a global supply chain; (2) products with world famous or premium branding that are not yet produced in Indonesia; or (3) products from certain countries sold to meet the needs of their citizens living in Indonesia. MOT Regulation 56/2014 also provides an exception to the 15 percent maximum private label products cap to stores that have a local partner, and exempts modern stores with more than 150 outlets from the local partner requirement. Telecommunications Services and Equipment Wireless Devices Import Licensing Indonesia has issued a number of measures that make it more difficult to import cellular and Wi-Fi equipped products. In late 2012, Indonesia issued MOT Regulation 82, last amended by MOT Regulation 41/2016, which requires an importer of cellular devices, handheld computers, and tablets to become a registered importer, and then to seek import approval for different products. To become a registered importer under MOT 41/2016, companies must confirm that they are working with at least three distributors and obtain a recommendation from the MOI showing evidence of contributions to the development of the domestic device industry or cooperation with domestic manufacturing, design, or research firms. Companies seeking to become registered importers of 4G LTE devices may only apply under a so-called producers license (API-P), which is generally held by importers of unfinished goods intended for use in the manufacturing process, threatening to limit the ability of foreign producers to sell 4G-LTE devices in Indonesia. (See Import Licensing Requirements for further discussion of API-P requirements.) MOT 41/2016 also requires companies applying for import approval to submit product identification numbers, an import certification from the MOI, and a certificate from MCIT. Because companies are unable to provide identification numbers months in advance, they often need to apply for this license on a per-shipment basis. However, MOT 41/2016 removed requirements for Indonesian-language labels, a one-year import plan, and the obligation to establish a local manufacturing facility within three years. FOREIGN TRADE BARRIERS 254 Importers of any type of cellular phones, handheld computers, and tablets are also subject to MOI Regulation 68/2016, which requires importers to obtain an MOI recommendation to establish themselves as registered importers of such devices. A recommendation is only available for local manufacturers, importers in a joint venture with a local manufacturer, or an importer of specialized items. Taken together, Indonesia s licensing practices impose significant barriers on the importation of cellphones, handheld devices, and other electronic devices. Local Content Requirements In 2015, MCIT issued Regulation 27/2015, which required all 4G LTE enabled devices to contain 30 percent local content, and all 4G LTE base stations to contain 40 percent local content by January 2017. In July 2017, MOI issued regulation 29/2017, which set forth new formulas for the calculation of local content in 4G LTE devices. MOI 29/2017 broadens the scope of local content to include local manufacturing, development, and software applications (apps), and provides details on how investment commitments can satisfy the local content requirement. Under this option, companies may satisfy the local content requirement by committing to build an innovation center, invest at certain levels, and develop Indonesia s IT and communication industries. MOI 29/2017 also articulates a detailed monitoring system, whereby a company must agree to meet various MOI supervision targets that show their investments are successfully developing the domestic industry and undergo assessments three times a year. In July 2017, MCIT issued Circular Letter 518/2017 clarifying that the scope of the MCIT 27/2015 applies only to products under the HS codes for base stations, cellular telephone devices, tablet computers and laptops, and Wi-Fi modems. MCIT Regulations 7/2009 and 19/2011 require that equipment used in certain wireless broadband services contain local content of at least 30 percent for subscriber stations and 40 percent for base stations, and that all wireless equipment contains 50 percent local content. Indonesian telecommunication operators are also required, pursuant to Regulation 41/2009, to expend a minimum of 50 percent of their total capital expenditures for network development on locally sourced components or services. The United States continues to press Indonesia to remove these local content and investment requirements which undermine opportunities for more rapid development of the Indonesian telecommunications sector. Wireless Equipment Certification The MCIT issued Regulation 5 in 2013, which imposes strict testing requirements on cellular and Wi-Fi equipped products, as well as on notebooks and personal computers. This measure requires that imported cell phones, tablets, handhelds, laptops, and other equipment with Bluetooth or wireless LAN features be tested at the device level rather than the more common modular level. In 2016, the MCIT released Ministerial Regulation 23/2016, which reformed the testing process for certain wireless devices. Under the new regulation, devices may be licensed for sale by MCIT on the basis of a Declaration of Conformity filed by the device importer or manufacturer stating that testing was carried out in a laboratory recognized international testing facility or one recognized by MCIT. BARRIERS TO DIGITAL TRADE Data Localization Data localization requirements remain a serious concern in Indonesia. Article 17 of Government Regulation (GR) 82/2012 requires providers of a public service to establish local data centers and disaster recovery centers in Indonesia. Indonesian officials have indicated that public service means any activity that provides a service by a public service provider, consistent with the definition in the implementing regulations to the 2009 Public Service Law. This broad definition creates uncertainty for service suppliers FOREIGN TRADE BARRIERS 255 across sectors. GR 82/2012 provided a five-year implementation period for data localization requirements, which expired on October 12, 2017. In January 2018, the Indonesian government shared a draft amendment to GR 82/2012 that would classify data into three categories: strategic, high-risk, and low-risk. The draft amendment offers vague definitions of these categories, defining strategic data as data potentially disruptive to the national economy, defense, security, governance, transportation and communication, and/or data that can contribute to humanitarian disaster. The proposed amendment would require that strategic data be stored in Indonesia and allows each ministry to set conditions under which high-risk data can be stored abroad. The proposed amendment would also require that each ministry apply for MCIT approval to designate its data as strategic, but allows ministries to self-designate high- or low-risk data. Pursuant to GR 82/2012, the MCIT issued Regulation 20/2016 on personal data protection, which requires electronic system providers to process protected private data only in data centers and disaster recovery centers located in Indonesia. BI and OJK are putting forward regulations for certain financial services sectors that require data centers and disaster recovery centers to be located in Indonesia. OJK s Regulation 69 mandates all insurers and reinsurers in Indonesia to have established data centers and disaster recovery centers in Indonesia by October 2017. In addition, OJK s Regulation 38/2016 and BI s Regulation 9/2007 regulate implementation and application of risk management in the use of information technology by commercial banks. Indonesia may pursue national legislation and additional regulations on personal data protection in 2018, which could expand requirements for data localization. firms have expressed concern that a local data center requirement could prevent service suppliers from leveraging economies of scale from existing data centers and inhibit cross-border data flows. Furthermore, while some larger companies may be able to absorb data localization related costs to provide their products and services in Indonesia, such requirements could potentially impede access for small- and medium-sized businesses. It also remains unclear how the proposed amendment to GR 82/2012 would affect these regulations. The United States continues to stress that data localization requirements are not necessary for regulators to have necessary access to data for supervisory purposes, nor are such requirements needed to secure private information. Rather, such requirements can undermine the security and integrity of data by causing redundant storage and increasing the number of network nodes. Internet Services In 2017, Indonesia proposed two new packages of regulations with the potential to hinder foreign providers of Internet services from participating in the Indonesian market. In August 2017, Indonesia issued Presidential Regulation 74/2017 formalizing the E-Commerce Roadmap. The roadmap calls for 31 regulatory provisions that will affect financing, taxation, consumer protection, education and human resources, logistics, communication infrastructure, and cyber security for electronic commerce companies. Presidential Regulation 74/2017 also calls for further rules that would require electronic commerce companies to register and obtain an identity number from the government of Indonesia. The regulation also establishes a ministerial steering committee led by the Coordinating Ministry for Economic Affairs to coordinate regulatory efforts. In August 2017, MCIT released for public comment a new proposed regulation Concerning the Provision of Application Services and/or Content over the Internet. While the revised proposed regulation removes some troubling provisions seen in the prior March 2016 circular letter on the same subject, such as a requirement to establish a permanent business unit and use an Indonesian IP address, stakeholders remain concerned that the scope and effect of these proposed regulations are too broad and could destabilize the fundamental architecture of Internet-delivered services. Among these concerns is a definition of OTT (Over The Top) that potentially covers every service provided via the Internet, requirements for OTTs to establish FOREIGN TRADE BARRIERS 256 permanent representatives and open bank accounts in Indonesia, and a proposal to create a National OTT Services Policy Forum that would have the right to supervise OTT companies and recommend bandwidth restrictions to MCIT. These rules could also have significant tax consequences that conflict with internationally accepted principles. The United States requested that Indonesia delay issuing this regulation until these issues could be addressed. Digital Products Indonesia is reportedly moving forward with plans to impose duties on digital products such as digital music, e-books, and apps. The new tariffs may be imposed alongside the numerous other electronic commerce regulatory provisions mentioned above. Imposition of duties on digital products would likely raise concerns regarding Indonesia s longstanding WTO commitment renewed on a multilateral basis in December 2017 not to impose duties on electronic transmissions. INVESTMENT BARRIERS Decentralized decision making processes, legal uncertainties, and powerful domestic vested interests all contribute to Indonesia s complex and difficult investment climate. These include Indonesian government requirements that often compel foreign companies to do business with local partners and to purchase goods and services locally. Moreover, a growing number of firms have expressed concern about the Indonesian legal system, especially with regards to corruption. Indonesia s Negative Investment List provides a list of sectors that are subject to either foreign investment prohibitions or restrictions. Revisions to the list in April 2014 closed certain sectors to foreign investment, including distribution and warehousing, and various areas of oil, gas, and mining services. A further revision of the Negative Investment List in May 2016 permitted greater foreign investment in sectors like film, tourism, logistics, health care, and electronic commerce, while maintaining numerous other restrictions based on company size, location, and sector. With respect to telecommunications services, the revised list caps foreign ownership at 67 percent for fixed and mobile network services, Internet and multimedia-based communication service suppliers, Internet service providers, data communication system services, and public Internet telephony services. Previously, the foreign ownership limitation on suppliers of fixed services was 95 percent. The 2016 Negative Investment List contains a grandfather clause for then existing investments, though questions remain as to how it will apply in practice. Energy and Mining Over the past several years, the Indonesian government has introduced regulatory changes to increase government control and local content levels in the energy and mining sectors. The regulatory changes have raised costs for foreign businesses and raised questions about the sanctity of contracts already in force between private companies and the Indonesian government. The criminalization of several contract disputes has added to the uncertainty of the market. In the oil and gas sector, Government Regulation 79/2010 allows the Indonesian government to change the terms of certain existing production sharing contracts, eliminate the tax deductibility of certain expenses, change the terms and criteria for cost recovery, and place limits on allowable costs for goods, services, and salaries. In June 2017, the Indonesian government issued Government Regulation 27/2017 as a revision to Government Regulation 79/2010. Regulation 27/2017 provides more incentives for upstream oil and gas investment, although the effectiveness of this regulation will depend on the subsequent implementing regulations from the MOF and Ministry of Energy and Mineral Resources (MEMR). Furthermore, Article 79 of Presidential Regulation 35/2004, which regulates contractor activities in the upstream oil and gas sector, provides that contractors must prioritize the use of domestic services, including energy-related FOREIGN TRADE BARRIERS 257 services, as well as domestic technologies and engineering and design capabilities. Foreign companies have noted that these local preference policies severely undermine their ability to efficiently and profitably operate in the Indonesian market. Indonesia s oil and gas regulator (SKK Migas) also has tightened the rules relating to how local content is measured with respect to oil and gas projects. Once fully implemented, the new criteria are intended to achieve an average of 91 percent local content by 2025, up from 61 percent in 2012. Moreover, under the new rules, goods and services supplied by companies without majority Indonesian shareholding can no longer qualify as local content. As a result, foreign energy service companies have been placed at a disadvantage compared to majority Indonesian owned companies, which can more easily meet local content requirements, but often are less able to meet the technical requirements of a project. Other actions have also negatively impacted the business climate in the oil and gas sector. The Indonesian government has increased pressure on oil and gas companies to hold export earnings in Indonesian state owned banks, per BI Regulation 13/2011 (as amended by BI Regulation 14/2012). This regulation subjects such earnings to Indonesian banking law and regulations, despite production sharing contracts that allow companies to remit such earnings abroad. In addition, MEMR Regulation 31/2013 limits the amount of time expatriates may work in Indonesia s oil and gas sector to four years, and prohibits expatriates from working past the age of 55. Further, production sharing contracts in Indonesia (and the gross split contracts that will replace them) contain a standard clause specifying that 25 percent of all production must be sold to domestic refineries for domestic consumption. The policy, known as the Domestic Market Obligation, also requires companies to sell the crude oil to domestic refineries at a heavily discounted rate, providing a de facto subsidy to domestic refiners. In the mining sector, Indonesia s 2009 Mining Law created a system for granting mining concessions based on licenses, although some companies still operate on previously existing contracts of work. The law and its implementing regulations impose onerous requirements on companies doing business in the mining sector, including local content requirements, domestic sale requirements, and a requirement to process raw materials in Indonesia prior to export. Because the mining licenses are subject to future regulatory requirements, permitting, and tax changes, they provide significantly less certainty than the contract of work system. Moreover, foreign companies that obtain mining licenses must divest 51 percent of their holdings to Indonesian ownership over a ten-year period. The Indonesian government is given the right to buy shares first, followed by Indonesian regional governments, SOEs, and private Indonesian companies, in that order. The United States will continue to press Indonesia on these issues. In the power generation sector, MOI Regulation 54/2012 imposes varying levels of local content requirements with respect to goods and services used in power plants, including steam, hydroelectric, geothermal, gas, solar, and in the transmission and distribution network. The local content requirements for solar power plants were tightened as a result of MOI Regulation 4/2017 and 5/2017, which require 60 percent local content in solar modules and 100 percent in services by 2019. In July 2016, MEMR issued Regulation 19/2016 on Indonesia s state-owned company PLN s purchase of solar power-generated electricity. This regulation replaced the previous 17/2013, which was struck down by the Supreme Court. Regulation 19/2016 prioritizes the use of domestic goods and services and requires a minimum standard of local content for solar (photovoltaic) power plant development, in accordance with Indonesia s existing regulations under the MOI. In March 2017, MEMR issued Ministerial Regulation 12/2017 (later revised by Ministerial Regulation 50/2017), which set electricity tariffs for renewable energy based power generation sold to PLN. The regulation mandates using the national or local average power generation cost as a base tariff and resulted in generally lower tariffs for renewable energy power generation. FOREIGN TRADE BARRIERS 258 OTHER BARRIERS Although the Indonesian government and the Corruption Eradication Commission continue to investigate and prosecute high-profile corruption cases, many stakeholders consider corruption a significant barrier to doing business in Indonesia. Other barriers to trade and investment include poor coordination within the Indonesian government, limited access to financing, the slow pace of land acquisition for infrastructure development projects, poor enforcement of contracts, an uncertain regulatory and legal framework, restrictive labor laws, arbitrary tax assessments, and lack of transparency in the development of laws and regulations. The ongoing process of transferring investment related decisions from central to provincial and district governments, while helping reduce some bureaucratic burdens, has led to inconsistencies between national and regional or local laws. companies seeking legal relief in contract disputes have reported that they are often forced to litigate spurious counterclaims and have raised growing concern about the criminalization of contractual disputes. FOREIGN TRADE BARRIERS 259 ISRAEL TRADE SUMMARY The goods trade deficit with Israel was $ billion in 2017, a percent increase ($396 million) over 2016. goods exports to Israel were $ billion, down percent ($653 million) from the previous year. Corresponding imports from Israel were $ billion, down percent. Israel was the United States' 24th largest goods export market in 2017. exports of services to Israel were an estimated $ billion in 2016 (latest data available) and imports were $ billion. Sales of services in Israel by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Israel-owned firms were $ billion. foreign direct investment (FDI) in Israel (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Israel is led by manufacturing, prof., scientific, and tech. services, and information. FREE TRADE AGREEMENTS The United States-Israel Free Trade Agreement Under the United States-Israel Free Trade Agreement (FTA), signed in 1985, the United States and Israel agreed to implement phased tariff reductions culminating in the complete elimination of duties on all products by January 1, 1995. While tariffs on non-agricultural goods traded between the United States and Israel have been eliminated as agreed, tariff and nontariff barriers continue to affect a significant number of key agricultural product exports. To address the differing views between the two countries over how the FTA applies to trade in agricultural products, in 1996 the United States and Israel signed an Agreement on Trade in Agricultural Products (ATAP), which established a program of gradual and steady market access liberalization for food and agricultural products effective through December 31, 2001. Negotiation and implementation of a successor ATAP was successfully completed in 2004. Originally scheduled to last through December 31, 2008, the 2004 ATAP granted improved access for select agricultural products. The second ATAP has been extended ten times, most recently through December 31, 2018, to allow time for the negotiation of a successor agreement. The current ATAP provides food and agricultural products access to the Israeli market under one of three different categories: unlimited duty-free access, duty-free tariff-rate quotas (TRQs), or preferential tariffs, which are set at least 10 percent below Israel s most-favored nation rates. TECHNICAL BARRIERS TO TRADE Israeli regulatory bodies, such as the Ministry of Economy (Standards Institute of Israel), Ministry of Health (Food Control Services), and the Ministry of Agriculture (Veterinary Services and the Plant Protection Service), often adopt standards developed by Israeli regulators or European standards organizations rather than international standards, which results in the exclusion of certain products from the Israeli market and adds costs to certain exports to Israel. A current example is Israel's new cosmetics regulation (known as the Pharmacists Ordinance), which does not align with International Standards Organization or technical regulations on issues including the roles of the Responsible Person; safety assessment for nanotechnology; and, use of confidential business information. FOREIGN TRADE BARRIERS 260 IMPORT POLICIES Agriculture agricultural exports that do not enter duty free under WTO, FTA, or ATAP provisions face barriers, such as high tariffs and a complicated TRQ system. These products include higher-value goods that are sensitive for the Israeli agricultural sector, such as dairy products, fresh fruits, fresh vegetables, almonds, wine, juice, and some processed foods. According to industry estimates, the elimination of levies on processed foods, including a broad range of dairy products, could result in increased sales by companies in the range of $30 million to $55 million per year. producers of apples, pears, cherries, frozen vegetables, and stone fruits estimate that the elimination of Israeli trade barriers would lead to an increase of up to $15 million per year in export sales of these products. Stakeholders estimate that full free trade in agriculture could also result in significant increases in cheese exports to Israel. Similarly, stakeholders estimate that removing tariffs on food product inputs used by restaurant chains operating in Israel could save these chains millions of dollars annually and lead to their expansion in Israel. Customs Procedures Some exporters have reported difficulty in claiming preferences for goods entering Israel under the FTA. In 2017, the United States and Israel agreed to adopt new procedures making it easier for exporters to gain approvals when claiming duty-free status under the FTA for individual products. GOVERNMENT PROCUREMENT Israel has offset requirements that it implements through international cooperation (IC) agreements. Under IC agreements, foreign companies that have been awarded government contracts are required to offset foreign goods or services provided under the contracts by agreeing to localization commitments that require one of the following: investment in local industry; co-development or co-production with local companies; subcontracting to local companies; or purchasing from Israeli industry. Israel is a party to the WTO Agreement on Government Procurement (GPA). Since January 1, 2009, the IC offset percentage for procurements covered by Israel s GPA obligations has been 20 percent of the value of the contract; for procurements excluded from GPA coverage, the offset is 35 percent; and for military procurements the offset is 50 percent. Under the revised GPA, which entered into force in 2014, Israel committed to phase out its offsets on procurements covered by the agreement. suppliers have indicated that they believe that the size and nature of their offset proposals can be a decisive factor in close tender competitions, despite an Israeli court decision that prohibits the consideration of offset proposals in determining the award of a contract. Small and medium-sized exporters often are reluctant to commit to make purchases in Israel in order to comply with the IC agreements, and, as a result, their participation in Israeli tenders is limited. In addition, the inclusion of unlimited liability clauses in many government tenders discourages firms from competing. When faced with the possibility of significant legal costs for unforeseeable problems resulting from a government contract, most firms are forced to insure against the risk, which raises their overall bid price and reduces their competitiveness. The United States-Israel Reciprocal Defense Procurement Memorandum of Understanding (MOU), extended in 1997, is intended to facilitate defense cooperation, in part by allowing companies from both countries to compete on defense procurements in both countries on as equal a basis as possible, consistent with national laws and regulations. The MOU, which has benefited Israeli defense industries by opening FOREIGN TRADE BARRIERS 261 up the procurement market to Israeli products, has not significantly opened the Israeli market for suppliers interested in competing for Ministry of Defense procurements funded by Israel. The United States and Israel signed a new security assistance MOU in September 2016 to succeed the current MOU, which expires at the end of fiscal year 2018 (September 30, 2018). The new MOU has a total value of $38 billion ($ billion per year) and will be in place from fiscal year 2019 through fiscal year 2028. By joint decision, this new MOU will, beginning in 2019, slowly phase out over the next 10 years both off-shore procurement (the arrangement under the current security assistance MOU that permits Israel to spend percent of its annual security assistance package within Israel on products) and Israel s use of security assistance funds to purchase fuel. Together, these changes mean that the amount of Israel s assistance package that can be spent only on capabilities will, over the course of 10 years, increase to a level nearly $ billion above its fiscal year 2019 level. INTELLECTUAL PROPERTY RIGHTS PROTECTION Despite efforts by Israel to strengthen intellectual property rights (IPR) protection in 2017, the United States remains concerned with certain remaining deficiencies in Israel s protections for IPR. With respect to copyright protection, for example, Israel has yet to join the World Intellectual Property Organization (WIPO) Copyright Treaty or the WIPO Performances and Phonograms Treaty. A Knesset committee began deliberations in November 2017 and submitted draft modifications of its copyright enforcement law for comment. The bill is intended to establish indirect liability for copyright infringement. Israel also lacks adequate regulatory data protection for biologic pharmaceuticals as well as patent term restoration to compensate for marketing approval delays for pharmaceuticals. BARRIERS TO DIGITAL TRADE Electronic signatures are regulated by Israel s electronic signature law. Under this law, the consumer may decline to pay for any merchandise for which he or she did not physically sign. This is a significant disincentive to the establishment of electronic commerce businesses. SERVICES BARRIERS Audiovisual Services Israeli law largely prohibits broadcast TV channels and radio stations, both public and private, from carrying advertisements. Only a select few private Israeli broadcast TV channels and a few private radio stations are allowed to do so. A few broadcast TV channels have received broadcast licenses and advertising privileges in exchange for local investment commitments. Foreign channels that are distributed through the country s cable and satellite networks are permitted to carry advertising not directed at Israelis. FOREIGN TRADE BARRIERS 262 FOREIGN TRADE BARRIERS 263 JAPAN TRADE SUMMARY The goods trade deficit with Japan was $ billion in 2017, a percent increase ($38 million) over 2016. goods exports to Japan were $ billion, up percent ($ billion) from the previous year. Corresponding imports from Japan were $ billion, up percent. Japan was the United States' 4th largest goods export market in 2017. exports of services to Japan were an estimated $ billion in 2017 and imports were $ billion. Sales of services in Japan by majority affiliates were $ billion in 2015 (latest data available), while sales of services in the United States by majority Japan-owned firms were $ billion. foreign direct investment (FDI) in Japan (stock) was $ billion in 2016 (latest data available), a percent increase from 2015. direct investment in Japan is led by finance/insurance, manufacturing, and information. OVERVIEW The Government continues to engage closely with the Japanese government to urge it to remove a broad range of barriers to exports, including barriers at the border as well as barriers to entering and expanding the presence of products and services in the Japanese market. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Country of Origin Labeling Requirements for Ingredients The Japanese Consumer Affairs Agency (CAA) amended Japan s Food Labeling Standards on September 1, 2017. This amendment expands country of origin labeling (COOL) requirements to the main ingredient by weight in certain processed foods manufactured in Japan. For example, a Japanese manufacturer of soy sauce would have to identify on the label the country where the soybeans used in its production were cultivated. The transition period for compliance will end in March 2022. The expanded requirements do not apply to imported processed foodstuffs manufactured outside of Japan. However, the requirements have the potential to adversely affect exports of food ingredients because the domestic products may be produced with imported ingredients. In such cases, Japanese producers may avoid using ingredients from multiple origins (including the United States) as a way to minimize labeling burdens. Furthermore, the amendment allows for the possibility of incorrect food labeling because Japanese processed food companies may indicate an intended or historical source of ingredients when an ingredient is actually sourced from a different country. Sanitary and Phytosanitary Barriers Food Safety Beef and Beef Products In December 2003, Japan banned beef and beef products following the detection of an animal positive for bovine spongiform encephalopathy (BSE) in the United States. Following steps taken by Japan in July FOREIGN TRADE BARRIERS 264 2006, February 2013, and January 2015 that expanded access to the Japanese market for beef and beef products, the United States is currently eligible to export all beef and beef products from cattle less than 30 months of age slaughtered in the United States. The United States continues to urge Japan to fully open its market to beef and beef products from animals of all ages, consistent with recognition by the World Organization for Animal Health (OIE) that the United States is a country with negligible risk for BSE. Lamb and Lamb Products Following the December 2003 BSE detection, Japan also banned lamb and lamb products, despite BSE not occurring naturally in sheep. Japan has imposed BSE-related requirements on lamb meat, meat products, and casings that the OIE does not recommend, given that BSE does not naturally occur in sheep. These requirements have blocked access for lamb and lamb products for 14 years. The United States continues to urge Japan to open its market to lamb and lamb products. Food Additives Japan s regulation of food additives has restricted imports of several food products, especially processed foods and alcoholic beverages. Japan is an important market for processed food; exports of processed foods and alcoholic beverages to Japan were valued at $ billion in 2017. Certain additives that are widely used in the United States and other markets are not permitted in Japan, including carmine, a natural red food coloring used in a variety of goods, including baked, confectionary, ice cream, and yogurt products. In addition, manufacturers have raised concerns about the length of Japan s approval process for processing aids, which are substances used in food processing that are no longer present, or present at very low levels, in the final food product. Based on the Japanese government s assessment that the greatest hurdle to regulatory approval of food additives is the preparation of the application, in July 2014 it created the Food Additive Designation Consultation Center (FADCC) to assist applicants. The FADCC s services are free of charge, but have not been shown to reduce the time needed for preparing applications. Pre- and Post-Harvest Fungicides Japan classifies fungicides applied pre-harvest as pesticides, and fungicides applied post harvest as food additives. Japan s requirement that post-harvest fungicides be classified as food additives does not have a significant impact on domestic producers, as Japanese farmers do not generally apply fungicides after harvest. However, it affects producers in various ways. Japan requires separate risk assessments for the pre-harvest and post-harvest uses of each fungicide. In 2016, Japan began to review pre- and post-harvest fungicide registrations through a single application process, which should lead to a more expedited review. The United States remains concerned that Japan requires products treated with a post-harvest fungicide to be labeled at the point of sale with a statement indicating that they have been so treated and with a list of the chemicals used, which may dampen demand for the products. Japan also requires that each shipping carton within shipping containers be labeled with each chemical applied after harvest -- a requirement that is burdensome for shippers who use a rotation of fungicides. The United States will continue to work with Japan on these issues. Maximum Residue Limits Japan has historically maintained burdensome application requirements for pesticide maximum residue level (MRL) approvals. The lengthy review process for registration of new pesticides and establishment of MRLs can delay the ability of growers to use newer and safer crop-protection products on crops to be shipped to Japan. FOREIGN TRADE BARRIERS 265 The United States remains concerned that Japan s procedures for enforcement of MRLs result in uncertainty even for shippers who have never violated Japan s standards. For example, after a single pesticide MRL violation on a particular product from a country, Japan imposes enhanced surveillance of all imports of that product from that particular exporting country. If a second violation is found during the enhanced surveillance period, Japan will detain and test all shipments of that product from that exporting country, holding shipments until residue testing proves compliance. The United States continues to work with Japan and producers to address ongoing concerns. Plant Health Chipping Potatoes In 2017, Japan lifted a ten-year ban on imports of chipping potatoes from Idaho and allowed USDA to approve areas for production of seed potatoes. Chipping potatoes from 16 states are now eligible for importation. However, shipments are permitted only during a six-month window (February to July), and they remain subject to a number of restrictions, including on overland transportation to chipping facilities away from ports. After previously approving overland transportation to one non-port chipping facility, in March 2015 Japan approved overland transportation to a second chipping facility. The United States will continue to engage with Japan to further improve access for chipping potatoes. IMPORT POLICIES Japan is the fourth-largest single-country market for agricultural products, with exports valued at over $ billion in 2017, despite the existence of substantial market access barriers. Rice Import System Japan s highly regulated and nontransparent importation and distribution system for imported rice limits the ability of exporters to meaningfully access Japan s consumers. Japan has established a tariff-rate quota (TRQ) of 682,200 metric tons (milled basis) for imported rice. The Grain Trade and Operations Division of the Ministry of Agriculture, Forestry, and Fisheries (MAFF) s Crop Production Bureau manages the TRQ through periodic ordinary minimum access (OMA) tenders and through simultaneous-buy-sell (SBS) tenders. Only a small amount of rice imported into Japan reaches Japanese consumers identified as rice. Imports of rice under the OMA tenders are destined almost exclusively for government stocks. The MAFF releases these stocks exclusively for non-table rice uses, such as industrial food processing, animal feed, and re-export as food aid. rice exports to Japan in 2017 were valued at $195 million, totaling 302,581 metric tons. Although rice exports make up only about four percent of all rice consumed in Japan, industry research shows that Japanese consumers would buy high-quality rice if it were more readily available. In December 2016, MAFF inserted a new clause in the SBS tender contract prohibiting importers and wholesalers from directly exchanging money. In September 2017, MAFF again revised the administrative rules for the SBS tendering system to prohibit the sale, transfer, or hand-over of SBS imported rice between importers and buyers. The revisions are believed to have been made to prevent SBS rice from being distributed at prices lower than the government s intended prices. The United States continues to monitor Japan s rice import system in light of its WTO import commitments. Wheat Import System Japan requires wheat to be imported through the Grain Trade and Operations Division of MAFF s Crop Production Bureau, which then resells the wheat to Japanese flour millers at prices substantially above FOREIGN TRADE BARRIERS 266 import prices. These high prices limit wheat consumption by increasing the cost of wheat-based foods in Japan. The United States continues to monitor carefully the operation of Japan s state trading entity for wheat and its potential to distort trade. Pork Import Regime Japan is the largest export market for pork and pork products on a value basis, with shipments valued at nearly $ billion (393,290 metric tons) in 2017, accounting for 26 percent of the value of total shipments to all destinations. pork exports to Japan are subject to a trade-distorting gate price mechanism that functions in a manner similar to a variable levy. In order to prevent lower-priced imports from competing with Japanese pork, the mechanism levies progressively higher duties on lower-priced imports. For instance, chilled and frozen pork are subject to a specific duty of up to 482 yen/kg (approximately $ ) based on the difference between the actual import value and a government-established reference price. This duty is in addition to a percent ad valorem duty that is charged on all chilled and frozen pork regardless of import value. Beef Safeguard In 2017 Japan remained the largest export market for beef and beef products on a value basis. Shipments to Japan were valued at $ billion, totaling 303,762 metric tons. In 1995, as part of the results of the Uruguay Round, Japan was allowed to institute a beef special safeguard (SSG) to protect domestic producers in the event of an import surge. The SSG is triggered when import volumes of beef, both from all trading partners and from trading partners with which Japan does not have a free trade agreement, increase by more than 17 percent from the level of the previous Japanese fiscal year on a cumulative quarterly basis. Both conditions must be satisfied for the safeguard to trigger. When triggered, beef tariffs rise from percent to 50 percent for the rest of the Japanese fiscal year. There are separate safeguards for fresh/chilled beef and frozen beef. The safeguard for frozen beef was triggered in the first quarter of Japanese fiscal year 2017 (April-June) after an increase in imports to just slightly above the threshold, causing the tariff on all frozen beef from the United States to increase to 50 percent until March 31, 2018. Fish and Seafood Total fish and seafood exports to Japan in 2017 were valued at $860 million. However, tariffs on several fish and seafood products remain an impediment to exports and also pose an impediment for Japanese importers who rely on raw product for their processing operations. Other market access issues include Japan s import quotas on Alaska pollock, cod, Pacific whiting, mackerel, sardines, squid, and Pacific herring, as well as on products such as pollock roe, cod roe, and surimi. Although Japan has reduced tariffs, increased import quota volumes, and eased the administrative burdens associated with those quotas, the import quotas continue to present barriers to exports. The United States has urged Japan to take further action to eliminate tariffs on, and remove nontariff obstacles to, exports of fish and seafood. High Tariffs on Citrus, Dairy, Processed Food, and Other Agricultural Products Japan maintains high tariffs that hinder exports of agricultural and other food products, including grains, sugar, citrus, wine, dairy, and a variety of processed foods. These high tariffs generally apply to food products that Japan produces domestically. Examples of double digit import tariffs include tariffs of 32 percent on oranges imported during the period from December to May, percent to 40 percent on various types of cheese, 20 percent on dehydrated potato flakes, 17 percent on apples, percent on tomato juice, 15 percent on almond flour, percent on frozen sweet corn, percent on cookies, up FOREIGN TRADE BARRIERS 267 to 17 percent on table grapes imported during the period from March to October, and 15 percent to percent on wine. Wood Products and Building Materials The United States remains concerned that Japan maintains numerous localization barriers at the national, prefectural, and municipal levels in the form of domestic content subsidy programs that may favor domestic wood products. The Plywood and Lumber Stepped-Up Production Fund was established as part of a 2015 MAFF supplemental budget, making approximately $254 million available to support up to 50 percent of the expense of projects to enhance forestry production and logistics systems. The United States is monitoring the disbursement of these funds and other domestic content subsidy programs. Leather/Footwear Japan continues to apply a leather footwear tariff-rate quota (TRQ) that substantially limits imports into Japan s market, negatively impacting market access for and footwear. Japan also applies a TRQ on some raw hides and skins. The United States continues to seek improved market access for exports in this sector. Customs Issues The United States continues to urge Japan to improve the speed of customs processing and to reduce the complexity of customs and border procedures. The United States has encouraged Japan to raise its de minimis threshold for low-value imports from 10,000 yen (approximately $87), which would reduce documentation requirements and help shipments move more quickly across borders. Expanding Japan s advance rulings system to address more customs issues would also improve transparency and predictability for exporters. SERVICES BARRIERS Japan Post In the express delivery service sector, the United States remains concerned by unequal conditions of competition between Japan Post and international express delivery suppliers. The United States continues to urge Japan to take action to enhance fair competition by leveling the playing field, including by equalizing customs procedures and requirements and prohibiting the subsidization of Japan Post s international express service with revenue from non-competitive (monopoly) postal services. The United States also continues to urge the Japanese government to ensure that the postal reform process, including implementation of revisions to the Postal Privatization Law, is fully transparent, including by providing full and meaningful use of public comment procedures and opportunities for interested parties to express views to government officials and advisory bodies before decisions are made. Timely and accurate disclosure of financial statements and related notes is a key element in the postal reform process, as is the continued public release of meeting agendas, meeting minutes, and other relevant documents. The United States will continue to monitor the Japanese government s postal reform efforts carefully to ensure that all necessary measures are taken to achieve a level playing field between the Japan Post companies and private sector participants in Japan s banking, insurance, and express delivery markets. Insurance FOREIGN TRADE BARRIERS 268 Japan s insurance market is the second largest in the world, after that of the United States, with a premium volume of $ billion in 2016 (latest data available). In addition to the offerings of Japanese and foreign private insurers, insurance cooperatives (ky sai) and Japan Post Insurance, a majority government-owned entity of JP Holdings, also provide substantial amounts of insurance to consumers. Given the size and importance of Japan s private insurance market, the United States continues to place a high priority on ensuring that the Japanese government s regulatory framework fosters an open and competitive insurance market. Postal Insurance Japan s postal life insurance system retains a substantial share of Japan s insurance market. The United States has longstanding concerns about the postal insurance company s negative impact on competition in Japan s insurance market and continues to monitor closely the implementation of reforms. The United States continues to urge the Japanese government to take steps to address a range of level playing field concerns in the insurance sector. These include differences in supervisory treatment between JP Group s financial institutions and private sector companies; ensuring fair and transparent access, based on commercial terms, to insurance product distribution opportunities within the Japan Post network (including the process of selection of financial products); and the potential for cross-subsidization among the JP businesses and related entities. The United States continues to urge the Japanese government not to allow the JP Group to expand the scope of operations for its financial services companies before a level playing field is established. Restraints on the scope of JP Group operations including the cap on the amount of insurance coverage and limits on the types of financial activities and products JP entities can offer have helped to limit the extent to which the uneven playing field harms private insurance companies. In March 2016, the Japanese government revised the ministerial ordinance to raise the per-customer deposit cap of JP Bank from 10 million yen to 13 million yen, and to raise the per-policyholder insurance coverage cap of JP Insurance from 13 million yen to 20 million yen effective April 1, 2016. This was the first time in 25 years (since 1991) that the government increased the banking deposit cap for JP Bank, and the first increase in the insurance coverage cap for JP Insurance in 30 years (since 1986). As such increases do not require any legislative change, extra caution should be exercised in the process, so that the level playing field issue is properly addressed. Japan continues to honor the statement by Deputy Prime Minister Taro Aso in 2013, that the Japanese government will refrain from approving new or modified cancer insurance or stand-alone medical products of JP Insurance until it determines that equivalent conditions of competition with private sector insurance suppliers have been established, and that JP Insurance has a properly functioning business management system in place. In addition, before final decisions are made, it is vital that Japan s process for approving new products be transparent and open to all parties, including active solicitation and consideration of private sector views, along with careful analysis and full consideration of actual competitive conditions in the market. Ky sai Insurance businesses run by cooperatives (ky sai) hold a substantial share of the insurance business in Japan. Some ky sai are regulated by their respective agencies of jurisdiction ( , the Ministry of Agriculture, Forestry, and Fisheries (MAFF) or the Ministry of Health, Labor and Welfare (MHLW)) instead of by the Financial Services Agency (FSA), which regulates all private sector insurance and financial services companies. These separate regulatory schemes create a nontransparent regulatory environment and afford ky sai critical business, regulatory, and other advantages over their private sector competitors. The United States remains concerned about limited FSA supervisory authority over ky sai. FOREIGN TRADE BARRIERS 269 Bank Sales of Insurance Japanese consumers increasingly turn to banks to meet their insurance needs. As a result, banks have become an important distribution channel for the sale of insurance products. In December 2007, the Japanese government fully liberalized the range of insurance products eligible for sale through banks. In July 2011, the Japanese government carried out a follow-up review of the bank sales channel, but there were concerns about the transparency and results of that review. Limits remain on the sales of some products, different rules exist for the treatment of customer data in some cases, and sales restrictions on insurance are applied to certain categories of customers (for example, customers who work for small or medium-sized corporate borrowers). The United States continues to call on the Japanese government to conduct in the near term a fact-based and transparent review of the bank sales channel that includes meaningful opportunities for input from interested stakeholders and that takes into account global best practices to further enhance policyholder protection and improve consumer choice. Other Financial Services Improvements have been made in Japan s financial services sector, particularly with the FSA s focus on dynamic (forward-looking) supervision. The United States continues to urge reforms in the areas of defined contribution pensions, sustainable lending practices, and sharing of customer information. The FSA continues to enhance its engagement and outreach with both domestic and foreign financial firms operating in Japan, and is expected to reorganize its bureaus in 2018 in order to further improve its ability to respond to a fast-changing industry. The United States also recommends a continued focus on transparent practices, such as enhancing the effectiveness of no-action letters and providing written interpretations of Japan s financial laws. Telecommunications The United States continues to focus on ensuring fair market opportunities for emerging technologies and business models in Japan, ensuring a regulatory framework appropriate for addressing converged and Internet-enabled services, and maintaining competitive safeguards on dominant carriers. Dominant Carrier Regulation The Nippon Telegraph and Telephone Corporation (NTT) continues to dominate Japan s fixed-line market through its control over almost all last-mile connections. Although NTT s market share has been declining for the last six years and declined by percent from 2016, it still holds a percent share, including wholesale services in the fiber-to-the-home market. NTT s authority to bundle its fixed-line services with mobile phone operator NTT Docomo s mobile service is also of concern, as it appears to undermine the rationale for structurally separating the companies. Spectrum Allocation Unlike most advanced economies, Japan does not use auctions to allocate spectrum, and the factors the Ministry of Internal Affairs and Communication (MIC) uses to determine how to evaluate applications have raised questions related to the fairness of the allocation process. Although the Japanese government has previously considered introducing legislation that allows for auctions as an option to assign commercial spectrum, it remains unclear whether such legislation will be introduced. The Cabinet recommendations in 2017 for improving the use and allocation of frequencies and MIC s Discussion Panel on Growth Strategy for Effective Use of Radio Frequencies and associated expert working group, charged with examining ways to more effectively use of spectrum, may provide a basis for moving towards a more market-oriented FOREIGN TRADE BARRIERS 270 system. Given anticipated spectrum needs for the launch of next-generation 5G services, reforming Japan s system for assigning and allocation spectrum should be a priority. Handset Pricing MIC s January 2017 Guideline for Improvement on Handset Subsidies for Smartphones significantly limits mobile service provider subsidies on the sale of new mobile handsets. Though ostensibly intended to reduce overall mobile service charges (which presumably reflect such subsidies), there is no evidence that this policy will have that effect. In fact, it could hurt both handset manufacturers that frequently introduce new models, and operators that seek to compete for customers through handset promotions. Information Technologies (IT) Health IT The United States has urged Japan to improve the quality and efficiency of health care by rapidly implementing health IT that is based on international standards, promotes technology neutrality and interoperability, and allows patients greater access to their own health records. Engagement between United States and Japanese government health IT experts continues to address health IT issues of mutual interest. Digital Trade Privacy Based on the amended Act on Protection of Personal Information (APPI), the new Personal Information Protection Commission (PPC) issued new orders and guidelines in October and November 2016, respectively. The new guidelines recognize the APEC Cross Border Privacy Rules (CBPR) system as a mechanism that companies can avail themselves of to demonstrate compliance with Japanese requirements for transferring data outside Japan. APPI took full effect in May 2017. The United States will continue to monitor its implementation. Legal Services Japan imposes cumbersome and time-consuming procedures for the registration of foreign lawyers to provide international legal services in Japan, and prohibits foreign lawyers from establishing branch offices in Japan (except for one type of firm, which is first required to corporatize locally). The United States continues to urge Japan to further liberalize the legal services market. For example, the United States urges Japan to eliminate the requirement that two years of post-admission practice of home country law take place outside Japan; ensure that legal or bar association rules do not impede Japanese lawyers from becoming members of international legal partnerships; and significantly simplify and accelerate the registration process for new foreign legal consultants. Educational Services The United States continues to urge the Japanese government to work with foreign universities to find a nationwide solution that grants tax benefits to foreign universities operating in Japan comparable to those provided to Japanese schools and allows foreign universities to continue providing their unique contributions to Japan s educational environment. In its Economic Revitalization Strategy first issued in June 2013, the government of Japan committed to promoting an educational system that more effectively provides the Japanese people with the skills to FOREIGN TRADE BARRIERS 271 compete in the global economy. Consistent with that commitment, in 2014 Japanese authorities actively engaged with American universities operating satellite campuses or extension facilities in Japan to seek a way forward on taxation and other issues. American universities have reported success in being recognized as educational institutions eligible for issuance of visas to foreign students to study at their campuses in Japan. However, despite extensive consultations with authorities, no American university has been able to satisfy all the legal requirements to be granted educational corporation (gakk h jin) status, which would confer the same tax benefits enjoyed by Japanese universities. The requirement that such corporations be independently administered ( , not subject to direct administration by the parent university in the home country) is a particularly difficult legal hurdle to overcome. Lack of gakk h jin status means foreign satellite universities are also excluded from participation in new Japanese government grant programs that promote international exchange and provide financial support for students wishing to study abroad. INTELLECTUAL PROPERTY RIGHTS PROTECTION Japan generally provides strong intellectual property rights protection and enforcement. The United States continues to urge Japan to improve IPR protection and enforcement in specific areas, however, through bilateral consultations and cooperation, as well as in multilateral and regional fora. The United States has urged Japan to continue to reduce piracy rates, including by adopting methods to protect against piracy in the digital environment. Police and prosecutors generally lack ex officio authority to prosecute copyright-related IPR crimes on their own initiative, without a complaint from a rights holder. The United States also seeks improvements to Japan s Internet service provider liability law to promote cooperation between rights holders and Internet service providers. In addition, the United States continues to urge Japan to further strengthen its laws to provide effective criminal and civil remedies against the unauthorized circumvention of technological protection measures used by rights holders to protect their works, as well as effective criminal and civil remedies against the trafficking in tools used to circumvent such technological protection measures. While the United States welcomed clarifications to Japan s Copyright Law in 2010 that made clear that the statutory private use exception does not apply in cases where a downloaded musical work or motion picture is knowingly obtained from an infringing source, the United States continues to urge the Japanese government to expand this limitation on the private use exception to cover all works protected by copyright and related rights. The Act for Protection of Designated Agricultural, Forestry and Fishery Products and Foodstuff (GI Act) entered into force on June 1, 2015. Fifty-nine geographical indications had been registered and 6 additional applications had been announced on MAFF s website, as of March 22, 2018. The 59 geographical indications registered to that date all included the geographic place names plus the product names. As part of the July 6, 2017, agreement in principle on the Japan-European Union Economic Partnership Agreement (EPA), Japan agreed to consider recognition of 210 terms as geographical indications from the European Union. These include 71 proposed terms for protection under the GI Act and 139 proposed terms for protection under the Act Concerning Liquor Business Associations and Measures for Securing Revenue from Liquor Tax. After publishing the list of proposed terms and a period of public consultation, in December 2017, MAFF announced the acceptance of the terms being considered under the GI Act pending entry into force of the Japan-EU EPA, although with certain limitations and important clarifications regarding the use of common names. The United States continues to monitor implementation of Japan s GI system and urges Japan to refrain from measures that would unfairly limit market access for products and to ensure consistency with core transparency and due process principles, in particular with respect to the protection of existing trademarks, the safeguarding of the use of generic terms, and the effective operation of objection and cancellation procedures. FOREIGN TRADE BARRIERS 272 The United States continues to work with Japan to address IPR issues through bilateral engagement. GOVERNMENT PROCUREMENT Japan is a signatory to the WTO Agreement on Government Procurement (GPA), which obligates Japan to open its government procurement to suppliers from the United States and other GPA members. Japan has also made commitments to the United States under bilateral agreements. The United States continues to monitor Japan s implementation of these agreements to ensure the greatest possible transparency in tendering processes and opportunity for participation by qualified bidders. INVESTMENT BARRIERS Japan continues to have the lowest inward FDI as a proportion of total output of any major OECD country. According to OECD statistics, the inward FDI stock at the end of 2016 (latest data available) was only percent of GDP in Japan, compared to percent on average for all OECD members. Inward foreign merger and acquisition (M&A) activity, which accounts for a large portion of FDI in other OECD countries, also lags in Japan. While the Japanese government recognizes the importance of FDI to revitalizing the country s economy, its performance in implementing domestic regulatory reforms to encourage a sustained increase in FDI has been uneven. In June 2013 the government of Prime Minister Abe announced its goal of doubling Japan s inward 2012 year-end FDI stock by 2020, and confirmed this commitment in its 2017 growth strategy. The government is pursuing a range of policies intended to promote this target. Improving prospects for investment in Japan is particularly important given that Japan ranks as having the second-highest rate of return for financial and insurance services FDI among OECD countries (at 11 percent) and the third highest rate of return for FDI overall (at 10 percent), according to the latest OECD statistics. The number of annual inbound M&A deals has remained relatively low for an economy the size of Japan, raising questions about the adequacy of the government s measures if its 2020 target is to be achieved. A variety of factors make inbound M&A difficult in Japan, including attitudes toward outside investors, inadequate corporate governance mechanisms that protect entrenched management over the interest of shareholders, cross-shareholdings, aspects of Japan s commercial law regime (see Commercial Law section), and a relative lack of financial transparency and disclosure. ANTICOMPETITIVE PRACTICES Improving Anti-Monopoly Compliance and Deterrence Japan s Anti-Monopoly Act (AMA) provides for both administrative and criminal sanctions against cartels and administrative sanctions for non-cartel conduct. Criminal prosecutions, which have the strongest deterrent effect against anticompetitive behavior in other countries, have been few, and penalties against convicted company officials have been weak. The United States has continued to urge Japan to take steps to maximize the effectiveness of enforcement against cartel and bid-rigging violations of the AMA in order to ensure open and competitive markets. stakeholders in Japan have expressed continued concern regarding Japan Fair Trade Commission (JFTC) investigations under the unfair trade practices clause of the AMA, in particular the implementation of its prohibition against abuse of superior bargaining position and related administrative guidance. They assert that vague and ambiguous standards for liability in this area make difficult good-faith efforts to comply with the AMA. FOREIGN TRADE BARRIERS 273 Improving Fairness and Transparency of JFTC Procedures Japan amended the procedures for JFTC hearings and appeals from JFTC orders to address concerns as to whether the preexisting system provided sufficient due process protections. The Diet enacted an AMA amendment in 2013, which took effect in April 2015. In connection with the amendments, Japan established a cabinet office advisory panel to study additional ways that the JFTC might change its procedures to enhance the transparency and fairness of enforcement proceedings. In December 2014, the advisory panel issued a report that examined JFTC investigation procedures regarding on-the-spot inspections, depositions, and attorney-client privilege. While the panel recommended that the JFTC clarify its procedures on issues related to on-the-spot inspections (for example, the ability of a firm to make copies of its seized documents), it did not recommend that the JFTC allow the presence of a defense attorney during depositions. On the issue of whether to recognize the right to assert attorney-client privilege (a privilege that is not recognized in Japan) in JFTC investigations, the panel proposed a limited recognition of the privilege to cover communications between leniency applicants and their counsel. The panel did not ultimately recommend recognition of a broader attorney-client privilege. The panel recommended that attorney-client privilege in JFTC investigations be considered alongside additional reforms in the future. In December 2015, in response to the advisory panel recommendations and in an effort to promote the transparency of JFTC investigative procedures, the JFTC published new Guidelines on Administrative Investigation Procedures under the Antimonopoly Act (Guidelines). The Guidelines outline JFTC procedures for on-the-spot inspections, treatment of items seized during inspections, and JFTC procedures during depositions. OTHER SECTORAL AND CROSS-SECTORAL BARRIERS Transparency Advisory Groups Advisory councils and other government-commissioned study groups are accorded a significant role in the development of regulations and policies in Japan. However, the process of forming these groups can be opaque, and too often non-members are not uniformly offered meaningful opportunities to provide input into these groups deliberations. The United States continues to urge Japan to ensure transparency with respect to the formation and operation of advisory councils and other groups convened by the government by adopting new requirements to ensure that ample and meaningful opportunities are provided for all interested parties, as appropriate, to participate in, and directly provide input to, these councils and groups. Public Comment Procedure Many companies remain concerned by inadequate implementation of the public comment procedure by Japanese ministries and agencies. For example, in some cases, comment periods appear unnecessarily short, and in some cases, comments do not appear to have been adequately considered given the brief time between the end of the comment period and the issuance of a final rule or policy. The United States has stressed the need for Japan to make revisions to improve the system, such as lengthening the standard public comment period for rulemaking. Commercial Law Foreign investment into Japan remains constrained by a range of issues, including conditions for using tax-advantaged merger tools for inward-bound investment in Japan; securities law and capital market issues FOREIGN TRADE BARRIERS 274 inherent in cross-border stock-for-stock transactions; and corporate governance systems that have not adequately reflected the interests of shareholders. The United States continues to urge Japan to identify and eliminate impediments to cross-border mergers and acquisitions; ensure the availability of reasonable and clear incentives for many such transactions; and take measures to ensure that shareholder interests are adequately protected when Japanese companies adopt anti-takeover measures or engage in cross-shareholding arrangements. The United States welcomed steps taken in the 2015 revised Companies Act and Corporate Governance Code to increase management accountability and corporate transparency, and continues to urge Japan to further improve its commercial law and corporate governance systems in order to promote efficient business practices, capital markets development, and shareholder rights in accordance with international standards. Areas ripe for improvement include facilitating and encouraging active and appropriate proxy voting, and strengthening protection of minority shareholders by clarifying fiduciary duties of directors and controlling shareholders. Automotive The United States has expressed strong concerns with the overall lack of access to Japan s automotive market for automotive companies. A variety of non-tariff barriers impede access to Japan s automotive market, and overall sales of vehicles and automotive parts in Japan remain low. Non-tariff barriers include certain issues relating to certification; unique standards and testing protocols; an insufficient level of transparency, including the lack of sufficient opportunities for input by interested persons throughout the process of developing regulations; and hindrances to the development of distribution and service networks. These, together with other past and current policies and practices, have had the long-term effect of excluding and disadvantaging manufacturers in the Japanese market. Medical Devices and Pharmaceuticals Japan continues to be an important market for medical devices and pharmaceutical products. According to figures from the Ministry of Health, Labor and Welfare (MHLW), the Japanese market for medical devices and materials in 2015 was approximately $ billion. Imported medical devices held a 23 percent market share in 2015 and were valued at $ billion. (The market share of medical devices increases to 60 percent when local production in Japan by companies is included.) Japan s pharmaceutical market was valued at $88 billion in 2015, with imports comprising 6 percent, or $ billion, of the overall market. The total market share of pharmaceuticals in Japan is estimated to be approximately 20 percent if local production by firms and compounds licensed to Japanese manufacturers is included. The government of Japan continues to call for increased promotion of Japan s pharmaceutical and medical device industries. Japan has recently made progress in several areas, including the reduction of approval periods for medical devices and pharmaceuticals. The health and safety regulatory environment in Japan is expected to improve further. In 2017, Japan introduced a conditional early approval system for medical devices and drugs that treat incurable or other serious diseases. For medical devices, the New Collaboration Plan to Accelerate Review of Medical Devices, implemented in April 2014, contains performance goals that, if met, will lead to speedier approvals by the end of the program in March 2019. The Government continues to urge Japan to improve performance goals for product reviews by meeting performance targets and ensuring that Quality Management System audits are completed within the standard review period. For pharmaceuticals, Japan has brought its approval periods in line with, or even faster than, and European norms. The Government continues to urge Japan to further harmonize efforts of its key regulatory agencies on international standards in clinical development, multiregional clinical trials, and risk management. FOREIGN TRADE BARRIERS 275 The United States has urged Japan to implement predictable and stable reimbursement policies that reward innovation and provide incentives for companies to invest in the research and development of advanced medical devices and innovative pharmaceuticals. Reforms to Japan s reimbursement system in 2017 represent a retreat from previous progress made in this area. Current plans may weaken incentives previously offered under the Price Maintenance Premium (PMP), a mechanism designed to accelerate the introduction of innovative drugs to the Japanese market. They may also introduce significant uncertainty into pricing for patented pharmaceuticals, undermining investment planning for capital-intensive drug discovery research and clinical trials. stakeholders have expressed strong concerns regarding new rules that provide tiered access to the PMP based on certain criteria that might be easier for domestic firms to meet and that might limit the ability for SMEs to qualify for the full premium. The Government continues to urge the Japanese government to implement predictable and stable reimbursement policies; to solicit and consider the input of all stakeholders, including stakeholders, when developing any measures related to these policies; and to follow transparent processes in the present and future development of any new policies and measures. Nutritional Supplements In Japan, nutritional supplements are regulated as a part of loosely defined health food subcategory of foodstuffs, unlike in the United States, where nutritional supplements are regulated independently. Japan has taken steps to streamline import procedures and to improve access in this market. However, many significant market access barriers remain, including a percent tariff on vitamin imports. Pursuant to the Abe government s Economic Revitalization Strategy issued in June 2013, Japan s Consumer Affairs Agency (CAA) started implementing a new Food with Functional Claim (FFC) system effective as of April 1, 2015. The FFC system is a third food-related category under the Food with Health Claims system, parallel to two other premarket government approval systems, Foods for Specified Health Uses (FOSHU) and Foods with Nutrient Function Claims (FNFC). These processes apply to both imported and domestic products. Producers of most nutritional supplements are generally unable to obtain FOSHU approval or FNFC designation due to FOSHU s costly and time-consuming approval process and FNFC s standards and specifications, which limit the range of nutritional ingredients such as vitamins and minerals that can qualify for FNFC. Vitamin and mineral products designated under the FNFC system are excluded from the FFC. In 2016, a CAA expert panel considered including such products in the FFC but ultimately elected against inclusion, in part due to strong opposition from consumer groups. industry remains concerned that the 2015 FFC regulations on health food and dietary supplements are not in line with global best practices. Cosmetics and Quasi-Drugs Japan s market for personal care and cosmetics products was approximately $ billion in total sales in 2016, making Japan one of the world s five largest national markets for these goods. The United States is consistently the second or third largest source of cosmetics imported into Japan, consisting of skincare, hair care, makeup preparations, fragrance, and toiletry goods such as pre-and after-shaving products, oral care, and bath preparations. In 2017, domestic exports were estimated at $399 million. In past years, products represented 15 percent to 20 percent of the total import market. However, advances in market registration for quasi-drugs and particularly cosmetics products that are classified as medicated cosmetics or quasi-drugs under Japan s Pharmaceutical and Medical Devices Act (formerly known as the Pharmaceutical Affairs Law) continued to be delayed. As a result, common products with decades of established consumer use that contain active ingredients such as sunscreens and retinol (for anti-aging) can face delays of six months or more before entering the market. The quasi-drug FOREIGN TRADE BARRIERS 276 approval process for these common products, ingredients, and supporting claims includes requirements that are burdensome and lack transparency, and that do not appear to enhance product safety, quality, or efficacy. MHLW has made some progress towards creating a monograph system, which would speed the approval of products that use previously reviewed active ingredients and claims, similar to the system used by the Food and Drug Administration. Known as besshi kikaku or Quasi Drug Additives Spec Codex, this list is unofficial, however, and therefore is not consistently followed by the Ministry and local governments. Nor does it include protections for proprietary formulations. As a pilot to assist MHLW in moving towards formalizing a monograph system, and local industries worked with MHLW to develop product approval guidance for medicated hair products, which became a standard in May 2014. This provides industry with certainty as to MHLW s requirements, while also improving timelines for product approvals, as local prefectural governments can use the standards to approve products. Industry is calling on MHLW to develop similar standards for other medicated cosmetics, which similarly face delays. These reforms, if implemented, could help create a more open and competitive market. The United States will closely monitor developments. Aerospace The Ministry of Defense (MOD) prefers defense systems to be produced in Japan. However, Japan looks for imported solutions when domestic industry is unable meet performance, cost, or schedule requirements. MOD has shown a growing interest in interoperable foreign technologies that have advanced capabilities. military sales have increased significantly every year since 2012, while growth of military products produced in Japan have remained relatively flat. The United States will continue to monitor progress in this area, as Japan s direct purchase of military systems is expected to continue to grow. Japan is broadening its civil space activity beyond purely scientific pursuits to include more commercial and strategic activities. Although Japan has considered its main space launch vehicle programs as indigenous for many years, firms continue to participate actively in those space systems. Japan is an important Open Skies partner in the Asia-Pacific region. Japan has three slot-controlled (level 3 coordinated) airports: Narita International Airport, Tokyo International Airport (Haneda), and Fukuoka Airport. Japanese carriers receive preferential treatment in the awarding and scheduling of international slot pairs, however. New access became available at Haneda airport in October 2016, enabling the four and two Japanese carriers already providing service to the United States from Haneda to expand existing operations. The United States continues to monitor this situation, as Haneda is expected to open additional slot pairs by 2020. FOREIGN TRADE BARRIERS 277 JORDAN TRADE SUMMARY The trade balance with Jordan shifted from a goods trade deficit of $96 million in 2016 to a goods trade surplus of $275 million in 2017. goods exports to Jordan were $ billion, up percent ($504 million) from the previous year. Corresponding imports from Jordan were $ billion, up percent. Jordan was the United States' 61st largest goods export market in 2017. exports of services to Jordan were an estimated $698 million in 2016 (latest data available) and imports were $594 million. Sales of services in Jordan by majority affiliates were $51 million in 2015 (latest data available), while sales of services in the United States by majority Jordan-owned firms were $3 million. foreign direct investment (FDI) in Jordan (stock) was $213 million in 2016 (latest data available), a percent decrease from 2015. TRADE AGREEMENTS The United States-Jordan Free Trade Agreement Under the terms of the United States-Jordan Free Trade Area Agreement (FTA), which entered into force on December 17, 2001, the United States and Jordan completed the final phase of tariff reductions on January 1, 2010. Jordan now imposes zero duties on nearly all products, with exceptions for alcoholic beverages and pornographic materials. Following consultations under the United States-Jordan Joint Committee, Jordan endorsed the United States-Jordan Joint Principles on International Investment and Joint Principles for Information and Communication Technology (ICT) Services. TECHNICAL BARRIERS TO TRADE Jordan recognizes and accepts international standards and specifications utilized by producers. However, Jordan requires that certain imports meet additional product standards. In July 2014, for example, Jordan applied a new energy-saving labeling requirement for household appliances above and beyond that required by international standards. The United States and Jordan have agreed that appropriate labeling and testing will fulfill this requirement. Some measures with the potential to be viewed as barriers to trade are imposed periodically, such as a 2014 restriction imposed on packaging sizes for poultry available for retail resale. IMPORT POLICIES Taxes Jordan s General Sales Tax law allows the government to impose a Special Tax at the time of importation in addition to the general sales tax. Over the past several years, Jordan has increased special taxes on certain goods, changes to which can be unpredictable. In February 2017, Jordan imposed a 10 percent tax on carbonated drinks. beverage companies reported negative effects on their businesses. Import Licenses FOREIGN TRADE BARRIERS 278 Import licenses are required for specific food products by the Ministry of Health and for raw agricultural goods by the Ministry of Agriculture. The approvals process can be time consuming and, at times, lacks transparency, an issue the United States continues to engage Jordanian authorities to address. Jordan requires that importers of commercial goods be registered traders or commercial entities. The Ministry of Industry and Trade occasionally issues directives requiring import licenses for certain goods or categories of goods and products in newly emerging or protected sectors. The government of Jordan requires a special import license prior to the importation of telecommunications and security equipment. GOVERNMENT PROCUREMENT Jordan is an observer of the WTO Agreement on Government Procurement (GPA). In 2002, it commenced the process of acceding to the GPA, with the submission of its initial entry offer. Subsequently, it has submitted several revised offers in response to requests by the United States and other GPA Parties for improvements. Negotiations on Jordan s accession continue. Jordan offers local companies a preferential rate of 15 percent in all Government tenders based on a 2013 cabinet decision which has been renewed annually. EXPORT SUBSIDIES AND TAXES Net profits generated from most export revenue will remain fully exempt from income tax except for net profits from exports in the mining sector, exports governed by specific trade protocols, and foreign debt repayment schemes, which are subject to income tax. Under WTO rules, the tax exemption was initially set to expire on December 31, 2015, subject to an annual review. In November 2015, Jordan extended this tax exemption to December 2018. The United States worked with Jordan to develop a WTO-compliant alternative to this program. The Council of Ministers approved this alternative in July 2017, which Parliament will consider as part of the income tax law review expected in 2018. In addition, 98 percent of foreign inputs used in the production of exports are exempt from customs duties; all additional import fees for inputs used in the production of exports are assessed on a reimbursable basis. Jordan imposes a $50 per ton tax on exports of steel scrap, discouraging its exportation. INTELLECTUAL PROPERTY RIGHTS PROTECTION The Jordanian government continues to take steps to provide more comprehensive protection of intellectual property rights. As seen throughout the region, online and physical copyright infringement is widespread. Despite past efforts by law enforcement officials to crack down on unauthorized products, prosecution efforts need to be strengthened, particularly with respect to utilizing ex officio authority to pursue criminal investigations without waiting for initiation by the rights holder. FOREIGN TRADE BARRIERS 279 KAZAKHSTAN TRADE SUMMARY The trade balance with Kazakhstan shifted from a goods trade surplus of $361 million in 2016 to a goods trade deficit of $234 million in 2017. goods exports to Kazakhstan were $551 million, down percent ($560 million) from the previous year. Corresponding imports from Kazakhstan were $785 million, up percent. Kazakhstan was the United States' 91st largest goods export market in 2017. TRADE AGREEMENTS The Eurasian Economic Union On January 1, 2010, the Russia-Kazakhstan-Belarus Customs Union (CU) entered into force when the three countries adopted a common external tariff (CET), with the majority of the tariff rates established at the level that Russia applied at that time. Following Russia s WTO accession in 2012, the CU adopted Russia s WTO schedule of tariff bindings as applicable for all of the CU. On January 1, 2015, Kazakhstan, Belarus and Russia established the Eurasian Economic Union (EAEU) as the successor to the CU. Armenia joined the EAEU on January 2, 2015, and Kyrgyzstan joined on August 12, 2015. The Eurasian Economic Commission (EEC) is the supranational body charged with implementing external trade policy for Member States and with coordinating economic integration among Member States. The Treaty on the Function of the Customs Union in the Framework of the Multilateral Trading System (May 19, 2011) established the EAEU, replaced the Customs Union, and reinforced the primacy of WTO rules in the EAEU legal framework. As a consequence of its membership in the EAEU, Kazakhstan s import tariff levels (with the exception of a substantial number of transitional tariffs under Kazakhstan s WTO accession), trade in transit rules, nontariff import measures ( , tariff-rate quotas, import licensing, and trade remedy procedures), and customs policies ( , customs valuation, customs fees, and country of origin determinations) are based on the EAEU legal instruments. On these and other issues involving trade in goods, EAEU legal instruments establish the basic principles that are implemented at the national level through domestic laws, regulations, and other measures. EAEU legal measures also cover issues such as border enforcement of intellectual property rights, trade remedy determinations, establishment and administration of special economic and industrial zones, and the development of technical regulations and sanitary and phytosanitary (SPS) measures. On November 30, 2017, Kazakhstan ratified the EAEU Customs Code, which governs customs rules for all member countries; the EAEU Customs Code came into force as of January 2018. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade An EAEU technical regulation on vehicles, originally approved in 2011 but not implemented until 2017, requires that certain types of imported vehicles install the Era-Glonass electronic accident response system, or Kazakhstan s equivalent EVAC system. This requirement applies to new models of vehicles that have not already been approved by EAEU certified laboratories. A list of approved vehicles is available on the website of the EEC; the website also notes that the regulation applies equally to both individuals and companies who import vehicles to EAEU countries. The requirement does not affect cars registered before January 1, 2017. The new rule will impede the trade of new models of automobiles and represents a technical barrier to trade that creates more favorable conditions for the EAEU automotive industry. FOREIGN TRADE BARRIERS 280 Sanitary and Phytosanitary Barriers Systemic Issues In addition to adopting the import requirements of the EAEU, Kazakhstan requires any importer or domestic producer of a wide variety of goods to obtain a Certificate of State Registration before the product can be sold in Kazakhstan. The Ministry of Health s Committee for Public Health Protection is responsible for issuing these certificates. Goods subject to this certification requirement include: biologically active supplements, including baby food and formula; equipment and devices for water supply systems; items of intimate hygiene; products for disinfection (except those used in veterinary services); and items designated for contact with food products (except dishes, table amenities, and microwave ovens). The United States continues to work with Kazakhstan to encourage improvements to the EAEU sanitary and phytosanitary (SPS) regime and to ensure that Kazakhstan s implementation of the EAEU s SPS measures is consistent with its WTO obligations and is minimally disruptive to bilateral trade. Agricultural Biotechnology CU regulations covering agricultural biotechnology products have recently come into force, and Kazakhstan is enforcing them. These regulations require the labeling of both imported and domestically produced agricultural biotechnology products. As Kazakhstan continues to integrate into the EAEU, it is expected that the policies and views of other EAEU countries will play a greater role in shaping the regulation of agricultural biotechnology in Kazakhstan. IMPORT POLICIES Kazakhstan has not duplicated Russian sanctions with respect to or European Union goods. However, the Russian sanctions regime has complicated the transit of goods from third countries to Kazakhstan through Russian territory. Tariffs and Quotas As a result of adopting the CU CET in 2010, Kazakhstan increased the tariff rate on more than 5,000 tariff lines. As part of its WTO accession, Kazakhstan agreed to gradually lower 3,512 tariff rates to an average of percent by 2020. In January 2016, the country began applying lower-than-CET tariff rates to certain food products, automobiles, airplanes, railway wagons, lumber, alcoholic beverages, pharmaceuticals, freezers, and jewelry. Kazakhstan lowered additional tariff rates in 2016 and 2017, and a total of 2,475 tariff rates were below CET tariffs as of December 1, 2017. Kazakhstan introduced administrative measures to prevent the re-export of goods released at these lower tariff rates to Armenia, Belarus, Kyrgyzstan, or Russia. In 2016, the average import tariff for Kazakhstan was estimated at percent. Kazakhstan applies a zero rate on approximately 2,000 tariff lines, including livestock, pork, fish products, chemical and pharmaceutical products, cotton, textiles, machinery and equipment, medical vehicles and some types of airplanes (the CET exception on airplanes will be effective until 2023). In 2016, Kazakhstan introduced a system of electronic invoicing for all payers of the value added tax (VAT) on imports. All importers and customs clearance dealers are expected to use the electronic invoicing system as of January 1, 2017. In 2010, Kazakhstan established tariff-rate quotas (TRQs) on imports of poultry and beef to meet its obligations under the CU. In 2012, exporters raised concerns about the trade-limiting effects of these FOREIGN TRADE BARRIERS 281 TRQs and the manner in which they were calculated and allocated. In October 2017, Kazakhstan developed new rules for TRQ allocation and established clear deadlines and delineation of authorities of government bodies in this process. The volume of TRQs is expected to remain unchanged, however. The government does not intend to introduce a TRQ on pork, and the tariff rate on pork is expected to be lowered from the current 30 percent to 25 percent in 2020. According to amendments to the tax code signed by President Nazarbayev on November 30, 2016, all importers of alcohol products are required to present guarantees prior to shipment. These guarantees can be in cash, bank guarantees, or pledges of property. This requirement came into force in February 2017 and applied only to foreign alcohol producers, including both EAEU and third countries. exporters have expressed concern that this measure will create an unnecessary financial and administrative burden. Licensing In connection with its membership in the EAEU CU, Kazakhstan increased the number of goods subject to import or export licensing. Kazakhstan had required export licenses only for precious metals and stones, toxic agents, documents from national archives, and items of cultural value. However, the EEC removed precious metals, stones, jewelry, and toxic agents from the list of products subject to licensing in May 2015. Products with cryptographic capabilities, including certain commonplace consumer electronic products, are subject to import licensing procedures or a one-time notification requirement. Customs Administration Customs administration practices remain a substantial barrier to trade. Importers report high costs for customs clearance, a lack of transparency and information from customs authorities, and arbitrary interpretation of customs clearance requirements at the border. EXPORT POLICIES Kazakhstan maintains a ban on the export of light distillates, kerosene, gasoline, lumber, and waste paper. The ban on light distillates might be lifted in 2019 if the government fulfils its plan to upgrade oil refinery facilities. A ban on the export of ferrous scrap imposed in 2013 expired on November 29, 2017, and has not been extended. GOVERNMENT PROCUREMENT The lack of transparency and efficiency in government procurement remains a major challenge for local and foreign companies. In recognition of this, the government is taking some steps to streamline its procurement process. Kazakhstan moved to an electronic procurement system on July 1, 2012. Resident and nonresident companies (if they are registered in Kazakhstan and maintain a physical presence) may participate in electronic tenders once they receive an electronic signature from the Ministry of Justice. The system s performance to date has been poor. Kazakhstan intends to start negotiations to join the WTO Agreement on Government Procurement (GPA) in 2019. In October 2016, as part of commitments it made during its accession to the WTO, Kazakhstan became an observer of the WTO GPA. This observer status allows Kazakhstan to participate in meetings of the WTO Government Procurement Committee and to understand GPA requirements and procedures. Before 2019, Kazakhstan plans to bring government procurement rules and procurement of quasi-sovereign companies into compliance with the GPA. FOREIGN TRADE BARRIERS 282 In December 2015, President Nazarbayev signed a new law on government procurement designed to make tender processes more transparent. The procurement rules under this law came into force in 2016. Pursuant to the law, potential suppliers are able to read and discuss technical statements before a tender and see the documentation and bids of other suppliers. In addition, the law toughened requirements for purchasing from a single vendor and prohibited the transfer of services to subcontractors. However, the law still requires pre-qualification for potential suppliers. Assets of the National Welfare Fund and the government-owned holding company, Samruk-Kazyna, account for about 40 percent of Kazakhstan s GDP. Through share ownership, Samruk-Kazyna manages some of Kazakhstan s largest national companies, including Kazakhstan TemirZholy (the national railway), KazMunayGas (the national oil and gas company), KEGOC (the electrical utility), and their subsidiaries. These enterprises are subject to Samruk-Kazyna s rules for procurement of goods and services, which describe procedures and stipulate criteria for the evaluation of bids. and other foreign companies, particularly in the oil services field, note that Samruk-Kazyna s resistance to negotiating contract terms ( , insisting on an unlimited cap on liability) make it difficult for large international firms to do business with KazMunayGas and other national companies. Potential suppliers, both foreign and domestic, must receive a certificate from the National Chamber of Entrepreneurs confirming their status as local producers of goods or services. On January 28, 2016, Samruk-Kazyna approved new rules on procurement in order to comply with the GPA. These rules cancel bill-back allowances and other forms of preferential treatment given to local providers of goods and services. According to the new rules, however, only qualified suppliers are eligible to participate in Samruk-Kazyna tenders, and a designated Samruk-Kazyna subsidiary ranks potential bidders on a list of qualified suppliers. Samruk-Kazyna maintains that the selection process will be applied evenly to both local and foreign suppliers. These new rules came into force in July 2017. INTELLECTUAL PROPERTY RIGHTS PROTECTION To comply with its WTO commitments and attract foreign investment, Kazakhstan has been working to modernize its intellectual property rights (IPR) laws. In November 2016, Parliament began considering amendments to Kazakhstan s IPR legislation that would streamline registration and enforcement of intellectual property. Although the United States acknowledges the efforts Kazakhstan has taken to strengthen enforcement of IPR, the lack of effective customs enforcement to prevent the importation of counterfeit and pirated goods remains a concern. Recently, pharmaceutical stakeholders have faced inconsistent application of Kazakhstan s existing IPR and commercial laws, raising concerns for that sector. Furthermore, effective protection continues to be hindered by the judiciary s lack of technical expertise, particular with regard to patent enforcement. SERVICES BARRIERS Telecommunications Kazakh law restricts to 49 percent foreign ownership of telecommunications companies that provide long distance and international telecommunication services and those that operate fixed line communication networks (cable, optical fiber, and radio relay). As a result of negotiations regarding its WTO accession, Kazakhstan agreed that, by May 2018, it will remove this foreign ownership restriction, except for the country s main telecommunications operator, KazakhTeleCom. FOREIGN TRADE BARRIERS 283 Other Under Kazakh law, foreign insurance companies may operate only through joint ventures with Kazakh companies, and foreign banks may operate only through joint ventures or subsidiary companies registered in Kazakhstan. However, Kazakhstan has agreed to eliminate the joint venture requirement and to permit foreign banks to directly open branch offices following a transition period of five years after its 2015 WTO accession (according to current rules foreign banks can operate in Kazakhstan only through subsidiary companies). Kazakhstan s law also restricts foreign ownership in mass media companies, including news agencies, to 20 percent. INVESTMENT BARRIERS Kazakhstan s WTO accession commitments provide for the abolition of local content requirements over time, including with respect to contracts in the oil and gas sector. In November 2015, Kazakhstan adopted legislative amendments to meet the country s WTO accession requirements. Pursuant to these amendments, subsoil use contracts concluded after January 1, 2016, will no longer contain local content requirements for goods or requirements to support local producers. However, such requirements will still apply, until January 1, 2021, to subsoil use contracts signed before January 1, 2016. The terms of Kazakhstan s accession to the WTO also require that Kazakhstan relax, by January 1, 2021, quotas on the employment of foreign nationals in executive, engineering, and technical capacities. The government continues to recommend to international businesses particularly those involved in oil and gas production at Kazakhstan s three most important fields to increase their local content through the hiring of Kazakh workers and the purchase of domestic supplies and equipment. Oil and gas service companies seeking to secure work at the country s largest oil fields also report being encouraged to form joint ventures or other consortia with local companies, arrangements that foreign companies believe lead to the creation and strengthening of domestic monopolies, to the detriment of competition among oil service providers. On January 1, 2017, amendments to Kazakhstan s Expatriate Workforce Quota and Work Permit Rules came into force. The amendments have in part created contradictory rules on intra-company personnel transfers, and decrease the initial term of work permits for foreign nationals from three years to one year; work permits will also be limited to one region of Kazakhstan. OTHER BARRIERS Kazakhstan has a burdensome tax monitoring system. Companies report that the system requires them to employ significant resources to comply with cumbersome rules and frequent audits, and that the enforcement actions taken by tax and regulatory authorities can be unpredictable. Corruption at many levels of government and in the judicial system is also seen as a barrier to trade and investment in Kazakhstan, reportedly affecting numerous aspects of doing business in Kazakhstan, including customs clearance, payment of taxes, and employment of locals and foreigners. FOREIGN TRADE BARRIERS 284 FOREIGN TRADE BARRIERS 285 KENYA TRADE SUMMARY The goods trade deficit with Kenya was $119 million in 2017, a percent decrease ($37 million) over 2016. goods exports to Kenya were $455 million, up percent ($59 million) from the previous year. Corresponding imports from Kenya were $574 million, up percent. Kenya was the United States' 97th largest goods export market in 2017. foreign direct investment (FDI) in Kenya (stock) was $369 million in 2016 (latest data available), a percent increase from 2015. TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS Technical Barriers to Trade Agricultural Biotechnology Pursuant to a Kenyan Cabinet decision and Presidential order, on November 21, 2012, the Kenyan Ministry of Public Health ordered public health officials to remove from the market all foods, feed, and seeds derived from agricultural biotechnology and to ban agricultural biotechnology food and feed imports. Despite announcing in August 2015 that the Kenyan government would lift the import ban on genetically engineered products by October 2015, the government maintained the ban throughout 2017. On December 1, 2016, the Agriculture Committee of Kenya s National Assembly recommended that the ban be upheld until new legislation on safety of agricultural biotechnology foods for human consumption is developed. The committee proposed that the Ministry of Health establish a Food Safety and Control Unit to evaluate biotechnology foods and to issue import permits, a role entrusted to The National Biosafety Authority (NBA) by law. Since the ban was imposed, key stakeholders in Kenya scientists, universities, some non-governmental organizations, and policy makers, including influential governors and legislators have launched educational and outreach programs to encourage the government to rescind the decision. Both food aid and commercial agricultural exports derived from agricultural biotechnology products have been kept out of the Kenyan market because of the ban. The restriction does not affect fully processed products such as edible oils; however, it does impact exports of semi-processed foods and feed ingredients, such as soy, maize and distiller dried grains. In response to poor 2017 harvests following localized drought conditions, on June 21, 2017, the CEO of the NBA issued a statement on a Revised Procedure for importing percent Genetically Modified Free Maize Grains, relaxing biotechnology import restrictions during the period of emergency importation from June 1 to July 31, 2017. For countries like the United States with commercialized biotech maize, the NBA was to sample and carry out conformity assessment tests at the cost to the applicant of KSH 30,000 ($291), and if found to have greater than percent biotechnology content, the maize would not be cleared for use as food or feed. In September 2017, Kenya approved open field trials for biotech cotton (MON 15985) and derived varieties, and for biotech maize developed for drought tolerance under the Water Efficient Maize for Africa (WEMA) project. However, bottlenecks in the biosafety regulatory system may slow the dissemination and use of this technology. FOREIGN TRADE BARRIERS 286 The USDA Foreign Agricultural Service (FAS) continues to engage the government of Kenya and stakeholders to support the adoption of these technologies and address the challenges. Sanitary and Phytosanitary Barriers Meat and Meat Products Kenya maintains complex, non-transparent, and costly requirements for importation of all meat, dairy, and poultry products including a standardized sanitary certification and a Letter of No Objection to Import Permit (no-objection letter) from the Department of Veterinary Services (DVS) under the Ministry of Agriculture, Livestock, and Fisheries. DVS requires an importer to explain the reason for importation through a Letter of Application to Import and specifically address the market need the import would meet before issuing a no objection letter. DVS issues the no-objection letter for meat, dairy, and poultry products at its discretion on a case-by-case basis. Although Kenya purports to prohibit imports only on sanitary grounds, DVS has in practice provided other rationales for denying permits, such as the local availability of a certain product, although never formally providing this guidance in writing to the permit applicant. Plants and Plant Products Since 2006, Kenya has banned wheat from the Pacific Northwest. Kenya has indicated that the reason for the ban is related to concerns over the flag smut fungus. This fungus poses low risk due to extremely low pest prevalence, lack of a clear pest pathway in grain for consumption, and agronomic practices implemented by exporters. Additionally, Kenya s climate is generally not conducive to development of this disease. USDA continues to seek opportunities to engage the Cabinet Secretary for Agriculture and the Kenya Plant Health Inspectorate to resolve this issue. Kenya subjects imported and domestically produced maize to a total aflatoxin limit of 10 parts per billion (ppb) and a percent maximum moisture content. The aflatoxin limit is lower than the Codex and standard of 20 ppb. Further, most maize has a moisture content higher than percent. As a result, most exports are denied permits for importation. Under special circumstances such as food shortages, Kenya has allowed higher moisture content for imported maize, which must then be dried and milled immediately upon arrival to reduce the risk of aflatoxin contamination. For maize exports that are permitted under special circumstances, the costs associated with the additional processing requirements make maize exports largely uncompetitive compared with maize not subject to these requirements. Kenya also restricts popcorn imports to a six percent maximum moisture requirement. The limit is percent to 15 percent. Kenya does not permit whole pea imports due to concerns about the pseudomonas pisi fungus, but permits the import of split peas. Kenya also bans bean imports due to the occurrence of corynebacterium flaccumfasciens bacteria in some parts of the United States. Lentils are banned due to the threat of darnel weed; however, darnel weed already exists in Kenya. IMPORT POLICIES Tariffs Kenya has a mostly liberalized economy with no price controls on major products, except in the energy sector, where the Energy Regulatory Commission sets downstream prices on gasoline, kerosene, and diesel fuel. Quantitative import restrictions, as drafted, appear limited to products for which environment, health FOREIGN TRADE BARRIERS 287 or safety concerns exist; however, officials at times appear to exercise discretion to apply these restrictions with the objective of protecting domestic industries. According to the WTO, in 2016 Kenya s average applied tariff rate for all imported products was percent. Kenya generally applies the East African Community (EAC) Customs Union s Common External Tariff, which includes three tariff bands: zero duty for raw materials and inputs; 10 percent for processed or manufactured inputs; and 25 percent for finished products. For certain products and commodities deemed sensitive, Kenya applies ad valorem rates above 25 percent. This includes rates of 60 percent for most milk products, 50 percent for maize and maize flour, 75 percent for rice, 60 percent for wheat flour, 100 percent for sugar, and 50 percent for textiles. For some products and commodities, tariffs vary across the five EAC member states. In June 2016, the EAC granted Kenya a one-year waiver to apply a rate of 10 percent instead of 35 percent on imported wheat. Kenya maintains a 16 percent value-added tax (VAT) and a percent Railway Development Levy (RDL) imposed on all imports for domestic consumption. The government of Kenya sometimes waives tariffs when domestic agricultural prices exceed certain levels and there is a need to stabilize prices. In March 2016, Kenya and other EAC heads of state, in an EAC summit communique, directed EAC partner states to ban the importation of used clothing and footwear to support the development of the EAC s textile and apparel and leather industries. In particular, they directed EAC partner states to procure their textile and footwear requirements from within the region where quality and supply capacities are available competitively, with a view to phasing out importation of used textile and footwear within three years. In addition, they directed partner states to ensure that all imported second hand shoes and clothes comply with sanitary requirements, in the Partner States. In June 2016, Kenya doubled the import duty rate on articles of used clothing to $ or 35 percent ad valorem, whichever is higher, as a first step to implement the import ban. According to the Secondary Materials and Recycled Textiles Association (SMART), an industry association, Kenya is an important market for exports of used clothing. SMART estimates that at least 40,000 jobs in collection, processing, and distribution would be negatively impacted once Kenya and other EAC partner states fully implement the ban on imports of used clothing and footwear. In July 2017, Kenya revised down the import duty rate on articles of used clothing back to the pre-June 2016 rates of $ or 35 percent ad valorem, whichever is higher, in response to stakeholder concerns. Previously, the EAC exempted solar and wind energy products from import duties. However, in June 2016, the EAC narrowed the exemption to only those items related to the development and generation of solar and wind energy. The newly imposed duties on spare parts and accessories to solar equipment have reportedly had a negative impact on the business operations of solar home system companies, although they have not been applied uniformly by Kenya in practice. Some stakeholders have expressed concern that the amendment to the EAC s Exemptions Regime is ambiguous because spare parts and accessories to solar equipment are not defined. In addition, varying interpretations among EAC partner states has led to uncertainty and confusion about what products are exempt from import duties. The United States continues to engage with Kenya bilaterally, as well as regionally under the United States - EAC Trade and Investment Partnership, to address and urge reconsideration of these measures. The current Value Added Tax (VAT) Act, adopted in 2013, reduced the number of VAT-exempt items from 400 to 27, purportedly to simplify tax administration, enhance tax compliance, and eradicate a backlog of refunds. The 2013 Act went into effect with few specific guidelines, however, resulting in uncertainty surrounding the application of VAT rules. The 2015 amendments to Kenya s VAT rules clarified some items that are VAT exempt, including: aircraft engines, aircraft parts, plastic bag biogas digesters, parts for the assembly of primary school laptop tablets, and goods for use by the Kenya Film Commission or in the FOREIGN TRADE BARRIERS 288 construction of industrial and recreational parks subject to specified conditions. These amendments also made clear that VAT refund claims must be submitted within 12 months of purchase. VAT-exempt companies, including importers, still experience lengthy wait times in receiving their VAT refunds. In September 2014, the Kenyan government commissioned an audit of ballooning VAT refund claims. According to the Kenya Private Sector Alliance, a private-sector trade association, the audit was completed and a substantial amount of VAT refund claims were paid out. The VAT Regulations (2017), which further implements the VAT Act (2013), has reduced the number of VAT refund claims. However, it is still not clear what amount of VAT refund claims are pending or processed during the current fiscal year. Disputes over tariffs and taxation are resolved through the judicial system, which is subject to delays and uncertainty. Since June 2015, the Kenya Revenue Authority (KRA) has offered an Alternative Dispute Resolution (ADR) mechanism to provide taxpayers with an alternative, fast-track avenue for resolving some tax disputes. In December 2015, Kenya ratified the WTO Trade Facilitation Agreement (TFA). Nontariff Measures Kenya requires all importers to pay an import declaration fee of percent of the customs value of imports and to meet other document requirements or have their goods subject to enhanced inspection. For example, importers must obtain a Certificate of Conformity (CoC) or have their goods inspected at the port of entry, which costs approximately 15 percent of the value of imported goods, and poses a risk of the goods being rejected after the payment of shipping costs. Importers that choose to obtain a CoC must apply for an export certification from a pre-shipment inspection company (SGS or Intertek International) that has a contract with the government. Following inspection or obtaining a CoC, the importer must seek an Import Standardization Mark, a stick-on label to be affixed to each imported item, from the Kenya Bureau of Standards. Kenya asserts that its import controls are necessary to address health, environmental, and security concerns. GOVERNMENT PROCUREMENT firms ha