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                                                       Calendar No. 398
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-264
_______________________________________________________________________


               EXTENSION OF NONDISCRIMINATORY TREATMENT
 
      (MOST-FAVORED-NATION TREATMENT) TO THE PRODUCTS OF CAMBODIA

                                _______


                  May 9, 1996.--Ordered to be printed

_______________________________________________________________________


    Mr. Roth, from the Committee on Finance, submitted the following

                              R E P O R T

                        [To accompany H.R. 1642]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, to which was referred the bill 
(H.R. 1642) to authorize the extension of nondiscriminatory, 
most-favored-nation (MFN) tariff treatment to products of the 
Kingdom of Cambodia (``Cambodia''), having considered the same, 
reports favorably thereon with an amendment in the nature of a 
substitute and recommends that the bill, as amended, do pass.

                             I. Background

    General Note 3 of the Harmonized Tariff Schedule of the 
United States (HTS) currently lists ``Kampuchea'' (i.e., 
Cambodia) among those countries whose products are denied MFN 
tariff treatment. As such, imports from Cambodia are subject to 
substantially higher duty rates under HTS column 2.
    Title IV of the Trade Act of 1974, as amended by the 
Customs and Trade Act of 1990 (``Title IV''), which governs the 
extension of MFN status to non-market economy countries, has 
never applied to Cambodia. The provisions in Title IV apply 
only to countries denied MFN status as of January 3, 1975. 
Cambodia was first denied MFN treatment on April 18, 1975, when 
the President imposed a trade embargo on Cambodia after the 
Khmer Rouge had gained control of the country.

                  II. Summary of H.R. 1642, as Amended

    Section 1 sets forth four Congressional findings that 
support removing ``Kampuchea'' from the list of countries 
denied MFN treatment under General Note 3 of the HTS and 
extending to Cambodia permanent unconditional nondiscriminatory 
MFN status. First, despite recent increases in acts of 
repression by the Cambodian Government and growing government 
corruption that has contributed to substantial environmental 
degradation, Cambodia has made some progress toward democratic 
rule after 20 years of undemocratic regimes and civil war, and 
is striving to rebuild its market economy. Second, extension of 
unconditional MFN treatment would assist Cambodia in developing 
its economy based on free market principles and becoming 
competitive in the global marketplace. Third, establishing 
normal commercial relations on a reciprocal basis with Cambodia 
will promote U.S. exports to the rapidly growing Southeast 
Asian region and expand opportunities for U.S. business and 
investment in the Cambodian economy. Fourth, expanding 
bilateral trade relations, including a commercial agreement, 
may promote further progress by Cambodia on human rights and 
democratic rule and assist Cambodia in adopting regional and 
world trading rules and principles.
    Section 2(a) would grant Cambodian imports unconditional 
MFN tariff treatment by striking ``Kampuchea'' from the list of 
those countries denied MFN treatment under General Note 3 of 
the HTS.
    Section 2(b) states that subsection (a) applies to goods 
entered, or withdrawn from warehouse for consumption, on or 
after the effective date of a notice published in the Federal 
Register by the U.S. Trade Representative (USTR) that a trade 
agreement obligating reciprocal MFN treatment between Cambodia 
and the United States has entered into force.
    Section 3 would require the President to submit a report to 
Congress, no later than 18 months after the enactment of the 
Act, on the trade relations between the United States and 
Cambodia pursuant to the trade agreement between the two 
countries.

                        III. General Explanation

                A. Presidential and Congressional Action

    1. Presidential action.--The United States and Cambodia 
established full diplomatic relations after formation of the 
Royal Cambodian Government on September 24, 1993. On April 30, 
1994, the United States and Cambodia concluded negotiation of a 
bilateral agreement on trade relations and protection of 
intellectual property rights. The agreement included a proposal 
for a reciprocal extension of MFN tariff treatment between the 
United States and Cambodia. Entry into force of this agreement 
is contingent on Congress passing legislation extending MFN 
status to Cambodia.
    2. Congressional action.--On January 19, 1995, Senator 
McCain introduced legislation (S. 251) on Cambodia's MFN 
status, which was referred to the Committee on Finance. S. 251 
would make Cambodia eligible for conditional MFN status by 
making Cambodia subject to the provisions of Title IV. Section 
402 of Title IV (also known as the Jackson-Vanik amendment) 
sets forth requirements relating to freedom of emigration, 
which must be met or waived by the President in order for the 
President to grant nondiscriminatory, MFN status to nonmarket-
economy countries.
    On July 11, 1995, the House passed legislation (H.R. 1642), 
which would provide Cambodia permanent MFN tariff status, by 
striking Cambodia from the list of those countries denied MFN 
treatment under General Note 3 of the HTS. H.R. 1642 was 
referred to the Committee on Finance on July 12, 1995.
    On August 1, 1995, the International Trade Subcommittee of 
the Committee on Finance held a hearing on the Cambodia MFN 
legislation, during which it received testimony in favor of 
granting Cambodia unconditional MFN status and no testimony in 
opposition. During his testimony before the Subcommittee, 
Senator McCain expressed his preference for the approach taken 
in H.R. 1642 to grant Cambodia unconditional MFN status.
    On March 26, 1996, the House passed a resolution (H. Res. 
345), expressing concern about the deterioration of respect for 
human rights in Cambodia. The resolution references H.R. 1642 
and urges engagement with Cambodia on human rights issues, 
monitoring of the human rights situation in the country, and 
continued efforts to assist Cambodia in broadening democratic 
civil society, strengthening the rule of law, and ensuring fair 
and free elections.

                        B. U.S.-Cambodian Trade

    Since the signing of the Paris Peace Accords in October 
1991, two-way trade between the United States and Cambodia has 
remained at modest levels, but has risen from $15.9 million in 
1992 to approximately $32.2 million in 1995. During this 
period, the United States' balance in merchandise trade with 
Cambodia has gone from a surplus of approximately $15.8 million 
in 1992 to a surplus of $21.8 million in 1995. U.S. exports to 
Cambodia rose from $15.8 million in 1992 to $27 million in 
1995. Leading U.S. exports included: (1) transportation 
equipment (e.g., vehicles and aircraft); (2) machinery and 
mechanical appliances and electrical equipment; (3) pearls, 
precious stones, and metals; (4) prepared foodstuffs, 
beverages, and tobacco; and (5) chemical products. U.S. imports 
from Cambodia rose from $83,000 in 1992 to $5.2 million in 
1995. Principal imports included: (1) optical, photographic, 
measuring, timekeeping and medical apparatus; (2) works of art 
and antiques, (3) machinery and mechanical appliances and 
electrical equipment; (4) plastics and rubber; and (5) 
textiles.

                           C. Committee Views

    The signing of the 1991 Paris Peace Accords and the United 
Nations-sponsored national elections in May 1993 ended 20 years 
of authoritarian and despotic regimes, genocide, and civil war 
in Cambodia. Since then, the Cambodian people have embarked on 
a path toward democratic rule and the rebuilding of a 
functioning market economy. The Committee applauds these 
developments, but recognizes that this path has been neither 
smooth nor always in the right direction.
    While the Cambodian people have made progress since 1991, 
the Committee is deeply concerned about the current human 
rights and political situation in Cambodia. In particular, 
there has been a marked increase in acts of repression by the 
Cambodian Government directed at opposition parties and critics 
of the regime. The Committee is also concerned that the growing 
problem of government corruption in Cambodia, among other 
things, has contributed to substantial environmental 
degradation in Cambodia, has undermined public confidence, and 
contributed to an increase in narcotics trafficking. H.R. 1642 
as amended, expresses these concerns in the congressional 
findings section in order to reflect changes in the political 
situation in Cambodia. The Committee expects that the 
Administration will continue to monitor developments in 
Cambodia carefully and to consult with Congress about its plans 
to address these problems.
    In approving MFN status for Cambodia, the Committee 
believes that establishing normal bilateral economic and 
commercial relations between the United States and Cambodia 
would help integrate Cambodia into the world economic system 
and promote economic growth based on free market principles. 
The Committee also believes that these developments would, in 
turn, help direct Cambodia towards broadening democratic civil 
society, strengthening the rule of law and respect for human 
rights, and achieving political stability.
    The Committee expects that providing unconditional MFN 
status to Cambodia will expand opportunities for U.S. business 
and investment in the Cambodian economy and also promote U.S. 
exports to the rapidly growing Southeast Asian region as a 
whole. U.S. companies operating in Cambodia will be in a 
position to provide substantial assistance for Cambodia's 
return to a market-based economy, thereby further stimulating 
economic growth and improving the standard of living for the 
Cambodian people. By facilitating Cambodia's integration into 
the world economy, MFN status will also encourage Cambodia's 
adoption of regional and world trading rules and principles and 
promote effective protection of intellectual-property rights.
    Accordingly, the Committee supports the enactment of H.R. 
1642, as amended, and the extension of unconditional MFN 
treatment to Cambodia.

            IV. Vote of the Committee in Reporting the Bill

    In compliance with section 133 of the Legislative 
Reorganization Act of 1946, the Committee states that H.R. 
1642, as amended, was ordered favorably reported unanimously by 
voice vote on May 8, 1996.

                    V. Budgetary Impact of the Bill

    In compliance with sections 308 and 403 of the 
Congressional Budget Act of 1974, and paragraph 11(a) of Rule 
XXVI of the Standing Rules of the Senate, the following letter 
has been received from the Congressional Budget Office on the 
budgetary impact of the bill:
                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 8, 1996.

Hon. William V. Roth, Jr.,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.

    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed H.R. 1642, a bill to authorize the extension of 
nondiscriminatory treatment (most-favored-nation treatment) to 
the products of Cambodia, as ordered reported by the Senate 
Committee on Finance on May 8, 1996. CBO estimates that 
extending most-favored-nation (MFN) status to the products of 
Cambodia would not significantly affect federal government 
receipts. Because H.R. 1642 could affect receipts, pay-as-you-
go procedures would apply to the bill. The proposed legislation 
contains no intergovernmental or private sector mandates as 
defined in Public Law 104-4 and would impose no direct costs on 
state, local, or tribal governments
    Under current law, general note 3(b) of the Harmonized 
Tariff Schedule of the United States (HTSUS) excludes the 
products of Cambodia from receiving nondiscriminatory 
treatment. The proposed legislation would amend general note 
3(b) of the HTSUS by deleting ``Kampuchea.'' Removing Kampuchea 
from the list would allow the United States Trade 
Representative (USTR) to negotiate a trade agreement obligating 
reciprocal MFN treatment between Cambodia and the United 
States.
    Granting MFN status would lower tariff rates on imports 
from Cambodia. CBO estimates that lowering tariff rates would 
reduce customs duty revenues below the level projected under 
current import levels and tariff rates. However, we expect that 
imports would rise in response to the lower domestic price 
resulting from the lower tariffs. The negative effect on 
revenues from the lower rates would virtually be offset by the 
positive effect on revenues from the greater volume of 
Cambodian imports. CBO estimates that granting MFN status to 
the products of Cambodia would not significantly affect federal 
government receipts.
    This estimate is based on 1994 Census data on imports from 
Cambodia. The increase in imports of goods from Cambodia 
resulting from the reduced prices of the imported products in 
the U.S.--reflecting the lower MFN tariff rates--has been 
calculated using estimates of the substitution between U.S. 
products and imports of the same goods. Also, the calculation 
assumes that the economy of Cambodia will function in the next 
year in a manner similar to that of the recent past. Obviously, 
political and economic changes could affect its ability to 
produce and export goods, its need to import goods from the 
U.S. and other countries, and the exchange rate between its 
currency and that of the U.S. However, we believe that the 
assumption of relatively constant economic performance is 
appropriate.
    If you wish further details, please feel free to contact me 
or your staff may wish to contact Stephanie Weiner.

            Sincerely,
                                         June E. O'Neill, Director.

                   VI. Regulatory Impact of the Bill

    In compliance with paragraph 11(b) of Rule XXVI of the 
Standing Rules of the Senate, the Committee states that the 
bill will not significantly regulate any individuals or 
businesses, will not impact on the personal privacy of 
individuals, and will result in no significant additional 
paperwork.

             VII. Changes in Existing Law Made by the Bill

    In compliance with paragraph 12 of Rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                   HARMONIZED TARIFF SCHEDULE OF THE
                             UNITED STATES

          * * * * * * *

                             GENERAL NOTES

    3. Rates of Duty. The rates of duty in the ``Rates of 
Duty'' columns designated 1 (``General'' and ``Special'') and 2 
of the tariff schedule apply to goods imported into the customs 
territory of the United States as hereinafter provided in this 
note:
    (a) * * *
    (b) Rate of Duty Column 2. Notwithstanding any of the 
foregoing provisions of this note, the rates of duty shown in 
column 2 shall apply to products, whether imported directly or 
indirectly, of the following countries and areas pursuant to 
section 401 of the Tariff Classification Act of 1962, to 
section 231 or 257(e)(2) of the Trade Expansion Act of 1962, to 
section 404(a) of the Trade Act of 1974 or to any other 
applicable section of law, or to action taken by the President 
thereunder: Afghanistan, Azerbaijan, Cuba, [Kampuchea], Laos, 
North Korea, Vietnam.
          * * * * * * *