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2. Introduction to trade and investment regime
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2.1 Legislation on trade and investment

2.1.1 Legislation on trade administration

The American legal system governing trade consists of tariff and customs laws, import and export administration laws, trade remedy laws, security-concern-based trade legislation, and domestic laws stipulated in order to implement foreign trade agreements. As a common law country, the US trade legal system is made up of both statutes and precedents. The latter provide the concrete enforcement of or useful supplement to statutory laws. The statutory laws ratified by the US Congress are contained in the Statutes at Large, and most are now incorporated into Title 19 of the United States Code (USC), while the precedents are carried in various legal reporters. Currently, the following laws have constituted the pillars of the US legal system governing trade: The Tariff Act of 1930, as amended, is the main law governing tariff rate setting and tariff imposition. It also provides for antidumping and countervailing issues. The Trade Act of 1974, as amended, regulates non-tariff barrier issues, Generalized System of Preferences (GSP) scheme for developing countries, safeguard measures and investigations under Section 301. The Trade Agreement Act of 1979, as amended, has ratified the Tokyo-round negotiation results, and included the negotiation outcomes on trade remedies, customs valuation, government procurement, and product standards into the US trade law system. The Omnibus Trade and Competitiveness Act of 1988 has strengthened the executive branch's power to participate in trade negotiations and to take measures against unfair trade practices. It has also amended comprehensively many trade laws existing then, including the countervailing and anti-dumping laws, the Trade Agreement Act of 1979 and Section 301 under the Trade Act of 1974.

Other trade-related laws include the Trade Act of 2002, the Uruguay Round Agreement Act (URAA), the Statement of Administrative Action 1994 for the URAA, the North America Free Trade Agreement Implementation Act 1993, the United States-Canada Free Trade Agreement Implementation Act, the Trade and Tariff Act of 1984, the Trade Agreement Act of 1979, the Trade Expansion Act of 1962,etc.

2.1.2 Legislation on investment administration

The legal system governing foreign investment consists of the following three parts: Legislation on reporting and review requirements

Laws in this area include the International Investment and Trade in Services Survey Act, the Agricultural Foreign Investment Disclosure Act, and the Defense Production Act of 1950 (commonly known as the Exon-Florio Amendment), etc. Legislation on national treatment and sectoral restrictions

The US places restrictions on foreign investment in energy, mining, fishery, etc., through various legislation; for example, the Atomic Energy Act of 1954, and the Mineral Leasing Act of 1920. Legislation on international investment arrangements

So far, there are 49 bilateral investment agreements that the US has signed with other countries or territories and that have taken effect. Additionally, many bilateral and regional trade agreements the US has signed also contain provisions on investment.

2.2 Trade administration

2.2.1 Tariff system Average tariff rate

US tariff rates on industrial goods averaged 4% in 2005, while those on agricultural goods averaged 12%. The tariff administration

The US tariff system is based on the US Harmonized Tariff Schedule formulated in accordance with the Harmonized and Commodity Description and Coding System of the Customs Cooperation Council. Most US tariffs are ad valorem duties. Certain imports, mostly agricultural products, are levied specific duties; however, others are levied compound duties.

2.2.2 Import administration

The US utilizes tariffs to administer and regulate imports. Additionally, the US maintains tariff quotas on the importation of sensitive products, including agricultural products. Out of concern for issues such as environmental protection and national security, the US Congress has enacted numerous domestic laws authorizing the executive branch to utilize such measures as quotas, import bans, and import surcharges to restrict certain imports. Meanwhile, there exist a large number of product standards used in business practices in the US, which to a certain extent have also played a role in import restrictions. For example, imported poultry and poultry products are subject to the requirements and regulations of the Animal and Plant Health Inspection Service and the Food Safety and Inspection Service of the Department of Agriculture.

2.2.3 Export administration Export control Export control system

The US maintains export controls over certain products for reasons of national security, foreign policy purposes, to prevent the proliferation of bio-chemical weapons and missile technology, or to ensure sufficient domestic supply. Based on the Export Administration Act of 1979 (EAA), and the Export Administration Regulations (EAR), the US has put in place a number of export control systems to prevent exports to unauthorized destinations. Currently, export controls are exercised through authorization by the President on an emergency basis. The Export Administration Act of 1979 (EAA) expired on September 30, 1990, and to date, no new law has replaced it. The US government uses licensing to control exports. The main factors considered in export review include the destination, the end- user, the product and its end- use. Parties involved in the sales of products and sales services, including banks, insurance companies, shipping lines and foreign forwarders, are also reviewed in the process of export licensing. Re-export control system

The US government also requires that companies which are not established and operating within the US be subject to a re-export control system. The US government dictates that foreign companies must obtain re-export licenses for items containing 25% or more of US-origin content when the items are exported from a third country. When such items are re-exported to countries listed on the US State Department's list of “countries supporting terrorism,” the requirement is stricter and all items with 10% or more of US-origin content require re-export licenses. On August 2 2005, the US amended the Controlled Substances Import and Export Act and approved the Controlled Substances Export Reform Act of 2005, under which the US Attorney General is able to authorize the export and re-export of controlled substances. Export promotion

The US uses export financing, duty-free treatment for foreign trade zones, duty drawback upon exportation, export incentive for small-and-medium-sized businesses and other measures to promote exports. Export financing

The Export-Import Bank of the United States uses various types of loans, guarantees, and insurance schemes to provide financing to exporters and international buyers. President Bush's fiscal year 2006 federal budget will provide US$200 million to fund the Bank's program budget. Duty-free treatment for Foreign-Trade Zones

According to the Foreign-Trade Zones Act of 1934, foreign and domestic merchandise brought into foreign trade zones are exempt from duties, inventory taxes or consumption taxes. Finished products using US parts and foreign-sourced materials pay no duties on the added value. Duty drawback system

In accordance with Section 313 of the Tariff Act of 1930, customs duties or other taxes levied on imported merchandise or raw materials can be refunded at the time of exportation. Export incentive to small and medium sized enterprises

The Small Business Service under the US Department of Commerce is responsible for providing export support to small and medium sized enterprises, including export information, consultation, short-term export financing and recycling working capital. Meanwhile, in order to promote the export by small and medium sized enterprises (SMEs), the government also uses the Market Development Cooperator Program (MDCP) to provide technical and financial assistance to non-profit organizations that are committed to supporting SMEs in their efforts to enhance competitiveness and tackle the international market. In 2005, 36 organizations applied for MDCP awards and 5 were selected to receive awards.

2.2.4 Other trade -related tariff systems Reciprocal free trade agreements

By the end of 2005, the US had signed with 12 countries and territories bilateral free trade agreements, including Chile, Israel, Singapore, Australia, Andes, Central America — Dominican Republic and other countries. On January 19, 2006, the US signed a bilateral free trade agreement with Oman, which will provide both countries duty- free access to each other's market for 100% of industrial and consumer products. The US is also a member of 5 regional trade agreements including the NAFTA. Members of these mutually preferential free trade arrangements are entitled to more preferential treatment than MFN rates as per agreement. Preference schemes

The US has also unilaterally established tariff preference schemes, mainly applicable to developing countries and least developed countries, with one of the oldest schemes being the Generalized System of Preferences (GSP) which was established in 1976. According to the GSP, the US provides preferential duty-free entry to more than 4,650 products from 144 designated beneficiary countries and territories.

Similar preferential arrangements include the Caribbean Basin Initiative proposed in 1983, the African Growth and Opportunity Act of 2000 (AGOA), and the Andean Trade Promotion and Drug Eradication Act (ATPDEA) amended in 2002.

2.2.5 Other related systems Customs system

The US import procedures have undergone significant changes since 2002. New rules require that electronic information must be disseminated to the competent US authorities before cargos are shipped to the US. The US has reached agreement with certain foreign seaports to examine US-bound containers. In addition, the Bio-terrorism Act of 2002 requires registration of food facilities and prior notice of imported food shipments to the US Food and Drug Administration. Trade remedy measures

The US trade remedy system covers two aspects: affected imports and affected exports. Remedies available to imports include anti-dumping and countervailing measures against unfair price competition, safeguard measures to regulate imports, and measures against imports infringing US intellectual property rights. Relevant laws and regulations include Subtitle IV of the Tariff Act of 1930, Sections 201- 204 of the Trade Act of 1974, Section 337 and Section 421 applied only to China. Remedies available to exports are aimed at protecting the interests of US companies and increasing the overseas market access for US goods and services, this being the main focus of the application of Section 301 of the Trade Act of 1974. Impact of political and economic measures on trade

The US government is authorized to impose restrictions or controls on imports and exports out of political or economic safety concerns provided the restrictions or controls meet the requirements of relevant laws. These laws include the International Emergency Economic Powers Act, the Trading With the Enemy Act, the Narcotics Control Trade Act, the International Security and Development Cooperation Act of 1985, and numerous other laws.

2.3 Investment administration

The US has traditionally pursued a liberal foreign investment policy and basically places no restriction on investment. There has been little change to this liberal investment regime in the past 20 years, although in some sensitive sectors, such as aviation, communications, atomic energy, finance, and marine transportation, there does exist certain specific restrictions on national treatment and market access. Out of concerns for national security and statistical needs, reporting requirements are established and investment in some sectors is subject to various review requirements and limited national treatment and market access.

2.3.1 Investment report

The International Investment and Trade in Services Survey Act provides for the collection of information by the Federal Government on foreign investment in the US for analytical and statistical purposes. Foreign investment is required to report to respective competent government authorities, with medium and long-term portfolio inward investment reporting to the Department of Treasury. Any foreign person who acquires or transfers any interest, other than a security interest, in agricultural land shall submit a report to the Department of Agriculture no later than 90 days after the date of such acquisition or transfer. With regard to other general foreign direct investment, an initial direct investment survey report must be filed with the Bureau of Economic Analysis of the US Department of Commerce within 45 days after the direct investment transaction occurs. An exemption may be claimed if the new US affiliate has no more than $3 million in total assets and owns less than 200 acres of US land immediately after being established.

2.3.2 Investment review

In general, foreign investment is not subject to review. However, the Exon-Florio Amendment provides authority for the President to take action on national security grounds with respect to any foreign acquisition, merger or takeover of a corporation engaged in commerce in the United States. But this does not cover the establishment of a start-up or “Greenfield” investment.

Committee on Foreign Investments in the United States (CFIUS) is in charge of review of foreign acquisitions. The review can be self- initiated by CFIUS or initiated after CFIUS receives a voluntary notification.

Generally notification with CFIUS is voluntary. However, CFIUS may initiate a review of any transaction that has not been notified during a three-year period after the completion of that transaction. If CFIUS later decides that it objects to the purchase, the US can force the new foreign owner to divest itself of the acquisition.

2.4 Competent authorities

As authorized by the US Constitution, the Congress is responsible for administering foreign trade and collecting tariffs. The Congress, through an array of laws, delegates many functions to the relevant executive bodies, which concurrently maintain close contacts with major committees of the Congress and with advisory bodies of the private sector.

2.4.1 The Congress

As clearly defined in Section 8, Article I of the US Constitution, the Congress shall have power to “regulate commerce with foreign nations” as well as “to lay and collect taxes and duties”. Therefore, signing free trade agreements, implementing or revising tariff measures and other trade-related measures must all be based on specific Congressional legislation or otherwise be made with special authorization by the Congress.

The Senate and the House of Representatives have more than 10 subordinate committees that are trade related, and the key organizations among them include the House Committee of Ways and Means and the Senate Committee of Finance.

2.4.2 The Executive Branch

In the area of foreign trade administration, main responsibilities of the executive branch lie in three main dimensions: foreign trade negotiations shouldered by the USTR and the State Economic Committee in direct response to the President; import and export administration implemented by the Department of Commerce, the Department of Agriculture and the US Bureau of Customs and Border Protection; and tariff imposition which is handled by the US Bureau of Customs and Border Protection. United States Trade Representative (USTR)

Being the principal trade advisor, negotiator and spokesperson on trade issues for the President, the USTR is the cabinet member specifically responsible for coordinating trade and investment policies and for negotiating with other countries in the aforesaid areas. The USTR's responsibility and importance have increased steadily with several new pieces of legislation.

According to the Uruguay Round Agreement Act, the USTR is responsible for all negotiations under the WTO. The Office of USTR also appoints three ambassador-level deputy trade representatives. Department of Commerce (DOC)

The US Department of Commerce (DOC) is the key agency in the federal government responsible for trade administration and export promotion. Its main duties include enforcing foreign trade laws and regulations, implementing foreign trade and investment promotion policies, monitoring the implementation and execution of bilateral and multilateral agreements and providing consulting and training services to US companies.

The International Trade Administration (ITA) and the Bureau of Industry and Security (BIS) are the two important subordinated offices affiliated to the DOC. The main functions of ITA include export promotion, trade statistics, tariff information collection, supervision over the compliance of market access commitments and the implementation of international trade agreements or treaties by foreign countries, removal of market access barriers in other countries, antidumping and countervailing investigations, etc. BIS is mainly responsible for formulating, implementing and interpreting export control policies in relation to dual- use articles, software and high technology, and issuing export licenses.

To help combat intellectual property violations and enforce intellectual property laws, President Bush, acting under the Consolidated Appropriations Act of 2005, announced on July 22, 2005, the establishment of the Office of the Coordinator for International Intellectual Property Enforcement, whose responsibilities are to address international intellectual property violations, protect American intellectual property overseas, and coordinate and leverage the resources within the federal government in the aim of protecting American intellectual property overseas. The Coordinator will play a significant role in the ongoing implementation of the Bush administration's Strategy Targeting Organized Piracy (STOP!) Initiative launched in 2004. International Trade Commission (ITC)

The International Trade Commission (ITC) is a federal agency which has extensive investigative power in trade issues. The ITC's main duties include establishing whether any domestic industry has suffered material injury because of imports sold at a price lower than normal value or because of subsidized imports, taking action against unfair trade practices such as IPR infringement (which can be vetoed by the President), and recommending trade remedies to the President for seriously injured industry affected by import surges. The Customs

US Bureau of Customs and Border Protection (BCBP) is responsible for tariff collection, and execution of laws and regulations in relation to international trade. Coordinating organizations Trade policy coordinating organizations

Coordination between the Congress and the executive branch is conducted through organizations in three tiers. The primary level is the Trade Policy Staff Committee (TPSC), the Trade Policy Review Group (TPRG), and the National Economic Council. TPSC and TPRG are chaired by the USTR. Investment policy coordinating organizations

The Committee on Foreign Investments in the United States (CFIUS) was established in 1975 as an inter-agency committee made up of 12 members including the Secretaries of Commerce, Defense, Homeland Security, Justice and State, all under the chairmanship of the Secretary of Treasury. The major responsibility of CFIUS is to implement investment policy of the US, and mainly to examine foreign mergers and acquisitions of US companies under the Exon-Florio Amendment. Private sector advisory committees

The system of private sector advisory committees was initially set up under Section 135 of the Trade Act of 1974, and later, having been expanded by the Trade Agreement Act of 1979, and the Omnibus Trade and Competitiveness Act of 1988, it has evolved into the current three-tier system administered by the USTR. The Advisory Committee for Trade Policy and Negotiations (ACTPN) is the top-level committee that provides overall trade policy advice, including advice on trade agreements and trade negotiations. Members are appointed by the US President. The second tier is made up of policy advisory committees representing overall sectors of the economy, such as industry, agriculture and services, which provide advice to the government with regard to any possible impact that different trade measures may have on relevant sectors. The third tier are technical, sectoral, and functional advisory committees composed of experts from various fields and responsible for providing specific technical information on trade issues in their respective fields. Members of the second and third tiers are appointed by the USTR or the secretary of the relevant  department or agency.

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