Standards and Other Technical Requirements

In the US, products are increasingly being required to conform to multiple technical regulations regarding consumer protection (including health and safety) and environmental protection. Even if, in general, not intentionally discriminatory, the complexity of US regulatory systems can represent an important structural impediment to market access. For example, it is not uncommon that equipment for use in the workplace is subject to US Labor Department certification, a county authority's electrical equipment standards, specific regulations imposed by large municipalities, and other product safety requirements as determined by insurance companies.

This situation is aggravated by the lack of a clear distinction between essential safety regulations and optional requirements for quality, which is due in part to the role of some private organisations as providers of assessment and certification in both areas. Moreover, for products where public standards do not exist, product safety requirements can change overnight as the product liability insurance market makes a new assessment of what will be required for insurance purposes.

The WTO Agreement on Technical Barriers to Trade (TBT) covers the rules for standards, technical regulations and conformity assessment procedures. The TBT Agreement is applicable to all WTO Members, and provides, inter alia, that its Members must use international standards as the basis for their technical regulations, standards and conformity assessment procedures. However, it provides for certain exceptions for specific, legitimate objectives, such as protection of human health and safety, plant and animal health, and protection of the environment, where the international standards are inadequate for the purpose. The TBT Agreement is intended to ensure that technical regulations and conformity assessment procedures are not more trade restrictive than required for the legitimate purpose of the regulations concerned and the risks they are designed to cover.

However, a particular problem in the US is the relatively low level of use, or even awareness, of standards set by international standardising bodies. All parties to the TBT Agreement are committed to the wider use of these standards; but although a significant number of US standards are claimed to be "technically equivalent" to international ones, and some are indeed widely used internationally, very few international standards are directly adopted. Some US standards are in direct contradiction to them. The EU has attempted to clarify some of these issues in discussions in the TBT Committee in Geneva, and in particular, to establish the position of international standards bodies in the context of the Agreement, but at present agreement with the US has been difficult to reach. Discussions in the WTO on conformity assessment issues are progressing but are at an early stage.

Illustrative cases:

The 1990 Fastener Quality Act aims to deter the introduction of sub-standard industrial fasteners into the US. Amendments to the FQA and its implementing regulations have introduced burdensome and costly accreditation and certification procedures as well as discriminatory record-keeping and documentation requirements. Industry on both sides of the Atlantic expressed serious concern with the FQA and its proposed implementation by the Department of Commerce. The FQA was discussed on several occasions between the EU and US and negotiations on mutual recognition of conformity assessment procedures with respect to fasteners took place, although a final agreement was never reached. Industry concerns, EU-US discussions, and the recognition that major improvements in manufacturing and quality control systems since the adoption of the original Act led to the enactment on 8 June 1999 of the Fasteners Quality Amendments Act of 1999 (PL 106-34). The new legislation exempts most fasteners from the FQA. Subject to further verification, the revised FQA should address most of the problems that industry would otherwise have encountered.

The Nutrition Labelling and Education Act 1990 requires certain products to be labelled regarding their content. The EU is concerned that the rules differ from international standards on labelling established by the Codex Alimentarius (upon which the corresponding EU legislation is based) and, furthermore, that this legislative action would have serious negative consequences on EU-US trade in foodstuffs and result in significant commercial obstacles to EU food products marketed in the US and vice-versa.

Against the background of an international trend towards deregulation or the minimising of third party intervention in the regulatory process, one problem experienced in the US is the continued reliance on third party conformity assessment procedures for many industrial products.

In several sectors, such as that of electrical equipment and domestic appliances, technological development and consumer awareness have permitted public regulators around the world to reduce the extent of pre-marketing third party testing and certification in favour of self-certification by manufacturers backed up by post-market surveillance and control. In the US however, third party certification in these sectors is still mandatory (de jure and/or de facto), and as such may pose disproportionately high costs on suppliers to the US market.

As far as IT products are concerned, since they are subject to continuous testing and assessment in their development and production process, it should be unnecessary to repeat such tests by a third party. Industry stresses the advantages of an appropriate "supplier declaration of conformity". US regulatory agencies have begun a review of this approach, and are moving in certain instances towards manufacturer's declarations of conformity (PCs, VCRs, for example).

There are more than 2700 State and municipal authorities in the US which require particular safety certifications for products sold or installed within their jurisdictions. These requirements are not always uniform or consistent with each other, or even transparent. In particular, individual States sometimes set environmental standards going far beyond what is provided for at Federal level. Agricultural and food imports are also often confronted with additional state-level requirements, which may lead to obstacles to trade.

Acquiring the necessary information and satisfying the necessary procedures is a major undertaking for a foreign enterprise, especially a small or medium sized one, as at present there is no central source of information on standards and conformity assessment. One company has estimated the volume of lost sales in the US due to the multiplicity of standards and certification problems to be about 15% of their total sales. The expense of certification alone was put at 5% of total sales, as was the amount spent on product liability insurance (a far less significant factor in Europe).

The hidden costs could be much greater because the time and cost involved can be greatly reduced simply by using US components that have already been individually tested and certified. This is particularly the case for electrical products.

In addition, the private organisations providing quality assurance may impose the use of certain specific product components under their own programmes that are not in conformity with international quality assurance standards (such as the International Organization for Standardization (ISO) 9000 series). In some cases (e.g. that of telecommunications network equipment) an expensive evaluation procedure is required which does not lead to certification and does not take account of any additional requirements by individual buyers.

For electrical appliances Underwriter's Laboratories (UL) have complete discretion on the standards concerning safety certification and, on occasion, can make seemingly arbitrary changes to them. UL lists the products that comply with the applicable standards, but they do not approve them. This is done by a variety of competing testing and certification agencies, some of them offering testing facilities in Europe.

For example, in early 1993 UL revised standard 1028 on hair clipping and shaving appliances, amending the specifications for the on/off switch. The new UL requirement adds nothing to the safety of these appliances, but adds considerable costs to European manufacturers. It has also required the subsequent modification of the related International Electrotechnical Commission standards (endorsed by the Comité Européen de Normalisation Electrotechnique (CENELEC) [European Electrotechnical Standards Committee]).

Providing consumers with accurate, useful information is certainly in everyone's best interest. However, sometimes the information required to be put on a label seems to be specifically designed to influence consumer behaviour. For other products, labelling requirements seem to be another way of slowing down the process of getting a new product to the market. As in the case of origin certificates, labelling and marking requirements do not recognise the use of the notion "Made in EC".

Automotive  The American Automobile Labelling Act provides that passenger cars and other vehicles must be labelled with, inter alia, the proportion of US- and Canadian-made parts and the final point of assembly. These requirements appear to be intended to influence consumers to buy cars of US-Canadian origin. There is also an obligation to indicate the origin of engines and gearboxes that could discourage US manufacturers from importing parts from Europe. Moreover conforming to the labelling requirement may involve the disclosure of confidential data from non-US manufacturers.

Pharmaceuticals  In the US, as in Europe, a competent authority (the Food and Drug Administration (FDA) in the US) must approve a new medicinal product before it can be commercialised. However, the delays for non-US new medicinal products appear to be longer than for US developed medicinal products. This may be in part due to the Investigational New Drug (IND) system that allows the FDA advanced knowledge of medicinal products tested in clinical trials in the US.

By means of an "over-the-counter" (OTC) procedure, approved active substances for a medicinal product are put on a list (OTC-Monograph) by the FDA, so that different final products derived from these active substances can be marketed without any application or delay. However, the OTC drug approval procedure requires that the active substance has a US market history. This restricts market access for OTC products with lengthy marketing experience in countries with equally sophisticated drug regulatory systems and particularly hampers access for plant-based (herbal) medicinal products with a long tradition in Europe. The OTC monograph was published on 17 March 1999 but does not yet allow for the acceptance of foreign clinical data for ingredients commonly used in Europe but not in the US.

In addition, the problem of admission of European suntan lotions to the US market was first raised with the FDA in 1991. The FDA also received a petition by European cosmetic firms to open the simplified drug approval procedure to UV-filters that had already been accepted in the EU. The FDA did approve sunscreen products containing avobenzone in concentrations of up to 3%; however, the final monograph covering this and other sunscreen products was published on 21 May 1999. Should the FDA follow the monograph's conclusions, all of the characteristics of the label on a sunscreen product such as the size of the type, the size of the lines, the words used, and that the label would have to use black type against a light background, which can impair a brand's identity.

A multilateral framework for cooperation on cosmetics has been established between the EU, US, Canada, and Japan. A work programme on regulatory cooperation has been established with a view to align review and approval procedures and examine equivalence of technical requirements.

Textiles and Leather   Extensive product description requirements complicate exports to the US. Particular rules for marking and labelling of retail packages to clarify the country of origin, indicate the ultimate purchaser in the US and state the name of the country in which the article was manufactured or produced are burdensome. Articles that are otherwise specifically exempted from individual marking are an exception to this rule. All textile fibres imported to the US have to be marked with the generic names and percentages by weight of the constituent fibres present in the textile fibre product in amounts of more than 5%. Any wool products containing woollen fibre, with the exception of carpets, rugs, mats, upholsteries and articles made more than 20 years prior to importation, have to be clearly marked so as to satisfy the requirements of the Wool Products Labelling Act of 1939 (with regard to information on weight and importer). The Fur Products Labelling Act imposes similar obligations on fur products.

Agriculture and Fisheries  With respect to wine labelling, there exist procedures, both at Federal and State level, for the approval of labels on the front and rear of wine bottles. In general, a certain time period is required to obtain label approval at Federal level and, at State level, the approval period varies according to the State. This renders the approval procedure time-consuming, confusing to exporters (who have to comply with different State regimes) and costly. In addition, European exporters are geographically disadvantaged in the sense that they have to send the original label to the competent US authorities while the US producers can do that with the different offices located in the main producer regions.

Differences in US and EU sanitary and phytosanitary requirements can have restrictive effects on trade. For new non-manufactured agricultural products, there are requirements for import permits to the US. The procedures between application and the inclusion in the list of approved products are excessively long, up to several years. This has been experienced also in cases where other products from the same area of production with the same phytosanitary risks were permitted. A variety of EU exports to the US have encountered problems due to delays in US Customs sampling and inspection procedures, resulting in damage to the goods and subsequent commercial losses for the exporters. The EU does not dispute the right of the US authorities to inspect imported goods but considers that adequate steps should be taken to deal expeditiously with perishable goods.

In particular, the FDA's time-consuming controls on the detection of pit fragments in imports of canned peaches from the EU has lead to detention and subsequent destruction or obligatory re-export of this product, hampering the flow of trade and negatively affecting the volume of exports.

Regulations governing the entry of apples and pears from certain Member States (Code of Federal Regulations of 1996, Title 7, Subtitle B, Ch. III, §319-56-2r) provide for a pre-clearance inspection programme, with the aim of guaranteeing, prior to shipment, that consignments are free from certain specified insect pests such as the pear leaf blister moth, and from "other insect pests that do not exist in the US or that are not widespread in the US."

Operating in this way on the basis of an open list of unspecified pests is not a scientific approach and is contrary to the spirit of transparency as provided for in the International Plant Protection Convention and to the requirement of pest risk analysis and transparency laid down in the WTO Agreement on the Application of Sanitary and Phytosanitary Measures. The stringent inspections and the increased costs arising from the pre-clearance inspection programme have clearly had a negative effect on EU exports of apples and pears to the US. Consultations with the aim of implementing the "inspection at port of arrival" option resumed in 1996. A draft protocol for a "Schedule of Conditions" concerning participation in an "experiment" for the export of apples and pears from the EU to the US without phytosanitary pre-clearance by the US in the Member State of production, has been submitted to the US. However, the consultations have not yet been conclusive.

Under US Regulations (Code of Federal Regulations of 1996, Title 7, Subtitle B, Ch. III, §319-56-2) the import of fruit and vegetables from an EU Member State, in which the relevant pathogen is known to occur, is not only prohibited from the infested area of that Member State, but also from the pathogen-free areas thereof. This creates undue obstacles to exports from pathogen-free regions within the EU. An example is the prohibition of imports of tomatoes from Brittany because of the presence of the Mediterranean Fruit Fly in the Mediterranean regions of France. Although Brittany is ecologically isolated from the infested regions of France, and the French authorities carry out the necessary surveillance to avoid dissemination of the pest, imports into the US of ripe tomatoes from Brittany are not allowed by the US authorities. The EU considers these measures to be excessive; they discriminate Brittany against other pathogen-free areas in the Community, which is not justifiable on phytosanitary grounds, having regard to the conditions of the internal market within the Community. In July 1998 USDA announced that imports of tomatoes from a number of countries, including France, would be allowed. Specific conditions were attached to the import of pink and red tomatoes from France to take account of the risks associated with the Mediterranean fruit fly.

Another undue obstacle is the restriction, in the case of approved citrus consignments, of the ports of landing to those on the North Atlantic shores. This requirement leads to unnecessary costs of land transport into the southern and western parts of the USA. If the products were pre-cleared in the Member State of production, and moreover subject to cold-treatment during transport, there is no phytosanitary justification for the port restriction.

The provisions on standards and certification of plants established in growing media Potted plants The provisions on standards and certification of plants established in growing media (Code of Federal Regulations of 1996, Title 7, Subtitle B, Ch. III, §319-37-8) were revised and effective on 13 January 1995 to permit the import into the US of four plant genera in sterile growing media. This has reduced the obstacles encountered by EU exports of potted plants to the US.

The new rule contains some requirements that are difficult for exporters to fulfil. For example, it is impossible to satisfy certain obligations because some of the species or genera involved have a growth cycle that is shorter than the waiting period required by USDA before export can take place.

It is noted that APHIS (Animal and Plant Health Inspection Services) has recently re-opened and extended the comment period on a proposal to allow the importation of Rhododendron (Azalea) established in growing media from Europe, originally published in the Federal Register of 7 September 1993. This was the result of the completion of consultations on Rhododendron in conformity with section 7 of the Endangered Species Act, which revealed that import from Europe is not likely to adversely affect endangered or threatened species or their habitants. In April 1998 USDA published a proposal to allow the importation of Rhododendron in established growing media.

Almost all sorts of plants are permitted imported, and almost all sorts of growing media (except soil) are permitted imported. However, when the permitted plants are in permitted growth media the import is not permitted, unless a special Pest Risk Assessment has been performed by APIS/USDA. Twenty years ago EU producers asked APHIS to make the PRA for 60 sorts. So far they have made 5 assessments, in all cases resulting in approval. This extremely long delay is not acceptable. APHIS agrees, but regrets not to have the staff to speed it up. The same office has thousands of applications for approval from all over the world for flowers and fruits and vegetables for import and export. Export approvals have priority.

The sixth assessment of plants from the EU list for Schlumbergera (X-mas cactus) has just been approved by APHIS. However, since cacti are considered endangered species, the Fish and Wildlife Service must give final approval, although Schlumbergera is among the approved sorts of plants and already imported in big quantities from the EU as seedlings not in a growing media. It may take years to get the final approval, if ever from the Fish and Wildlife Service."

The mandatory requirement for a two year post-entry quarantine on an importer's premises for hardy nursery stock is considered by the EU to be excessive. Its main purpose is believed to be the detection of latent infections by organisms of quarantine concern. Although this measure may be justifiable in the case of new or developing trade in specific commodities, the EU considers this not to be the case, if the measure is required for long-term trade on a permanent basis. This requirement should be examined in consultations with the US.

The US introduced rules in 1997 on the import of ruminant animals and products thereof from all European countries based on concerns about Bovine Spongiform Encephalopathy (BSE).

The US requirements are not scientifically based, do not follow the OIE Code, and discriminate in targeting European countries. The US does not make any distinction between countries where the incidence of BSE is high or low (the latter being countries with occasional cases). The US action blocked all EU ruminant exports, pending examination by the US of data submitted. The EU has raised its concerns at this excessive action both bilaterally and in the Committee on Sanitary and Phytosanitary Measures in Geneva.

Quite apart from the BSE restrictions, the US also imposes animal health restrictions on the import of goats on the grounds of the risk of scrapie in sheep. These restrictions are not justified because of the widespread presence of scrapie in the US sheep population.

The EU has a comprehensive set of veterinary legislation completed under the Single Market programme, and apart from certain specific restrictions based on the relevant disease status, there is free movement of animals within the Community. Nevertheless, the US continues to treat the Community on an individual Member State basis for the majority of issues, thus excluding several products of many Member States from access to the US market. The entry into force on 1 August 1999 of the EU-US Veterinary Agreement should improve the situation.

The EU operates a policy of regionalisation, where restrictions are applied in zones affected by certain animal diseases, with free movement of animals and products outside the affected zones. An animal or product fit for movement is then considered fit for export. The principle of regionalisation as an effective means of controlling animal disease has now been incorporated into the US Tariff Act 1930 by the NAFTA and is part of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures. However, US import administrative rules concerning Foot and Mouth Disease, Rinderpest and other relevant diseases have still not been amended to reflect this change in legislation, despite a clear commitment in the EU-US Agreement on Application of the Third Country Meat Directive, reached in 1992. The US published a proposed rule on "Importation of Animals and Animal Products" covering only ruminants and swine on 18 April 1996. The EU made substantive critical comments, and has continued to press for the US to recognise the EU's application of regionalisation in the context of an EU-US Veterinary Agreement. An agreement was negotiated on a technical level on 30 April 1997. The US, in a letter dated 24 February 1998, has committed itself to accept the EU's regionalisation decisions upon implementation of the EU-US Veterinary Agreement.

Other restrictions on live animals relate to the non-recognition by the US of the EU's freedom from certain diseases. The US published a proposed rule on the recognition of the disease status of certain member States for certain diseases on 14 November 1997 and confirmed it as a final rule in 1998. The US further committed itself in March 1998 to publish a further proposed rule covering the outstanding recognitions of Member States and diseases, notably as regards classical swine fever. The Proposed Rule - published in the Federal Register on 25 June 1999 - together with the additional written assurances allowed the EU-US Veterinary Equivalency Agreement to be signed on 20 July 1999.

Non-comminglement means that establishments exporting meat or meat products to the US may not handle meat or meat products from countries that are not recognised as being free from certain diseases of concern to the US, and that there is no mixing of meat or meat products destined for the US with meat or meat products from such countries. The EU-US Agreement on Application of the Third Country Meat Directive provides for an establishment to handle both categories of meat or meat products provided that there is a separation in time between handling them. So far, however, the US has not been willing to apply this provision of the agreement. The EU-US Veterinary Agreement includes specific provisions for the application of non-comminglement.

Imports into the US of uncooked meat products (sausage, ham and bacon) have been subject to a long-standing prohibition. Following repeated approaches by the EU, US import regulations were modified to permit the import of Parma ham, Serrano hams, Iberian hams, Iberian pork shoulders and Iberian pork loins. However, the US still applies a prohibition on other types of uncooked meat products (e.g San Daniele ham, German sausage, Ardennes ham) despite the fact that meat products may come from disease free regions and that the processing involved should render any risk negligible.

The import of egg products is allowed only under very strict conditions, in particular, the requirement for continuous inspection of the production process. A system of periodic inspection of the production process would be acceptable from a human health point of view, but continuous inspection is superfluous and expensive, and has a negative effect on prices and competitiveness.

The import of "Low Acid Canned Food" such as fisheries products or dairy products is subject to a detailed prior approval system and makes no provision for accepting such products produced under "equivalent" hygiene conditions

Registration, Documentation, Customs Procedures

Invoice requirements for exporting certain products to the US can be excessive. The information requirements far exceed normal customs declaration and tariff procedures. They are unneccessary because US Customs are entitled to ask for all necessary supplementary documents and information during clearance (as provided for by the Kyoto Convention). There should be no systematic demand for this kind of information. These formalities are also burdensome and costly, thus constituting a barrier against new entrants and small companies. As a result, large established suppliers are privileged and small and new competitors disadvantaged. These effects are particularly disruptive in diversified high-value and small-quantity markets that are of special relevance for the EU.

US Customs does not recognise the EC as a country of origin and refuse to accept EC certificates of origin. This means that in order to justify EC country of origin status, EU firms are required to furnish supplementary documentation and follow further procedures, which can be a source of additional costs.

Textiles and Leather Customs formalities Customs formalities for imports of textiles, clothing and footwear to the US require the provision of particularly detailed and voluminous information. Much of this information would appear to be irrelevant for customs or statistical purposes. For example, for garments with an outer shell of more than one construction or material, it is necessary to give the relative weight, percentage values and surface area of each component; for outer shell components which are blends of different materials, it is also necessary to include the relative weights of each component material.

On 1 July 1996, the US introduced a wholesale revision of its origin rules for textiles and clothing products. While for many textile and clothing products these US origin rules paralleled those of the EU, printing and dyeing of fabric no longer conferred origin as it did under the former US rules.

A Trade Barriers Regulation procedure was initiated on 22 November 1996 further to a complaint lodged by the Italian textile industry and led to the adoption of a Commission decision to request WTO consultations. The investigation carried out by the Commission services demonstrated that the US legislation was notably in breach of the WTO Agreement on Textiles and Clothing and the WTO Agreement on Rules of Origin.

After receiving a request for WTO consultations from the EU, the Administration eventually agreed in July 1997 to the modification of the contested rules, at the latest at the end of 1998. The US agreed to modify its rules of origin either by adopting the solution resulting from the international harmonisation process or, if such negotiations failed to reach an agreement by the July 1998 deadline, by reverting to its previous rules of origin. The US also agreed to a number of transitional measures aiming at ensuring that, in the meantime, the EU products' access to the US market would not be disturbed or diminished.

The case has been resolved finally by section 405 of the Trade and Development Act of 2000, enacted on 18 May 2000 plus silk labelling legislation (PL 106-36) enacted in June 1999.

Agriculture and Fisheries The US has introduced a compulsory system of certificates of origin for yellowfin tuna caught in the Eastern Tropical Pacific since July 1992. Certification rules are also applied for countries using large-scale trawl nets.

The US Code, Title 46, Shipping, Section 12108, blocks the potentially interesting possibility for EU fishermen to fish in US waters under a US flag since foreign-built US flag vessels cannot be documented with a fishery endorsement, thereby also preventing the possibility of joint ventures and joint enterprises. The American Fisheries Act of 1998 included a provision that amends the percentage of shares in a vessel that must be held by US citizens in order for the vessel to be considered a US vessel. The necessary percentage of ownership shares was increased from 50% to 75%.

Government Procurement

The Buy America Act (BAA),The Buy America Act (BAA), initially inacted in 1933, is the core domestic preference statute governing US procurement. It covers a number of discriminatory measures, generally termed Buy America restrictions, which apply to government-funded purchases. These take several forms: some prohibit public sector bodies from purchasing goods and services from foreign sources; some establish local content requirements, while others still extend preferential price terms to domestic suppliers. Buy America restrictions therefore not only directly reduce the opportunities for EU exports, but also discourage US bidders from using European products or services. The domestic industry, through the court system and legislative lobbying, ensures that Buy American preferences are vigorously enforced and maintained.

The restrictions apply to government supply and construction contracts, and require Federal agencies to procure only US mined or produced unprocessed goods, and only manufactured goods with at least a 50% local content. Executive Order 10582 of 1954, as amended, expands the scope of the Buy America Act in order to allow procuring entities to set aside procurement for small businesses and firms in labour surplus areas, and to reject foreign bids either for national interest or national security reasons. As a result of the GATT (subsequently WTO) Government Procurement Agreement (GPA), waivers from many Buy America provisions have been foreseen for GPA Parties (inter alia, through the 1979 Trade Agreements Act), including for the EU. However, the actual implementation of these waivers may in some cases produce legal uncertainty and this may act as a barrier. In addition to that, some persistent Buy America provisions continue to limit access to the US procurement market in a significant way.

One of the most obvious areas of Buy America is federal aid administered by the Department of Transportation (DOT) under several different acts, including the Highway Administration Act, the Urban Mass Transit Act, and the Airports Improvements Act. In accordance with these acts, the DOT provides aid to the State and local governments for various transportation-related procurements. The State or local government at some level must match that money. Specifically, the Federal government may fund 40% to 80% of the project (depending on the nature of the grant), while the State or local government must fund the remaining share. All purchases of goods and services related to these projects must meet various Buy American provisions, usually domestic content requirements of 60% and, failing that, a price penalty of up to 25%. The European Commission estimates Buy America to affect about US$ 25 billion of contracts in FY2001, particularly mass transport and airport improvement. These are precisely the sectors where EU business is very competitive. This figure is expected to increase to about US$ 35 billion by 2005, taking account of budget growth forecasts. These restrictions will negatively impact European suppliers of products including iron and steel and transport equipment.

The Department of Defense (DoD) also has significant procurement expenditures that exclude foreign suppliers of goods or services. The DoD is the largest public procurement agency within the US government spending many tens of billions of dollars annually on supplies and other requirements. Except as required by the Defense Supplement to the Federal Acquisitions Regulation (DFARS), contracting officers must apply Buy American Act requirements to supply contracts exceeding the US$ 2,500 micro-purchase ceiling and to service contracts that involve finishing of supplies when the supply portion exceeds the micro-purchase ceiling. In March 1999, the Director of Defense Procurement reminded US defence agencies and military departments to ensure that their contracting officers comply with requirements of the BAA, as an audit report had revealed that some contracts had been awarded to foreign firms in contravention of the relevant provisions.

In addition, many procurements fall under "national security" exceptions to open procurement obligations. Although the concept of national security can be invoked under Article XXIII of the GPA to limit national treatment in the defence sector for foreign suppliers, the use of national security considerations by the US has led in practice to a disproportionate reduction in the scope of DoD supplies covered by the GPA. While the US denies abusing the WTO national security exemption, it has indicated a readiness, in the context of the implementation of the GPA, to disseminate more guidance to US procurement officials for identifying which procurements are covered by the Agreement and which by national security exemptions. It has also expressed its intention to ensure clear and consistent identification of national security procurements, and improve the coherence of the US Federal Supply Classification System with the international Harmonised System. Together, these intentions mark a first small step towards more acceptable practices.

There has been a trend towards making DoD's other domestic preferences, apart from the BAA preferences, less restrictive - by expanding the preference to qualifying countries. These are countries that maintain reciprocal memoranda of understanding (MoU) with the US. Currently, eleven EU Member States are qualifying countries. Still, an amendment to the fiscal year 1998 Defense Appropriations bill, which would have given the Secretary of Defense blanket authority to waive the domestic preference for American specialty metals, stainless steel, flatware, clothing, or naval components, was substantially diluted by Congress. The compromise language only permits the Secretary of Defense to waive the restriction on a case by case basis under certain circumstances on a limited number of products, rendering the application of a waiver much more difficult. In addition, a bill introduced in the Senate (S. 384) in February 1999 by Commerce Committee Chairman McCain (R-AZ) to authorise the Secretary of Defense to waive certain domestic source or content requirements in the procurement of items procured for the DoD failed to make any progress. In introducing his bill, Senator McCain commented: "Mr. President, it is my sincere hope that this legislation will end once and for all the anti-competitive, anti-free trade practices that encumber our government, the military, and US industry."

Management and operation of research and development facilities under the Department of Energy, NASA, the National Science Foundation, or the DoD are often entrusted to private companies and universities under "management and operating (M&O) contracts." Their M&O contracts do not follow the full and open competition procedures required under the Federal Acquisitions Regulations. Very few M&O contracts have been subject to competitive procedures and often the procurements done by these companies themselves follow Buy America requirements. The US has excluded M&O contracts from its offer in the GPA. More widely, the government has instituted a number of R&D programmes in recent years in which there is a strong preference for US participants. Examples are the Renewable Energy Export Technology Transfer Program and the High Speed Ground Transportation Development Program. Most of these programmes also require Buy American compliance with respect to all materials furnished pursuant to the project.

There are numerous other marginal expenditures. While not exhaustive, the following examples of Buy America statutory programmes should be mentioned: the Balance of Payments Program; the Merchant Marine Act of 1936; the Hazardous Materials Transportation Authorization Act of 1994; the Amtrak Authorization Act; Grants for Construction of Water Treatment Works; National and Community Service Act; National Science Foundation Act of 1988 (as amended); and the President's National Space Policy Directive of 1990 and 1994. The latter precluded US Government agencies from using foreign launch services (except, in the case of NASA, in collaborative projects not involving an exchange of funds). This policy was subject to undefined exceptions - a possibility that was never, or almost never, used.

In October 1998, President Clinton signed the Commercial Space Act of 1998. This law, on the one hand, calls on Federal agencies to buy space launch services - rather than launch vehicles; on the other hand, it requires these services to be procured from "US commercial providers", subject to certain exceptions, for instance for international collaborative efforts related to science and technology. It thus legislates the Buy America policy contained until then in the President's National Space Policy but opens the door for NASA to enter into collaborative projects with foreign space agencies even if they involve the disbursement of funds. It remains to be seen how the US Administration will interpret the notion of "US commercial provider". The US justified these restrictions, which initially applied to the launching of military satellites, on national security grounds, but is now also imposed on satellites for civilian use. These measures are part of a set of co-ordinated actions to strengthen the US launch industry and are clearly detrimental to European launch service providers. European launch operators remain in any case effectively barred from competing for most US government launch contracts, which account for approximately 50 % of the US satellite market.

In addition to the direct legal barriers mentioned above, the complexity of procurement rules may in some cases act as a effective indirect barrier. Indeed, suppliers based in countries that are parties of the WTO/GPA are generally not directly excluded from the scope of Buy America and other restrictive regulations. Instead, legislation generally foresees the granting of waivers as regards these suppliers. However, the actual implementation of these waivers may in some cases produce a considerable degree of legal uncertainty.

At a sub-federal level, selective purchasing laws (whereby the access of companies to contracts is severely or completely curtailed as a result of the companies' business links with particular third countries) continue to cause great concern. Such laws have been adopted by the Commonwealth of Massachusetts (in the case of Burma) and more than 20 cities and local authorities, and are under consideration by a number of other sub-federal authorities. The Massachusetts legislation has been considered by the Supreme Court and found unconstitutional on the grounds of division of powers between States and the federal authorities. Whilst this removes this particular obstacle, the wider issue of principle vis-à-vis the EU, is left un-addressed.

The EU strongly objects to these attempts to regulate the behaviour of EU companies that are acting in full compliance with EU and Member States' Laws. The Commission will continue to monitor the situation in other sub-federal jurisdictions.

Buy America or "buy local" legislation is also rife at State level. More than half of all US States and a large number of localities do apply some "Buy Local" restrictions in one form or another. In some cases, the procurement of particular products are subject to such restrictions, such as steel, coal, printing and cars. Affirmative action schemes favouring small business or particular types of business (e.g. minority-owned) are also applied extensively in a large number of States. Although 39 of the 50 States are covered by the bilateral agreement of 1994 (and 90% of total procurement by value at State level), there are still gaps in its scope and, in some cases, concerns about its actual degree of implementation. Among the 11 states that have not been bound in the US GPA offer, some maintain very substantial local preferences, which have a negative impact on EU and other foreign suppliers. This is the case of Alaska, New Mexico, South Carolina and, to a lesser extent, Ohio and Virginia. In the case of New Jersey, State legislation also provides that for the construction of public works projects financed by State funds, the materials used (e.g. cement) must be of domestic origin. Even in the GPA-bound states various exemptions (i.e;for purchases of cars, coal, printing and steel and for set aside) seriously limit the procurement opportunities open to foreigners. Besides, all procurements by States and localities that benefit from particular types of federal funding (e.g. in mass transit and highway projects) are subject to BAA.

The Federal Government actively seeks to promote the growth of small businesses in numerous ways. It provides loans and grants, develops programmes to encourage bids from small business, and sets aside certain procurement contracts for small business. The "set-asides" are specifically exempted from application of the GPA. Small business set-asides represent a substantial proportion of federal procurement money - many tens of billions in expenditures or around 30% of all federal procurement dollars.

The relevant legislation is the Small Business Act of 1953, as amended, which requires executive agencies to place a fair proportion of their purchases with small businesses. This is achieved through two different types of set-aside schemes: one where US Federal government contracts are set-aside, regardless of the size of the contractor, in the event that there is a reasonable expectation of bids from two or more eligible US small or minority businesses; the other where all contracts below a certain threshold (currently US$ 2,500 to US$ 100,000) are set aside for US small or minority businesses -- contracts are only released for competitive bidding in the event that two or more eligible bidders cannot be identified. In this context, small businesses are defined as businesses located in the US which make a significant contribution to the domestic economy (through payment of taxes and/or use of US products, materials, and/or labour) and are not dominant. The standard size criteria for eligibility as a small business for goods producing industries is 500 employees or fewer. However, for some industries (pulp, paper boxes, packaging; glass containers; transformers, switchgear and apparatus; relays and industrial controls; miscellaneous communications equipment; search, detection, navigation guidance systems and instruments) the employee limit is 750 and for some others (chemicals and allied products; tyres and inner tubes; flat glass; gypsum products; steel and steel products; computers, computer storage devices, terminals; motors and generators; telephone and telegraph apparatus) it is 1000. For services industries, depending on the sector, firms with total annual revenues of less than US$ 2.5 million to 17 million are considered to be small businesses.

In 1999, the US Small Business Administration launched another programme - HUBZone - which will provide contracting benefits to small businesses located in "historically under-utilised business zones". The first goal of the programme is to channel at least one percent of overall federal procurement to HUBZone small businesses, which at current federal spending levels equates to about $2 billion. By the year 2003 that goal rises to three percent, or about $6 billion.

Currently, the notion of fair proportion means that the government-wide goal for participation by small businesses shall be established at no less than 20% of the total value of all prime contract awards for each fiscal year. Under the normal bid procedures, there is a 12% preference for small businesses in bid evaluation for civilian agencies (instead of the standard 6%). In the case of the DoD, the standard 50% preference applies to all US businesses offering a US product.

An important number of States also operate particularly proactive small businesses and minority set-aside policies. It is estimated that in States like Texas such policies effectively exclude foreign firms from around 20% of procurement opportunities. In Kentucky as much as 70% is set aside for small businesses. The active promotion of small businesses is a common concern for the EU and the US. The EU is, however, concerned that the US "set-aside" measures and their exemption from the GPA are favouring US industry and restricting the ability of foreign (EU and other) companies doing business in the US.

The concept of "national security" was originally used in the 1941 Defence Appropriation Act to restrict procurement by the DoD to US sourcing. Now known as the "Berry Amendment", its scope has been extended to secure protection for a wide range of products only tangentially related to national security concerns -- for example, the 1992 General Accounting Office ruling that the purchase of fuel cells for helicopters is subject to the Berry Amendment fabric provisions, and the withdrawal of a contract to supply oil containment booms to the US Navy because of the same textile restrictions. A recent audit report by the Defense Department's Office of Inspector General concluded that for certain DoD procurements during fiscal years 1996 and 1997, about half of the solicitations and contracts examined had not incorporated or enforced the relevant domestic sourcing requirements. In response, DoD's procurement director has taken steps to ensure that contracts at or above the simplified acquisition threshold (presently US$ 100,000) are domestically sourced. To comply with the Buy America provisions, contracting officers must generally add 50 percent to the price of nonqualifying country end products when evaluating offers with nonqualifying end products against offers with domestic end products. In September 1996 Congress adopted an amendment that extended the initial scope of the Berry Amendment to cover also all textile fibres and yarns used in the production of fabrics. The result of this extension is that Community fibres and yarns can no longer be used by US manufacturers for producing fabrics that they sell to the DoD.

Further DoD procurement restrictions are based on the National Security Act of 1947 and the Defense Production Act of 1950, which grant authority to impose restrictions on foreign supplies in order to preserve the domestic mobilisation base and the overall preparedness posture of the US.
At the same time, defence procurement from foreign companies is sometimes also impeded by Buy America restrictions on federally funded programmes.

In practice, all NATO countries (except Iceland), all major non-NATO allies of the US (e.g. Australia, New Zealand) as well as Sweden, Finland and Austria have signed Memorandums of Understanding (MoUs) with the US allowing for a waiver of the corresponding restrictions. However, these MoUs are subject to US laws and regulations, and consequently, other restrictions can be imposed annually by Congress through the appropriations process. For example, US legislation allows the Administration (DoD and USTR) to rescind a waiver if it determines that a particular ally discriminates against US products. In addition, Congress is unilaterally overriding the MoU by imposing ad hoc Buy America requirements during the annual budget process (e.g. in the case of anchor and mooring chains). There are also indications that US procurement officers disregard the exemption of Buy America restrictions for MoU countries (e.g. in the case of fuel-cells, ball and roller bearings and steel forging items).

In fact, the barriers to defence trade with the US result from a complex set of rules and practices aiming at imposing "domestic sources restrictions" in US defence acquisition. A partial identification of all these barriers is provided in a July 1998 report of the US General Accounting Office that was established to justify these "domestic sources restrictions". The following examples illustrate the large variety of obstacles facing EU exporters to US:

Iron, Steel and Non-Ferrous Metals The main problem for the steel sector is the imposition of local content requirements or the preference given in works and other government procurement contracts for bids that include locally produced steel. This practice is notably common at the sub-federal level. Many States (such as Connecticut, Louisiana, Maine, Michigan, Illinois, Maryland, New York, Pennsylvania, Rhode Island and West Virginia) have such requirements that also apply to private contractors and subcontractors.

Machinery  Congress has imposed a Buy America requirement on the procurement of ball and roller bearings since 1988, most recently to the end of the year 2000. In May 1996, the Federation of European Bearings Manufacturers' Association (FEBMA) made a submission to DoD, in opposition to the restriction. The 1997 DoD Authorization Act contains the so-called "McCain Amendment" authorising DoD to waive Buy America requirements that would impede the reciprocal procurement of defence items under the MOU. The EU and 21 NATO countries asked for the effective implementation of the McCain Amendment and the termination of discrimination vis-à-vis imports from countries with which DoD has signed defence cooperation agreements, thus supporting FEBMA's position. The DoD's implementing interim rule was published on 24 June 1997 and included bearings. However, the waiver applicable to bearings may be of limited value since it does not apply to procurements made with funds subject to Buy American requirements under the Defense Appropriations Acts.

Telecommunications Equipment  As a result of the failure to liberalise purchases of telecom equipment, the US decided in 1993 to impose sanctions against the EU and certain Member States under Title VII of the Omnibus Trade and Competitiveness Act of 1988. The sanctions bar EU suppliers from bidding, inter alia, for US Federal government contracts that are below the threshold values of the WTO Agreement on Government Procurement. The EU responded with counter-sanctions (Regulation 1461/93) that also bar US bidders from applying for contracts awarded by central government agencies below the threshold values. Following the bilateral Marrakech procurement agreement of April 1994, which liberalised around US$ 100 billion of procurement opportunities on both sides, the EU considers that the sanctions are an unnecessary impediment to the bilateral relationship. Following the liberalisation of the EU telecoms sector, the US Administration has started to investigate the possibility to mutually lift the sanctions and counter-sanctions.

Many of the problems experienced by EU suppliers in acceding procurement opportunities in the US could be solved by an increase of the coverage of the GPA and by the elimination of the exceptions introduced in the US GPA offer. Thus, apart from other initiatives, the EC considers that the current review of the GPA offers a good opportunity for the improvement of the situation.

Import Prohibitions

The right of sovereign nations to take measures to protect their essential national security interests has been widely recognised by multilateral and bilateral trade agreements. However, it is in the interest of all trade partners that such measures are prudently and sparingly applied. Restrictions to trade and investment cannot be justified on national security grounds if they are, in reality, essentially protectionist in nature and serve other purposes than the protection of security interests.

Under Section 232 of the Trade Expansion Act of 1962, US industry can petition for the restriction of imports from third countries on the grounds of national security. Protective measures can be used for an unlimited period of time. The Department of Commerce (DoC) investigates the effects of imports that threaten to impair national security either by quantity or by circumstances. Section 232 is supposed to safeguard US national security, not the economic welfare of any company, except when that company's future may affect US national security. The application of Section 232 is not dependent on proof of injury to US industry.

In the past, the EU has voiced its concern that Section 232 gives US manufacturers an opportunity to seek protection on grounds of national security, when in reality the aim is simply to curb foreign competition. The EU will continue to monitor closely the impact of these restrictions.

Agriculture and Fisheries  The Marine Mammal Protection Act of 1972 (MMPA) aims at protecting marine mammals, particularly dolphins, by progressively reducing the acceptable level of dolphin mortality in US tuna-fishing operations The Marine Mammal Protection Act of 1972 (MMPA) aims at protecting marine mammals, particularly dolphins, by progressively reducing the acceptable level of dolphin mortality in US tuna-fishing operations in the Eastern Tropical Pacific (ETP) Ocean and providing for sanctions to be taken against other countries which fail to apply similar standards for dolphin protection. "Primary" embargoes are currently being applied to imports of certain yellowfin tuna products from Mexico, Panama, Colombia, Vanuatu and Venezuela. "Secondary" embargoes on yellowfin tuna products are imposed on imports from "intermediary nations" - namely, countries which are exporting to the US and have failed to certify that they have not imported from the primary embargoed countries during the preceding six months. Costa Rica, Japan and Italy are currently subject to such a secondary embargo.

Mexico, as a primary-embargoed country, requested a GATT Panel in November 1990. The Panel concluded that the US primary and secondary embargoes were not in conformity with GATT Article XI (Elimination of Quantitative Restrictions) but the Panel's report was never adopted. Subsequently the EU requested the establishment of a further GATT Panel in February 1993 which found against the US' unilateral measures imposed for environmental reasons and it reiterated that trade measures cannot be imposed with a view to forcing other countries to change their environmental and conservation policies within their own jurisdiction. Again, this Panel's report was not adopted.

In the framework of IATTC (Inter-American Tropical Tuna Commission) the members (including the US, the Central American and Latin American countries) have negotiated and agreed upon an Agreement on the International Dolphin Conservation Program (IDCP) and adopted it in February 1998. The Agreement was opened for signature from 21 May 1998. The entry into force of this Agreement will allow the US to lift its import embargo. The international agreement on the IDCP became effective on February 15, 1999, when the fourth country ratified. The US, Panama, Ecuador, and Mexico are the countries that have ratified to date. On March 3, 1999, the US Secretary of State provided the required certification to Congress that the international agreement on the IDCP was in force. Key provisions of the US IDCP Act became effective on this date. The US will allow imports of tuna harvested under the IDCP to carry a dolphin-safe tuna label only if no dolphin were killed or seriously injured during a set in which tuna were caught.

Previously, tuna products containing tuna harvested in the ETP could be labelled "dolphin-safe" only if no intentional setting on dolphins occurred during the fishing trip. When the new definition goes into affect in the Fall, tuna may be labelled "dolphin-safe" only if no dolphins were killed or seriously injured during the set in which the tuna were caught. The EU is presently not a member of IATTC, but the Council has authorised the Commission (by a decision of 22 April 1999) to negotiate with the ICCAT (International Commission for the Conservation of Atlantic Tunas) members the necessary amendments to the Convention as to permit the EU accession. The Community intends to sign the IDCP at the earliest possible time and will in the meantime apply the Agreement provisionally.

Furthermore, amendments to the Magnuson Fishery Conservation and Management Act of 1983 (MFCMA) require the Department of Commerce to list nations whose nationals engage in large-scale drift net fishing Furthermore, amendments to the Magnuson-Stevens Fishery Conservation and Management Act of 1983 (MFCMA) require the DoC to list nations whose nationals engage in large-scale drift net fishing in a manner unacceptable to the US authorities. Such a nation may be certified for the purposes of the so-called "Pelly Amendment" and its marine products may be consequently embargoed.

The Commerce Department identified on March 19, 1999 an EU Member State (Italy) as a nation whose fishing vessels may be conducting high sea, large-scale driftnet fishing in violation of the High Seas Driftnet Fisheries Enforcement Act.

The DoC action carried out the order of the US Court of International Trade in New York to identify Italy as a nation for which there is reason to believe its fishermen or vessels are violating the ban on large-scale driftnets used in commercial fishing operations. According to the Act, the two nations have 30 days to commence consultations and 90 days to conclude them before Italy may become vulnerable to trade restrictions.

Pursuant to section 609 of Public Law 101-162n exports of shrimp to the US will be embargoed unless nations can provide evidence that their shrimp trawlers match US efforts to protect sea turtles (artisanal fishing, having a sea turtle excluder program or fishing for cold-water shrimp only). The US authorities have now certified forty-two nations, but five Member States (France, Spain, Portugal, Italy and Greece) have not been certified. Portugal presented a démarche to the Department of State in May 1996 underlining, inter alia, its concerns regarding the potential extraterritorial effect of this legislation. Following WTO consultations in December 1996, Thailand, Malaysia, Pakistan and India requested the establishment of a Panel (January-February 1997). The EU participated as a third party.

The Panel report of 15 May 1998 concluded that the US import ban on shrimps and shrimp products is not consistent with Article XI:1 of GATT 1994, and cannot be justified under Article XX of GATT 1994. The report was very critical on the unilateral measures carried out by the US as well as the lack of commitment to reach a negotiated, multilateral solution. In July 1998, the US filed an appeal of the Panel findings.

Although the Appellate Body of the WTO to some degree reversed the findings of the Panel by agreeing that the US measure served an environmental objective recognised as legitimate under GATT Art. XX(g), the measure had been applied by the US in a manner that constitutes an arbitrary and unjustifiable discrimination between members of the WTO where the same conditions prevail.

The Appellate Body further stressed that the US should have consulted and negotiated with the other countries involved and tried to reach a multilateral agreement on turtle protection. Finally, the Appellate Body concluded that the US authorities should bring its measure into conformity with the obligations of the US under the GATT Agreement.

The import of dairy products made from unpasteurised milk such as soft cheese, for which there is a ready market in the US is generally prohibited, even though a number of US States permit the production and marketing of such products. The import of fresh dairy products, such as yoghurts, is effectively prohibited through the application of the Import Milk Act.

The import of milk protein into the US is generally permitted. The EU has a substantial export to the US of milk protein used by especially the meat and bread industries in their processing. The most obvious customer, the yoghurt industry is, however, not allowed to use imported proteins, unless they originate in industries, that are Grade A approved by the US authorities. No EU dairy is Grade A approved, and it seems impossible to become Grade A approved. Numerous meetings with the FDA have not solved the problem.