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Treas.
HJ
10
.A13P4
v.339
D.S. Department of the Treasury
PRESS RELEASES
DEPARTMENT
l'REASURY
OF
__------......
THE
TREASURY
NEWS
.:zJ7!lq~--------
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.· 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 1, 1994
CONTACf: Scott Dykema
(202) 622-2960
U.S., SWEDEN SIGN INCOME TAX TREATY
The Treasury Department announced that the United States and Sweden signed
an income tax treaty Thursday.
The treaty was signed in Stockholm by U.S. Ambassador Thomas L. Siebert and
Swedish Minister for Fiscal and Financial Mfairs Bo Lundgren_ It replaces the income
tax treaty signed in 1939, one of the first ever signed by the United States. The new
treaty must be approved by the Senate.
The new treaty retains many provisions of the existing one but is updated to
reflect current tax laws and recent income tax treaty policies of both countries.
Like the existing treaty, the new treaty maintains the tax at source on payments of
dividends, interest and royalties at current rates. However, it expands the types of income
considered interest, royalties and dividends. It maintains the tax at source on dividends
of not more than 15 percent for portfolio dividends and 5 percent for direct investment
dividends, where the recipient company owns at least 10 percent of the voting stock of
the company paying the dividends. The treaty also provides for exemption at source for
interest and royalties. And it provides for the imposition of the branch profits tax, and
liInits the rate at which the tax may be imposed to 5 percent.
Unlike the existing treaty, the new treaty contains a tie-breaker rule for deciding
the country of residence for dual residents. The new treaty recognizes the right of each
country to tax gains from the sale of real property located in their own country. It
updates rules regarding the taxation of business profits, personal service income,
transportation income, real property income and capital gains and. the granting of relief
from double taxation and the protection against discriminatory taxation. The new treaty
also addresses the taxation of pensions and adds important provisions limiting the abuse
of the treaty by persons who are not qualifying residents.
Also included are rules to adIninister the treaty, including rules for the resolution
of disputes under the treaty, the interaction of the new treaty with other agreements and
the exchange of information between the U.S. and Sweden.
LB-I051
-2-
The treaty will enter into force when both governments have completed their
respective constitutional and statutory procedures and have notified each other to that
effect. All provisions generally will have effect on the first day of January after the treaty
enters into force.
Copies of the treaty may be obtained by writing the Office of Public Affairs, U.S.
Treasury Department, Room 2315, Washington, D.C., 20220, or calling (202) 622-2960.
-30-
CONVENTION BETWEEN THE GOVERNMENT OF SWEDEN AND THE
GOVERNMENT OF THE UNITED STATES OF AMERICA FOR THE
AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL
EVASION WITH RESPECT TO TAXES ON INCOME
The Government of Sweden and the Government of the United
States of America, desiring to conclude a convention for
the avoidance of double taxation and the prevention of
fiscal evasion with respect to taxes on income, have
agreed as follows:
2
Article 1
Personal scope
1. This Convention shall apply to persons who are
residents of one or both of the Contracting states,
except as otherwise provided in the Convention.
2. The Convention shall not restrict in any manner any
exclusion, exemption, deduction, credit, or other
allowance now or hereafter accorded
a) by the laws of either Contracting state; or
b) by any other agreement between the contracting states.
3. Notwithstanding the provisions' of paragraph 2 b):
a) Notwithstanding any other agreement to which the
Contracting States may be parties, a dispute concerning
whether a measure is within the scope of this Convention
shall be considered only by the competent authorities of
the Contracting States, as defined in subparagraph 1 e)
of Article 3 (General definitions) of this Convention,
and the procedures under this Convention exclusively
shall apply to the dispute.
b) Unless the competent authorities determine that a
taxation measure is not within the scope of this
convention, the nondiscrimination obligations of this
convention exclusively shall apply with respect to that
measure, except for such national treatment or mostfavored-nation obligations as may apply to trade in goods
under the General Agreement on Tariffs and Trade. No
national treatment or most-favored-nation obligation
3
under any other agreement shall apply with respect to
that measure.
c) For the purpose of this paragraph, a "measure" is a
law, regulation, rule, procedure, decision,
administrative action, or any other form of measure.
4. Notwithstanding any provision of the Convention except
paragraph 5, the united states may tax its residents [as
determined under Article 4 (Residence)], and by reason of
citizenship may tax its citizens, as if the Convention
had not come into effect. For this purpose, the term
"citizen" shall include a former citizen whose loss of
citizenship had as one if its principal purposes the
avoidance of tax, but only for a period of 10 years
following such loss.
5. The provisions of paragraph 4 shall not affect
a) the benefits conferred by the United states under
paragraph 2 of Article 9 (Associated enterprises), under
paragraph 2 of Article 19 (Pensions and annuities), and
under Articles 23 (Relief from double taxation), 24 (Nondiscrimination) and 25 (Mutual agreement procedure); and
b) the benefits conferred by the united states under
Articles 20 (Government service), 21 (Students and
trainees) and 28 (Diplomatic agents and consular
officers) upon individuals who are neither citizens of,
nor have immigrant status in, the united states.
4
Article 2
Taxes covered
1. The existing taxes to which this Convention shall
apply are
a) in the united states: the Federal income taxes imposed
by the Internal Revenue Code (but excluding the
accumulated earnings tax, the personal holding company
tax, and social security taxes), and the excise taxes
imposed on insurance premiums paid to foreign insurers
and with respect to private foundations. The Convention
shall, however, apply to the excise taxes imposed on
insurance premiums paid to foreign insurers only to the
extent that the risks covered by such premiums are not
reinsured with a person not entitled to the benefits of
this or any other convention which exempts these taxes;
and
b) in Sweden:
(i) the state income tax, including the
sailor's tax and the coupon tax;
(ii) the special income tax on non-residents;
(iii) the special income tax on non-resident
entertainers and artistes;
(iv) the communal income tax;
(v) for the purpose of paragraph 3 of this
Article, the State capital tax; and
5
(vi) the excise tax imposed on insurance
premiums paid to foreign insurers.
2. The Convention shall apply also to any identical or
substantially similar taxes which are imposed after the
date of signature of the Convention in addition to, or in
place of, the taxes referred to above. The competent
authorities of the Contracting States shall notify each
other of any significant changes which have been made in
their respective taxation laws and of any officially
published material of substantial significance concerning
the application of the Convention, including
explanations, regulations, rulings, or judicial
decisions.
3. The following persons shall be subject to the Swedish
State capital tax only in respect of real property
situated in Sweden and movable property attributable to a
permanent establishment of such person in Sweden or to a
fixed base available to such person in Sweden for the
purpose of performing independent personal service;
a) a resident of the united States, as determined under
Article 4 (Residence), who is a citizen of the united
States but not a citizen of Sweden:
b) a resident of the united States, as determined under
Article 4, whether or not a citizen of the united States,
who has been such a resident for three successive years
prior to the first taxable year for which the provisions
of the Convention have effect, and for each taxable year
thereafter;
6
c) a citizen of the United states, who is not a citizen
of Sweden, who temporarily visits Sweden for a period not
exceeding two years, and who is, or immediately prior to
such visit was, a resident of the United States, as
determined under Article 4:
d) an estate of a person described in subparagraph a), b)
or c); or
e) a company that is a resident of the united States, as
determined under Article 4.
7
Article 3
General definitions
1. For the purposes of this Convention, unless the
context otherwise requires
a) the term "person" includes an individual, an estate, a
trust, a partnership, a company, and any other body of
persons;
b) the term "company" means any entity which is treated
as a body corporate for income tax purposes;
c) the terms "enterprise of a Contracting state" and
"enterprise of the other Contracting state" mean
respectively an enterprise carrieB on by a resident of a
Contracting state and an enterprise carried on by a
resident of the other Contracting State;
d) the term "international traffic" means any transport
by a ship or aircraft, except where such transport is
solely between places within a Contracting state;
e) the term "competent authority" means
(i) in the case of the united states, the
Secretary of the Treasury or his delegate; and
(ii) in the case of Sweden, the Minister of
Finance, his authorized representative or the
authority which is designated as a competent
authority for the purposes of this Convention;
f) the term "united States" means the united States of
8
America, but such term (i) does not include Puerto Rico,
the Virgin Islands, Guam, or other united states
possessions or territories, and (ii) includes (A) the
territorial sea of the united states and (8) the seabed
and subsoil of the submarine areas adjacent to the
territorial sea, over which the United states of America
exercises sovereign rights, in accordance with
international law, for the purpose of exploration for and
exploitation of the natural resources of such areas;
g) the term "Sweden" means the Kingdom of Sweden and,
when used in a geographical sense, includes the national
territory, the territorial sea as well as other maritime
areas over which Sweden, in accordance with international
law, exercises sovereign rights or jurisdiction.
2. As regards the application of the Convention by a
contracting State any term not defined therein shall,
unless the context otherwise requires or the competent
authorities agree to a common meaning pursuant to the
provisions of Article 25 (Mutual agreement procedure),
have the meaning Which it has under the laws of that
State concerning the taxes to which the Convention
applies.
9
Article 4
Residence
1. For the purposes of this Convention, the term
"resident of a contracting state" means any person who,
under the laws of that state, is liable to tax therein by
reason of his domicile, residence, place of management,
place of incorporation, or any other criterion of a
similar nature, provided, however, that
a) this term does not include any person who is liable to
tax in that state in respect only of income from sources
in that state: and
b) in the case of a partnership, estate, or trust, this
term applies only to the extent that the income derived
by such partnership, estate, or trust is subject to tax
in that state as the income of a resident, either in its
hands or in the hands of its partners or beneficiaries.
A united states citizen or an alien lawfully admitted for
permanent residence is a resident of the United states,
but only if such person has a sUbstantial presence,
permanent home, or habitual abode in the united states.
If such person is also a resident of Sweden under this
paragraph, such person will also be treated as a united
states resident under this paragraph and such person's
status shall be determined under paragraph 2.
2. Where by reason of the provisions of paragraph 1 an
individual is a resident of both Contracting states, then
his status shall be determined as follows
a) he shall be deemed to be a resident of the state in
10
which he has a permanent home available to him; if he has
a permanent home available to him in both states, he
shall be deemed to be a resident of the state with which
his personal and economic relations are closer (center of
vital interests);
b) if the state in which he has his center of vital
interests cannot be determined, or if he does not have a
permanent home available to him in either state, he shall
be deemed to be a resident of the state in which he has
an habitual abode;
c) if he has an habitual abode in both states or in
neither of them, he shall be deemed to be a resident of
the state of which he is a citizen;
d) if he is a citizen of both states or of neither of
them, the competent authorities of the contracting states
shall settle the question by mutual agreement.
3. Where by reason of the provisions of paragraph 1
a company is a resident of both Contracting States, then
if it is created under the laws of a contracting State or
a political subdivision thereof, it shall be deemed to be
a resident only of that state.
4. Where by reason of the provisions of paragraph 1
a person other than an individual or a company is a
resident of both Contracting states, the competent
authorities of the contracting states shall settle the
question by mutual agreement.
11
Article 5
Permanent establishment
1. For the purposes of this Convention, the term
"permanent establishment" means a fixed place of business
through which the business of an enterprise is wholly or
partly carried on.
2. The term "permanent establishment" includes especially
a) a place of management;
b)
c)
d)
e)
a branch;
an office;
a factory;
a workshop; and
f) a mine, an oil or gas well, a quarry or any other
place of extraction of natural resources.
3. A building site or construction or installation
project constitutes a permanent establishment only if it
lasts more than twelve months. The use of an installation
or drilling rig or ship in a contracting state to explore
for or exploit natural resources constitutes a permanent
establishment only if such use is for more than twelve
months.
4. Notwithstanding the preceding provisions of this
Article, the term "permanent establishment" shall be
deemed not to inclUde
a) the use of facilities solely for the purpose of
storage, display or delivery of goods or merchandise
belonging to the enterprise;
12
b) the maintenance of a stock of goods or merchandise
belonging to the enterprise solely for the purpose of
storage, display, or delivery;
c) the maintenance of a stock of goods or merchandise
belonging to the enterprise solely for the purpose of
processing by another enterprise;
d) the maintenance of a fixed place of business
solely for the purpose of purchasing goods or merchandise
or of collecting information for the enterprise;
e) the maintenance of a fixed place of business solely
for the purpose of carrying on, for the enterprise, any
other activity of a preparatory or auxiliary character;
f) the maintenance of a fixed place of business solely
for any combination of activities mentioned in
subparagraphs a) to e).
5. Notwithstanding the provisions of paragraphs 1 and 2,
where a person - other than an agent of an independent
status to whom paragraph 6 applies - is acting on behalf
of an enterprise and has and habitually exercises in a
contracting state an authority to conclude contracts in
the name of the enterprise, that enterprise shall be
deemed to have a permanent establishment in that state in
respect of any activities which that person undertakes
for the enterprise, unless the activities of such person
are limited to those mentioned in paragraph 4 which, if
exercised through a fixed place of business, would not
make this fixed place of business a permanent
establishment under the provisions of that paragraph.
6. An enterprise shall not be deemed to have a permanent
13
establishment in a contracting state merely because it
carries on business in that state through a broker,
general commission agent or any other agent of an
independent status, provided that such persons are acting
in the ordinary course of their business.
7. The fact that a company which is a resident of a
Contracting State controls or is controlled by a company
which is a resident of the other Contracting state, or
which carries on business in that other State (whether
through a permanent establishment or otherwise), shall
not of itself constitute either company a permanent
establishment of the other.
14
Article 6
Income from real property
1. Income derived by a resident of a Contracting state
from real property (including income from agriculture or
forestry) situated in the other Contracting state may be
taxed in that other state.
2. The term "real property" shall have the meaning which
it has under the law of the Contracting state in which
the property in question is situated. The term shall in
any case include property accessory to real property,
livestock and equipment used in agriculture and forestry,
rights to which the provisions of general law respecting
landed property apply, buildings, usufruct of real
property and rights to variable or fixed payments as
consideration for the working of, or the right to work,
mineral deposits, sources and other natural resources;
ships, boats and aircraft shall not be regarded as real
property.
3. The provisions of paragraph 1 shall apply to income
derived from the direct use, letting, or use in any other
form of real property.
4. The provisions of paragraphs 1 and 3 shall also apply
to the income from real property of an enterprise and to
income from real property used for the performance of
independent personal services.
15
Article 7
Business profits
1. The profits of an enterprise of a Contracting state
shall be taxable only in that state unless the enterprise
carries on business in the other Contracting state
through a permanent establishment situated therein. If
the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in the other state
but only so much of them as is attributable to that
permanent establishment.
2. Subject to the provisions of paragraph 3, where an
enterprise of a Contracting state carries on business in
the other Contracting state through a permanent
establishment situated therein, there shall in each
Contracting state be attributed to that permanent
establishment the profits which it might be expected to
make if it were a distinct and separate enterprise
engaged in the same or similar activities under the same
or similar conditions.
3. In determining the profits of a permanent
establishment, there shall be allowed as deductions
expenses which are incurred for the purposes
of the permanent establishment, including a reasonable
allocation of executive and general administrative
expenses, research and development expenses, interest,
and other expenses incurred for the purposes of the
enterprise as a whole (or the part thereof which includes
the permanent establishment), whether incurred in the
state in which the permanent establishment is situated or
elsewhere.
16
4. Profits shall not be attributed to a permanent
establishment by reason of the mere purchase by that
permanent establishment of goods or merchandise for the
enterprise.
5. For the purposes of this Convention, the profits to be
attributed to the permanent establishment shall include
only the profits derived from the assets or activities of
the permanent establishment and shall be determined by
the same method year by year unless there is good and
sufficient reason to the contrary.
6. Where profits include items of income which are dealt
with separately 'in other Articles of the Convention, then
the provisions of those Articles shall not be affected by
the provisions of this Article.
7. The term "profits" as used in this Article means
income derived from any trade or business whether carried
on by an individual, company or any other person, or
group of persons, including the rental of tangible
movable property.
8. a) The United states tax on insurance premiums paid to
foreign insurers shall not be imposed on insurance and
reinsurance premiums which are the receipts of a business
of insurance carried on by a resident of Sweden whether
or not that business is carried on through a permanent
establishment in the United states (but only to the
extent that the relevant risk is not reinsured, directly
or indirectly, with a person not entitled to relief from
such tax) .
b) The Swedish tax on insurance premiums paid to foreign
insurers shall not be imposed on insurance premiums which
17
are the receipts of a business of insurance carried on by
a resident of the united states whether or not that
business is carried on through a permanent establishment
in Sweden.
9. Notwithstanding paragraph 6 of this Article, for the
implementation of paragraphs 1 and 2 of this Article,
paragraph 3 of Article 13 (Gains), Article 14
(Independent personal services) and Article 22 (Other
income) any income, gain, or expense attributable to a
permanent establishment or a fixed base during its
existence is taxable or deductible in the Contracting
state where such a permanent establishment or fixed base
is situated even if the payments are deferred until such
permanent establishment or fixed base has ceased to
exist.
18
Article 8
Shipping and air transport
1. Profits of an enterprise of a Contracting State from
the operation of ships or aircraft in international
traffic shall be taxable only in that state.
2. For the purposes of this Article, profits from the
operation of ships or aircraft in international traffic
include profits derived from the rental of ships or
aircraft if such rental profits are incidental to other
profits described in paragraph 1.
3. Profits of an enterprise of a contracting State from
the use, maintenance, or rental of containers (including
trailers, barges, and related equipment for the transport
of containers) used in international traffic shall be
taxable only in that state.
4. The provisions of paragraphs 1 and 3 shall also apply
to profits from participation in a pool, a joint
business, or an international operating agency. with
respect to profits derived by the air transport
consortium Scandinavian Airlines System (SAS) the
provisions of paragraphs 1 and 3 shall apply, but only to
such part of the profits as corresponds to the
participation held in that consortium by AB Aerotransport
(ABA), the Swedish partner of Scandinavian Airlines
System (SAS).
19
Article 9
Associated enterprises
1. Where
a) an enterprise of a Contracting state participates
directly or indirectly in the management, control or
capital of an enterprise of the other contracting state;
or
b) the same persons participate directly or indirectly in
the management, control, or capital of an enterprise of a
Contracting state and an enterprise of the other
Contracting state,
and in either case conditions are made or imposed between
the two enterprises in their commercial or financial
relations which differ from those which would be made
between independent enterprises, then any profits which
would, but for those conditions, have accrued to one of
the enterprises, but by reason of those conditions have
not so accrued, may be included in the profits of that
enterprise and taxed accordingly.
2. Where a Contracting state includes in the profits of
an enterprise of that state, and taxes accordingly,
profits on which an enterprise of the other Contracting
state has been charged to tax in that other state, and
the profits so included are profits which would have
accrued to the enterprise of the first-mentioned state if
the conditions made between the two enterprises had been
those which would have been made between independent
enterprises, then that other state shall make an
appropriate adjustment to the amount of the tax charged
20
therein on those profits. In determining such adjustment,
due regard shall be paid to the other provisions of this
convention and the competent authorities of the
Contracting States shall if necessary consult each other.
3. The provisions of paragraph 1 shall not limit any
provisions of the law of either contracting state which
permit the distribution, apportionment, or allocation of
income, deductions, credits, or allowances between
persons, whether or not residents of a Contracting state,
owned or controlled directly or indirectly by the same
interests when necessary in order to prevent evasion of
taxes or clearly to reflect the income of any of such
persons.
21
Article 10
Diyidends
1. Dividends paid by a company which is a resident of a
Contracting state to a resident of the other contracting
state may be taxed in that other state.
2. However, such dividends may also be taxed in the
Contracting State of which the company paying the
dividends is a resident, and according to the laws of
that State, but if the beneficial owner of the dividends
is a resident of the other Contracting State, the tax so
charged shall not exceed
a) 5 percent of the gross amount of the dividends if the
beneficial owner is a company which owns at least 10
percent of the voting stock of the company paying the
dividends;
b) 15
percent of the gross amount of the dividends in
all other cases.
This paragraph shall not affect the taxation of the
company in respect of the profits out of which the
dividends are paid.
3. Subparagraph a) of paragraph 2 shall not apply in the
case of dividends paid by a U.S. Regulated Investment
Company or a Real Estate Investment Trust. Subparagraph
b) of paragraph 2 shall apply in the case of such
dividends, but in the case of dividends paid by a Real
Estate Investment Trust only if the beneficial owner of
the dividends is an individual holding less than 10
percent of the Real Estate Investment Trust.
22
4. The term "dividends" as used in this Article means
income from shares or other rights, not being
debt-claims, participating in profits, as well as income
from other corporate rights which is subjected to the
same taxation treatment as income from shares by the laws
of the state of which the company making the distribution
is a resident, and income from arrangements, including
debt obligations, carrying the right to participate in
profits, to the extent so characterized under the laws of
the contracting state in which the income arises.
5. The provisions of paragraph 2 shall not apply if the
beneficial owner of the dividends, being a resident of a
contracting State, carries on business in the other
contracting State, of which the company paying the
dividends is a resident, through a permanent
establishment situated therein, or performs in that other
State independent personal services from a fixed base
situa~ed therein, and the dividends are attributable to
such permanent establishment or fixed base. In such case
the provisions of Article 7 (Business profits) or Article
14 (Independent personal services), as the case may be,
shall apply.
6. A Contracting state may not impose any tax on
dividends paid by a company which is not a resident of
that state, except insofar as
a) the dividends are paid to a resident of that State; or
b) the dividends are attributable to a permanent
establishment or a fixed base situated in that state.
7. A religious, scientific, literary, educational or
charitable organization which is resident in Sweden and
23
which has received substantially all of its support from
persons other than citizens or residents of the united
states shall be exempt in the United states from the
United states excise taxes imposed with respect to
private foundations.
8. A company that is a resident of a Contracting state
and that has a permanent establishment in the other
Contracting state, or that is subject to tax in that
other Contracting state on items of income that may be
taxed in that other state under Article 6 (Income from
real property) or under paragraph 1 of Article 13
(Gains), may be subject in that other Contracting state
to a tax in addition to the tax allowable under the other
provisions of this Convention. Such tax, however, may
a) in the case of the united states be imposed only on
(i) the portion of the business profits of the
company attributable to the permanent establishment,
and
(ii) the portion of the income referred to in
the preceding sentence that is subject to tax under
Article 6 or paragraph 1 of Article 13,
that represents the "dividend equivalent amount" of those
profits and income; the term "dividend equivalent amount"
shall, for the purposes of this subparagraph, have the
meaning that it has under the law of the united states as
it may be amended from time to time without changing the
general principle thereof; and
b) in the case of Sweden be imposed only on that portion
of the income described in subparagraph a) that is
24
comparable to the amount that would be distributed as a
dividend by a locally incorporated subsidiary.
9. The tax referred to in paragraph 8 a) and b) shall not
be imposed at a rate exceeding the rate specified in
paragraph 2 a).
25
Article 11
Interest
1. Interest arising in a Contracting state which is
derived and beneficially owned by a resident of the other
Contracting State shall be taxable only in that other
State.
2. The term "interest" as used in this Article means
income from debt-claims of every kind, whether or not
secured by mortgage, and whether or not carrying a right
to participate in the debtor's profits, and in
particular, income from government securities, and income
from bonds or debentures, including premiums or prizes
attaching to such securities, bonds, or debentures and
including an excess inclusion with respect to a residual
interest in a real estate mortgage investment conduit.
Penalty charges for late payment shall not be regarded as
interest for the purposes of the Convention. However, the
term "interest" does not include income dealt with in
Article 10 (Dividends).
3. The provisions of paragraph 1 shall not apply if the
beneficial owner of the interest, being a resident of a
Contracting State, carries on business in the other
contracting state, in which the interest arises, through
a permanent establishment situated therein, or performs
in that other state independent personal services from a
fixed base situated therein, and the interest is
attributable to such permanent establishment or fixed
base. In such case the provisions of Article 7 (Business
profits) or Article 14 (Independent personal services),
as the case may be, shall apply.
26
4. Interest shall be deemed to arise in a contracting
State when the payer is that State itself or a political
subdivision, local authority, or resident of that state.
Where, however, the person paying the interest, whether
he is a resident of a Contracting State or not, has in a
contracting state a permanent establishment or a fixed
base and such interest is borne by such permanent
establishment or fixed base, then such interest shall be
deemed to arise in the state in which the permanent
establishment or fixed base is situated.
5. Where, by reason of a special relationship between the
payer and the beneficial owner or between both of them
and some other person, the amount of the interest, havinq
regard to the debt-claim for which it is paid, exceeds
the amount which would have been agreed upon by the payer
and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply
only to the last-mentioned amount. In such case the
excess part of the payments shall remain taxable
according to the laws of each contracting state, due
regard being had to the other provisions of the
Convention.
6. A Contracting state may not impose any tax on interest
paid by a resident of the other Contracting state, except
insofar as
a) the interest is paid to a resident of the
first-mentioned state:
b) the interest is attributable to a permanent
establishment or a fixed base situated in the
first-mentioned state: or
27
c) the interest arises in the first-mentioned state and
is not paid to a resident of the other state.
7. Notwithstanding the provisions of paragraph 1 of this
Article an excess inclusion with respect to a residual
interest in a real estate mortgage investment conduit may
be taxed in the Contracting state where the excess
inclusion arises according to the laws of that state.
28
Article 12
Royalties
1. Royalties arising in a Contracting state which are
derived and beneficially owned by a resident of the other
Contracting state shall be taxable only in that other
state.
2. The term "royalties" as used in this Article means
payments of any kind received as a consideration for the
use of, or the right to use, any copyright of literary,
artistic or scientific work (including motion pictures
and works on film, tape or other means of reproduction
used for radio or television broadcasting), any patent,
trade mark, design or model, plan, secret formula or
process, or other like right or property, or for
information concerning industrial, commercial or
scientific experience. The term "royalties" also includes
gains derived from the alienation of any such right or
property which are contingent on the productivity, use,
or disposition thereof.
3. The provisions of paragraph 1 shall not apply if the
beneficial owner of the royalties, being a resident of a
contracting state, carries on business in the other
contracting state, in which the royalties arise, through
a permanent establishment situated therein, or performs
in that other state independent personal services from a
fixed base situated therein, and the royalties are
attributable to such permanent establishment or fixed
base. In such case
the provisions of Article 7 (Business profits) or Article
14 (Independent personal services), as the case may be,
shall apply.
29
4. Where, by reason of a special relationship between the
payer and the beneficial owner or between both of them
and some other person, the amount of the royalties,
having regard to the use, right, or information for which
they are paid, exceeds the amount which would have been
agreed upon by the payer and the beneficial owner in the
absence of such relationship, the provisions of this
Article shall apply only to the last-mentioned amount. In
such case, the excess part of the payments shall remain
taxable according to the laws of each Contracting state,
due regard being had to the other provisions of this
Convention.
30
Article 13
Gains
1. Gains derived by a resident of a Contracting state
from the disposition of real property situated in the
other contracting state may be taxed in that other state.
2. For purposes of paragraph 1
a) the term "real property situated in the other
Contracting state", where the united states is the other
Contracting state, includes real property referred to in
Article 6 which is situated in the united states, a
United states real property interest, and an interest in
a partnership, trust or estate, to the extent
attributable to a united states real property interest
situated in the United states;
b) the term "real property situated in the other
Contracting state", where Sweden is the other Contracting
state, includes property that is real property under the
law of Sweden situated in Sweden, and, without limiting
the foregoing, shall include
(i) real property referred to in Article 6
which is situated in Sweden: and
(ii) shares or similar rights in a company the
assets of which consist, directly or indirectly,
mainly of such real property.
3. Gains from the disposition of movable property which
are attributable to a permanent establishment which an
enterprise of a Contracting State has in the other
31
Contracting state, or which are attributable to a fixed
base available to a resident of a Contracting state in
the other contracting state for the purpose of performing
independent personal services, and gains from the
disposition of such a permanent establishment (alone or
with the whole enterprise) or such a fixed base, may be
taxed in that other state.
4. Gains derived by an enterprise of a Contracting state
from the disposition of ships or aircraft operated by the
enterprise in international traffic or movable property
attributable to the operation of such ships or aircraft
shall be taxable only in that state. The provisions of
this paragraph shall apply to gains derived by the air
transport consortium scandinavian Airlines System (SAS),
but only to such part of the gains as corresponds to the
participation held in that
consor~ium
by AB Aerotransport
(ABA), the Swedish partner of Scandinavian Airlines
System (SAS).
Gains derived by an enterprise of a contracting State
from the disposition of containers used in international
traffic and movable property attributable to the
operation of such containers (including trailers, barges,
and related equipment for the transport of containers)
shall be taxable only in that State.
5. Gains described in Article 12 (Royalties) shall be
taxable only in accordance with the provisions of Article
12.
6. Except as provided in paragraph 7, gains from the
disposition of any property other than property referred
to in paragraphs 1 through 5 shall be taxable only in the
32
Contracting State of which the person disposing of the
property is resident.
In the case of an individual who had been a resident
of Sweden and who has become a resident of the united
States, the provisions of paragraph 6 shall not affect
the right of Sweden to tax gains from the disposition of
any property derived by such individual at any time
during the ten years following the date on which the
individual has ceased to be a resident of Sweden.
7.
33
Article 14
Independent personal services
Income derived by an individual who is a resident of a
Contracting state from the performance of personal
services in an independent capacity shall be taxable only
in that state. However, such income may also be taxed in
the other Contracting state to the extent that such
services are or were performed in that other state and
the income is attributable to a fixed base regularly
available to the individual in that other state for the
purpose of performing his activities.
34
Article 15
Dependent personal services
1. Subject to the provisions of Articles 16 (Directors'
fees), 19 (Pensions and annuities) and 20 (Government
service), salaries, wages and other similar remuneration
derived by a resident of a Contracting state in respect
of an employment shall be taxable only in that state
unless the employment is exercised in the other
contracting State. If the employment is so exercised,
such remuneration as is derived therefrom may be taxed in
that other State.
2. Notwithstanding the provisions of paragraph 1,
remuneration derived by a resident of a contracting state
in respect of an employment exerclsed in the other
contracting state shall be taxable only in the
first-mentioned state if
a) the recipient is present in the other State for a
period or periods not exceeding in the aggregate 183 days
in any consecutive twelve month period;
b) the remuneration is paid by, or on behalf of, an
employer who is not a resident of the other state; and
c) the remuneration is not borne by a permanent
establishment or a fixed base which the employer has in
the other state.
3. Notwithstanding the preceding provisions of this
Article, remuneration derived by a resident of a
contracting State in respect of an employment as a member
of the regular complement of a ship or aircraft operated
35
in international traffic, including an aircraft operated
in international traffic by the air transport consortium
Scandinavian Airlines System (SAS), shall be taxable only
in that state, except that remuneration derived in
respect of an employment as a member of the regular
complement of a ship operated in international traffic by
a Swedish enterprise may be taxed in Sweden.
36
Article 16
pi rectors , fees
Directors' fees derived by a resident of a contracting
state in his capacity as a member of the board of
directors of a company which is a resident of the other
Contracting state may be taxed in that other state.
However, such fees shall be taxable only in the
first-mentioned Contracting state to the extent such fees
are derived in respect of services performed in that
state.
37
Article 17
Limitation on benefits
1. A person that is a resident of a Contracting state and
derives income from the other Contracting state shall be
entitled under this Convention to relief from taxation in
that other state only if such person is:
a) an individual;
b) a Contracting state or a political subdivision or
local authority thereof;
c) engaged in an active conduct of a trade or business in
the first-mentioned Contracting state (other than the
business of making or managing investments, unless these
activities are banking or insurance activities carried on
by a bank or insurance company), and the income derived
from the other Contracting state is derived in connection
with, or is incidental to, that trade or business;
d) a person, other than an individual, if:
(i) more than 50 percent of the beneficial
interest in such person (or in the case of a company
more than 50 percent of the number of shares of each
class of the company's shares) is owned, directly or
indirectly, by persons entitled to benefits of this
convention under subparagraphs a), b), e) or f) of
this paragraph or who are citizens of the united
states; and
(ii) not more than 50 percent of the gross
income of such person is used, directly or
38
indirectly, to meet liabilities (including
liabilities for interest or royalties) to persons
who are not entitled to benefits of this Convention
under subparagraph a), b), e) or f) of this
paragraph and are not citizens of the United States;
e) a company in whose principal class of shares there is
substantial and regular trading on a recognized stock
exchange; or
f) an entity which is a not-for-profit organization
(including pension funds and private foundations), and
which, by virtue of that status, is generally exempt from
income taxation in the Contracting State of which it is a
resident, provided that more than one half of the
beneficiaries, members or participants, if any, in such
organization are persons that are entitled, under this
Article, to the benefits of the Convention.
2. A person that is not entitled to the benefits of the
Convention pursuant to the provisions of paragraph 1 may,
nevertheless, be granted the benefits of the Convention
if the competent authority of the Contracting State in
which the income in question arises so determines.
3. For the purposes of subparagraph e) of paragraph 1,
the term "a recognized stock exchange" means:
a) the NASDAQ System owned by the National Association of
Securities Dealers, Inc. and any stock exchange
registered with the Securities and Exchange Commission as
a national securities exchange for the purposes of the
Securities Exchange Act of 1934;
39
b) the stockholm stock Exchange (stockholms Fondbors);
and
c) any other stock exchange agreed upon by the competent
authorities of the Contracting states.
4. The competent authorities of the contracting states
shall consult together with a view to developing a
commonly agreed application of the provisions of this
Article. The competent authorities shall, in accordance
with the provisions of Article 26 (Exchange of
information), exchange such information as is necessary
for carrying out the provisions of this Article and
safeguarding, in cases envisioned therein, the
application of their domestic law.
40
Article 18
Artistes and athletes
1. Notwithstanding the provisions of Articles 14
(Independent personal services) and 15 (Dependent
personal services), income derived by a resident of a
Contracting state as an entertainer, such as a theatre,
motion picture, radio, or television artiste, or a
musician, or as an athlete, from his personal activities
as such exercised in the other Contracting state, may be
taxed in that other state, except where the amount of the
gross receipts derived by such entertainer or athlete,
including expenses reimbursed to him or borne on his
behalf, from such activities does not exceed six thousand
united States dollars ($6,000) or its equivalent in
Swedish kronor for any 12 month period.
2. Where income in respect of activities exercised by an
entertainer or an athlete in his capacity as such accrues
not to the entertainer or athlete but to another person,
that income of that other person may, notwithstanding the
provisions of Articles 7 (Business profits) and 14
(Independent personal services), be taxed in the
Contracting State in which the activities of the
entertainer or athlete are exercised, unless it is
established that neither the entertainer or athlete nor
persons related thereto participate directly or
indirectly in any profits of that other person in any
manner, including the receipt of deferred remuneration,
bonuses, fees, dividends, partnership distributions or
other distributions.
41
Article 19
Pensions and annuities
1. Subject to the provisions of Article 20 (Government
service) and of paragraph 2 of this Article, pensions and
other similar remuneration in consideration of past
employment and annuities derived and beneficially owned
by a resident of a Contracting state shall be taxable
only in that Contracting State.
2. Notwithstanding the provisions of paragraph 2 of
Article 20, pensions (including the Swedish "allman
tillaggspension") and other benefits paid out under
provisions of the social security or similar legislation
of a Contracting state to a resident of the other
Contracting State or a citizen of'the United States shall
be taxable only in the first-mentioned State.
3. The term "annuities" as used in this Article means a
stated sum paid periodically at stated times during life
or during a specified or ascertainable number of years,
under an obligation to make the payments in return for
adequate and full consideration (other than services
rendered or to be rendered).
4. a) In determining the taxable income of an individual
who renders personal services and who is a resident of a
Contracting State but not a national of that State,
contributions paid by, or on behalf of, such individual
to a pension or other retirement arrangement that is
established and maintained and recognized for tax
purposes in the other Contracting State shall be treated
in the same way for tax purposes in the first-mentioned
State as a contribution paid to a pension or other
42
retirement arrangement that is established and maintained
and recognized for tax purposes in that first-mentioned
State, provided that:
(i) contributions were paid by, or on behalf
of, such individual to such arrangement before he
became a resident of the first-mentioned state; and
(ii) the competent authority of the firstmentioned state agrees that the pension or other
retirement arrangement generally corresponds to a
pension or other retirement arrangement recognized
for tax purposes by that state.
b) A pension or other retirement arrangement is
recognized for tax purposes in a state if the
contributions to the arrangement would qualify for tax
relief in that state.
43
Article 20
Government service
1. a) Remuneration, other than a pension, paid by a
Contracting State or a political subdivision or a local
authority thereof to an individual in respect of services
rendered to that state or subdivision or authority shall
be taxable only in that State.
b) However, such remuneration shall be taxable only in
the other Contracting State if the services are rendered
in that state and the individual is a resident of that
state who
(i) is a citizen of that State; or
(ii) did not become a resident of that state
solely for the purpose of rendering the services.
2. a) Any pension paid by, or out of funds created by, a
contracting State or a political subdivision or a local
authority thereof to an individual in respect of services
rendered to that State or subdivision or authority shall
be taxable only in that State.
b) However, such pension shall be taxable only in the
other Contracting State if the individual is a resident
of, and a citizen of, that State.
3. The provisions of Articles 14 (Independent personal
services), 15 (Dependent personal services), 16
(Directors' fees), 18 (Artistes and athletes) and 19
(pensions and annuities) shall apply to remuneration and
pensions in respect of services rendered in connection
44
with a business carried on by a Contracting state or a
political subdivision or a local authority thereof.
45
Article 21
students and trainees
Payments received for the purpose of maintenance,
education, or training by a student, apprentice, or
business trainee who is or was immediately before
visiting a Contracting state a resident of the other
Contracting State and who is present in the firstmentioned state for the purpose of his full-time
education or training shall not be taxed in that State,
provided that such payments arise from sources outside
that state.
46
Article 22
Other income
1. Items of income of a resident of a Contracting state,
wherever arising, not dealt with in the foregoing
Articles of this Convention shall be taxable only in that
state.
2. The provisions of paragraph 1 shall not apply to
income, other than income from real property as defined
in paragraph 2 of Article 6 (Income from real property),
if the beneficial owner of the income, being a resident
of a Contracting state, carries on business in the other
Contracting state through a permanent establishment
situated therein, or performs in that other state
independent personal services from a fixed base situated
therein, and the income is attributable to such permanent
establishment or fixed base. In such case the provisions
of Article 7 (Business profits) or Article 14
(Independent personal services), as the case may be,
shall apply.
47
Article 23
Relief from double taxation
1. In accordance with the provisions and subject to the
limitations of the law of the united states (as it may be
amended from time to time without changing the general
principle hereof), the united states shall allow to a
resident or citizen of the United states as a credit
against the United states tax on income
a) the income tax paid to Sweden by or on behalf of such
citizen or resident: and
b) in the case of a United states company owning at least
10 percent of the voting stock of a company which is a
resident of Sweden and from which'the united states
company receives dividends, the income tax paid to Sweden
by or on behalf of the distributing company with respect
to the profits out which the dividends are paid.
For the purposes of this paragraph and paragraphs 3 and
4, the taxes referred to in paragraphs 1 b) and 2 of
Article 2 (Taxes covered) shall be considered income
taxes except for the taxes referred to in paragraphs 1)
b) v) and vi) .
2. a) Where a resident of Sweden derives income which may
be taxed in the United States in accordance with the
provisions of this convention [except when income is
taxed only in accordance with the provisions of paragraph
4 of Article 1 (Personal scope)], Sweden shall allow subject to the provisions of the law of Sweden (as it may
be amended from time to time without changing the general
principle hereof) - as a deduction from Swedish tax on
48
the income of that resident an amount equal to the income
tax paid in the united states.
The provisions of this sub-paragraph shall apply equally
to the computation of tax on income of an individual
resident of the united states from gains taxed in Sweden
in accordance with paragraph 7 of Article 13 (Gains).
b) Where a resident of Sweden derives income which shall
be taxable only in the united states in accordance with
the provisions of paragraph 2 of Article 19 (Pensions and
annuities) Article 20 (Government service) Sweden may,
when determining the graduated rate of Swedish tax, take
into account the income which shall be taxable only in
the united States.
c) Dividends paid by a company being a resident of the
united states to a company which is a resident of Sweden
shall be exempt from Swedish tax to the extent that the
dividends would have been exempt under Swedish law if
both companies had been Swedish companies. This provision
shall not apply unless the profits out of which the
dividends are paid have been subjected to the normal
corporate tax in the United States.
3. Where a United States citizen is a resident of Sweden,
the following rules shall apply
a) Sweden shall allow, subject to the provisions of the
law of Sweden (as it may be amended from time to time
without changing the general principle thereof), as a
deduction from Swedish tax the income tax paid to the
United states in respect of profits, income or gains
which arise in the United states, except that such
deduction shall not exceed the amount of the tax that
49
would be paid to the United states according to this
convention if the resident were not a united states
citizen:
b) for the purpose of computing the united states tax,
the united states shall allow, subject to the limitations
of the law of the united States (as it may be amended
from time to time without changing the general principle
hereof), as a credit against United States income tax the
income tax paid or accrued to Sweden after the deduction
referred to in subparagraph a), provided that the credit
so allowed shall not reduce that portion of the United
states tax that is deductible from Swedish tax in
accordance with subparagraph a): and
c) for the purposes of subparagraph b) profits, income or
gains shall be deemed to arise in' Sweden to the extent
necessary to avoid double taxation of such income.
4. For the purposes of allowing relief from double
taxation pursuant to this Article and subject to such
source rules in the domestic laws of the Contracting
States as apply for the purpose of limiting the foreign
tax credit, income shall be deemed to arise exclusively
as follows
a) income derived by a resident of a contracting state
shall be deemed to arise in the other contracting state
if it may be taxed in that other State in accordance with
this Convention unless it is taxable in that other State
solely by reason of (i) citizenship in accordance with
paragraph 4 of Article 1 (Personal scope) or (ii) former
residency in accordance with paragraph 7 of Article 13;
50
b) income derived by a resident of a Contracting state
which may not be taxed in the other Contracting state in
accordance with the Convention shall be deemed to arise
in the first-mentioned state.
The rules of this paragraph shall not apply in
determining credits against United States tax for foreign
taxes other than the taxes referred to in paragraphs 1 b)
and 2 of Article 2 (Taxes covered).
51
Article 24
Non-discrimination
1. A citizen of a Contracting state or a legal person,
partnership or association deriving its status as such
from the laws in force in a contracting state shall not
be subjected in the other Contracting State to any
taxation or any requirement connected therewith Which is
other or more burdensome than the taxation and connected
requirements to which a citizen of that other State or a
legal person, partnership or association deriving its
status as such from the laws in force in that other State
in the same circumstances is or may be subjected. This
provision shall, notwithstanding the provisions of
Article 1 (Personal scope), also apply to persons who are
not residents of one or both of the contracting states.
However, for the purposes of united states tax, a united
states citizen who is not a resident of the united states
and a Swedish citizen who is not a resident of the united
states are not in the same circumstances.
2. The taxation on a permanent establishment which an
enterprise of a Contracting State has in the other
contracting state shall not be less favorably levied in
that other State than the taxation levied on enterprises
of that other State carrying on the same activities. This
provision shall not be construed as obliging a
contracting state to grant to residents of the other
Contracting state any personal allowances, reliefs, and
reductions for taxation purposes on account of civil
status or family responsibilities which it grants to its
own residents.
3. Except where the provisions of paragraph 1 of Article
52
9 (Associated enterprises), paragraph 5 of Article 11
(Interest), or paragraph 4 of Article 12 (Royalties)
apply, interest, royalties, and other disbursements paid
by a resident of a Contracting state to a resident of the
other contracting state shall, for the purposes of
determining the taxable profits of the first-mentioned
resident, be deductible under the same conditions as if
they had been paid to a resident of the first-mentioned
state. Similarly, any debts of a resident of a
Contracting State to a resident of the other Contracting
state shall, for the purposes of determining the taxable
capital of the first-mentioned resident, be deductible
under the same conditions as if they had been contracted
to a resident of the first-mentioned state.
4. Enterprises of a Contracting State, the capital of
which is wholly or partly owned or controlled, directly
or indirectly, by one or more residents of the other
Contracting state, shall not be subjected in the firstmentioned state to any taxation or any requirement
connected therewith which is other or more burdensome
than the taxation and connected requirements to which
other similar enterprises of the first-mentioned State
are or may be subjected.
5. Nothing in this Article shall be construed as
preventing imposition of a tax described in paragraph 8
of Article 10 (Dividends).
6. The provisions of this Article shall, notwithstanding
the provisions of Article 2 (Taxes covered), apply to
taxes of every kind and description imposed by a
contracting state or a political subdivision or local
authority thereof.
53
Article 25
Mutual agreement procedure
1. Where a person considers that the actions of one or
both of the contracting states result or will result for
him in taxation not in accordance with the provisions of
this Convention, he may, irrespective of the remedies
provided by the domestic law of those states, present his
case to the competent authority of the Contracting state
of which he is a resident or citizen.
2. The competent authority shall endeavor, if the
objection appears to it to be justified and if it is not
itself able to arrive at a satisfactory solution, to
resolve the case by mutual agreement with the competent
authority of the other Contracting state, with a view to
the avoidance of taxation which is not in accordance with
the Convention. Any agreement reached shall be
implemented notwithstanding any time limits or other
procedural limitations in the domestic law of the
contracting States.
3. The competent authorities of the Contracting states
shall endeavor to resolve by mutual agreement any
difficulties or doubts arising as to the interpretation
or application of the Convention. In particular the
competent authorities of the Contracting states may agree
on
a) the attribution of income, deductions, credits, or
allowances of an enterprise of a Contracting state to its
permanent establishment situated in the other contracting
state:
54
b) the allocation of income, deductions, credits, or
allowances between persons:
c) the characterization of particular items of income:
d) the application of source rules with respect to
particular items of income: and
e) a common meaning of a term.
They may also consult together for the elimination of
double taxation in cases not provided for in the
Convention.
4. The competent authorities of the Contracting states
may communicate with each other directly for the purpose
of reaching an agreement in the sense of the preceding
paragraphs.
55
Article 26
Exchange of information
1. The competent authorities of the contracting states
shall exchange such information as is necessary for
carrying out the provisions of this Convention or of the
domestic laws of the Contracting states concerning taxes
covered by the Convention insofar as the taxation
thereunder is not contrary to the Convention. The
exchange of information is not restricted by Article 1
(Personal scope). Any information received by a
Contracting state shall be treated as secret in the same
manner as information obtained under the domestic laws of
that state and shall be disclosed only to persons or
authorities (including courts and administrative bodies)
involved in the assessment, collection, or administration
of, the enforcement or prosecution in respect of, or the
determination of appeals in relation to, the taxes
covered by the Convention. such persons or authorities
shall use the information only for such purposes. They
may disclose the information in public court proceedings
or in judicial decisions.
2. In no case shall the provisions of paragraph 1 be
construed so as to impose on a contracting state the
obligation
a) to carry out administrative measures at variance with
the laws and administrative practice of that or of the
other contracting state;
b) to supply information which is not obtainable under
the laws or in the normal course of the administration of
that or of the other Contracting state;
56
c) to supply information which would disclose any trade,
business, industrial, commercial, or professional secret
or trade process, or information the disclosure of which
would be contrary to public policy (ordre public).
If information is requested by a contracting state in
accordance with this Article, the other Contracting State
shall obtain the information to which the request relates
in the same manner and to the same extent as if the tax
of the first-mentioned State were the tax of that other
State and were being imposed by that other State. If
specifically requested by the competent authority of a
Contracting state, the competent authority of the other
Contracting state shall provide information under this
Article in the form of depositions of witnesses and
authenticated copies of unedited original documents
(including books, papers, statements, records, accounts,
and writings), to the same extent such depositions and
documents can be obtained under the laws and
administrative practices of that other state with respect
to its own taxes.
3.
4. The competent authorities may by mutual agreement
settle the mode of application of the preceding
paragraphs of this Article. Such agreements may include
but need not be limited to procedures for implementing
routine, spontaneous and industrywide exchanges of
information, information exchanges on request,
simUltaneous tax examinations and such other methods of
exchanging information as may be necessary or appropriate
to carry out the purposes of paragraph 1.
5. For the purposes of this Article, the Convention shall
apply, notwithstanding the provisions of Article 2 (Taxes
57
covered), to taxes of every kind imposed by a contracting
state.
58
Article 27
Administrative assistance
1. The Contracting states undertake to lend assistance
and support to each other in the collection of the taxes
to which this Convention applies, together with interest,
costs, and additions to such taxes.
In the case of applications for enforcement of taxes,
revenue claims of each of the contracting states which
have been finally determined may be accepted for
enforcement by the other Contracting state and may be
collected in that state in accordance with the laws
applicable to the enforcement and collection of its own
taxes.
2.
Any application shall include a certification that
under the laws of the state making the application the
taxes have been finally determined.
3.
4. The assistance provided for in this Article shall not
be accorded with respect to the citizens, companies, or
other entities of the state to which the application is
made, except as is necessary to insure that the exemption
or reduced rate of tax granted under this Convention to
such citizens, companies, or other entities shall not be
enjoyed by persons not entitled to such benefits.
5. This Article shall not impose upon either of the
Contracting states the obligation to carry out
administrative measures which are of a different nature
from those used in the collection of its own taxes, or
59
which would be contrary to its sovereignty, security, or
public policy.
60
Article 28
Diplomatic agents and consular officers
Nothing in this Convention shall affect the fiscal
privileges of diplomatic agents or consular officers
under the general rules of international law or under the
provisions of special agreements.
61
Article 29
Entry into force
1. This Convention shall be subject to ratification in
accordance with the applicable procedures of each
Contracting state and instruments of ratification shall
be exchanged at Washington as soon as possible.
2. The Convention shall enter into force upon the
exchange of instruments of ratification and its
provisions shall have effect
a) in the case of the United states
(i) in respect of taxes withheld at source, for
amounts paid or credited on or after the first day
of January next following the date on which the
Convention enters into force;
(ii) in respect of other taxes, for taxable
years beginning on or after the first day of January
next following the date on which the Convention
enters into force; and
b) in the case of Sweden
(i) in respect of taxes on income, for income
derived on or after the first day of January next
following the date on which the Convention enters
into force;
(ii) in respect of the state capital tax, for
tax which is assessed in or after the second
62
calendar year following that in which the Convention
enters into force;
(iii) in respect of the excise tax imposed on
insurance premiums paid to foreign insurers, for
premiums paid on or after the first day of January
next following the date on which the Convention
enters into force.
3. Upon the coming into effect of this Convention, the
convention and accompanying Protocol between the
Government of the united States of America and the
Kingdom of Sweden for the avoidance of double taxation
and the establishment of rules of reciprocal
administrative assistance in the case of income and other
taxes, signed at Washington on March 23, 1939, as
modified by a Supplementary Convention signed at
Stockholm on October 22, 1963, shall terminate. The
provisions of the 1939 Convention, as modified, shall
cease to have effect with respect to the united states
and Sweden from the date on which the corresponding
provisions of this Convention shall, for the first time,
have effect according to the provisions of paragraph 2 of
this Article. with regard to the Swedish State capital
tax, the 1939 Convention shall be applied for the last
time for tax assessed the first year after the year in
which this Convention enters into force.
63
Article 30
Termination
This Convention shall remain in force until terminated by
a contracting state. Either contracting state may
terminate the Convention at any time after 5 years from
the date on which the Convention enters into force,
provided that at least 6 months prior notice of
termination has been given through diplomatic channels.
In such event, the Convention shall cease to have effect
a) in the case of the united states
(i) in respect of taxes withheld at source, for
amounts paid or credited on or after the first day
of January next following the expiration of the 6
months period;
(ii) in respect of other taxes, for taxable
years beginning on or after the first day of January
next following the expiration of the 6 months
period; and
b) in the case of Sweden
(i) in respect of taxes on income, for income
derived on or after the first day of January next
following the expiration of the 6 months period:
(ii) in respect of the state capital tax, for
tax which is assessed in or after the second
calendar year following the expiration of the 6
months period:
64
(iii) in respect of the excise tax imposed on
insurance premiums paid to foreign insurers, for
premiums paid on or after the first day of January
next following the expiration of the 6 months
period.
IN WITNESS WHEREOF, the undersigned, being duly
authorized by their respective governments, have signed
the Convention.
DONE at stockholm, in duplicate, in the English
language, this
day of
FOR THE GOVERNMENT OF
SWEDEN:
FOR THE GOVERNMENT OF
THE UNITED STATES OF AMERICA:
Embassy of the United states of America
stockholm
Excellency:
I have the honor to refer to the Convention between the
Government of the United states of America and the Government of
Sweden for the Avoidance of Double Taxation and the Prevention of
Fiscal Evasion with Respect to Taxes on Income, which was signed
today, and to confirm, on behalf of the Government of the united
states of America, the following understandings reached between
our two Governments.
1. Scandinavian Airlines System (SAS) is a consortium within the
meaning of Article 8 (Shipping and air transport), its
participating members being Oet Danske Luftfartsselskab A/S
(DOL), Oet Norske Luftfarts-selskap A/S (DNL), and AS
Aerotransport (ABA). In order to avoid the problems inherent in
operating in the United states through a consortium, the members
of the consortium in 1946 established a New'York corporation,
Scandinavian Airlines of North America Inc. (SANA Inc.) originally under the name Scandinavian Airlines System, Inc. to
act on their behalf in the united states pursuant to an agency
agreement dated September 18, 1946. A similar agreement was
entered into by SAS directly and SANA Inc. on March 14, 1951 and
revised on August 4, 1970.
Pursuant to the agency agreement, SANA Inc. is authorized to
perform only such functions as SAS assigns to it, all in
connection with international air traffic. Under that agreement,
all revenues collected by SANA Inc. are automatically credited to
SASe Operating expenses incurred by SANA Inc. are debited to SAS
in accordance with the terms of the agency agreement. SAS is
obligated under the terms of the agency agreement to reimburse
SANA Inc. for all of its expenses irrespective of the revenues of
SANA Inc. SANA Inc. does not perform any functions except those
connected with or incidental to the business of SAS as an
operator of aircraft in international traffic.
In view of the special nature of the SAS consortium and in view
of the agency agreement as described above, the united States for
purposes of Article 8 (Shipping and Air Transport) of the
Convention signed today shall treat all of the income earned by
SANA Inc. which is derived from the operation in international
traffic of aircraft as the income of the SAS consortium.
- 2 -
2. It is understood that the reference in paragraph 2 of Article
19 (Pensions and annuities) to legislation similar to the social
security legislation of a Contracting state is intended, in the
case of the United states, to refer to tier 1 Railroad Retirement
benefits.
If this is in accordance with your understanding, I would
appreciate an acknowledgment from you to that effect.
Accept, Excellency, the renewed assurances of my highest
consideration.
Ambassador Thomas L. Siebert
Mr. Bo Lundgren
Minister for Fiscal and Financial Affairs
Kingdom of Sweden
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFlCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
September 1, 1994
REMARKS OF ALEX RODRIGUEZ
DEPUTY ASSISTANT SECRETARY (ADMINISTRATION)
UNITED STATES HISPANIC CHAMBER OF COMMERCE
SAN FRANCISCO
The Community Reinvestment Act was passed by Congress in 1977 to try to make banks
invest in their local communities. Considering the wide range of benefits that the government
provides banks with and considering that all that this legislation requires is that the bank does
business with the people that provide it with capital, this hardly seemed like an unreasonable
or difficult request. However, after 16 years, the bill has not lived up to its potential.
The actual legislation was very short -- only two pages long -- and therefore its
interpretation was left up to the regulators. The regulating agencies developed a twelve
assessment factor test that was criticized by both community leaders and banks. However, one
cannot blame all the problems of the CRA on this regulation. Other problems are that the
regulating agencies have not enforced the measure strictly enough and the banking community
has controlled the entire debate on the subject.
The Clinton Administration is dedicated to making CRA work. President Clinton
requested that the regulating agencies reform the existing regulation and that they enforce it
more strictly. The CRA reform effort is just part of the Administration's larger agenda of
community development. Community leaders must also play their part. You cannot allow the
banks to control the debate on the issue.
LB-I052
2
In December, the four regulating agencies came up with a proposed regulation that
responds to many of the complaints from both sides. The proposed revision involves replacing
the current twelve assessment factors with three tests: the lending test, the service test, and
the investment test. The lending test measures the number of loans made to low and moderate
income areas in the bank's community and compares its lending numbers with other CRA
institutions in the same area. The service test measures the extent to which the bank's
facilities are accessible to its community, by looking at branch location and services that
enhance credit availability. The investment test measures the amount of the bank's
investments that benefit low and moderate income areas. Smaller banks, those with assets
totaling less than $250 million, have a streamlined test that requires them to have a 60% loan
to deposit ratio.
Banks have been frring a machine gun of complaints about the new tests while
community leaders have basically been silent. Now the plan, which was previously viewed as
completely anti-community, is seen as largely anti-bank. Lost in the discussion is the fact that
community leaders are not completely in favor of the agencies' new plan either; many leaders
feel that this new plan does not go far enough.
The Community Reinvestment Act and other similar federal policies are excellent
opportunities to improve the fmancial resources of middle and lower income communities.
But to function effectively they need to be monitored by the communities that they are meant
to serve. The banks should not be the only ones commenting.
3
Also, you should be very familiar with the current eRA review procedure, so that until
it is revised, it can be used effectively. There are five areas which are reviewed: the
ascertainment of community credit needs; the marketing and types of credit offered and
extended to the community; the geographic distribution of and a record of opening and closing
offices; discrimination and other illegal credit practices; and community development. After
the examination is completed, institution's are placed in one of five performance categories:
outstanding, high satisfactory, low satisfactory, needs to improve and substantial noncompliance.
Satisfactory is considered a passing grade and there often is no effective
distinction between low and high satisfactory.
Institutions must ensure that their eRA statement available to the public, written
comments about an institution's performance may be submitted to the institution or its
supervisory agency, that a file of public comments be made available, that the public be able
to request announcements of the institution's applications covered by eRA from the advisory
agencies and that the latest eRA evaluation be made available.
Although it may not appear that there is much that community leaders can do, they
can, in fact, playa major role in the CRA examination process. Part of the examination
process involves discussions with community leaders about the bank's performance. Local
leaders need to take advantage of this opportunity. They should be candid and make clear to
an investigator how they feel about a bank's performance.
Community leaders should also be familiar with each bank's delineated "community"
and with what types of credit each bank is willing to extend. And of course leaders should
take full advantage of a bank's CRA file. Read their eRA statement, examine their last
evaluation, find out when the bank will be making corporate applications, read the public
comments, make public comments. Community leaders can make a real impact during a
bank's application process. Make noise.
4
It may seem that I have just described how the CRA process should work, not how it
actually works. There is plenty of evidence that the process that I have just described is not
the way the law is actually applied. For instance, there have been many examples of bank
mergers or approved bank applications for banks with low CRA ratings. There are also
examples of cases in which substantive community complaints have been ignored. In 1992,
there were forty six protests against applications for mergers, acquisitions and new branches
and only three applications were denied. A third problem is that the rating system is not very
effective as about 90 % of the banks receive the passing grade of at least satisfactory.
These numbers may sound disheartening, but rather than silence you, they should make
you even more vocal about this law. In 1993, despite community protests about Banc One
Corporation of Cleveland's CRA performance, the Federal Reserve Board approved a merger
between Banc One and Valley National Corporation of Phoenix. However, to silence
community protests, Banc One has agreed to make about $7 million worth of investments and
loans in inner-city Cleveland over the next few years. This is proof that making your opinion
heard is still your best policy.
Bank fmanced economic development is a key factor in the escape from poverty, so
you must not give up on the CRA. The Clinton Administration is doing what it can to make
the Community Reinvestment Act an effective bill. We are working on reforming the current
regulation and on making the enforcement standards much tighter. However, we cannot do
this alone. Your comments need to guide our reform effort. Also, your comments will
strengthen the case that CRA reform is needed in the flrst place. So keep talking and talking
loudly.
-30-
,
DEPARTMENT
OF
THE
TREASURY
~~178f9~. . . . .
....................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
September 2, 1994
Contact: Chris Peacock
(202) 622-2960
TREASURY'S CUBA HOTLINE CONTINUES
The Treasury Department's hotline for questions about restrictions on travel and cash
remittances to Cuba enters its second week Monday.
The toll-free number is 1-800-306-CUBA, or 1-800-306-2822.
On August 20, 1994 President Clinton announced further steps the U. S. government
is taking in response to the Cuban government's attempt to export a problem of its own
making to the U.S. and risking the lives of Cuba's own countrymen in the process.
Those steps, implemented by Treasury's Office of Foreign Assets Control, took effect
at 11 a.m., Friday, August 26.
The 24-hour hotline was set up for callers seeking assistance in understanding the
tightened sanctions. Callers hear a detailed recorded response -- in English or Spanish -- to
frequently asked questions. Most callers' questions have been answered this way. Treasury
staff then responds personally to callers with additional questions.
-30LB-I053
UBLIC DEBT NEWS
Department of the Treasury -
Bureau of the Public Debt - Washington, DC 20239
FOR IMMEDIATE RELEASE
September 6, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,630 million of 13-week bills to be issued
September 8, 1994 and to mature December 8, 1994 were
accepted today (CDSIP: 912794P40).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.57%
4.58%
4.58%
Investment
Rate
4.69%
4.70%
4.70%
Price
98.845
98.842
98.842
Tenders at the high discount rate were allotted 53%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$56,426,428
Accepted
$11,630,455
$51,247,221
l,378,lll
$52,625,332
$6,451,248
1,378,111
$7,829,359
3,312,355
3,312,355
488,741
$56,426,428
488,741
$11,630,455
additional $233,859 thousand of bills will be
issued to foreign official institutions for new cash.
An
LB-1054
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 6, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,684 million of 26-week bills to be issued
September 8, 1994 and to mature March 9, 1995 were
accepted today (CUSIP: 912794Q80).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.87%
4.89%
4.89%
Investment
Rate
5.06%
5.08%
5.08%
Price
97.538
97.528
97.528
Tenders at the high discount rate were allotted 16%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$53,729,124
Accepted
$11,683,678
$48,087,133
1,234,032
$49,321,165
$6,041,687
1,234,032
$7,275,719
3,250,000
3,250,000
1,157,959
$53,729,124
1,157,959
$11,683,678
An additional $554,441 thousand of bills will be
issued to foreign official institutions for new cash.
LB-I055
DEPARTMENT
OF
THE
TREASURY
NEWS
~/78fg~. . . . . . . . . . . ..
..............................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
September 6, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $23,200 million, to be issued September
15, 1994.
This offering will result in a paydown for the
Treasury of about $2,100 million, as the maturing weekly bills
are outstanding in the amount of $25,311 million.
Federal Reserve Banks hold $6,444 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,594 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-IOS6
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED SEPTEMBER 15, 1994
September 6, 1994
Offering Amount .
$11,600 million
$11,600 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 M2 7
September 12, 1994
September 15, 1994
December 15, 1994
December 16, 1993
$28,515 million
$10,000
$ 1,000
182-day bill
912794 Q9 8
September 12, 1994
September 15, 1994
March 16, 1995
September 15, 1994
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
Competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
IREASURY !~.
TREASURY
N_E
W__
S_
__
c...-.
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
September 9, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
SOUTHWEST VOTER REGISTRATION EDUCATION PROJECT
SAN ANTONIO, TEXAS
Happy 20th anniversary. I don't know if you remember where you were 20 years
ago this week. I know where I was. In the Rose Garden watching President Ford sign
the law that enabled people to set up IRAs, and that changed our pension system.
I helped write that legislation. The vote wasn't like the cliff hangers we have
today. It passed unanimously -- but it wasn't easy.
I wanted to change the pension system because there was someone from my
church in Houston who had worked 29 years for the same company. In the 30th year,
he would have been vested in a pension, but they fired him so they wouldn't have to pay
it. You can't do that anymore.
Now there are about $650 billion invested in IRAs. From zero 20 years ago, to
$650 billion_ That's savings that provide retirement security for millions of Americans
and help promote investment and economic growth.
Twenty years ago, benefit payments from private employer pension plans totaled
about $15 billion a year. Today, they're $150 billion -- 10 times as much.
In 1974, private pension plans had $260 billion in assets. Today, they hold over
$2 trillion. Back then, participants in private sector plans numbered 45 million. Now,
it's almost 80 million.
And back then, if your employer went out of business, you not only lost your job,
you lost your pension. Today, pensions are protected.
LB-I057
2
The point is, 20 years ago, we chose to do something. We said government can
make a difference, government can create a better future, it can make some lasting
contributions -- if the policies are useful and fair. And that one was.
I don't know a field where you can make a bigger difference than public service.
You can teach. You can preach. You can heal. But there's no job where you affect
more peoples' lives.
I'm preaching to the choir tonight. You wouldn't have registered two million
voters over two decades if you had any doubts.
Susan Anthony used to say the Constitution reads "We the People," not "We the
white male citizens." Voting has made a difference to the Hispanic community. I
remember when I entered the House in 1949 -- there was just one Hispanic member -Antonio Manuel Fernandez of New Mexico. I served in the House three terms, and he
was it.
Now we have Martinez, and Gutierrez, and Menendez, and Velazquez, and many
that end in A's and O's.
From one member to 18 Hispanic members today from eight states, although 10
are from Texas and California.
Think about that: Texas and California have about 30 percent of electoral votes
in this country. In a presidential election year, if you get the Hispanic voters out, you
can tip an election. That's power.
And what about our friend Henry Cisneros? What about the thousands of
Hispanic officials holding local and state offices? Do you think they'd be where they are
today, if Hispanics hadn't gone to the polls?
Do you think there would be a NADBank in San Antonio ready to fund
$2-3 billion in clean-up projects along the border?
Do you think people in Iowa or Wisconsin would know our border even needed
to be cleaned up if NAFf A hadn't been debated?
Do you think Mexico would be our second largest export market, passing Japan
for the last two months, if NAFT A hadn't passed?
We still can make a difference on the issues. But -- and this is the message I
hope you take home tonight -- we can't fix every problem. Nor should we be blamed for
~very p:oblem. Nor should we be taking credit for things we had no responsibility over
III the fIrst place. We do that too often in Washington.
3
Many people are cynical of Washington. On the front pages and the TV screens,
that's all you hear. How Washington is partisan. All they do is bicker. They can't get
any work done.
I don't buy that. I never met a politician who came in with the intent to draw up
bad legislation, with the intent to mess up the economy, or the justice system.
What you see in Washington is a diverse set of people, who see things differently,
who represent different interests -- and that's why all the arguing. But you know better
than I that diversity has always made this country great. It has always been our strength,
not our weakness.
Look at what Congress has achieved in the last 19 months. We've put our
economic house in order. We passed NAFTA.
We passed a crime bill that puts 100,000 cops on the streets, and tells criminals -three strikes and you're out. We gave tax relief to 15 million working families. And we
passed tax incentives for small businesses.
Now, we hope to ratify GATT, a trade agreement that's five times bigger than
NAFfA. It will add 500,000 jobs in 10 years.
And, of course, there's health care on the agenda. Probably no issue is as
important for you, since one of every three Hispanics lack health insurance. Health care
will be tough to get through.
But add all these programs together, and it's been a good year.
By the way, I don't buy another argument you hear all the time -- that because of
special interests, it's too tough for the lawmakers to cast the tough vote. You're going
to hear that one on health care.
Do you think it's any harder today than it was in 1938 when Lyndon Johnson
voted for a 25-cent an hour minimum wage bill, and everybody told him that if he did, it
would end his political career?
I remember they told me if I voted to eliminate the poll tax, I'd have no future.
Do you think the lawmakers in the 1800s who said let's provide education for all
Americans had an easy vote?
Every time there is a piece of progressive legislation -- be it Social Security, be it
Medicare and Medicaid -- you hear that same worn-out argument. It's too tough.
4
Well, I don't buy it.
You talk about tough votes. We passed an economic plan last year by one vote.
It eliminates over 100 government programs outright and cuts 200 others. Cutting
programs is not a favorite activity. If you're running for re-election -- do you think you'll
get many votes if you tell voters -- I closed the Army base in town?
Yet, there's no better example of what Washington can accomplish -- how we can
make a difference -- than what we've accomplished with the economy.
We've created more than 4 million jobs -- 400,000 in Texas. Inflation is the
lowest it's been in 20 years. Interest rates have risen a little lately, but in historical
terms they're still low. I remember when the prime rate was 19 percent and inflation
was 13 percent -- and you try selling a house then.
I was in Europe with the President in July, and out of the six other world leaders
we met with -- from both Europe and Japan -- our economy was growing the fastest.
We're cutting the red ink. The last President to balance a budget was Lyndon
Johnson -- 25 years ago. I don't see that happening any time soon.
Ten months into the fiscal year, and our budget deficit is $184 billion. Last year
at this point, it was $241 billion. So we're making progress.
Let me talk about another tough vote -- NAFfA. In the Hispanic Caucus,
half voted for it -- half against. We appreciated the help you gave us to get it passed.
NAFfA is working. Our exports to Mexico are up 17 percent. The sucking
sound I hear are trailer rigs filled with products crossing the border.
Texas has more to gain from this than any other state. I know if I were a CEO of
a company and I needed to recruit employees, or locate a new plant, I'd be looking
right here.
What an advantage you have -- with the language skills, the understanding of the
culture. I hope you market your talents and put those skills to use.
Earlier, I said the message I hope you leave with is that we can make a difference
in government, but we can't fix every problem.
One reason I say that is if you think back over the 20 years since this organization
was founded, we're not the same country, and we don't live in the same world.
5
We don't control what happens in other countries. Who would have thought that
half of Russian industry would become private businesses, that I'd be talking with Asian
nations about financing $1 trillion in infrastructure projects, that our exports to
developing nations would grow faster than they have to Europe, that Ron Brown would
take two dozen businessmen to China and come back with billions of dollars in business.
Or look how our country has changed socially. Look at how many babies are now
born to single mothers, or at how many American children use drugs, or how many carry
a gun to school.
A President, a Treasury Secretary, 535 members of Congress can't solve those
kinds of problems. We only have one President, and he can't be a father to every child
in this country.
But we have a responsibility to make some fundamental decisions on what kind of
a future we want for American children.
Being cynical about it, being negative about it, throwing up your hands because
you can't come to an agreement -- isn't being responsible.
We have a responsibility in Washington to vote programs up or down. And every
American has a responsibility to vote on who should do the voting.
I want to end on this. It bothers me that only half of Americans vote -- and that's
in a good year, a presidential election year.
It bothers me, because we're suppose to be the model. We're suppose to be the
example for democracy.
I remember the pictures from South Africa -- where they lined up for a mile in
front of voting booths. Do you know that close to 90 percent of that country's eligible
voters cast a ballot?
Look at Latvia or the Ukraine, where it was a 70 percent turnout.
I was in Mexico City yesterday, meeting with President-Elect Zedillo. In that
election, 77 percent of the country turned out.
And here, we're barely at 50 percent.
Yet what country would you want to live in that is better than this one? That is
richer? That has a higher standard of living? That is fairer? That is more just? That
understands the importance of diversity?
6
I've taken a look at the other systems. And I'm always glad to come back home.
So, do me a favor, will you? Get those 2 million people you've registered to go
out and vote. Maybe we can't make as big a difference as we'd like, but we can still
make a difference. Thank you very much.
-30-
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM
September 7, 1994
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR AUGUST 1994
Treasury's Bureau of the Public Debt announced activity figures for the month of August 1994, of
securities within the Separate Trading of Registered Interest and Principal of Securities program
(STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$803,415,305
Held in Un stripped Form
$580,518,081
Held in Stripped Form
$222,897,224
Reconstituted in August
$12,400,995
The accompanying table gives a breakdown of STRIPS activity by individual-loan description. The
balances in this table are subject to audit and subsequent revision. These monthly figures are
included in Table VI of the Monthly Statement of the Public Debt, entitled "Holdings of Treasury
Securities in Stripped Form.
to
Information about "Holdings of Treasury Securities in Stripped Form" is now available on the
Department of Commerce's Economic Bulletin Board (EBB). The EBB, which can be accessed
using personal computers, is an inexpensive service provided by the Department of Commerce.
For more information concerning this service call 202-482-1986.
000
PA-1SS
(LB-I058)
TABLE VI--HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, AUGUST 31, 1994
(In thousands)
---------------------- -----------------------------------------------------------------------------------------------1
Princlpal Amount Outstandlng
I
II
I
Loan Oescrlptlon
I
1----------------------------------------------------1I
Maturity Date
1
Total
I
Portion Held in
Unstripped Form
Reconstltuted
Thi s Monthll
I Port i on He 1din
1 Stripped Form
II
I
I
II
II
118,400
\\
32,000
44,000
20.000
57,600
11.200
73,920
34,000
63.200
27.200
102.400
-065,900
118.400
-014,400
28,000
9,600
26,400
31. 500
19,200
83.040
16.000
11,200
-0-0-0-0-0110,400
105,800
15,200
-01. 245,600
700,000
232.000
398,400
210,400
1.600
I
I
I
II
-------------------------1--------------------\----------------\-----------------\-----------------1 1----------------11-5/8% Note C-1994 ..... 1 . .... 11/15/94 ..... \
$6,658,554
$4,724,154 I
$1.934.400 II
$716,800
11-1/4% Note A-1995 ..... I . .... 2/15/95 ...... I
6,933,861
5.713,061 I
1. 22Q,800 II
48,960
11-1/4% Note 8-1995 ..... 1 . .... 5/15/95 ...... I
7,127,086
4.543,246 1
2,583,840 II
12,000
10-1/2% Note C-1995 ..... \ ..... 8/15/95 ...... \
7,955,901
5.145.501 I
2.810,400 II
-0-
9-1/2% Note 0-1995 ......
8-7/8% Note A-1996 .....
7-3/8% Note C-1996 ......
7-1/4% Note 0-1996 ......
8-1/2% Note A-1997 ... '"
8-5/8% Note 8-1997 ......
8-7/8% Note C-1997 ......
8-1/8% Note A-1998 ......
9% Note 6-1998 ..........
9-1/4% Note C-1998 ......
8-7/8% Note 0-1998 ......
8-7/8X Note A-1999 ......
9-1/8% Note 8-1999 ......
B% Note C-1999 ..........
7-7/8% Note D-1999 ......
8-1/2X Note A-2000 ......
8-7/8% Note 8-2000 ......
8-3/4% Note C-2000 ......
8-1/2% Note 0-2000 ......
7-3/4% Note A-200l ...
8% Note B-2001 ..........
7-7/8% Note C-2001 ......
7-1/2% Note 0-2001 ......
7-1/2% Note A-2002 ......
6-3/8% Note 8-2002 ......
6-1/4% Note A-2003 ......
5-3/4% Note 8-2003 ......
5-7/8% Note A-2004 ......
7-1/4% Note 8-2004 ......
7-1/4% Note C-2004 ......
11-S/8% Bond 2004 .......
12% Bond 2005 .........
10-3/4% Bond 2005 .......
9-3/8% Bond 2006 ........
11-3/4% Bond 2009-14 ....
11-1/4% Bond 2015 ..
10-5/8% Bond 2015 ...
9-7/8% Bond 2015 ..
9-1/4% Bond 2016 .....
7-1/4% Bond 2016 ........
I
. .... 11/15/95 ..... !
· ... . 2115/96 .. .... I
J
1 ..... 5/15/96 ...... I
I · ... . 11/15/96 ..... 1
j · ... . 5115/97 . ..... I
I '" .. 8/15/97 ...... 1
I ..... 11/15/97 ..... I
I . ... . 2115/98 ...... I
I · ... . 5/15/98 . ..... \
1 . ... . 8/15/98 ......
1
I
I
I
I
I
I
I
. ... . 11/15/98 .....
.
1 .... 2/15/99 ......
I . .... 5/15/99 ......
I
I
I
.... . 8/15/99 ......
..... 11/15/99 .....
.... . 2/15/00 ......
I .... . 5/15/00 .. ....
I ..... 8115/00 ......
I " . .. 11/15/00 .....
I · .... 2115/01. .. ...
1 " . .. 5/15/01 ......
I '" .. 8115/01. .....
I .... . 11/15/01 .....
I ..... 5/15/02 ......
I ..... 8/15/02 ......
I ..... 2115/03 ......
I ..... 8/15/03 ......
I '" .. 2/15/04 ......
I ..... 5/15/04 ......
I ..... 8/15/04 ......
I ..... 11/15/04 .....
I ..... 5/15/05 ......
I · .... 8/15/05 ......
I ..... 2/15/06 ......
I ..... 11/15/14 .....
I ..... 2/15/15 ......
I .' .8/15/15 ......
I .... . 11/15/15 .....
I ..... 2/15/16 ......
I · . ... 5/15/16 . .....
I
I
1
I
I
I
I
I
I
1
I
I
I
I
I
I
I
1
I
I
I
I
I
I
7,318,550
8.446,008
20,085,643
20,258,810
9,921.237
9,362,836
9,808,329
9 ,lS9, 068
9,165,387
11,342,646
9,902,875
9,719.623
10,047,103
10,163,644
10,773,960
10.673,033
10,496,230
11,080,646
11,519,682
11,312,802
12,398,083
12.339.185
24,226,102
11,714,397
23,859,015
23,562,691
28,011.028
12,955.077
14.440,372
13,346,464
8,301.806
4,260,758
9,269,713
4.755.916
6,005,584
12.667,799
7.149,916
6,899.859
7,266.854
18.823,551
3,778.150
6.975.608
--18,376.843
17.784.410
8,733,637
7,900,436
7,777,929
8,299,548
6,748,787
9,104.246
7,077,275
8.201,223
6,642,303
8,031,819
7,885,960
9,280.633
6,181,030
7,953.286
9,034,882
9.387,202
10,051.858
10,510,385
22,940,182
10,965,837
23.457.415
23.534,339
27.867,828
12,955.077
14,440,372
13,346.464
5,514,606
3,264,058
8,439.313
4.755,276
1. 830 ,384
4.898,839
2,240,476
2,645,459
6.442,854
18,157,951
1
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
1
I
I
1
I
I
I
I
I
I
I
I
I
I
I
I
I
I
3,540,400
1.470.400
1.708.800
2.474,400
1. 187,600
1.462,400
2,030,400
859,S20
2,416,600
2,238,400
2,825,600
1,518.400
3,404,800
2,131,825
2,888,000
1.392,400
4.315,200
3.127,360
2.484.800
1,925,600
2.346,225
1. 828,800
1,285,920
748,560
401. 600
28,352
143,200
II
II
II
II
II
II
II
II
II
\I
II
II
II
\I
II
1\
II
It
T1
II
"1\II
II
-O- II
-O- Il
-o- Il
\I
II
II
II
II
1\
II
\I
1\
2.787,200
996.700
830,400
640
4.175,200
7,768.960
4,909.440
4.254.400
824,000
665,600
II
-0-
~ABLE VI--~OLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. AUGUST 31. 1994
(In thOusands)
-------------------------------------------------------------- -------------------------------------------------
Pn nc 1pa 1 Amount Out stand1 ng
1
//
1----------------------------------------------------/ /
Loan Descr1PtlOn
Matunty Date
I
I
I
Total
Portlon Held 1n I Portion Held 1n 1/
i Unst r1 pped Form) Strl pped Form ))
1
Reconstltuted
Th1S Month'1
-------------------------1--------------------1----------------1-----------------/-----------------) )----------------1-1/2%
8-3/4%
8-7/8%
9-1/8%
1
.11115116
).5/15/17.
)
.. 8/15/17 . . .
1)/151l8..
)
)
)
)
9% Bond 2018..
1
.11/15/1B..
8-7/8% Bond 2019
I
,2/15/19, .. ,
8-118% Bond 2019"
I
,8115/19"
8-1/2% Bond 2020..
2/15/20.,
8-3/4% Bond 2020.,
,,5115/20.,
,,8/15/20,
8-3/4% 80nd 2020.,
7-7/8% Bond 2021."
.. 2/15/21.,
8-1/8% Bond 2 0 2 1 . 5 1 1 5 / 2 1 . .
8-1/8% Bond 2 0 2 1 . 8 / 1 5 / 2 1 .
8X Bond 2021.
. ,11/15/21..
7-114% Bona 2022."
,,8/15/22,.
7-5/8% Bond 2 0 2 2 . 1 1 / 1 5 / 2 2 . .
7-1/8% Bond 2023,
. ,2115/23
6-1/4% Bond 2023.
. .8/15/23..
7-1/2% Bond 2024.,
,.11/15/24 .....
I
I
Band
Bond
Bond
Bond
2016.
2017..
2017
201B..
18.864,4481
18.i.94.1691
14.016.858 I
8.708.639 I
17.962.048 I
7.857.049 )
7.392,858)
1.983,8391
902.400 I)
10,337,120 II
6,624,0001/
6.724.800 /1
73.360
2,183.200
988,800
177,600
9.032.870 )
1.328.470 /
7.704.400 "
374.800
19.250.798 I
4.410,798 /
14.840.000 //
457.600
)
20.213.832 1
17.062.472 I
3.151.360 1/
302.720
/
10.228.868
4.388.868 /
5.840.000 /
178.000
I
10.158.883
3.279.043 )
6.879.840 /
99.680
I
21.418.606
4.052.686 I
17.365.920 /
523.840
/
11.113.373
9.222.173 /
1.891.200 I
131.200
/
11.958.888
4.513.768 /
7.445.120 I
423.040
I
12.163.482
4.568.602 I
7.594,880 I
199,360
/
32.798.394
6.917.944 I
25.880.450 I
351.875
I
10.352.790
8.653.590 I
1.699.200 I
331.200
I
10.699.626
4.088.426 /
6.611.200 I
224.000
/
18.374.361
14.990.361 I
3,384.000 I
576,000
I
22.909.044
22.835.252 )
73.792 I
-0I
11.469.692 /
11.469.692 /
-0- /
-0/----------------1-----------------1-----------------11-----------------
Total.
1
803.415.305)
580.518.0811
222.897.224 II
12.400.995
======================================================================================================================
#IEffectlve May 1, 1987. seCuf1tles held 1n stripped form were el1g1ble for reconst1tut1on to the1r unstrlpped forn.
Note: On the 4th workday of each month Table VI WIll be ava1lable after 3:00 pm eastern tIme on the Conrnerce Department's
Economic Bullet1n Board (EBB). The telephone number for more 1nformat1on about EBB is (202) 482-1986. The balances
In thiS table are subject to aud1t and subsequent adJustments,
DEPARTMENT
OF
~1789
..................................
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
September 8, 1994
CONTACT: Scott Dykema
(202) 622-2960
u.S., MEXICO SIGN TAX AGREEMENTS
MEXICO CITY -- The Treasury Department announced the United States and
Mexico signed agreements Thursday that will facilitate exchange of tax information.
The agreements were signed in Mexico City by Treasury Secretary Lloyd Bentsen
and Mexican Finance Minister Pedro Aspe.
"What we've done today is good for both countries," Bentsen said. "Sharing tax
information more broadly can help increase compliance with state and local tax laws.
Such improved cooperation also should enhance NAFTA's economic benefits by
reducing government paperwork," the secretary said.
While all states benefit, the agreements are particularly important to tax
authorities in U.S. border states -- California, Arizona, New Mexico and Texas. The
U.S. government will be allowed to share the information it gets from the Mexican
government with the states. U.S. officials also will be permitted to ask Mexico for
specific information in connection with state tax compliance efforts.
The two protocols signed today would amend the current U.S.-Mexico income tax
treaty, signed September 18, 1992, and a separate exchange of information agreement
signed November 9, 1989. They would perrnit exchanging of information to enforce state
and local tax laws in the United States and Mexico. The U.S. Senate must approve the
treaty protocol before it takes effect but the protocol dealing with the 1989 exchange of
information agreement takes effect when both governments exchange diplomatic notes.
Copies of the new protocols may be obtained by writing the Office of Public
Affairs, U.S. Treasury Department, Room 2315, Washington, D.C. 20220, or by calling
(202) 622-2960.
-30-
LB-I059
DEPARTMENT
OF
THE
TREASURY
NEWS
~~/78rq~. . . . . . . . . . . . . . . . . . . . . . . . . .. .
............................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 8, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $4,000 million
of 7-day Treasury cash management bills to be issued
September 9, 1994.
Competitive tenders will be received at all Federal
Reserve Banks and Branches. Noncompetitive tenders will
not be accepted. Tenders will not be accepted for bills to
be maintained on the book-entry records of the Department
of the Treasury (TREASURY DIRECT). Tenders will not be
received at the Bureau of the Public Debt, Washington,
D.
C.
For this auction, a bidder must report the amount of
its net long position when the total of all of its bids in
this auction, plus the bidder's net long position in the
7-day cash management bill, equals or exceeds $1 billion.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new security are given in the
attached offering highlights.
000
Attachment
LB-I060
HIGHLIGHTS OF TREASURY OFFERING
OF 7-DAY CASH MANAGEMENT BILL
September 8, 1994
Offering Amount . . . . . . $4,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Mlnimum bld amount
Multlples . . . . .
Minimum to hold amount
Multlples to hold
Submission of Bids:
Noncompetitive bids
Competitive bids
7-day Cash Management Bill
912794 2C 7
September 9, 1994
September 9, 1994
September 16, 1994
September 9, 1994
$10,000,000
Sl,OOO,OOO
$10,000
$1,000
Not accepted
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $1 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
.
.
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders . .
Payment Terms .
.
.
.
.
Not accepted
Prior to 11:00 a.m. Eastern Daylight
Saving time on auction day
.
. Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
FOR IMMEDIATE RELEASE
September 8, 1994
TREASURY AND VETERANS AFFAIRS TO SIGN fINANCIAL AGREEMENT
Tr('a~lJry Under Secretary Frank Newman and Veterans Affairs Under Secretary
Hershel Gober
'vm
sign
(l
memorandum of understanding tOT"norrmv, :=;'ri{i~ly, S~ptember 9, at
11 ;'.m. ,a th.:: l)~partment of Veterans Afhip~, 810 VerrnvI1t Avenue NW, in t:1~ second
floor conference room.
1 lIe memorandum will vuthne the joint efforts of the dep<~rtmenti; to improve c:xisting
flll3n~ial operations by taking advantage of nev,r automation t.-::chfiGlogy.
The agreement
suppor!s Nar.ional Performance Review initiatives and will enhance VA systems for benefit,
itdlllinistrative and '/endor payments. TreasuIY ri.scal Assi~;t"m Secretary Gerald Murphy,
VA Assistant Sp.cretary for Finance and Infor:.mation ReSOl-ilLeS Management D ..Mark Catlett
and i~-ational P(;rfOmlance Review Project Director Bob StL~r:e ,\/il: aLSO (lttend the event.
Contacts:
Treasury, Jon Murchinson (202) 622-2960
Financial Management Service, Mary Hewitt (202.) 874-7085
Veterans Affairs, Donna St. John (202) 273-5700
-30-
LB-1061
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PEN N SYLVAN lA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
September 9, 1994
REMARKS OF UNDER SECRETARY FRANK NEWMAN
SIGNING OF VETERANS AFFAIRS MEMORANDUM OF UNDERSTANDING
Good Morning. I am delighted to be here today to celebrate with you the results of the
partnership between the Department of the Treasury, the Financial Management Service, and
the Department of Veterans Affairs. This partnership and initiative will improve payment
operations related to VA's Compensation and Pension benefit payments. These efforts include
implementing various Electronic Commerce initiatives for vendor payments_ Another objective
is to increase participation in Direct Deposit/Electronic Funds Transfer for Federal salary
payments. This Memorandum of Understanding serves as a Performance Standard Agreement.
It will be used by both agencies (pleased to see many of you here), as a measurement tool for
matching performance against agreed upon service to our mutual customers.
The missions of the Departments of Treasury and Veterans Affairs are deep-rooted in our
Nation's history. In the year 1789, Congress recognized the need for sound financial
management and created the Department of Treasury. FMS performs many of the oldest and
most basic Treasury functions as it receives and disburses public monies, maintains government
accounts, and prepares reports on the status of government finances.
During the current Fiscal Year, FMS will issue over 800 million Government payments and
manage a cash flow of $2.5 trillion. The VA's mission is also long-standing. As a point of
historical interest, the Continental Congress provided pension benefits to disabled veterans of
our Revolutionary War. The Department of Veterans Affairs has continued to honor and assist
those who have served in America's armed forces.
-More-
LB-I062
-2Today, beneficiaries include 27 million veterans and their families -- approximately 70
million people, or about one-fourth of the entire U.S. population. Thus, this Agreement impacts
the lives of many U.S. citizens, our ultimate customers.
This celebration occurs nearly one year to the day from the issuance of the National
Performance Review Summary Report. This Agreement reflects our long-standing mission to
put the customer first. As you may know, this is one of the basic precepts of the National
Performance Review. The objective of this Agreement is to streamline both FMS and VA
processes by taking advantage of technological improvements. By streamlining our processes,
we will reduce costs and improve service to the payment recipient. This is the first step of many
in an on-going process to seek joint opportunities to lower costs, increase efficiency, and
improve service to our customer.
FMS' and VA's customer service efforts in Washington and at the Austin Regional
Financial Center will have far-reaching implications for streamlining and improving the payment
process. I am very pleased to be signing this Agreement today which signifies the beginning
of improvements which will occur over several years. This agreement is a very big step towards
giving the American public the service it deserves and needs. All of these improvements will
ensure that veterans benefits and services are to be delivered in an even more high quality, costeffective, and timely manner to veterans and their families.
Thank you for joining me here today in the signing of this significant agreement.
-30-
REPORT
ON
u.s.
CRITICAL TECHNOLOGY COMPANIES
Report to Congress on
Foreign Acquisition of and
Espionage Activities against
u.s. critical Technology Companies
1994
Report
on
u.s. Critical Technology Companies
Report to Congress on
Foreign Acquisition of and
Espionage Activities against
U.S. Critical Technology Companies
1994
REPORT
ON
WHETHER FOREIGN GOVERNMENTS OR COMPANIES HAVE A
COORDINATED STRATEGY TO ACQUIRE
U.S. CRITICAL TECHNOLOGY COMPANIES
AND
WHETHER FOREIGN GOVERNMENTS USE
ESPIONAGE ACTMTIES TO OBTAIN
COMMERCIAL U.S. CRITICAL TECHNOLOGY SECRETS
EXECUTIVE SUMMARY
Section 163 of the Defense Production Act of 1992 required a report on whether foreign
companies or governments employ a coordinated acquisition strategy targeting U.S. critical
technology companies and whether foreign governments use espionage activities to obtain the
commercial critical technologies of U.S. companies. The President and agencies that he
designates were given the responsibility for completing the report. Accordingly, the National
Economic Council (NEC) formed a working group, chaired by the Department of Treasury,
to prepare the report. The members of the working group were the Departments of
Treasury, State, Defense, Commerce, and Justice, the Office of Management and Budget, the
Office of the U.S. Trade Representative, the Council of Economic Advisers, the Office of
Science and Technology Policy, the National Security Council and the National Economic
Council itself. Also, named to the working group were the Central Intelligence Agency
(CIA) and the Federal Bureau of Investigation (FBn.
The working group addressed the issues raised in Section 163:
1) by analyzing the pattern of recent acquisitions of U.S. companies with critical
technologies by firms based in countries that are major economic competitors of the
United States.
o The working group concentrated on foreign acquisitions through merger and
acquisition of commercial and dual-use, but not solely military, U.S. critical
technologies.
o It did not attempt to evaluate issues concerning other avenues of foreign
access to U.S. commercial critical technologies, such as licensing, joint
ventures or other cooperative arrangements.
2) by assessing attempts by governments of major U.S. economic competitors to
obtain commercial and dual-use U.S. critical technologies, recognizing the distinction
between espionage and legal economic intelligence gathering.
o The working group did not attempt to evaluate foreign espionage in areas
other than commercial and dual-use U.S. critical technologies or against nonUnited States companies.
o The working group reviewed briefly other countries, not major economic
competitors of the United States, that have historically sought information on
U.S. critical technologies through the use of their intelligence services.
BACKGROUND AND OVERVIEW
The report has four sections. After the introductory Section I, Section II provides the
overview placing foreign investment in U.S. high-technology industries, both acquisitions and
greenfield investments (start-up companies), in context. It discusses an analysis of official
data from the Department of Commerce, the Bureau of Economic Analysis (BEA) and the
Bureau of the Census, on foreign direct investment in the United States (FDIUS) in U.S.
high-technology industries. This analysis indicates that foreign frrms are not concentrated in,
and do not dominate, major U.S. high-technology industries, although they do invest in
these, along with other sectors of the U.S. economy. As of the end of 1990, 15 percent of
all foreign direct investment in the United States was in high-technology industries. The
percentage of sales by high-technology companies relative to all manufacturing companies is
about the same for both foreign-owned and U.S.-owned fIrms. For example, in 1987, hightechnology firms accounted for 20.0 percent of sales by U.S.-owned manufacturing fmns and
23.5 percent of sales by foreign-owned manufacturing firms. Because there is a time-lag
between acquisitions and publication of the data, the discussion in Section II does not fully
cover the slowdown in FDIUS in recent years.
COORDINATED FOREIGN ACQUISITION STRATEGY
For purposes of this report, a coordinated foreign acquisition strategy was considered to be
directed efforts between and among a country and its national companies or between and
among national companies to acquire U.S. companies with critical technologies. The efforts
of a single company in pursuit of business goals were not, in the absence of direction from
outside the company, considered to be a coordinated strategy. Individual company strategies
encompass such goals as entry into the U.S. market, increased market share, increased sales,
access to new technologies, and diversification out of mature industries.
The working group undertook an analysis of 984 mergers and acquisitions between foreign
companies and U.S. companies with critical technology capabilities covering the period
January 1, 1985 to October 1, 1993. This data is derived from an extensive review of M&A
publications, public on-line data bases, business prospectuses, industry surveys, and other
sources. The working group is confident that the vast majority of deals are included and that
the data base is the most comprehensive of its kind available. This survey concentrates on
those companies from countries that are most active in mergers and acquisitions of U. S.
high-technology companies. This includes the G-7 nations (Japan, Germany, France, Italy,
the United Kingdom and Canada) as well as the Netherlands, Sweden, Switzerland, South
Korea and Taiwan. Section ill contains the working group's analysis.
In categorizing transactions, the working group was guided by the National Critical
Technology List, but it also sought to provide additional specificity to merger and acquisition
activity in key technologies by providing a more descriptive breakdown of some technology
categories. A comparison of the National Critical Technology List and the more detailed list
used by the working group is provided in Appendix A. Because of a paucity of merger and
acquisition activity in energy and environmental critical technologies, these areas are not
included.
The working group did not fmd credible evidence demonstrating a coordinated strategy on
2
the part of either foreign governments or companies to acquire U. S. companies with critical
technologies. The working group found that foreign merger and acquisition activity in the
United States is first and foremost a private sector decision depending on a variety of
circumstances and motivations, and that these acquisitions are consistent with the goals and
strategies of individual businesses. For example, foreign companies can acquire U.S. critical
technology companies to gain access to new technologies and products, to expand U.S.
market share, and to diversify their businesses away from more mature industries into
emerging growth industries such as biotechnology. The absence of credible evidence
demonstrating a coordinated strategy, nevertheless, should not be viewed as conclusive proof
that a coordinated strategy does not exist.
In some cases, however, foreign governments give indirect assistance and guidance to
domestic firms acquiring U.S. companies. The main methods of government involvement
include extending tax credits to promote foreign merger and acquisition (M&A) activity;
exercising controlling government interest in major fmns to promote foreign M&A activity;
and identifying technologies that are critical to national economic development. Acquisitions
by Taiwan firms, for example, may be influenced by the Taiwan authorities in the form of
. financial assistance and by the designation of key high-technology industries as critical to
Taiwan's future. The Government of France has attempted to playa role in influencing
French acquisitions and has provided financing. Japan's Ministry of International Trade and
Technology (MlTI) often issues official assessments of select industries which it believes will
be key to Japan's economic future.
ESPIONAGE
Section IV discusses economic intelligence gathering, including espionage, used to obtain
commercial secrets involving critical technologies. This report uses the word espionage in a
broad sense to include actions that are not in fact espionage under U.S. law (18 U.S.C.,
Chapter 37). For espionage in the legal sense to occur, there must be foreign government
involvement in the collection by illicit means of protected (usually classified) information
having significance for U. S. national defense. The theft of proprietary information that is
not significant for U.S. national defense is banned by laws protecting intellectual and other
property.
The legislative request for this report asked for an evaluation of industrial espionage activities
directed by foreign governments against private United States companies aimed at obtaining
commercial critical technology secrets. The term "industrial espionage" has a generally
accepted meaning in the intelligence community that precludes its use in connection with
foreign governments' activities. The defInition of "industriall commercial espionage"
(hereafter shortened to commercial espionage) is:
o Intelligence activity sponsored by private business, which is designed to unlawfully
obtain classified andlor proprietary information for the purpose of enhancing a private
firm's competitive advantage against U.S. economic interests in the marketplace.
3
This report discusses espionage sponsored by governments in the critical technologies area as
"economic espionage" defined as:
o Government-sponsored or coordinated intelligence activity designed to unlawfully
and covertly obtain classified data andlor sensitive policy or proprietary information
from a U.S. Government agency or company, potentially having the effect of
enhancing a foreign country's economic competitiveness and damaging U.S. economic
security.
The target of government-sponsored activities is the collection of either or both:
o Economic Intelligence: Raw reporting or aggregated and analyzed information on a
country's economy or technologies -- whether drawn from classified, proprietary, or
open sources -- which is intended for public policy purposes.
o Economic Information: Overt economic data, generally lacking intelligence value as
collected, which has not been integrated with data from other sources, subjected to
analysis, or prepared for policymaking purposes.
In contrast to espionage, nearly all governments engage in economic intelligence gathering
and extensively analyze economic information that is publicly available. Since U.S.
companies with critical technologies in many cases are industry leaders, they are the primary
targets of foreign economic intelligence efforts.
Section IV concentrates on the major U.S. economic competitors. This section also briefly
discusses other countries, not major economic competitors of the United States, that have
historically sought information on U.S. critical technologies through the use of their
intelligence services.
I. Introduction
BACKGROUND
Section 163 of the Defense Production Act Amendments of 1992 added the following new
subsection:
"(k) Quadrennial Report. --
"(1) In general. - In order to assist the Congress in its oversight
responsibilities with respect to this section, the President and such agencies as
the President shall designate shall complete and furnish to the Congress, not
later than 1 year after the date of enactment of this section and upon the
expiration of every 4 years thereafter, a report which -4
., (A) evaluates whether there is credible evidence of a coordinated
strategy by 1 or more countries or companies to acquire United States
companies involved in research, development, or production of critical
technologies for which the United States is a leading producer; and
"(B) evaluates whether there are industrial espionage activities directed
by foreign governments against private United States companies aimed at
obtaining commercial secrets related to critical technologies .
., (2) DefInition. -- For the purpose of this subsection, the term 'critical
technologies' means technologies identified under title VI of the National
Science and Technology Policy, Organization, and Priorities Act of 1976 or
other critical technology, critical components, or critical technology items
essential to national defense identified pursuant to this section.
"(3) Release of unclassified study. -- The report required by this subsection
may be classified. An unclassified version of the report shall be made
available to the public."
APPROACH FOR EVALUATION OF CRITICAL TECHNOLOGY ACOUISmONS OF
U.S. COMPANIES
The National Economic Council formed a working group, chaired by the Department of
Treasury, to prepare the report. The NEC named the members of the working group
including the Departments of Treasury, State, Defense, Commerce, and Justice, the Office of
Management and Budget, the Office of the U.S. Trade Representative, the Council of
Economic Advisers, the Office of Science and Technology Policy, the National Security
Council and the National Economic Council itself. Also, named to the working group were
the Central Intelligence Agency (CIA) and the Federal Bureau of Investigation (FBI).
The working group addressed the issues raised in Section 163:
1) by analyzing the pattern of recent acquisitions of U.S. companies with critical
technologies by firms based in countries that are major economic competitors of the
United States.
o The working group concentrated on foreign acquisitions through merger and
acquisition of commercial and dual-use1 , but not solely military, U.S. critical
technologies.
o It did not attempt to evaluate issues concerning other avenues of foreign
1
"Commercial technologies" will be used in this report to
include dual-use technologies.
5
access to U.S. commercial critical technologies, such as licensing, joint
ventures or other cooperative arrangements.
2) by assessing attempts by governments of major U.S. economic competitors to
obtain commercial and dual-use U.S. critical technologies, recognizing the distinction
between espionage and legal economic intelligence gathering.
o The working group did not attempt to evaluate foreign espionage in areas
other than commercial and dual-use U.S. critical technologies or against nonUnited States companies.
o The working group reviewed briefly other countries, not major economic
competitors of the United States, that have historically sought information on
U.S. critical technologies through the use of their intelligence services.
In formulating its approach, the working group relied on the defInition of critical
technologies as contained in the March 1991 report of the National Critical Technologies
Panel. The Panel report defIned technologies as critical when they generate future
innovations in a wide range of goods and services. Critical technologies are those that
satisfy long-term national economic and scientific objectives, such as strong national defense,
improved economic competitiveness, a rising standard of living, improved public health, and
energy independence.
To get a sense of the information obtainable on critical technology acquisitions, the working
group surveyed the data bases publicly available from U.S. Government sources, including
official data published by the Department of Commerce on FDIUS. In addition, the
working group examined as many individual mergers and acquisitions between foreign
companies and U.S. companies in critical technology categories as possible relying on
mergers and acquisitions publications, public on-line data bases, business prospectuses,
industry surveys and other sources. When combined with official U. S. Government data, the
working group was able to identify 984 foreign mergers and acquisitions (M&As) involving
U.S. companies with critical technologies during the relevant time period.
The working group concentrated on the G-7 nations (Japan, Germany, France, Italy, the
United Kingdom, and Canada) as well as the Netherlands, Sweden, Switzerland, South Korea
and Taiwan. These countries were selected because their companies are most active in
business relationships with U.S. high-technology companies. It focused on the time period
from January 1, 1985 to October 1, 1993, because the majority of M&A activity involving
U.S. companies in critical technologies has occurred since 1985. In order to lend more
specificity to M&A activity in key technology areas on the National Critical Technology List,
the working group also prepared a more detailed descriptive breakdown of some technology
categories and these are outlined in Appendix A. Because of the paucity of M&A activity in
energy and environmental critical technologies, these areas are not included.
6
SCOPE OF THE REPORT
The report is divided into the following sections:
1.
Introduction
II.
Foreign Direct Investment in U.S. High-Technology Industries
ill.
Whether There is Evidence of a Coordinated Strategy to Acquire U. S. Critical
Technology Companies
IV.
Whether Foreign Governments Use Espionage Activities to Obtain Commercial
U.S. Secrets Related to Critical Technologies
Section I explains the background, approach and scope of this report.
Section IT is based on a review of publicly available data from the Department of Commerce.
It summarizes, in general, the experience of foreign direct investment activity in U.S. hightechnology companies in recent years. It shows that foreign fums are not concentrated in,
and do not dominate, major U.S. high-technology industries.
For purposes of this report, a coordinated foreign acquisition strategy was considered to be
directed efforts between and among a country and its national companies or between and
among national companies to acquire U.S. companies with critical technologies. The efforts
of a single company in pursuit of business goals were not, in the absence of direction from
outside the company, considered to be a coordinated strategy. Individual company strategies
encompass such goals as entry into the U.S. market, increased market share, increased sales,
access to new technologies, and diversification out of mature industries.
Section ill presents the analysis of a comprehensive survey of 984 mergers and acquisitions
between foreign companies and U.S. companies with critical technology capabilities covering
the period from January 1, 1985 through October 1, 1993. This survey concentrates on
companies from countries that are most active in mergers and acquisitions with U.S. hightechnology companies. This includes the G-7 nations (Japan, Germany, France, Italy, the
United Kingdom and Canada) as well as the Netherlands, Sweden, Switzerland, South Korea
and Taiwan. The working group in categorizing these acquisitions sought more specificity
than available from the National Critical Technology Panel's list. Therefore, it provided a
more descriptive breakdown for some technology categories. A comparison of the National
Critical Technology List and the more detailed list used by the working group is provided in
Appendix A.
Appendix B provides a country-by-country review of foreign mergers and acquisitions
involving U.S. critical technology companies and evaluates the evidence of government
involvement and a private sector strategy. Appendix C contains charts and graphs.
7
Section IV discusses economic intelligence-gathering, including espionage, used to obtain
commercial secrets involving critical technologies. The scope of the report is not limited to
the legal meaning of espionage. This section also briefly discusses other countries, not major
economic competitors of the United States, that have historically sought information on U.S.
critical technologies through the use of their intelligence services.
8
ll. Extent of Foreign Direct Investment in U.S. High-Technology
Industries2
Key Findings
Comparisons, based on publicly available data from the Department of Commerce, of
foreign-owned and U.S.-owned firms indicate that foreign firms are not concentrating in, and
do not dominate, major u.S. high-technology industries. Only a small share of overall
foreign direct investment has been made in high-technology industries, and foreign-owned
firms account for only a small, but, at least through 1990, rising share of these industries.
Moreover, overall Foreign Direct Investment in the United States (FDruS) as a share of total
net national worth remains far smaller in the United States than in all other major industrial
countries, except in Japan.
Have Foreign Firms Concentrated in U.S. High-Technology Industries?
Over the past decade, foreign fmns do not appear to have been concentrating acquisitions in
high-technology industries. As of the end of 1990, 15 percent of total FDIUS was in hightechnology industries. Moreover, foreign-owned fmns' share of high-technology industry
has risen only gradually despite the surge in total FDIUS over the 1980s. U.S. affiliatesl of
foreign firms are only slightly more concentrated in high-technology industries than are
U.S.-owned firms. For example, in 1987, high-technology firms accounted for 20.0 percent
of sales by U.S.-owned manufacturing firms and 23.5 percent of sales by foreign-owned,
manufacturing firms.
summary based on "Influence of Foreign Direct Investment
on the Development and Transfer of Technology," Chapter 6, in
Foreign Direcr Investmenr in rhe United states: An Update,
Economics and statistics Administration, u.s. Department of
Commerce, June 1993.
2
A U.S. affiliate is a u.s. business enterprise in which
there is foreign investment - that is, in which a single foreign
person owns or controls directly or indirectly 10 percent or more
of the voting securities if an incorporated business enterprise
or an equivalent interest if an unincorporated business
enterprise. The affiliate is called a u.s. affiliate to denote
that it is located in the united states, although it is owned by
a foreign person.
3
9
u.s. Affiliate Shares of U.S. High-Technology Industries
u.S. affiliates of foreign firms are a relatively small proportion of U.S. high-technology
firms, particularly in the manufacturing sector -- accounting for 14.4 percent of their
employment, 14.4 percent of their payroll, and 16.9 percent of their sales in 1990.
Employment by high-technology affiliates grew 108 percent between 1980 and 1990, from
329,300 to 686,600 workers, compared to 33 percent employment growth of all U.S.
high-technology fIrms -- up from 4.3 million to 5.7 million workers. A large part of this
increase in employment share resulted from a large number of acquisitions of U.S.
high-technology firms, rather than from growth of employment in existing U.S. affiliates.
Their largest and fastest growing employment share was in "industrial chemicals and
synthetics," and the smallest, slowest growing share was in "other transportation equipment"
(see figure).
u.s. AffiIIat8a' Share of High-Technology
Empk)yrnent. 1980-1990
Ind.~
1_
.1180
[(]I
o
40
10
50
P.rC*1t
SourcN: 8&ftau of Economic Analysi& and Bureau of Labor Stalictict.
A signifIcantly different picture emerges from the more detailed establishment level data for
1987 produced by the BEA-Census data link: project. U.S.-owned firms dominated sales in
nearly all individual U.S. high-technology industries, except for the audio and video
10
equipment industry (see table). U.S. affiliates have long dominated sales in this industry,
and accounted for more than 50 percent of total U.S. industry sales. Foreign-owned firms
also have increased their sales in three other industries: "plastics and synthetics," "industrial
inorganic chemicals," and "drugs and medicines." In contrast, foreign-owned firms' share
was the smallest -- 2 percent - in "aircraft and parts." In 1987 Oatest available data), the
affiliates' share in "high-technology services" was only 4 percent. The affiliates' shares in
terms of total number of establishments and total employment provide similar patterns.
11
Table
Foreign-owned, High-Technology Manufacturing Affiliates
as a Share of All u.S. Businesses in 1990
(in percent)
Industry
Number of
Establishments
High-Technology Manufacturing
Industrial inorganic chemicals
Plastics materials and synthetics
Drugs
Ordnance and accessories
Engines and turbines
Computer and office equipment
Household audio and video equipment
Communications equipment
Electronic components and accessories
Aircraft and parts
Guided missiles, spacecraft
Instruments and related parts
Employment Payroll
6.3
14.4
14.4
16.9
26.1
21.0
12.4
4.4
10.1
4.7
5.2
5.3
4.0
2.9
1.4
4.6
22.7
41.8
35.7
12.6
19.7
10.7
43.2
14.4
13.9
3.1
21.3
41.4
39.7
8.7
19.6
11.4
44.2
14.7
14.4
2.6
29.4
38.8
36.3
13.0
18.8
11.1
63.2
17.0
14.7
2.3
(D)
CD)
CD)
12.8
12.2
12.8
Source: Department of Commerce, Bureau of Economic Analysis
Note: CD) - Not published by BEA to uphold the legal requirement to preserve the
confidentiality of the data of individual companies.
12
ID. Whether There is Evidence of Coordinated Strategy to Acquire
U.S. Critical Technology Companies
Key Findings
Summary offoreign M&A activity in the United States. The working group identified 984
foreign mergers and acquisitions involving critical technologies of U. S. companies from
January 1, 1985 through October 1, 1993. Almost all of these involve companies from key
industrial countries with 31 percent of the total accounted for by United Kingdom companies
and 20 percent by Japanese companies. West European and Canadian companies were
involved in 756 transactions, led by 309 British acquisitions. Japanese companies accounted
for 201 of the 228 M&As involving Pacific Rim countries. Over 60 percent of the M&As
involved U.S. firms in advanced materials, computers -- including software and
peripherals - and biotechnology, areas of relative U.S. technical strength.
Evidence offoreign governmental direction to acquire U.S. high-technology companies.
Despite examples of government involvement, the working group did not find credible
evidence demonstrating a coordinated strategy on the part of foreign governments to acquire
U. S. companies with critical technologies. The absence of credible evidence demonstrating a
coordinated strategy, nevertheless, should not be viewed as conclusive proof that a
coordinated strategy does not exist. Based on its analysis of the data base of foreign
acquisitions of U.S. critical technology companies, the working group concluded that these
acquisitions are consistent with reasonable goals and strategies of individual businesses.
In some cases, however, foreign governments give indirect assistance and guidance to
domestic firms acquiring U.S. companies. The main methods of government involvement
include:
o
extending tax credits to promote foreign M&A activity,
o
exercising controlling government interest in major firms to influence foreign
M&A activity, and
o
identifying technologies that are critical to national economic development, and
thus, prime targets for acquisition through M&As.
The Governments of France, Germany, Italy, Japan, and South Korea, and the Taiwan
authorities exert varying degrees of influence over corporate M&A activity by their firms in
the United States. For example:
13
o
South Korea plans to provide special fmancing and tax incentives to domestic
firms that want to merge with or acquire foreign -- including U.S. -- hightechnology fIrms.
o
Japan's Ministry of International Trade and Industry (MIm often issues
official assessments -- known as "visions" -- of the direction in which an
industry is or should be evolving and of the markets and technologies that will
be key to Japan's economic future. These "visions" may help focus Japan's
manufacturers on the need to acquire U. S. companies in these key areas.
MITI's 1990s "vision", for example, stressed the continued promotion of
cutting-edge technologies such as biotechnology, which is a key focus of
Japanese M&A activity.
Evidence o/private sector strategy to acquire U.S. high-technology companies. Again, the
working group did not find credible evidence demonstrating a coordinated strategy among
firms in the private sectors of any major foreign competitors to acquire U.S. critical
technology fums. Of course, as stated before, the absence of credible evidence
demonstrating a coordinated strategy is not conclusive proof that a coordinated strategy does
not exist. However, the working group concluded that these acquisitions are consistent with
the goals and strategies of individual businesses. Merger and acquisition activity remains
very much a private sector decision, and depends on a variety of circumstances and
motivations. Most of the M&As surveyed from 1985 to the present, for example, were
motivated by corporate decisions to bolster core product lines by gaining access to new
technologies and products -- thereby avoiding often prohibitive in-house R&D expenses - as
well as to expand U.S. market share. Many frrms -- particularly those involved in steel,
textiles, and chemicals -- were also motivated by the desire to diversify, with biotechnology
the fIeld most often pursued.
INTRODUCTION
Merger and acquisition (M&A)4 activity tends to be common in industries characterized by
fierce competition and rapid technological change. Indeed, M&As are frequently seen as a
way for frrms to avoid the enormous research and development costs needed to compete in
rapidly evolving fields such as biotechnology and advanced materials. Although less
permanent relationships such as strategic alliances and joint ventures are more common
4
A merger occurs when two companies terminate their
existence and jointly form a new, single firm. An acquisition
represents the absorption of one company by another; usually, one
company retains its name and identity while acquiring 51 percent
or more of the interest in or stock of the other company.
14
mechanisms for foreign corporate access to u.s. leading-edge technologies, M&As provide
the greatest amount of control over the U.S. firm's technology, marketing, and future
direction. In this setting, U.S. companies with leading-edge technologies and potentially
lucrative products are attractive to investors.
Motivations
Although the decision to acquire a U.S. critical technology fIrm varies from company to
company, there are two principal motivations:
Securing new technologies or products. Most industry experts agree that a majority of
foreign companies seeking mergers or acquisitions with u.s. firms do so to secure new
technology or products. Foreign fIrms hoping to diversify or to expand in-house capabilities
may acquire U.S. firms for their research, patents, products, expertise, or facilities. Indeed,
industry observers believe many foreign -- particularly European -- firms lack the expertise
necessary to perform research in the entire range of technologies important to future growth
and profitability. M&As usually provide greater long-term control over tangible assets such
as patents, products, and facilities than do strategic alliances. Moreover, acquisitions may
enable foreign firms to tap into years of research and development. In many cases, foreign
firms prefer to let their acquisitions maintain their creativity and entrepreneurial edge -characteristics that the acquiring fIrms often lack -- while reaping the resulting technology.
M&As also may be used to keep leading-edge technology out of the hands of competitors.
&panding market access. Increasing competition for markets is another force spurring
foreign acquisition of U.S. critical technology fIrms. According to industry observers, many
foreign firms seek a presence in the United States to realize economies of scale. In other
cases, controlling firms hope to build market share by selling U.S.-developed products
worldwide. Lastly, there have been instances in which a foreign firm has sought to
strengthen its U.S. market share by acquiring its competitor in the U.S. market.
Acquisition Alternatives. In addition to M&As, foreign fIrms have several other options that
provide many of the same benefits as M&As without the attendant fInancial risks. For
example:
o
Foreign fIrms interested in obtaining technology often seek licensing or other
technology sharing agreements.
o
Foreign firms enter into strategic alliances such as joint ventures with U.S.
firms to design, develop, manufacture and/or distribute a new product.
o
Foreign companies often buy minority stakes in target U.S. companies as a
way to gain a degree of control over technologies and markets. Since the mid1980s, many foreign firms have provided venture capital to U.S. hightechnology start-ups as a means of obtaining access to their technologies.
15
o
Foreign firms frequently form alliances with U.S. universities and federal
laboratories to acquire inexpensive, high-quality research.
Summary of Foreign M&A Activity in the United States
The working group identified 984 foreign M&As involving U. S. critical technology
companies, valued at approximately $76 billion, from January 1, 1985 through October 1,
1993. Its review of available evidences indicates that almost all of the acquisitions were
considered "friendly" in that the U.S. firm's management team did not formally oppose the
acquisition. We were able to identify only 4 deals which were considered hostile buyouts,
all of which involved European fums.
On an annual basis, the number of M&As surveyed surged in the late 1980s, more than
tripling from 53 deals in 1985 to a peak of 197 in 1989. The pace of M&A activity has
slowed considerably since 1989, however, due mainly to the global economic downturn and,
to a lesser degree, the negative publicity in the United States surrounding high-profile foreign
acquisitions of U.S. firms.
Over 60 percent of these M&As involved U.S. fums in advanced materials, computers including software and peripherals -- and biotechnology, areas of relative U.S. technical
strength. The remaining deals involved U.S. firms in electronics and semiconductors,
professional and scientific instrumentation, communications equipment, advanced
manufacturing, and aircraft and parts.
Of the M&A deals surveyed, West European and Canadian companies were involved in 756,
or about 77 percent. This is not surprising given the long history of West European and
Canadian corporate expansion and diversification through M&A activity with U. S. firms.
British companies were by far the most active, making 309 acquisitions or 31 percent of the
total, followed by French and German companies, each with 87 deals.
Of the 228 M&As involving companies from the Pacific Rim, Japanese companies accounted
for 201 deals, which was 20 percent of the total M&As during the survey period. Although
Japanese business has traditionally favored loose associations and cross holdings of stock
between firms rather than mergers or acquisitions, they nevertheless acquired a growing
number of U.s. firms up to 1990, when their activity dropped off in the wake of the Tokyo
stock market decline. Taiwan, South Korea, Hong Kong, Thailand, and Singapore remained
well behind Japan with 10 or fewer acquisitions per country since 1985.
Our data is derived from an extensive review of M&A
publications, public on-line data bases, business prospectuses,
industry surveys, and other sources. We are confident that the
vast majority of deals are included and that our data base is the
most comprehensive of its kind available.
5
16
The working group relied on the definition and categories of critical technologies as
contained in the March 1991 report of the National Critical Technologies Panel. The Panel
report defined technologies as critical when they generate future innovations in a wide range
of goods and services. Critical technologies are those that satisfy long-term national
economic and scientific objectives, such as strong national defense, improved economic
competitiveness, a rising standard of living, improved public health, and energy
independence. In order to lend more specificity to M&A activity in key technology areas on
the National Critical Technology List, the working group prepared a more detailed
descriptive breakdown of some technology categories and these are outlined and compared in
Appendix A. Because of the paucity of M&A activity in energy and environmental critical
technologies, these areas are not included.
17
IV. Whether Foreign Governments Use Espionage Activities to Obtain
Commercial u.s. Secrets Related to Critical Technologies
This report uses the word espionage in a broad sense to include actions that are not in fact
espionage under U.S. law (18 U.S.C., Chapter 37). For espionage in the legal sense to
occur, there must be foreign government involvement in the collection by illicit means of
protected (usually classified) information having significance for U.S. national defense. The
theft of proprietary information that is not significant for U.S. national defense is banned by
laws protecting intellectual and other property.
The legislative request for this report asked for an evaluation of industrial espionage activities
directed by foreign governments against private United States companies aimed at obtaining
commercial critical technology secrets. The term "industrial espionage" has a generally
accepted meaning in the intelligence community that precludes its use in connection with
foreign governments' activities. The definition of "industrial/ commercial espionage"
(hereafter shortened to commercial espionage) is:
o Intelligence activity sponsored by private business, which is designed to unlawfully
obtain classified and/or proprietary information for the purpose of enhancing a private
firm's competitive advantage against U.S. economic interests in the marketplace.
This report discusses espionage sponsored by governments in the critical technologies area as
"economic espionage" defined as:
o Government-sponsored or coordinated intelligence activity designed to unlawfully
and covertly obtain classified data and/or sensitive policy or proprietary information
from aU. S. Government agency or company, potentially having the effect of
enhancing a foreign country's economic competitiveness and damaging U.S. economic
security.
The target of government-sponsored activities is the collection of either or both:
o Economic Intelligence: Raw reporting or aggregated and analyzed information on a
country's economy or technologies -- whether drawn from classified, proprietary, or
open sources - which is intended for public policy purposes.
o Economic Information: Overt economic data, generally lacking intelligence value as
collected, which has not been integrated with data from other sources, subjected to
analysis, or prepared for policymaking purposes.
18
Key Findings
In contrast to espionage activities, nearly all governments engage in economic intelligence
and. informa~on gathering and extensively analyze economic information that is publicly
available. Smce U. S. companies with critical technologies in many cases are industry
leaders, they are the primary targets of foreign economic intelligence efforts.
Foreign economic intelligence-gathering differs widely in motivation, approach, modus
operandi, and effectiveness:
o
Most major economic competitors of the United States focus their collection
efforts on those cutting-edge technologies in which the United States has a
technological lead or in which there is rough parity, with the intent to close
any gaps.
o
Styles of approach include an updated version of classic Cold War recruitment
and technical operations, the coordinated collection and processing of
economic data by an informal network of public and private organizations, and
economic intelligence collection that targets present and former nationals.
o
Operational techniques range from classic agent recruitment to computer and
telecommunications systems attacks, "bag operations," surveillance, elicitation
of fellow nationals, and overt collection of open-source information using
commercial computer data bases and bulletin boards.
o
The countries most effective in closing potential technology gaps are those that
rely primarily on normal business transactions and open source information
gathering rather than espionage or clandestine collection techniques.
INTRODUCTION
u. S.
high-technology industries are the primary target of foreign economic intelligence
collection efforts. The technologies of principal interest include aerospace, biotechnology,
computer, electronics, energy, and telecommunications. Although most U.S. economic data
can be collected openly using non-intelligence means such as open business and scientific
contacts, about 20 nations regularly use their official intelligence resources to obtain sensitive
U.S. economic data. Of these, a dozen or so routinely resort to state-sponsored espionage
using covert collection techniques.
Foreign espionage operations directed against U.s. economic targets involve varying degrees
of intelligence service or other official direction, control, or sponsorship. To qualify as
economic espionage, the activity in question must have some degree of government
sponsorship, whether direct or indirect, the use of illicit means targeted against classified or
19
proprietary information and
significance for national defense.
Commercial espionage, on the
other hand, refers to the same
types of activity conducted by
private-sector organizations. In
the absence of an official
government connection of some
sort, the use of illicit means
targeted against classified or
proprietary information, and
significance for U. S. national
defense, espionage -- in the legal
sense of the term - cannot take
place, but the activity may be in
violation of other laws.
Economic Intelligence: The
Collectors
Most of the United States' major economic competitors do not conduct economic espionage
operations for a variety of reasons:
o
In many cases, the risk of exposure, prosecution and resulting negative
publicity outweigh possible advantages gained by economic espionage.
o
These countries' domestic firms often have extensive information collection
capabilities of their own and do not rely on government assistance.
o
Much of the information sought by these countries can be obtained through
overt means.
Where Economic Intelligence Collection Occurs
Overt and covert collection of economic intelligence may be conducted within the host
country, in the United States, or in third countries, depending on the initiating country's
political and economic relationship to the United States and its willingness to accept the risk
of exposure, prosecution and resulting negative publicity. The operations of U.S. firms on
foreign soil, where foreign intelligence operatives have more freedom to act without concern
for discovery by U. S. counterintelligence are more vulnerable to intelligence penetrations
than those at home. Moreover, because foreign governments control most national phone
20
networks and other common carriers, unprotected U.S. computer data bases and business
telecommunications overseas can be more readily accessed by foreign intelligence services.
Disseminating Economic Intelligence
The degree to which government-collected economic intelligence is shared with the private
sector and the means by which this is done vary widely from country to country. Some
countries collect economic intelligence as much for the benefit of industry as for internal
government use. In addition to private firms, foreign governments often provide economic
intelligence to international trade delegations and banks and other financial institutions.
21
APPENDIX A
22
For our study, we categorized the high-technology US firms acquired by foreign
interests into the following nine categories. These categories are based
closely on the list prepared by the National Critical Technologies Panel in
1991.
National Critical
Technologies
Technologies
in This Study
,
Materials
Materials synthesis/processing
Electronic and photonic materials
Ceramics
Composites
High-performance metals and
alloys
..... .••.
•
~,.~~
.......................... "
.~
... ,.",.~, ••
,.~~"
.... " '...... _"
".'~.v'
" ........ ~.
Advanced Materials
Processes for specialty metals,
plastics, etc.
Semiconductor materials
Ceramics
Fiber-reinforced composites
Specialty metals
Polymer materials, plastic fabricators,
homogenous injections/
extrusions, etc.
t'-_M;,~~t;~i~,!i~~g,~~~',,~'~~~~~~~~,'~~~~~~~,~_ ~'~~~~'~~,'~~",'~~~~~~~~~~,,~~'~~'~-------,--,~~~~'~'--,~~~~~~~~,~~~~~,~~~~~,~~~,~~~~~,~!~~j,~~~!~:9~~~::,,':':~~~:~:~--i
Flexible computer integrated
manufacturing
Industrial automation, robotics
Intelligent processing equipment
Industrial measurement and sensing
equipment
Systems management and technologies
Process control equipment
and systems
Micro- and nanofabrication
...... ..
Information and Communications
Software
M icroelectron ics
High-performance computing and networking
High-definition imaging and displays
Compljter simulation and modeling
"
~~I'!!P~!~~~~I,ated
Computers and software
Electronic components
Communications/networking
Computer graphics and scanning,
CAD/CAM,CAE systems
Sensors and signal processing
Data storage and peripherals
Peripherals, including data storage
National Critical
Technologies
Technologies
In This Study
Communications
Telephone-related equipment
Data communications
Satellite microwave
communications
Fiber optics
........... " .. , ."'---'--.>, -,,---- ,-
-~~ ,~."'"'"
.
Semiconductors
Semiconductors, controilers,
and circuit boards
i .
~
.
~
' - - , .... ........................... ¥o ............ .......... ......." ......,..." ....
,,-..............-~-.
~
.........." .............
~-
.........
-.-..., .....
~ .,~~
Electronics Related
.
~""~~ ...... ,~~ ....... ~"""'''~'''''.... ,~"
.. ,,,.- .
.~
....
'''~~,~,..,.,...,.<~~...... .,...,.. .................."......... _
".-~.~,.-,
............
-,
...........".-, .
~
............... '''.......' '...............
,~.~~,
-
..... .....
Semiconductor fabrication equipment,
wafer products, and component
testing equipment
'''''','-"'~'"''
........-.................'".....
.......-.,~'''".-,----
............. ...........................
~
i· Biotechnology and.L-ife Scienc..Biotechnology
~ ......~.~.~~~._.~~~. __ ~:....~ .•. __ ... _._._._._ •...•.. ___ .........__.. :... :: ........ ; ...••.. : ..
,
........, ......................"."".....................~~ ............""""'~,........."""".............. ,......;.;.""'V>-"."""""'~~"'..........."""'-.... . , . . . . _ .""""'....'"".." ' _ ".., ..~,~"'.."'.........~"''''' .....,.'''"''.........-..........'''•..".,........................~ ..................,.., .......~
,., .. ~ •..••• __ ~ .• _. __ .• ~ .......... "'
~"'
.
~,
~,~
..,.,
~,
,
...
,,~
.-.,~
,-~,~~,~"
..
.
equipment
Medical diagnostics
Pharmaceuticals
Medical technology
.. ':.' ..... '-' .............
~~._.,
~
.....
,~_
...
,.,,~.-:
.....
,N.~".,
....' •..
L ••• ' · "
. . .: . . . - . . . . .
, ... ..
Professional/SCientific.lnstruments
Laser related equipment
Analytical and scientific
instrumentation
Advanced medical equipment
A.rQn$1.Itics and Surface Trar'tspottatlon
Aeronautics
Surface transportation technologies
--~neJfgyan(rEnvironmeni---·
",,---.. ,. ,'
Energy technologies
Pollution minimization, remediation, and
waste management
~
.. " ... :_.:...,~.~,~~~ ...................... L.L.~:..:~.~~ ___ ...:..:....-----'-'-..••........••...•. __.. _ .• L.::·.·... : ... " •.;. ......·.... ~ ... L~.. __'...·._. .:....:. •. "' .. _ .•......
Human, animal, agricultural and
industrial biotechnology
Biotech research and production
Applied molecular biology
'''~,~-
Aircraft and Parts
Commercial aircraft products
APPENDIXB
23
APPENDIX B ACQUISITIONS: COUNTRY-BY-COUNTRY EVALUATION
United Kingdom
Summary of M&A activities in the United States: We have identified 309 British corporate
acquisitions -- representing the greatest foreign M&A activity in the United States -- of U.S.
high-technology companies between January, 1985 and October, 1993. Of these, 89 deals
were with U.S. firms in the advanced materials industry followed by 54 acquisitions in
computer-related fields. British companies were most active in 1989 with 67 deals, followed
by 49 deals in 1988 and 41 deals in 1987. The United Kingdom was relatively more active
prior to 1989 than other countries, and relatively less active following 1989.
Evidence of governmental direction: The working group did not fmd credible evidence
demonstrating a coordinated strategy on the part of the British government to direct its firms
to acquire U. S. companies with critical technologies.
Evidence ofprivate sector strategy: Although British firms were by far the most active
acquirers of U. S. high-technology companies -- accounting for 31 percent of all foreign
M&As -- the working group did not fmd credible evidence demonstrating a coordinated
strategy. British firms historically have been very active in the V.S. market; M&As,
strategic alliances, and joint ventures between U. S. and British frrms are not unusual. A
closer review of reported M&As shows that British companies led all foreign M&A activities
in 7 of the 9 technologies covered in this study, and were second to Japanese frrms in the
semiconductor and computer industries. For instance:
o
Pittencrieff PLC led all foreign M&A activity in communications with 7 deals.
These acquisitions -- all of which involved U. S. fums specializing in mobile
telecommunications - illustrate Pittencrieff's effort to position itself in the
V. S. telecommunications market.
o
MTM PLC and Medeva PLC have been among the two most active foreign
frrms in acquiring U.S. biotechnology companies with 3 acquisitions each.
Moreover, the largest foreign acquisition of a U.S. high-technology frrm took
place in 1989 when Beecham acquired SmithKline Beckman, a producer of
medical diagnostic biotechnology products, for $7.922 billion.
o
ICI PLC and Courtaulds PLC were among the most active foreign companies
in advanced materials with 7 and 6 deals each, respectively.
Japan
Szunmary of M&A activities in the United States: We have identified 201 Japanese corporate
acquisitions of U.S. high-technology companies between January, 1985 and October, 1993.
24
Of these, 54 were in computer-related industries and 50 were in advanced materials.
Japanese activity peaked in 1990 with 48 acquisitions.
Evidence of governmental direction: The working group did not find credible evidence
demonstrating a coordinated strategy on the part of the Japanese government to direct its
firms to acquire u.s. companies with critical technologies. Japanese government officials
provide strategic and tactical advice that Japanese fIrms often follow in seeking M&As in the
United States. For example:
o
The Ministry of International Trade and Industry (MIT!) often issues official
assessments -- known as "visions" -- of the direction in which an industry is
and should be evolving and of the markets and technologies that will be key to
Japan's economic future. These "visions" may help focus Japan's
manufacturers on the need to acquire U.S. companies in these key areas.
MITI's 1990s "vision", for example, stressed the continued promotion of
cutting-edge technologies such as biotechnology, which has become a focus of
Japanese M&A activity in the United States.
Evidence of private sector strategy: The working group did not find credible evidence
demonstrating a coordinated strategy among firms in the Japanese private sector to acquire
U.S. critical technology firms. On an individual basis, Japanese corporations view M&As as
an excellent means of improving market access and of acquiring U.S. technologies.
According to available data, Japanese acquisitions are focused on the computer,
semiconductor, and advanced materials industries.
In addition, some Japanese companies -- especially those in industries such as steel -- have
undertaken buyouts of small U.S. biotechnology, microelectronics, and poly silicon firms as a
means of diversification. For example:
o
In the mid-1980s, Kubota -- a leading Japanese manufacturer of agricultural
equipment and building materials -- began to target several technologies,
including advanced computers, for future investment in order to diversify its
product line out of agriCUltural equipment.
o
The Mitsubishi Group -- one of the largest and most powerful of Japan's six
major industrial groups -- is turning to high-technology businesses to arrest a
decade-long slide vis-a-vis its major rivals. Mitsubishi's strategy involved
supplementing internal technology development activities with the acquisition
of U.S. firms in order to gain needed technologies and market share.
Mitsubishi has acquired 8 U.S. high-technology firms since 1985.
It should be noted, however, that direct purchase of U.S. high-technology firms has been a
relatively minor means for the Japanese to acquire U.S. technology. Japanese firms are
more likely to use licensing, joint ventures, strategic alliances, minority equity investments,
25
and venture capital as means of accessing needed technology and to increase their presence in
the U.S. market, but frequently at less cost and with less likelihood of negative publicity.
France
Summary of M&A activities in the United States: We have identified 87 French acquisitions
of U.S. high-technology companies between January, 1985 and October, 1993. Of these, 23
were in advanced materials and 21 in computer-related industries. French acquisitions
peaked in 1990 with 19 deals.
Evidence of governmental direction: Because it owns a controlling or minority stake in most
major French high-technology manufacturing companies -- particularly in the defense
industry -- the French Government has played a role in influencing French acquisitions of
U.S. high-technology fmns. It has tried to steer its manufacturers towards some M&A
opportunities in the United States and away from others.
Evidence of private sector strategy: The working group did not find credible evidence
demonstrating a coordinated strategy among French firms -- either government-controlled or
entirely private -- to acquire U.S. critical technology fums. On an individual basis, both
government-owned and private French firms generally use M&As to expand product lines
and increase access to U.S. markets and technology. For example:
o
While Thomson-CSF's focus has largely been on acquiring European firms, it
has acquired two U.S. electronics manufacturers since 1985.
o
Carbone Lorraine (CL), a subsidiary of state-owned Pechiney, acquired the
chemical equipment division of Kearney Industries in late 1989. By acquiring
Kearney -- a manufacturer of graphite-based mechanical components -- CL
gained a U.S. outlet for its production of graphite-based chemicals.
o
Aerospatiale, the French Government-owned aerospace manufacturer,
spearheaded the effort of itself and three other European companies to
purchase minority stakes in aU. S. manufacturer of commercial satellites in
1990 as a means of improving its satellite production capability.
Germany
Summary of M&A activities in the United States: We have identified 87 German corporate
acquisitions of u.S. high-technology companies between January, 1985 and October, 1993.
German firms were most active in advanced materials and biotechnology, with 30 and 14
deals respectively. German M&A activity peaked in 1989 and 1990 with 15 deals each year.
Evidence of governmental direction: The working group did not find credible evidence
demonstrating a coordinated strategy by the German Government to direct its domestic firms
26
to acquire U.S. critical technology companies. The Government may offer indirect
assistance in terms of identifying key technologies and has tax breaks in place for overseas
R&D efforts. We believe, however, that the high costs of unification make significant direct
government financial assistance unlikely in the near future.
Evidence of private sector strategy: The working group did not find credible evidence
demonstrating a coordinated strategy among firms in the German private sector to acquire
U.S. critical technology firms. On an individual basis, a review of corporate M&As with
U.S. high-technology firms shows that German frrrns use acquisitions to expand product
lines, lessen development costs, and increase access to advanced technology and the U.S.
market. According to available data, over one-third of the deals involved three of the largest
German conglomerates -- Siemens, BASF, and Hoechst -- which used M&As primarily to
bolster their core product lines. Siemens, for example, was the most active foreign firm with
12 deals in 6 industries. Hoechst and BASF, with 9 and 8 acquisitions respectively, focused
almost exclusively on advanced materials, thereby enhancing their technical capabilities and
market share in their core technologies.
In the case of biotechnology, however, German frrrns used M&As to diversify and to better
position themselves in the lucrative U.S. market. For example:
o
BASF and Hoechst have each acquired a biotechnology firm to help diversify
beyond their traditional chemical and textile product lines-.
o
As part of a push into the U. S. pharmaceutical market, Boehringer Mannheim
acquired :Microgenics, a producer of diagnostics used in cancer, heart disease,
and diabetics treatment. The U.S. firm had previously granted Boehringer
only European marketing rights before the acquisition, according to the trade
press.
Moreover, some German frrrns are acquiring U. S. firms in part to circumvent a restrictive
gene technology research law in Germany that requires public hearings for many corporate
biotechnology projects, and corporate facilities and records must be made open to the public,
according to press reports.
Canada
Summary of M&A activities in the United States: We have identified 85 Canadian corporate
acquisitions of U.S. high-technology companies between January, 1985 and October, 1993.
Nearly one-third (29) of the deals were in computer-related industries, followed by 20
percent in advanced materials. Nearly half the transactions have occurred since early 1990
which tracks the general increase in trade following the 1988 Free Trade Agreement.
27
Evidence of govenunental direction: The working group did not find credible evidence
demonstrating a coordinated strategy by the Canadian Government to direct its domestic
firms to acquire U.S. critical technology firms.
Evidence of private sector strategy: The working group did not fmd credible evidence
demonstrating a coordinated strategy among firms in the Canadian private sector to acquire
U.S. critical technology firms. On an individual basis, Canadian firms typically use M&As
with U.S. companies to acquire U.S. technology needed to expand product lines or to expand
their market presence in the United States. For example:
o
Derlan Industries, a holding company with subsidiaries in the automotive,
aerospace, and construction industries, purchased three small U. S.
manufacturers of electronic components between 1988 and 1989, probably to
help it diversify into electronics.
o
Memotec Data, a finn specializing in communications equipment and services,
acquired three communication systems firms in Massachusetts, most likely to
help in its drive to improve its technology base.
Switzerland
Summary of M&A activities in the United States: We have identified 53 Swiss corporate
acquisitions of U.S. high-technology companies between January, 1985 and October, 1993.
Swiss M&A activity has remained steady throughout the past several years, reaching a high
of 11 acquisitions in 1988. Acquisitions have occurred in a number of technologies, the
most frequent being professional and scientific equipment (13 deals), biotechnology (11
deals) and advanced materials (10 deals).
Evidence of governmental direction: The working group did not find credible evidence
demonstrating a coordinated strategy by the Swiss Government to direct its domestic finns to
acquire U.S. critical technology firms.
Evidence of private sector strategy: The working group did not fmd credible evidence
demonstrating a coordinated strategy among firms in the Swiss private sector to acquire U.S.
critical technology finns. Much of Swiss M&A activity can be attributed to a few large
conglomerates -- particularly Ciba-Geigy and Sandoz (7 deals each) -- trying to acquire new
technologies and expand their business activities in the United States. For example:
o
Sandoz acquired SyStemix Inc. in February 1992 and gained access to
SyStemix's work in cellular processes and products used to treat toxic side
effects from chemotherapy and other medical therapies.
28
o
Hoffmann-LaRoche acquired Genentech in 1990 to gain access to the frrm's
research and manufacturing facilities. According to industry experts, the
buyout was in part to sidestep strict limits on biotechnology activities in
Switzerland and other European countries.
Netherlands
Summary of M&A activities in the United States: We have identified 40 Dutch corporate
acquisitions of U.S. high-technology companies between January, 1985 and October, 1993,
nearly half of which were involved in advanced materials. Dutch activity has remained
steady over the years, peaking slightly in 1989 and 1990 with 8 deals each year.
Evidence of governmental direction: The working group did not find credible evidence
demonstrating a coordinated strategy by the Dutch Government to direct its domestic firms to
acquire U.S. critical technology companies.
Evidence of private sector strategy: The working group did not find credible evidence
demonstrating a coordinated strategy among firms in the Dutch private sector to acquire U.S.
critical technology firms. On an individual basis, Dutch corporate M&A strategy centers
around routine business activities. For example:
o
Akzo, a chemicals group, was the most active Dutch firm with 6 acquisitions
in advanced materials and 3 in biotechnology companies. The former were
intended to strengthen Akzo's core product line while the latter were for
diversification into biotechnology.
o
The electronics conglomerate Philips acquired two U. S. semiconductor firms,
a computer firm, and a precision instrument frrm to strengthen Philips'
position in the U.S. market while ensuring access to new technologies.
Sweden
Summary of M&A activities in the United States: We have identified 39 Swedish corporate
acquisitions of U.s. high-technology companies between January 1985 and October, 1993,
nearly half of which occurred in 1989 and 1990. Swedish firms were active in most hightechnology industries, with the greatest number of deals in biotechnology and computer
industries (10 and 9 deals, respectively).
Evidence of governmental direction: The working group did not fmd credible evidence
demonstrating a coordinated strategy by the Swedish Government to direct its domestic firms
to acquire U.S. critical technology fJIffis.
Evidence of private sector strategy: The working group did not find credible evidence
demonstrating a coordinated strategy among fJIffis in the Swedish private sector to acquire
29
U.S. critical technology firms. The bulk of Swedish M&A activity in the United States has
involved a handful of multinational companies such as specialty chemicals group Perstorp AB
(4 transactions), Axel Johnson (3 transactions), and telecommunications giant Ericsson (2
transactions). According to available information, these companies view M&As in the
United States as a means to bolster core technical strengths and gain leading-edge technology
to enter specialized markets. According to U.S. Embassy reporting, for example, some
Swedish fums are pursuing niche markets in biotechnology:
o
Biopool International, a manufacturer of surgical and medical instruments,
acquired technology in diagnostic testing equipment and reagents through its
Canadian subsidiary by acquiring two small U.S. manufacturers between 1990
and 1992.
o
Perstorp acquired the gas chromatograph business of Orion Diagnostics in
April 1985 and Alpkem Corporation in 1991, according to an industry study.
Italy
Summary of M&A activities in the United States: We have identified 25 Italian corporate
acquisitions of U.S. high-technology companies between January, 1985 and October, 1993.
Nine deals involved biotechnology firms, followed by 5 in advanced materials and 4 in
computer-related industries. Italian corporate M&A activity in the United States peaked in
1989 with 7 acquisitions.
Evidence of governmental direction: The working group did not find credible evidence
demonstrating a coordinated strategy by the Italian Government to direct its domestic flrms to
acquire U.S. critical technology companies. The Government of Italy has designated certain
technologies as critical to Italy's economic competitiveness.
Evidence ofprivate sector strategy: The working group did not find credible evidence
demonstrating a coordinated strategy among firms in the Italian private sector to acquire U. S.
critical technology fIrms. On an individual basis, several large Italian frrms acquired U.S.
companies for a variety of reasons. The majority of Italian M&A activities was conducted
by multinationals such as Montedison, a chemicals and agro-industry company, and the
computer firm Olivetti. Montedison and Recordati -- a pharmaceutical company -- accounted
for 4 of the 9 biotechnology M&As. Recordati, for instance, acquired Technogenetics and
Leeco Diagnostics in part to strengthen research and production capabilities in health care
and diagnostics. Olivetti, which was involved in 3 deals, evidently was seeking to strengthen
its position in computer-related industries. In 1989, for example, Olivetti merged with ISC
Systems and garnered 28 percent of the U.S. market for hardware and software used by
financial services institutions.
30
Taiwan
Summary of M&A activities in the United States: We have identified 10 Taiwan corporate
acquisitions of U.S. high-technology companies between January, 1985 and October, 1993.
Seven acquisitions were in computer-related industries, and three deals involved
semiconductors. All Taiwan M&A activity has taken place since early 1989, with the
majority occurring in 1990.
Evidence of governmental direction: Taiwan firms' M&A activity in the United States which has focused exclusively on semiconductor and computer companies -- may be
partially driven by the Taiwan authorities. In 1990, the authorities designated the
information technology and semiconductor industries as two of the ten most important
industries for Taiwan's future. As part of its strategy to help Taiwan manufacturers grow in
those areas, the Taiwan Authorities has helped finance buyouts of U.S. fums. For example:
o
The Executive Yuan Development Fund, which is under the direct supervision
of Taiwan's cabinet, committed 20 percent of the funds needed in March 1990
to purchase Wyse Technology, a U.S. manufacturer of micro-processor-based
video display products, according to the American Institute in Taiwan (AIT).
o
Taiwan's Central Bank declared in late October 1989 that it would help
Taiwan finns acquire foreign companies by using its huge foreign exchange
reserves - then estimated at over $73 billion -- to back Taiwan bids, which
could be in the form of guaranteed loans or assistance in securing financing
from other banks according to the AIT report.
Evidence of private sector strategy: The working group did not fmd credible evidence
demonstrating a coordinated strategy among firms in the Taiwan private sector to acquire
U.S. critical technology fIrms. On an individual basis, Taiwan companies acquire U.S.
fIrms mainly to help obtain the technology and market access needed to diversify into new
niches of the computer and semiconductor industries. For example:
o
Acer Inc. -- Taiwan's largest computer manufacturer - purchased two U.S.
computer-related companies to help it break into new product lines. In
September 1990, Acer paid $94 million for Altos Computer systems, a U.S.
maker of UNIX-based minicomputers to help it become a brand-name maker
of sophisticated PCs and minicomputers, according to trade journals. In June
1989, Acer acquired Princeton Publishing Labs Inc., a manufacturer and
developer of computer hardware and software, to help it diversify into
computer software, according to industry reports.
o
Channel International, a consortium of Taiwan companies, purchased Wyse
Technology in March 1990 to take over Wyse's product line, brand name
31
reputation, technology, and marketing network, according to public statements
by Channel's president.
South Korea
Summary of M&A activities in the United States: We have identified only 7 South Korean
corporate acquisitions of U.S. high-technology companies between January, 1985 and
October, 1993. These agreements have been in semiconductors, the computer industry, and
advanced materials (2 agreements each), and a single acquisition in electronics. We believe
South Korea's low level of M&A activity indicates their preference for strategic alliances as
a means of accessing U.S. markets and technology. For example, almost all of the licensing
agreements between South Korea and U.S. firms since 1985 involved the transfer of
advanced technology to South Korea -- primarily semiconductors and advanced materials.
Evidence of governmental direction: The working group did not find credible evidence
demonstrating a coordinated strategy by the South Korean Government to direct its domestic
firms to acquire U.S. critical technology firms. Available evidence suggests that the South
Korean Government has given indirect assistance to Korean frrms seeking to acquire U.S.
high-technology companies. The government encourages overseas corporate activities
through general guidance, tax credits, and relaxed reporting requirements. The government's
most recent technology development effort, for example, is aimed at overcoming
shortcomings in 11 technologies -- including semiconductors, HDTV, and biotechnology -by increasing domestic R&D spending and providing fmandal incentives to Korean hightechnology firms. As part of this effort:
o
The South Korean Government has in place authority to provide special
financing and tax breaks to domestic firms that want to merge with or acquire
foreign -- including U.S. - high-technology firms.
o
The government will no longer require extensive government approval for
foreign investments of up to $5 million, according to press reports.
Evidence of private sector strategy: The working group did not find credible evidence
demonstrating a coordinated strategy among frrms in the South Korean private sector to
acquire U.S. critical technology frrms. Overall, Korean frrms have been, to date, minor
players in the foreign acquisition of U.S. high-technology fIrms. Although Korea's major
industrial conglomerates (chaebols) -- Daewoo, Hyundai, Lucky-Goldstar, and Samsung have relied primarily on U.S. technology for their modernization strategies, they generally
have lacked the fmancial wherewithal to acquire U.S. high-technology companies. Instead,
their preferred technology acquisition methods are to form joint production ventures and to
directly purchase technologies.
The seven instances in which Korean firms have acquired aU. S. firm indicate that the
Korean firms are focusing on their core product lines: semiconductors, computers, and
32
advanced materials. Daewoo, for example, bought ZyMos Corporation in 1986 in part to
acquire the U.S. fmn's expertise in metal oxide semiconductors. Similarly, Newmax bought
the U.S. semiconductor fmn Micronetics in late 1990. Many industry observers believe that
these acquisitions were motivated by the Korean firms' desire to replace labor intensive
businesses, which are becoming uncompetitive due to rising wages, with companies in high
value added, high-technology industries. Moreover, Korean firms are seeking to become less
dependent on Japanese technology and to acquire U.S. technology that will enable them to
better compete with Japanese firms.
33
APPENDIXC
34
Number of Foreign M&A Deals with US High
T~,~ h ~ 0 I~y,~~~ ~~.a n, i ~~~tJ?LYea r ~_"'_~V'.V_""w~_~'." ~~~",.
Number of Deals
200 , - - - - - - - - - - - - - - , . . _
180
vv
160
vv
v.·v
v
vvv
••
vv.
vv.
v.
V
v.
v.v
Vv
vvv.
vv.
v
vv
vvv
v
•••••••••
v
••• v
••
v
•••••••••
••
v
••••
vv
••
v
••
oo.v
••
v
V
v
••
vv
.vv.
vv
140
120
.
100
.......
vv
.vv
vvv
vv
.v
•••••• v
v.
•••••••
vo.
vVv
80
60
40
20
85
*
86
87
88
89
90
91
92
Foreign M&A Deals with US High Technology
Companies, by Region
~~,
Total 984
Pacific Rim (228)
23%
W Europe
(7S6) 77%
and Canada
Data collection: January 1, 1985 - October 1, 1993
M&A Deals with US High Technology Companies
by Country
South Korea 1%
Sweden 4%
United Kingdom
Switzerland 5%
31%
3%
Japan 20%
Total 984
* Other countries include Finland, Denmark, Norway, Belgium, Austria,
Spain, Luxembourg, Hong Kong, Thailand, and Singapore
Data collection: January,·._v1... 1985 - October
1. 1993
..
." •..•....
v~""~,_,
_ _ _•· ....
~~~_~
ov~,~,.v
..
'v .. , ..
~.~v.~
____________________
~
Foreign M&A Deals with US High Technology
Companies, by Industry
Advanced Manufacturing
48 (5%)
Communications
63 (6%)
Advanced Materials
263 (27%)
Semiconductors
95 (10%)
Electronics Related
34 (3%)
Pro/Sci Instruments
125 (13%)
Aircraft & Parts
24 (2%)
Total 984
Data collection January 1, 1985 - October 1. 1993
__r-~.~.,,,,_."'-~"_"""''''''''-'''-'''''''''~''''''''
~_'.,.. "."-~"--
, .. ...
yo< •
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.. .,...,......,~r-..,.,...,
Foreign M&A Deals with US High Technology Companies,
by Technology and Year
Number of Deals
70-.-------------------------------------------------------60~·-------------------------------·------------------------
~~.----------------------------~-----------4----------
____ _
®~.-------------------------~----------~-------------- -----
30 ..... - - - - - - - - - - - - - - - -
-~
- - - - - - - - - Computers
. .:'):
--
)
""
=__ _ Advanced Materh~ls
L..
Prof/Sci InstrumP.nts
Biotechnology
:;
10
Communlca7k!",.
...,.,,,,~%,
~
"".~
,.,.~"""_«
o
86
__,~
_,ow"""''''--
I
i
I
I
I
87
88
89
90
91
~ ST.~mi~~ndudO~<;
s::;;;;:: f\"
c r;;s ft
Electronics
r6.dvanced Mcnut?during
92
M&A Deals with US High Technology Companies by Cou~try~nd.lndu<~~~.,_
Number of Agreements
---
.,.,.....,~-~-
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--
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Japan
Germany
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Data collection: January 1, 1985 - October 1, 1993
"
Foreign Companies Most Active in Acquiring
US High Technology Firms
i
j
i\-Name of Firm
Country
'-"~~~'~ '-"'~-'-' '--'~'''-'~----'
Germany
12
Switzerland
10
Netherlands
9
Germany
9
United Kingdom
9
Japan
9
Germany
8
United Kingdom
8
United Kingdom
8
United Kingdom
8
France
8
* These include acquisitions by the parent corporation
as well as its subsidiaries.
Number of
Acquisitions*
VBLIe DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 9, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 7-DAY BILLS
Tenders for $4,003 million of 7-day bills to be issued
September 9, 1994 and to mature September 16, 1994 were
accepted today (CUSIP: 9127942C7).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.64%
4.67%
4.65%
Investment
Rate
4.70%
4.75%
4.70%
Price
99.910
99.909
99.910
$950,000,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 92%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$25,060,000
Accepted
$4,003,000
$25,060,000
$4,003,000
o
o
$25;060,000
$4,003,000
Type
Competitive
Noncompetitive
TOTALS
In addition to the above, the following amounts were
received and accepted.
Federal Reserve
Foreign Official
Institutions
LB-I063
o
o
o
o
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
FOR RELEASE AT 2:30 P.M.
September 9, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $16,750 million of
52-week Treasury bills to be issued September 22, 1994. This
offering will provide about $1,400 million of new cash for the
Treasury, as the maturing 52-week bill is currently outstanding
in the amount of $15,341 million.
In addition to the maturing
52-week bills, there are $25,469 million of maturing 13-week and
26-week bills, as well as $6,034 million of maturing 69-day,
$7,005 million of maturing 38-day, and $7,005 million of maturing
16-day cash management bills.
Federal Reserve Banks hold $10,315 million of bills for
their own accounts in the six maturing issues. These may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $6,150 million of the six
maturing issues as agents for foreign and international monetary
authorities.
These may be refunded within the offering amount at
the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount of
maturing bills.
For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $445 million of the maturing 52-week issue.
Tenders for the bills will be received at Federal
Reserv~ Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities is
governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about the new security are given in the attached
offering highlights.
000
Attachment
LB-I064
HIGHLIGHTS OF TREASURY OFFERING OF 52-WEEK BILLS
TO BE ISSUED SEPTEMBER 22, 1994
September 9[ 1994
Offering Amount .
$16,750 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Maturing amount.
Minimum bid amount
Multiples .
364-day bill
912794 T3 8
September 15, 1994
September 22, 1994
September 21, 1995
September 22, 1994
$15,341 million
$10,000
$1,000
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000
at the average discount rate of
accepted competitive bids.
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10~.
(2) Net long position for each bidder
must be reported when the sum of the
total bid amount, at all discount
rates, and the net long position are
$2 billion or greater.
(3) Net long position must be reported
one half-hour prior to the closing
time for receipt of competitive bids.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders .
Payment Terms .
Prior to 12:00 noon Eastern Daylight
Saving time on auction day.
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date.
DEPARTMENT
'IREASURY
OF
THE
TREASURY
~NEWS
~8~9.~
..............
.............._
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
Contact: Rebecca Lowenthal
(202) 622-2960
FOR IMMEDIATE RELEASE
September 9, 1994
HAULSEY NAMED TREASURY'S FACILmES MANAGEMENT DIRECTOR
James Haulsey has been named Director of the Facilities Management Division at
the Department of the Treasury.
In announcing Haulsey's appointment to the post, Assistant Secretary for
Management George Munoz said, "Jim and his staff are committed to providing quality
customer service. In a landmarked building that demands tremendous care, Jim's
appointment ensures that our valuable space will be managed with foresight and
professionalism."
Haulsey joined Treasury in 1992 as Deputy Director for Facilities, and had been
Acting Director for the last 18 months. He came to Treasury from the General Services
Administration, where he had been a space alteration specialist and building manager
since 1984. He was a construction inspector with the U.S. Army Corps of Engineers
from 1982 to 1983. Haulsey spent 10 years with Safeway stores, first as a draftsman and
construction inspector, and then as a building manager for 160 stores. He began his
career as a crew chief and mechanic in the U.S. Air Force.
Haulsey received an A.A. degree in architectural drafting from Virginia Highland
Community College in 1970.
-30LB-1065
DEPARTMENT
OF
THE
TREASURY
~ZI78~g~_ _
......................................
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 12, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
I have directed the Secret Service and Under Secretary for Enforcement Ron
Noble to provide me with a full report on this matter. The Secret Servlce, which is
responsible for Presidential protection, is investigating this incident.
We are always concerned when the issue of the President's safety is involved, but
it is too early to come to any conclusions.
We are grateful that the President and his family were not endangered.
-30-
LB-1066
DEPARTMENT
OF
THE
~~/78g?~_ __
....................................
TREASURY
NEWS
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 12, 1994
STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
There will be two phases of inquiry into the aircraft crash that took place at the White House
early this morning.
First, the Secret Service, Federal Bureau of Investigation, Federal Aviation Administration,
National Transportation Safety Board, and Metropolitan Police Department have combined
their resources to investigate this incident and pursue any appropriate law enforcement
action. The investigation will focus on this particular case. For the present time, the Secret
Service will coordinate public information on this investigation.
Second, I have asked Ronald K. Noble, Under Secretary for Enforcement, and Eljay
Bowron, Director of the Secret Service to lead a thorough review of the procedures used to
protect the President and First Family in such incidents.
This review will be coordinated with the White House and all relevant federal, state and local
agencies, and will call upon the advice of outside experts as appropriate. The review will be
completed in 90 days.
Nothing is more imporo..nt to me and to the Secret Service than the protection of the
President, the Vice President and their families, and I expect that this comprehensive review
will help the Secret Service carry out this mission.
As I am sure everyone c::ln appreciate, it has long been standard practice at the Treasury
Departni"'~nt and the Secret Service not to comment on the security measures surrounding the
protection of the President and First Family. Any comment on the security procedures used
by the Secret Service would run directly contrary to their protective responsibilities.
-30LB - 1067
LIe DEBT NEWS
Department of the Treasury •
Bureau of the Public Debl • Washington. DC 20239
FOR IMMEDIATE RELEASE
September 12, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF I3-WEEK BILLS
Tenders for $11,612 million of I3-week bills to be issued
September 15, 1994 and to mature December 15, 1994 were
accepted today (CUSIP: 912794M27).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.60%
4.62%
4.61%
Investment
Rate
4.72%
4.74%
4.73%
Price
98.837
98.832
98.835
$10,000,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 15%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$51,224,487
Accepted
$11,612,109
$45,536,037
1,225,857
$46,761,894
$5,923,659
1,225,857
$7,149,516
3,344,280
3,344,280
1,118,313
$51,224,487
1,118,313
$11,612,109
An additional $373,887 thousand of bills will be
issued to foreign official institutions for new cash.
LB-I068
Department of the Treasury. Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 12, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,677 million of 26-week bills to be issued
September 15, 1994 and to mature March 16, 1995 were
accepted today (CUSIP: 912794Q98).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.98%
4.99%
4.99%"
Investment
Rate
5.18%
5.19%
5.19%"
Price
97.482
97.477
97.477
Tenders at the high discount rate were allotted 45%".
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$48,206,907
Accepted
$11,677,202
$43,369,298
1,022,322
$44,391,620
$6,839,593
1. 022,322
$7,861,915
3,100,000
3,100,000
715,287
$48,206,907
715,287
$11,677,202
An additional $239,013 thousand of bills will be
issued to foreign official institutions for new cash.
LB-I069
Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Transcript
Number of Pages Removed: 19
Author(s):
Title:
White House Special Briefing Re: Crash of Airplane Into the White House
Date:
1994-09-12
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
DEPARTMENT
OF
THE
'IREASURY
--.....iJ
1 78-,-<)_ _
TREASURY
NEWS
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. _ 20220 _ (202) 622-2960
FOR IMMEDIATE RELEASE
September 14, 1994
STATEMENT OF EDWARD S. KNIGHT
NOMINEE FOR TREASURY DEPARTMENT GENERAL COUNSEL
BEFORE THE SENATE FINANCE COMMITIEE
Thank you, Mr. Chairman, Senator Packwood and members of the Committee for
the opportunity to appear before you today. It is a great privilege to be here, and I want
to express my appreciation to you for scheduling this hearing so expeditiously.
I am deeply honored to be President Clinton's nominee to be General Counsel of
the Treasury Department. And I am sincerely grateful to Secretary Bentsen for
recommending me to the President.
The General Counsel serves as the chief legal officer of the Treasury Department,
and one of the critical duties of this position is providing advice to the Secretary and
other senior Department officials. This advice is on matters ranging from government
financial operations and law enforcement to domestic and international economic,
monetary and financial affairs.
As you are well aware, Secretary Bentsen was once a member and chairman of
this committee. My service on his Senate staff, 14 years of private law practice -- and
especially the past 20 months as Executive Secretary of the Department and Senior
Advisor to the Secretary -- have given me broad exposure to all of these areas of
Treasury's legal practice. The responsibilities of the position are both substantial and
challenging.
My service at the Department also has given me great respect for all of my
colleagues at Treasury and, particularly, for the staff of the Office of the General
Counsel. We have worked extremely closely in recent months, and I assure you there's a
great deal of superior legal expertise in the office.
(MORE)
LB-1070
2
This has been a difficult summer for the Department. But I am proud to say we
have not lost sight of the fact that we have important matters on our agenda, such as the
two banking bills, and the Uruguay Round and the Superfund reauthorization legislation
on which we have been working so closely and productively with this Committee.
Secretary Bentsen has made it clear that he intends to move forward forcefully to
achieve our goals. I intend to help him in any way I can.
I look forward to working closely with the Congress, especially with you, Mr.
Chairman, and the members of the Finance Committee. I have the greatest respect for
this institution. I am deeply committed to maintaining a close working relationship
between the executive and legislative branches of government.
Before I close, I want to thank the most important people in my life -- my wife,
Amy, and son, Travis. Without their understanding and support I wouldn't be before you
today.
Mr. Chairman, that concludes my statement and I'd be happy to answer any
questions the Committee may have.
-30-
DEPARTMENT
OF
~178~
THE
TREASURY
NEWS
............
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 13, 1994
CONTACf: Scott Dykema
(202) 622-2960
U.S., ISRAEL AGREE ON TAX INFORMATION EXCHANGE
The Treasury Department said Tuesday that the United States and Israel
confirmed a mutual commitment to tax compliance and enforcement goals of the
pending U.S.-Israel income tax treaty.
In an exchange of correspondence, senior officials spelled out their intention to
cooperate fully in exchanging tax information, including, where relevant, bank
information.
Based on these assurances, the Treasury Department is requesting the Senate to
give its advice and consent to the ratification of the pending income tax treaty protocol.
Treasury last year had asked the Senate to hold off approving the pending protocol until
these assurances had been received.
The United States and Israel share a mutual expectation that the treaty, as
amended by this protocol, will benefit the economies of both countries by facilitating
increased cross-border flows of goods, services, capital and technology.
-30-
LB-1071
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 P£NNSYLVANlAAVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
Contact: David Icikson
(202) 622-2960
FOR IMMEDIATE RELEASE
September 13, 1994
TREASURY COLLECTS NEARLY $1 MILLION IN PENALTIES
Treasury Secretary Lloyd Bentsen announced Tuesday that the Department of the
Treasury has collected $914,500 in civil money penalties from seven financial institutions for
violating the Bank Secrecy Act.
Bentsen said that penalties were collected from the following financial institutions:
•
•
•
•
•
•
•
Mark Twain Bank (St. Louis, Mo.), $750,000
Claridge Casino Hotel (Atlantic City, N.J.), $120,000
First National Bank of Chicago Heights (TIl.), $20,000
Jonestown Bank and Trust Company (pa.), $12,500
LaSalle National Bank (TI1.), $5,000
New Damen and Grand Currency Exchange (Chicago,Ill.), $5,000
Public Employees Credit Union (Austin, Texas), $2,000
"These penalties send a strong message that the Treasury Department is committed to
fighting money laundering and other financial crimes," Bentsen said. "Our first line of
defense is an effective Bank Secrecy Act program that ensures a viable paper trail of financial
transactions and adequately identified customers. Treasury will continue to hold financial
institutions accountable when they fail to comply with the act."
Secretary Bentsen also acknowledged the joint efforts of federal banking regulators
and the Internal Revenue Service Examination Division for their reviews of Bank Secrecy Act
compliance by the institutions they supervise.
The Bank Secrecy Act requires banks and other nonbank financial institutions to keep
certain records, to file reports with the Treasury on cash transactions in excess of $10,000
and to file reports on the international transportation of currency and certain monetary
instruments in bearer form. The purpose of these reports and records is to assist the
government's efforts in civil, criminal, tax and regulatory investigations.
-30LB-I072
DEPARTMENT
OF
THE
TREASURY
NEWS
...._____
_~/78-c..C)
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
September 13, 1994
Contact: David Icikson
(202) 622-2960
PENALTY LEVIED AGAINST MARK TWAIN BANK
The Treasury Department announced Tuesday that Mark Twain Bank of St. Louis,
Missouri, has paid a $750,000 civil money penalty for failing to file reports as required by
the Bank Secrecy Act.
The settlement is for violations which occurred from October 1988 to March 1994,
and involved large currency transactions conducted by various customers including one who
operated a check cashing/money order sales business. Previous Federal Deposit Insurance
Corporation (FDIC) examinations and several internal audits had noted deficiencies by the
bank in complying with the Bank Secrecy Act.
In determining the amount of the penalty, Treasury considered the cooperation of, and
steps taken by the bank to enhance its Bank Secrecy Act program, including improvements to
its training and auditing programs. Treasury has no evidence that the bank or any of its
officers, directors or employees engaged in criminal activity in connection with these
reporting violations.
In announcing the penalty, Ronald K. Noble, Under Secretary for Enforcement, said,
"This penalty should emphasize the importance of implementing effective compliance and
audit programs to ensure that a financial institution's responsibilities under the Bank Secrecy
Act are fully met." He also acknowledged the commitment of the bank's management to
ensure compliance in the future.
Noble acknowledged the FDIC's assistance and its diligence in effective reviews of
Bank Secrecy Act compliance during bank examinations.
The Bank Secrecy Act requires banks and other fmancial institutions to keep certain
records, to file CTRs with Treasury on cash transactions in excess of $10,000 and, under
certain circumstances, to file reports on the international transportation of currency, traveler's
checks and other monetary instruments in bearer form. The purpose of these reports and
records is to assist the government in combating money laundering as well as for use in
criminal, tax and regulatory investigations.
-30LB-I073
DEPARTMENT
OF
THE
TREASURY
NEWS
~~/78~9~. . . . . . . . . . . . . . . . . ..
......
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 13, 1994
Contact: David Icikson
(202) 622-2960
PENALTY LEVIED AGAINST CLARIDGE CASINO HOTEL
The Treasury Department announced Tuesday that the Claridge Casino Hotel, Atlantic
City, New Jersey, has paid a $120,000 civil money penalty for failing to report to the Internal
Revenue Service (IRS) currency transactions as required by the Bank Secrecy Act.
The cash transactions were conducted by customers of the casino from December 1985
to October 1987. In determining the amount of the penalty, Treasury considered the
substantial corrective actions taken by Claridge and the extensive improvements to the Bank
Secrecy Act compliance program subsequently implemented by its management. Treasury
has no evidence that the casino engaged in any criminal activities in connection with these
reporting violations_
Ronald K. Noble, Under Secretary for Enforcement, stated, "Reporting failures,
whatever their cause, are extremely serious. This impairs our ability to monitor potentially
suspect conduct and frustrates Treasury efforts to close the doors of all financial institutions,
including casinos, to the activities of money launderers, tax evaders and other perpetrators of
financial crime who prey on such institutions. ,.
Noble acknowledged the efforts of the IRS for its compliance examinations which led
to referral of this matter to Treasury. "Today's action could not have been undertaken
without the dedication and skill of the agents of the IRS Examination Division in Mays
Landing, New Jersey."
Since 1974, banks and other fmancial institutions have been required to maintain
certain records and to file reports of currency transactions in excess of $10,000 with the
government to assist in money laundering and tax investigations. In 1985, Treasury imposed
similar requirements upon casinos in recognition that casinos are a predominantly cash-based
business which have been used for money laundering in the past.
The Bank Secrecy Act regulations require that whenever a person conducts a
transaction in currency in excess of $10,000, whether at the cashier's window or on the
gaming floor of a casino, a report must be filed with the IRS.
-30LB-I074
DEPARTMENT
_____
OF
THE
TREASURY
NEWS
~8C)~_-------
OFFICE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
September 13, 1994
Contact: David Icikson
(202) 622-2960
PENALTY LEVIED AGAINST FIRST NATIONAL BANK OF CHICAGO HEIGHTS
The Department of the Treasury announced Tuesday that the First National Bank of
Chicago Heights, Chicago Heights, lliinois, has paid a $20,000 civil money penalty for
failing to file Currency Transaction Reports (CTRs) as required by the Bank Secrecy Act.
The violations, which occurred in 1988, involved reportable currency transactions by
both personal and commercial customers of the bank.
In accepting the bank's settlement offer, Treasury considered the change in bank
management since the time of the violations, the cooperation of the bank's current
management and improvements in the bank's Bank Secrecy Act compliance program.
Treasury has no evidence that the bank or any of its officers, directors or employees
engaged in criminal activity in connection with the reporting violations. "This settlement
represents a complete resolution of the bank's Bank Secrecy Act civil liability for these
violations and should encourage all financial institutions to implement effective Bank Security
Act compliance programs," said Stanley E. Morris, Director of Treasury's Financial Crimes
Enforcement Network.
The Bank Secrecy Act requires banks and other financial institutions to keep certain
records, fue CTRs with Treasury for currency transactions in excess of $10,000 and file
reports of international transportation of currency, traveler's checks and other monetary
instruments in bearer form. These records and reports assist the government's efforts in
combatting money laundering and are used in civil, criminal, tax and regulatory
investigations.
-30-
LB-I075
DEPARTMENT
OF
THE
TREASURY
..<..~
_
'l'DRASURY
~
NEW
S
.l'-~
l'78g~_ ___
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
Contact: David Icikson
(202) 622-2960
FOR IMMEDIATE RELEASE
September 13, 1994
PENALTY LEVIED AGAINST JONESTOWN BANK AND TRUST
The Department of the Treasury announced Tuesday that the Jonestown Bank & Trust
Company, Jonestown, Pennsylvania has paid a $12,500 civil money penalty for failing to file
Currency Transaction Reports (CTR) within the time frame required by the Bank Secrecy
Act.
The violations involved reportable currency transactions conducted by individual and
commercial customers of the bank.
In determining the amount of the penalty, Treasury considered the change in bank
management, corrective actions by the bank, and improvements to its Bank Secrecy Act
compliance program since the time of the violations. Treasury also considered the bank's
cooperation with law enforcement
Treasury has no evidence that the bank or any of its officers, directors or employees
engaged in criminal activity in connection with the reporting violations.
In announcing the penalty, Stanley E. Morris, Director of Treasury's Financial Crimes
Enforcement Network, said, "Management involvement in the compliance process is a key
element to the success of a comprehensive Bank Secrecy Act compliance program."
The Bank Secrecy Act requires banks and other financial institutions to keep certain
records, file CTRs with Treasury for currency transactions in excess of $10,000, and file
reports of international transportation of currency, traveler's checks, and other monetary
instruments in bearer form. These records and reports assist the government's efforts in
combatting money laundering and are used in civil, criminal, tax and regulatory proceedings.
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LB-I076
DEPARTMENT
OF
THE
/'<~~~{'.
'IREASURY ~ ~~ ~\
I;; ~
j;I
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~178'l
••••
TREASURY
NEWS
OFFlCE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 14, 1994
STATEMENT OF FRANK N. NEWMAN
NOMINEE FOR DEPUTY SECRETARY OF THE TREASURY
BEFORE THE SENATE FINANCE COMMITTEE
Mr. Chairman, Senator Packwood, and members of the committee, it is genuinely a
privilege and a pleasure to appear before you today. While the circumstances that led to my
nomination were unfortunate in many ways, it is an honor to be recommended by Secretary
Bentsen and nominated by the President to be Deputy Secretary of the Treasury.
I look forward to working cooperatively with the Committee on issues of mutual
concern and opportunity. I realize that there are often a number of different perspectives on
matters of importance; expression and consideration of those varying views are part of the
strength of our system of democracy. I came to Washington determined to listen carefully,
and to try to understand and appreciate different views on issues, as I participate in the
development of the balance and combination of alternatives.
My primary responsibilities as Under Secretary for Domestic Finance have focused on
policy and regulatory matters regarding financial institutions, management of the federal debt,
and financing provided by the Treasury, as well as the operations supporting these functions.
In addition, Secretary Bentsen has asked me to represent the Treasury Department in various
interagency efforts, including the Working Group on Financial Markets, and the President's
Management Council.
If confirmed as Deputy Secretary, I hope to serve primarily in three broad areas. First,
to support Secretary Bentsen in ways that he deems most useful, including on major programs
at the Treasury Department, as well as Treasury's role in key Administration initiatives.
(MORE)
LB-I077
2
Secofid, to assist the Secretary in the management of the range of policy offices and
bureaus \vithin the Department. The scope of the Department's activities is extremely broad,
and the functions it performs are some of the most basic of government -- collecting taxes,
enforcing many laws, and producing our coins and currency, to name a few. I believe that
serious attention to running the government well is a vitally important function for those of us
who sign on to the Executive Branch.
And third, although I will obviously have less time to spend on matters of Domestic
Finance, I hope to continue to be active in issues regarding the financial system. The key
objectives are to allow the providers of financial services to be more efficient and adaptive to
modem financial markets, to protect the safety and soundness of the system, and to assure that
the system serves fairly the financial needs of a broad range of people and businesses of the
nation.
If confirmed, I will undertake the challenging responsibilities of the office of Deputy
Secretary with diligence, with a constant sense of financial responsibility, with an open mind,
and with a commitment to integrity.
Thank you, Mr. Chairman. I would be pleased to respond to questions of the
Committee.
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DEPARTMENT
'IREASURY
OF
THE
TREASURY
NEWS
c.... . . . . . . . . . . . . . . ..
178 9
OFFICE OF PUBliC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 13, 1994
CONTACT: David Icikson
(202) 622-2960
PENALTY LEVIED AGAINST NEW DAMEN AND GRAND CURRENCY EXCHANGE
The Department of the Treasury announced Tuesday that New Damen and Grand
Currency Exchange, a check cashing service in Chicago, illinois, has paid a $5,000 civil
money penalty for failing to file a Currency Transaction Report as required by the Bank
Secrecy Act.
The violation occurred in 1987 and involved multiple checks cashed concurrently for a
single customer. Treasury determined the amount of the penalty after considering the check
casher's cooperation and improvement in reporting currency transactions.
Stanley E. Morris, Director of Treasury's Financial Crimes Enforcement Network,
said this penalty reflects Treasury's continuing effort to enforce compliance with the act by
nonbank financial institutions. "Treasury encourages all financial institutions to develop
effective Bank Secrecy Act compliance programs to help detect and deter money laundering,"
he said.
The Bank Secrecy Act requires banks and other nonbank financial institutions to keep
certain records, to file reports with the Treasury on cash transactions in excess of $10,000
and to file reports on the international transportation of currency and certain monetary
instruments in bearer form. The purpose of these reports and records is to assist the
government's efforts in civil, criminal, tax and regulatory investigations and proceedings.
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LB-I078
DEPARTMENT
OF
THE
TREASURY
NEWS
'IREASURY
FOR IMMEDIATE RELEASE
September 13, 1994
Contact: David Icikson
(202) 622-2960
PENALTY LEVIED AGAINST LASALLE NATIONAL BANK
The Treasury Department announced Tuesday that LaSalle National Bank, LaSalle,
lliinois, has paid a $5,000 civil money penalty for failing to report certain cash transactions
within the time required by the Bank Secrecy Act.
The violations which occurred between August 1990 and December 1991 involved
single and multiple currency transactions in excess of $10,000 which were not reported on
Currency Transaction Reports (CTRs). The violations were identified by the bank during an
internal audit.
Treasury and the bank agreed upon the amount of the penalty in complete settlement of
the bank's civil liability under the Bank Secrecy Act. In determining the amount of the
penalty, Treasury considered the bank's voluntary disclosure of the violations, full
cooperation, and subsequent improvements in its compliance with the act and its Bank
Secrecy Act compliance program.
Treasury has no evidence that the bank or any of its employees or officers engaged in
any criminal activities in connection with these reporting violations.
Stanley Morris, Director of the Financial Crimes Enforcement Network, in
announcing the penalty, said, "I compliment the bank on its voluntary notification of and
cooperation with Treasury on this matter. The bank's actions have enhanced its ability to
comply with the requirements of the Bank Secrecy Act."
The Bank Secrecy Act requires banks and other financial institutions to keep certain
records, file CTRs with Treasury on cash transactions in excess of $10,000 and file reports
on the international transportation of currency, traveler's checks and other monetary
instruments in bearer form. The purpose of these records and reports is to assist the
government in combatting money laundering as well as for use in civil, criminal, tax and
regulatory investigations.
-30LB-I079
DEPARTMENT
OF
THE
TREASURY
NEWS
FOR Th1MEDIATE RELEASE
September 13, 1994
Contact: David Icikson
(202) 622-2960
PENALTY LEVIED AGAINST PUBLIC EMPLOYEES CREDIT UNION
The Department of the Treasury announced Tuesday that the Public Employees Credit
Union, Austin, Texas, has paid a $2,000 civil money penalty for failing to file a Currency
Transaction Report (CTR) as required by the Bank Secrecy Act.
The violation, which occurred in 1988, involved a reportable withdrawal of currency
from the account of a credit union employee.
In determining the amount of the penalty, Treasury considered the full cooperation of
the credit union, corrective action taken by the credit union, the credit union's cooperation
with law enforcement and improvements to the credit union's Bank Secrecy Act compliance
program.
In announcing the penalty, Stanley E. Morris, Director of Treasury's Financial Crimes
Enforcement Network, said, "In ensuring Bank Secrecy Act compliance, it is important to
monitor the activities of both customers and insiders."
Treasury has no evidence that the credit union or any of its officers, directors or
employees engaged in criminal activity in connection with the reporting violation.
The Bank Secrecy Act requires banks and other frnancial institutions to keep certain
records, file CTRs with Treasury for currency transactions in excess of $10,000, and file
reports of international transportation of currency, traveler's checks and other monetary
instruments in bearer form. These records and reports assist the government's efforts in
combatting money laundering and are used in civil, criminal, tax and regulatory
investigation s.
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LB-I080
DEPARTMENT
OF
THE
'IREASURY ~~.+'~)
3~f/
..
TREASURY
NEW S
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1789£:. . . .
OFHCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
September 13, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approxima~ely $23,200 million, to be issued September
22, 1994.
This offering will result in a paydown for the
Treasury of about $22,325 million, as the maturing bills total
$45,513 million (including the 69-day cash management bills
issued July 15, 1994, in the amount of $6,034 million, the 38-day
cash management bills issued August 15, 1994, in the amount of
$7,005 million, and the 16-day cash management bills issued
September 6, 1994, in the amount of $7,005 million). In addition
to the maturing l3-week, 26-week, 69-day, 38-day, and 16-day
bills, there are $15,341 million of maturing 52-week bills.
The
disposition of this latter amount was announced last week.
Federal Reserve Banks hold $10,315 million of bills for
their own accounts in the six maturing issues. These may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $6,558 million of the six
maturing issues as agents for foreign and international monetary
authorities.
These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for suc.:h accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills.
For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $6,113 million of the original 13-week and
26-week issues.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities.
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-IOBI
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED SEPTEMBER 22, 1994
September 13, 1994
Offering Amount .
$11,600 million
$11,600 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 P5 7
September 19, 1994
September 22, 1994
December 22, 1994
June 23, 1994
$12,950 million
$10,000
$ 1,000
182-day bill
912794 R2 2
September 19, 1994
September 22, 1994
March 23, 1995
September 22, 1994
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
'IREASURY
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
For Release Upon Delivery
Expected at 10:30 a.m.
September 14, 1994
STATEMENT OF
LESLIE B. SAMUELS
ASSISTANI'SECRETARY (TAX POUCy)
DEPARTMENT OF THE TREASURY
BEFORE THE
SENATE FINANCE COMMITTEE
Mr. Chairman and Members of the Committee:
I am pleased to discuss today the Administration s proposals for funding the
reauthorization and amendment of the Comprehensive Environmental. Response,
Compensation, and Liability Act of 1980 (CERCLA) contained in the Superfund Reform Act
of 1994 (5. 1834). CERCLA created the Superfund program, which is the Federal
government's primary program for addressing dangerous environmental and health conditions
created by the release of hazardous substances into the environment.
I
Before describing the specific financing elements connected with the Administration's
proposal, I would like to briefly summarize the Superfund reform lqisJarian aDd the state of
affairs under current law.
CURRENT LAW
Smx;rfund Trust Fund
CERCLA provides the Federal government with the authority to respond to and clean
up releases of hazardous substances into the environment. Under CERCLA, the
Environmental Protection Agency (EPA) has two tools for cleaning up hazardous waste sites.
First, EPA can take legal action to force responsible parties to clean up contaminated sites or
to reimburse the Federal government for the cost of the cleanup. Second, EPA can use
funds in the Hazardous Substance Superfund trust fund to finance the cleanup of hazardous
waste sites where a responsible party cannot be found or is not financially viable (orphaned
LB 1082
sites). The trust fund can also be tapped to expedite the cleanup of other sites where costs
will ultimately be recovered from potentially responsible parties (PRPs).
The Superfund trust fund is currently financed primarily by excise taxes on domestic
crude oil, imported petroleum products, certain chemicals and imported derivative products,
a corporate environmental tax, and annual appropriations from general revenues. More
specifically, the trust fund is financed by the following taxes: (1) an excise tax on crude oil
and imported petroleum products equal to 9.7 cents per barrel for domestic crude oil
received at a United States refinery or exported, on imported crude oil, and imported
petroleum products entered into the United States for consumption, use, or warehousing; (2)
excise taxes imposed on listed chemicals sold domestically or used by the manufacturer,
producer, or importer of the listed chemicals at rates ranging from $0.22 to $4.87 per ton;
(3) excise taxes on certain imported derivative products generally at rates applicable to
taxable chemicals used as materials in the manufacture of the imported substances; and (4)
the corporate environmental tax equal to 0.12 percent of modified alternative minimum
taxable income in excess of $2 million.
These taxes are scheduled to expire on December 31, 1995. However, the taxes may
tenninate earlier if amounts in the Superfund trust fund reach certain levels. The Superfund
taxes may expire before January 1, 1996 if (1) on December 31, 1994, the unobligated
balance in the Superfund exceeds $3.5 billion and will exceed $3.5 billion at the end of the
following year if no Superfund taxes were imposed during the year, or (2) if the amount of
cumulative Superfund taxes collected exceeds $11.97 billion.
The Superfund taxes provide an adequate and stable source of funds for the trust
fund. In enacting CERCLA, Congress decided that the cleanup costs incurred by the Federal
government where a private party could not be identified or was not financially viable should
be paid by current producers and users of hazardous substances. By taxing the materials
used to make hazardous products and waste, these costs would be borne by persons
producing or using hazardous materials. Accordingly, Congress enacted the excise taxes on
petroleum and chemicals.
Under the Superfund Amendments and Reauthorization Act of 1986, Congress
decided to expand the Superfund financing sources to include the corporate environmental
tax. The addition of this broad-based funding source reflected the view that the production
and use of hazardous substances and the benefits from cleanup were widely dispersed.
Litigation
CERCLA imposes liability for cleanup costs on current owners and opaattJiS of
disposal sites, owners and operators at the time of a release, and generators and transporterS
of hazardous substances. Responsible parties are subject to strict, joint, and several liability
standards with respect to costs associated with the removal and cleanup of haz3.rdous
substances. This liability system currently generates a significant amount of litigation for
2
recoveries between EPA and PRPs (enforcement litigation), between initially identified PRPs
and other PRPs (contribution litigation), and PRPs and their insurers (insurance litigation).
As a result, litigation costs have been and continue to be significant.
Insurers that wrote commercial liability and comprehensive general liability coverage
prior to January 1, 1986 sometimes have to pay claims related to a policyholder's liability for
cleanup costs, either because the insurance contracts specifically included coverage for
environmental liability losses or the judicial system determines that the insurer is liable under
the terms of the insurance contract for cleanup costs incurred by the policyholder. The costs
incurred by PRPs and insurers in insurance litigation are significant. That money would be
better spent cleaning up hazardous waste sites.
OVERVIEW OF PROPOSED LEGISLATION
Superfund Trust Fund
s. 1834 contains reform initiatives that fulfill the Administration's commitment to
protecting human health and the environment and to making Superfund cleanups faster,
fairer, and more efficient. It is our belief that the Administration's proposed financing
provisions provide an adequate and stable financial base for the Superfund.
S. 1834 would reauthorize the Superfund program at $9.6 billion for the five year
period beginning October 1, 1994 and ending September 30, 1999. The legislation would
extend the existing Superfund taxes for five years and would authorize the present level of
appropriations from general revenues for the Superfund ($250 million per year for FY 1995
through FY 1999).
The present excise taxes would be extended until December 31, 2000. The corporate
environmental tax would be extended through taxable years beginning before January 1,
200 1. No changes are proposed in the present tax rates or taxable substances. However,
under the Administration's proposal the ceiling on total Superfund taxes that can be collected
without causing the taxes to cease would increase from $11.97 billion to $22 billion. This
increase in the ceiling should permit the reauthorized taxes to be collected; otherwise the
taxes could terminate prematurely when the lower ceiling is hit.
Litigation
Title vm of S. 1834 is designed to reduce the costly litigation between PRPs and
their insurers. A new Environmental Insurance Resolution Fund (EIRF) would be
established with the objective of facilitating settlement of the vast majority of litigation
involving insurance claims related to Superfund or environmental liability.
Under present law, protracted disputes between insurance companies and their
policyholders regarding the applicability of coverage to liability under CERCLA are a major
3
source of litigation related to Superfund. The legislation will reduce this litigation and allow
monies that would otherwise be spent in adversarial proceedings to be used for cleanup.
The EIRF would make a single, comprehensive offer to each eligible responsible
party to resolve all pending and future claims of the policyholder against its insurers arising
under the Superfund law for eligible costs of the policyholder. A policyholder that accepted
the EIRF's offer would be reimbursed at a fixed percentage of its eligible costs and would be
required to waive all current and future CERCLA-related claims against its insurers. If a
policyholder rejects the EIRF's offer, the EIRF would reimburse insurers for litigation costs
and judgement amounts associated with any litigation brought by that policyholder, up to the
amount of the offer.
The Administration's original funding proposal for the EIRF was designed to raise
$3.1 billion over five years, consistent with the terms of the Administration's original reform
proposal. When the Senate Committee on Environment and Public Works favorably reported
the bill, the term of the reform proposal was extended beyond five years to an anticipated
term of ten years. As a result of the extension of the EIRF's term, and in conjunction with
the consideration of the bill by the House Committee on Ways and Means, we revised our
proposal to raise $810 million per year over the term of the EIRF.
Now, I would like to describe the Administration's proposed financing mechanism for
the EIRF and the rationale behind it. The proposal that I will describe is the proposal that
was favorably reported by the House Committee on Ways and Means with some
modifications. The modifications reflect extensive discussions that have taken place over the
last few weeks. First, I will describe the modified proposal and I will conclude by
summarizing the changes from the billiepottbd by the Committee on Ways and Means.
OVERVIEW OF ENVIRONMENTAL INSURANCE RESOLtmON REFORM FUNDING
To determine how to finance equitably the EIRF, we met with many insurance
industry representatives to gain a better understanding of the Superfund. problems and issues
arising from various proposals. In the context of these extensive and ongoing discussions,
we developed three principles that provided guidance for financing proposals for the EIRF.
The fundamental principles are: (1) insurers that potentially benefit from the environmental
insurance resolution reform-those that have potential Superfund liabilities through
commercial insurance coverage written in the past-should provide a significant portion of the
EIRF's funding; (2) the commercial insurance industry as a whole, its policyholders, and
society also will benefit from the refonn and should pay some portion of the EIRF's funding;
~d (3) ~ commercial insurers and reinsurers, whether domestic or foreign, that insure risks
m the Umted States benefit from the reform and should participate in its funding.
G~ven these three principles, we reached what we believe is a reasonable approach
for financmg the EIRF whose framework is supported by a significant segment of the
4
industry. Under the proposal, the financing of the Fund would be split nearly equally, on a
present value basis, between retrospective and prospective taxes.
During the first four years, approximately 69 percent of the fmancing for the EIRF
would be obtained from separate retrospective taxes on those insurers and reinsurers that
wrote certain commercial liability coverage in the past, with 46 percent of the total fmancing
coming from a tax on direct insurers and 23 percent of such fmancing coming from a tax on
reinsurers. Approximately 31 percent of the financing for the EIRF would be raised by a
prospective tax on direct premiums written by insurers for insurance coverage of U.S. risks
in commercial lines of business after the date of enactment.
During years five through ten, 66 percent of the funding would be raised by the
prospective tax on direct premiums written for insurance coverage of U.S. risks in
commercial lines of business. The remaining 34 percent would be obtained from a
retrospective tax on reinsurance premiums (23 percent of total revenues), and an assessment
on insurers that wrote coverage that gave rise to actual Superfund claims for which the EIRF
makes awards (11 percent of total revenues).
The annual financing of the Fund would be as follows:
...................
Years
_--------------------
Retrospective
Tax on Direct
Insurance
Retrospective
Tax on
Reinsurance
Prospective
Tax
----Assessments
on Insurers
aM _ _ _ _ _ _ _ _ _ _ _ _
1-4
5-10
$374 million
$0
$188 million
$188 million
$248 million
$537 mjJJion
$0
$85 million
To provide the insurance industry with assurances that the taxes to be collected would
not exceed their revenue targets, the amount of taxes collected. under the prospective tax, the
retrospective tax on direct insurers, and the retrospective tax on reinsurance premiums would
be subject to separate multi-year caps that would limit the actual collections to the targeted
amounts. Each tax would trigger off when the appropriate revenue is raised within multiyear timeframes. Those timeframes have not yet been determined. However, we would
suggest that the Committee consider two mUlti-year periods--years one through four and
years five through ten. If the amount collected for a particular tax reached its revenue cap,
that tax would not be collected for the remainder of the period for which the cap applies.
In addition, separate multi-year caps would apply to the retrospective tax collected on
domestic and foreign reinsurance premiums. These separate caps would be proportional to
the reasonably estimated share of the domestic and foreign markets and established to reduce
the risk of a revenue shortfall for the Fund. In addition, the retrospective taxes on
5
reinsurance premiums would also be subject to an overall multi-year cap of 23 percent of the
EIRF's total revenues.
The Fund could have continuing obligations beyond its anticipated 10-year term.
Treasury would conduct a study in the ninth year of the Fund to make recommendations with
respect to the insurance industry's financing of the Fund after the tenth year. Absent
Congressional action, the funding provided in the proposal would continue until all ongoing
obligations of the Fund are satisfied.
Under this proposal and consistent with our first principle that those that potentially
benefit the most from reform should pay for a significant share of the reform, the taxes and
assessments that are retrospectively based would be paid by those insurers and reinsurers that
could potentially benefit most from reform. The assessments would be imposed on insurers
that wrote coverage that gave rise to actual Superfund claims for which the EIRF makes
awards. The excise taxes that use a retrospective computation basis would be imposed on net
premiums written by domestic and foreign insurers and reinsurers for contracts insuring
certain U.S. commercial liability risks during the period from 1968 through 1985.
We believe that the base period of 1968 through 1985 for determining commercial net
written premiums is a reasonable approach to develop the retrospective tax base. Any
insurer or reinsurer that wrote coverage for losses arising from comprehensive general
liability or commercial multiperilliability risks situated in the United States prior to 1986 has
potential exposure to environmental liability claims as policyholders discover that they are
PRPs. This exposure generally ceased in 1986 because insurers began including in their
insurance contracts a specific exclusion for coverage of claims related to environmental
liability. Although the exposure ends in 1986 but extends back in time, we thought it would
be inappropriate to require insurers to search back in time for records that may be difficuh to
locate or may not be reliable. Publicly available data prior to 1968 are less reliable and so
we only extended the start of the base period for determining this retrospective tax back to
1968.
Consistent with the second principle that the entire insurance industry, policyholders,
and society benefit from reform and should participate in the EIRF's financing, the
prospective tax would be borne both by insurers that benefit from reform and more broadly
by others. The prospective tax would be imposed on future direct premiums from insurance
of U.S. risks written in commercial lines of business by domestic and foreign insurers.
A tax imposed on future direct premiums written by insurers has merit in funding a
portion of the EIRF. The health of the industry would be improved by environmental
insurance resolution reform and the potential for state guaranty fund involvement would be
reduced. If insurance companies liable for environmental claims become insolvent, State
~uaranty funds can assess solvent insurers to pay outstanding policyholder claims of insolvent
Insurers. Thus, all insurers (and their policyholders) may ultimately benefit from the
proposed reform, regardless of whether an insurer wrote coverage that directly generates
6
environmental exposure. Also, given the possibility that a part of the tax on future premiums
might be passed through to policyholders, the tax would be borne more generally by
consumers of the insurance coverage. For these reasons, a portion of the fmancing should be
provided by insurers writing commercial coverage today.
The prospective tax would be imposed on a broader base of premiums than the
retrospective tax primarily to preserve the stability and predictability of the tax base. A
prospective tax relies on premiums being reported in the lines of business subject to the tax.
If the tax is imposed on too few lines of business, there could be potential for erosion of the
premium base as insurance is repackaged and sold in a different manner. Also, if the tax is
imposed on too few lines, the premium base is small and forces the tax rate to be high. Due
to the competitiveness and price sensitivity in the commercial insurance market, a high tax
rate on too few lines of business could cause an erosion of the tax base as policyholders may
choose to self insure.
Consistent with the third principle, that all insurers and reinsurers should participate
in the EIRF funding, the Administration's proposal requires foreign insurers and reinsurers to
contribute their fair share through taxes and assessments. Foreign insurers and reinsurers
that are currently subject to net-basis U.S. income taxation would pay the retrospective taxes
on the same basis as would domestic insurers and reinsurers. Alien insurers and reinsurers
(i.e., foreign insurers that are not subject to net-basis U.s. income taxation) would be
required to participate in the EIRF funding in a different manner. To ensure that alien
insurers and reinsurers contribute to the EIRF, their U. S. insurance contracts would be
subject to a prospective tax on coverage limits, collected by a U.S. withholding agent, in lieu
of the retrospective tax. Alternatively, an alien insurer or reinsurer could elect to be subject
to the retrospective tax and assessments, in lieu of the tax on coverage limits, by making an
election, if certain conditions are met, or entering into a closing agreement with the Internal
Revenue Service. In addition, insurers and reinsurers would be required to identify to the
Internal Revenue Service at the time of their first retrospective tax filing their foreign
reinsurers and, with good faith effort, the amounts of qualified commercial insurance ceded
to those foreign reinsurers during the period from 1968 to 1985.
Both foreign and alien insurers would pay the prospective tax imposed on certain
direct insurance premiums on the same basis as domestic insurers. In the case of alien
insurers, the tax would be collected by a U.S. withholding agent.
FUNDING SPECIFICS OF ENVIRONMENTAL INSURANCE RESOLU lION REFORM
Retros.pective Taxes
The retrospective taxes are designed to raise $3.376 billion over ten years ($2.248
billion for years one through four and $1.128 for years five through ten). These taxes would
be determined by multiplying the applicable tax rate by the adjusted base-period commercial
7
premiums written for contracts or agreements providing insurance or reinsurance with respect
to qualified commercial coverage of risks within the United States (including Puerto Rico,
and any U.S. possessions and territories) during the period beginning January 1, 1968, and
ending on December 31, 1985. For years one through four, an applicable tax rate would be
determined that would raise $374 million annually from net direct insurance premiums and
$188 million from net reinsurance premiums. After year four, the applicable reinsurance
premium tax rate would remain the same and the applicable direct tax rate would be zero.
Separate multi-year caps would limit the amount of tax collected from premiums for
net direct insurance premiums to $374 million per year for four years and from net
reinsurance premiums to $188 million per year for ten years. We would suggest that the
caps be imposed in four and six-year intervals. In years one through four, the cap at which
the taxes trigger off would be four times the annual target revenue. In years five through
ten, the cap at which the taxes trigger off would be six times the annual target revenues. In
addition, separate multi-year caps would apply to the retrospective tax collected on foreign
and domestic reinsurance premiums. These caps would be proportional based upon the
foreign and domestic reinsurers' reasonably estimated market shares and established to
reduce the risk of an overall revenue shortfall to the Fund. They would also be subject to
the overall multi-year cap of $188 million per year on the retrospective tax on net
reinsurance premiums.
1. Adiusted base-period commercial premiums. In determining the total adjusted
base-period commercial premiums written for 1968 through 1985 to which the funding rates
are applied, the net premiums written for each year during the period for qualified
commercial insurance contracts and reinsurance of qualified commercial insurance coverage
would be adjusted by an inflation factor based on the consumer price index. This inflation
adjustment would restate all premiums written to 1985 dollars so that they are taxed on a
comparable basis.
2. Exclusions. In determining adjusted base-period commercial premiums, $50
million would be excludable from inflation-adjusted base-period commercial direct premiums.
One $50 million exclusion would be available to certain "related" parties. This exclusion is
intended to provide relief to small insurers and mitigate any mistargeting of the premiums
proxy. No exclusion is provided for reinsurance premiums. However, the Secretary of the
Treasury would have the authority to specify an exception that would exclude base-period
reinsurance premiums of a de minimis amount.
3. Net premiums written for qualified commercial insurance contracts. Net
premiums written for qualified commercial insurance contracts means net premiums written
for contracts providing insurance of qualified commercial coverage of U.S. situs risks
generally computed on the basis of the annual statements approved by the National
Association of Insurance Commissioners (NAIC).
8
Qualified commercial coverage means insurance coverage that was, or should have
been, characterized in the NAIC annual statement as "commercial multiple peril" or "other
liability" lines of business. However, contracts included in the "other liability" line of
business that insured only specific coverages unrelated to general commercial liability, and
thus would not generate exposure to environmental insurance claims, would be excluded.
For example, medical malpractice insurance would be an excludable coverage. However,
commercial property damage insurance, for example, could not be excluded from the
commercial multiple peril line of business.
For insurers and reinsurers not filing NAIC annual statements, net written premiums
should be computed on a basis comparable to that required by the NAIC using reasonable
methods (as approved or provided by the Secretary) to approximate comparability where
necessary due to inadequate books and records.
4. Net premiums written for allocated reinsurance of qualified commercial coverage.
Premiums related to allocated reinsurance (i.e., generally first dollar pro rata reinsurance)
are identified by line of business. Accordingly, net premiums written for allocated
reinsurance of qualified commercial coverage means net premiums written for reinsurance
which were reported (or, in the case of a company not filing an annual statement, would
have been required to be so reported) on the annual statement approved by the NAIC by the
line of business related to the underlying policies covered by such reinsurance, rather than on
the reinsurance line of business of the annual statement.
5. Net premiums written for unallocated reinsurance of qualified commercial
coverage. For certain reinsurance coverage (e.g., reinsurance in excess of a retention by the
ceding company), the reinsurer may not have separately reported net premiums written by
line of business on the annual statement. The reinsurer often cannot identify or directly trace
the type of insurance coverage to which the premiums relate because several types of
insurance coverage could be combined in the reinsurance agreement. Thus, the net
premiums written for this unallocated reinsurance would be determined using a formula, or
proxy approach, based on the insurance industry'S ceded premiums for qualified commercial
coverage from January 1, 1968, through December 31, 1985.
To derive the net premiums written related to unallocated reinsurance of qualified
commercial coverage, a reinsurance ratio of 21 percent would be multiplied by the net
premiums written, as reported on the NAIC annual statement (or equivalent computational
basis if an NAIC annual statement was not prepared) for the reinsurance line of business.
6. Foreign insurers and reinsurers. Foreign persons (including foreign companies,
partnerships, trusts, and estates and nonresident alien individuals) that insure or reinsure u.s.
risks would be subject to the retrospective taxes if they are currently engaged in any trade or
business within the United States and their taxable income that is effectively connected with
that trade or business is subject to net-basis u.S. income taxation and is not exempt by treaty
9
from such taxation. The retrospective taxes would be computed in the same manner as for
U.S. insurers and reinsurers.
All other foreign insurers and reinsurers ("alien insurers and reinsurers") would be
subject to a prospective "limits" tax in lieu of the retrospective taxes and assessments, unless
they elect to be subject to the retrospective taxes and assessments. This prospective limits
tax would be imposed at a rate of 0.50 percent of the maximum limit of liability on each
policy of casualty insurance insuring or reinsuring U.S. risks. The tax would be imposed on
all lines of casualty business, broadly defined, to prevent alien insurers and reinsurers from
avoiding the tax simply by ceasing to write qualified commercial insurance coverage in the
United States. The tax would be withheld and remitted to the Internal Revenue Service by
the U.S. premium payor or other U.S. withholding agent.
Alternatively, alien insurers and reinsurers could elect to be subject to the
retrospective taxes and assessments. If such an election were made, the retrospective taxes
and assessments would apply in the same manner as they apply to U.S. insurers and
reinsurers (and to other foreign insurers and reinsurers). Electing aliens would be required
to enter into a closing agreement with the Internal Revenue Service to ensure collection of
the retrospective taxes and assessments. However, foreign persons would preliminarily elect,
pending execution of a closing agreement, to be subject to the retrospective taxes in lieu of
the limits tax. Under such an agreement, in place of requiring immediate payment and
withholding of the limits tax, the insurer or reinsurer would be required to post adequate
security in a designated form with the Treasury for payment of the taxes. If a closing
agreement was not executed within a reasonable period of time, the Treasury would be
entitled to collect the full amount of limits tax, including the retention of any posted security.
Electing alien insurers that do not have adjusted base-period commercial premiums
would not be required to enter into a closing agreement with respect to the retrospective
taxes and assessments if certain expedited procedures are followed.
7. COIJ>Orate reorganizations. Special rules designed to prevent erosion of the
retrospective tax base are also provided to ensure that the tax follows the commercial
insurance business of a company in any corporate reorganization involving an acquisition or
disposition of all, or a part, of a company's commercial insurance business. Rules also
address movement of the tax in assumption reinsurance transactions and the commutation of
reinsurance transactions.
Promective Tax
The prospective tax is designed to raise $4.214 billion over ten years ($0.992 billion
for years one through four and $3.222 billion for years six through ten). A tax on an
insurer's dir:ct premiums written after the date of enactment, in excess of an exemption
amount, for msurance in commercial lines of business would finance the Fund. The
prospective tax rate would be determined that would raise $248 million annually for the first
10
four years, and $537 million annually for years five through ten. The exemption amount is
generally $5 million per year and must be shared by certain "related" parties. It is designed
to lessen the burden on small insurers and takes many small insurers completely out of the
tax.
The prospective tax would be subject to mUlti-year caps that would limit the amounts
collected to the targeted revenue amounts. We would suggest a cap for the fIrst four years
of $992 million ($248 million times four) and $3.222 billion ($537 million times 6) for the
next six years.
The tax would apply in the same manner with respect to insurance contracts written
by foreign insurers of U.S. risks. It would be collected through withholding in the case of
alien insurers.
Direct premiums written for commercial insurance contracts means gross premiums
written and other consideration for contracts providing insurance of coverage of risks wholly
or partly within the U.S. (including Puerto Rico, and any U.S. possessions and territories)
for which the premiums are, or should be, reported in a commercial line of business. Gross
premiums written would be computed on the basis of the annual statement approved by the
NAIC or on an equivalent basis.
Insurance in commercial lines of business would include insurance that is, or would
be, categorized in the NAIC annual statement exhibit of premiums and losses as fue, allied
lines, farmowners multiple peril, commercial multiple peril, ocean marine, inland marine,
products liability, other liability, commercial auto no-fault, other commercial auto liability,
commercial auto physical damage, aircraft, surety, glass, burglary and theft, and boiler and
machinery. Other lines of business would be excluded: multiple peril crop, homeowners
multiple peril, fInancial guaranty, mortgage guaranty, medical malpractice, earthquake,
accident and health, workers' compensation, private passenger auto no-fault, other private
passenger auto liability, private passenger auto physical damage, fIdelity, and credit.
Premiums written for an insurance policy that provides directors and offIcers liability
insurance, professional liability insurance, and insurance for fire, other perils, or extended
coverage on residential or farm owner-occupied housing units would not be subject to the
prospective tax, even though the premiums for such coverage would be reported in a covered
line of business. In addition, the following personal insurance policies, the premiums from
which are included in covered lines of business, would be excluded: personal liability
umbrella, personal articles, personal owner-used boats, and property damage and liability
coverage for owner-occupied condominium associations.
The Secretary of the Treasury would have the authority to extend the prospective tax
to lines of coverage other than those specifically identifIed only as necessary to respond to
changes in the construction of the annual statement lines originally covered. The Secretary's
authority would not extend to the inclusion of any reinsurance coverage.
11
Assessments on Direct Insurers
The assessments on direct insurers are designed to raise $85 million annually
beginning in the fifth year. The assessments would be based on awards paid by the EIRF
with respect to policies issued during certain periods by the insurer.
The amount of the annual assessment is determined by multiplying the insurer's share
of the aggregate coverage limits of all assessable policies by $85 million. The insurer's
applicable share is determined by dividing the coverage limits on all the insurer's assessable
policies by the total coverage limits for such policies for all direct insurers.
An assessable policy must be a valid insurance contract that was presented to the
EIRF for an award and with respect to which the EIRF made a resolution payment to an
eligible party during any of the four years preceding the year in which the assessment is
imposed. The coverage limit on a policy is generally the aggregate limit of coverage under
the policy, detennined without regard to deductibles or any self-insured retention. Insurers
would be permitted to reduce the coverage limit of an assessable policy by 80 percent of the
amount of the coverage that is reinsured.
Effective dates
The prospective and retrospective taxes and assessments generally would be effective
on January 1, 1995, unless otherwise provided in the proposal. The prospective tax would
apply to policies for which direct premiums are written on or after January 1, 1995. The
limits tax on foreign persons would be imposed on policies for which premiums are written
after the date the Fund becomes operational as described below. The assessments on insurers
would become payable beginning in 1999, the fifth year of the Fund.
The Fund could have continuing obligations beyond its anticipated ten-year term. A
Treasury study would be conducted in the ninth year of the Fund to make recommendations
with respect to the insurance industry's financing of the Fund after the tenth year. Absent
Congressional action, the funding provided for in the proposal would continue until all
ongoing obligations of the Fund are satisfied. No inference is intended by the proposed
allocation in any year, or combination of years, between retrospective and prospective taxes
and assessments with regard to the structure of any tax or assessment that the Congress may
find necessary to enact in the future.
The authorizing legislation (S. 1834) accompanying this proposal provides that the
Fund would not become operative if more than 20 percent of all eligible potentially
responsible persons reject resolution offers from the Fund. If between 15 and 20 percent of
such persons decline to participate in the Fund, the Fund could decide whether to continue or
terminate the Fund. This determination would be required to be made within 225 days from
the date of the bill's enactment.
12
·
To finance the operations of the Fund during this 225-day contingency period, start-up
fibng fees of approximately $1 million would be imposed on insurers by the Fund. These
fees would not be creditable against any retrospective or prospective tax or assessment
imposed under the Internal Revenue Code.
The retrospective and prospective taxes would accrue during the 225-day contingency
period but would not be payable during such period. The taxes would not be collected until
it is determined that the Fund has adequate participation. On the 14th day of the month
beginning after the end of the contingency period, if adequate participation is achieved, the
retrospective and prospective taxes that accrued during the contingency period would be due
and payable.
Once the Fund becomes operational, the retrospective, prospective, and limits taxes
would be payable on a monthly basis. For purposes of the prospective tax, estimated
amounts could be paid for months in which premium data is not readily available. However,
accurate calculation and payment of the prospective tax would be required on a quarterly
basis.
Although generally the prospective tax would apply to premiums written after date of
enactment but would not become payable by insurers until the contingency period ends, the
effective date for imposition of the prospective tax for insurers not otherwise subject to U.S.
income tax would be delayed until the contingency period ends. These insurers would be
subject to the prospective tax for premiums written until the date that is the number of days
in the contingency period beyond December 31, 1994, or the date that all of the Fund's
obligations are satisfied, if later.
If the Fund does not become operational, any remaining amounts in the Fund would
revert to the general revenues of the Treasury.
Tax Exemption
The EIRF would be exempt from Federal income tax under Section 501.
Summary
In summary, the proposal submitted to the Committee today satisfies the three
principles discussed earlier. It would require insurers that could potentially benefit the most
from the environmental insurance resolution to provide a significant share of the funding.
Approximately 50 percent of the fmancing would be raised from retrospective taxes and from
assessments on direct insurers that wrote coverage for which the EIRF makes resolutions.
The retrospective taxes are paid in the future. They replace an existing, but uncertain
liability arising from commercial insurance coverage written in the past--the policies with
potential environmental liability exposure. The retrospective taxes will likely reduce profits
of insurers subject to the taxes and be borne largely by their current shareholders, who also
13
would bear the continued cost of environmental liability claims and litigation costs associated
with these claims. The proposal provides some relief by allowing an exclusion of $50
million from the retrospective base of direct premiums and an exclusion for certain types of
coverage in the "other liability" line of business that have no potential exposure to
environmental liability claims.
The other 50 percent of the financing is more broadly based and is raised from a
prospective tax on premiums written for insurance categorized in commercial lines of
business. The broad base of commercial insurance business subject to this tax reflects the
industrywide nature of the environmental problem. To ensure a predictable and stable
revenue source for the EIRF, the premium base broadly encompasses most lines of business
that are commercial in nature. An annual $5 million exemption of premiums mitigates for
small insurers some of the effect of the tax.
We understand that as a result of market forces insurers are not expected to be able to
pass the prospective tax through to their reinsurers. Because reinsurers would not pay the
prospective tax, but would potentially benefit from reform, they would contribute to the
financing through retrospective taxes. The direct writers would contribute to the financing
through a combination of retrospective taxes and assessments, as well as through prospective
taxes.
The proposal would also assure that foreign insurers and reinsurers that potentially
benefit from the proposed reform participate in its funding. While a foreign insurer could
avoid participation in the financing of the EIRF if that insurer stopped writing all types of
property/casualty insurance coverage in the United States, we believe that this is highly
unlikely given the importance of the U.S. market.
The proposal I have described contains certain changes from the bill reported by Committee on Ways and Means. The following briefly highlights those changes: (1)
Reinsurers would participate in the financing through a retrospective tax rather than a
combination of retrospective taxes and assessments. Reinsurers originally requested to be
subject to assessments but later reconsidered because the assessments created considerable
complexity; (2) The $50 million exclusion amount from the retrospective tax base would be
allocated entirely to direct insurance premiums, rather than allocated proportionately between
direct and reinsurance premiums. Thus, the $50 million exemption would not be available
for reinsurana:. This change would broaden the tax base and permit lower tax rates on
n:iDsurance premiums under the retrospective tax; (3) The Secretary of the Treasury's
authority to extend the prospective tax to lines of cover3ge other than those originally
identified U' covered lines would be clarified to provide that such authority is intended to
allow the Secretary to respond to changes in the construction of the lines, and does not
extend to reinsurance; (4) The target revenue amounts to be raised from the prospective tax,
the retrospective tax on direct premiums, and the retrospective tax on reinsurance premiums,
would be adjusted slightly (the target for the retrospective tax on reinsurance would be
reduced by $12 million per year and this $12 million would be allocated to the other taxes
14
and assessments) and separate multi-year caps would be imposed to limit actual collections to
the target revenue amounts; (5) Separate· multi-year caps would be established for the taxes
paid by domestic and foreign reinsurance premiums based on their reasonably estimated,
proportional market shares and to reduce the risk of a revenue shortfall for the EIRF. These
multi-year caps ensure that domestic and foreign reinsurers do not overcontribute to the
Fund; (6) Insurers and reinsurers would be required to identify using good faith efforts their
foreign reinsurers and amounts of insurance ceded to foreign reinsurers from 1968 through
1985. This change is intended to improve compliance with the retrospective tax; (1) The
prospective tax base would be modified to exclude certain policies of personal insurance and
fmancial guaranty and fidelity insurance; (8) Absent Congressional action, the funding
provided for in the proposal would continue until all ongoing obligations of the Fund are
satisfied; and (9) Periodic reports would provide data on taxes received from each of the
proposal's sources of tax and from domestic and foreign sources.
CONCLUSION
There has been considerable controversy within the insurance industry about how the
funding for the EIRF should be structured. Some insurers have argued that the funding
mechanism should be entirely retrospective, i.e., based on commercial insurance business
written in the past. Others have argued that the funding should be entirely prospective, i.e.,
based on commercial insurance business written in the future. We believe that our proposal
represents a reasonable approach. Insurers and reinsurers that write approximately 60
percent of the Fund's taxable premiums support the framework I have described to fmance
the Fund. Understandably, they continue to be concerned about the caps applicable to the
reinsurers' retrospective tax and the tax rates which will be revised to generate the new
revenue targets and to reflect the modifications to the tax base and new information that has
recently become available. We hope that the insurers' and reinsurers' concerns will be
addressed. Of course, the proposed caps on amounts collected from the various taxes should
also relieve some of the concern over the tax rates.
We believe that passing the Superfund reauthorization legislation this year is crucial.
This financing proposal constitutes the missing piece necessary to complete the Superfund
reform puzzle. We would encourage the Committee to keep in mind the significant benefits
to the country from the reform provisions and not let the fmancing of the EIRF become an
obstacle.
Mr. Chairman, thank you for the opportunity to address this Committee. I will be
pleased to answer any questions you or other members of the Committee may have.
15
DEPARTMENT
OF
THE
TREASURY
OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
For Release Upon Delivery
Expected at 11:00 a.m.
September 14, 1994
STATEMENT OF ALICIA H. MUNNELL
AsSISTANT SECRETARY FOR ECONOMIC POLICY
DEPARTMENT OF THE TREASURY
BEFORE THE SENATE FiNANCE COMMITTEE
SEPTEMBER 14, 1994
Mr_ Chairman and Members of the Committee:
r appreciate the opportunity to appear before you today.
Before Assistant
Secretary Samuels discusses the specific funding proposals that are the subject of
today's hearings, we thought that some background information on the broader
subject of Superfund reform might be useful. As you know, Superfund-the
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA)-was enacted in 1980 in response to public outcry over Love Canal,
Valley of the Drums, and other environmental disasters. The original vision was
that the program would involve relatively inexpensive clean-ups of a few hundred
sites. Actual events have turned out to be quite different. Currently, EPA has
roughly 1,300 sites on the national priority list. Most observers envision an
eventual number of at least 3,000 and cost estimates are running as high as $150 to
$300 billion.
Major problems with the program are that fewer than 20 percent of the
identified priority sites have been cleaned-up to date and for every dollar .spent,
more than 25 percent goes to lawyers and transaction costs. The incentives in the
system are all wrong. They lead to pressure for Cadillac-type clean-ups and endless
wrangling over who's going to pay and how much.
LB - 1083
The current system is in desperate need of reform. Under Superfund, liability
for the costs of cleaning up hazardous substances is strict, joint and several, and
retroactive. While this scheme provides great benefits for the efficient operation of
EPA's cleanup program, there is no question that it also spawns a tremendous
amount of litigation. This litigation is so extensive and costly that the President
has twice called for a solution to the problem, most recently in his State of the
Union Address this year.
Under current law, a settlement by the Environmental Protection Agency (EPA)
with a potentially responsible party (PRP) at a site with multiple PRPs (either
voluntarily or through litigation) results in those liable parties seeking to distribute
the costs of clean up by initiating contribution litigation against other PRPs. Since
insurance companies generally have taken the position that their policies do not
cover Superfund response costs, the PRPs frequently must sue their insurance
companies in order to try to recover their costs. This litigation among PRPs and
among PRPs and their insurance companies ~as proven to be extensive and very
costly and is a major impetus for many of the Administration's proposals for
Superfund reform.
One of the Administration's major objectives in Superfund reform is to
elimjnate---or at least drastically reduce-all of these lawsuits, without eliminating
the beneficial effect of joint and several liability, specifically the ability of EPA to
order PRPs to begin cleanups. These lawsuits impose substantial transactions costs
on policyholders and insurance companies. The Administration has addressed
lawsuits among PRPs by proposing a more reasonable mechanism for allocating
costs among parties. The bill provides for early settlement for small contributors,
generators and transporters of municipal solid waste, and parties with limited
ability to pay. Under these provisions, most small businesses will be out early and
without great expense.
The bill also establishes a process for allocating shares of all remaining·PRPs at
a site in a single proceeding. In this process, the remaining PRPs will sit at a table,
and a mediator will allocate liability based on factors such as. the volume and
toxicity of their waste. Parties who accept the allocation 1) will be protected from
suits by other PRPs; 2) benefit from EPA's funding of orphan shares--shares
established in either the early settlement process or attributable to insolvent
parties; and 3), for a fee, will be protected from future liability for remedy failure orsome undiscovered harm. Under these provisions, the large businesses that run
most of the clean-ups will be treated much more fairly.
To address lawsuits by policyholders against insurance companies, the
Administration has proposed establishing the Environmental Insurance Resolution
Fund. The Resolution Fund, detailed in Title VIII of the reauthorization bill, is a
compromise proposal developed by policyholders and insurers and, as such, it
represents the framework by which to solve a particularly vexing problem. The
Administration brought the parties together, worked with them to develop the
principles underlying the proposal and resolve differences in the details, and
-2-
drafted initial legislative language that was included in the Administration's
original Superfund-reform proposal. Since the Administration presented this
proposal in early February, representatives of insurers and policyholders have
continued to work to refine the mechanics of the Resolution Fund proposal, and it is
this revised proposal that is included in the bill that you are considering.
In addition, the Treasury Department has continued to examine the
administrative structure of the Resolution Fund to ensure that there is appropriate
oversight and control over the Fund's operations. We believe that the Resolution
Fund meets the needs of all stakeholders, is consistent with the Administration's
policies, and can be implemented and administered by the Administration.
The Resolution Fund is designed to dramatically reduce lawsuits among
policyholders and insurers arising out of Superfund liability through a two-step
process. First, the proposal would stay all Superfund insurance litigation. Second,
the Resolution Fund will make to each eligible policyholder a one-time
comprehensive offer to resolve all pending and future claims of that policyholder
against its insurers arising under the Superfund law for all eligible costs of the
policyholder.
The one-time offer is designed to avoid adverse selection by policyholders,
whereby they would accept offers for sites where their probability of litigation
success was low and elect to sue their insurers where their probability of litigation
success was high. Ifpolicyholders could make a separate choice at each site,
insurers would end up paying fees and assessments to the Resolution Fund, and
also paying policyholders in litigation. To minimize this problem, the offer made by
the Resolution Fund to a policyholder would be for all the eligible costs of a
policyholder at all of its eligible sites.
•
To be eligible to receive an offer from the Resolution Fund, a policyholder must
demonstrate that it purchased the types of insurance coverage that give rise to
claims based on Superfund liability. (In the event that a policyholder can
submit only partial documentation, the insurance companies that it names will
make a good faith attempt to provide copies of the relevant policies.)
•
.An eligible site is (1) any site placed on the National Priorities List (NPL) and
(2) any site that is the subject of a removal under Superfund.
•
Eligible costs are those incurred by a policyholder, at any site that accepted
waste prior to 1986, for response or removal actions, natural resource damages,
and activities that would be covered by a duty-to-defend clause in an insurance
contract.
•
The limits of coverage by the Fund will be determined by summing up all of the
liability limits contained in the insurance policies presented as proof of
eligibility, and subtracting the sum of all deductibles and self-insurance
retentions applicable to those policies.
-3-
The offer made by the Resolution Fund will be for a percentage of the
policyholder's eligible costs at all eligible sites. To arrive at this offer, the Fund will
take into account both the geographic location of the sites and any litigation venues
that the policyholder has established. Each site and litigation venue will be
assigned an offer percentage, according to which of three groups of states it belongs.
These percentages will then be weighted together-with varying degrees of
complexity depending on the circumstances of the policyholder-to arrive at a single
percentage offer that will apply to all of the policyholder's sites. Finally, only for
claims presented to the Fund for "owned-property" sites, the compensation from the
Fund will be reduced by 30 percent.
The percentages contained in the proposal are necessarily subjective, reflecting
levels that take into account both the perceived probability of litigation success and
the inducements considered necessary to persuade policyholders to accept offers
made by the Resolution Fund. (The adjustment for compensation for costs incurred
by policyholders at "owned-property sites" is an example of the attempts made to
reflect reality in the plan for the EIRF.) What is most important, however, is to be
sure that the percentage offers made by the Resolution Fund are sufficient to obtain
maximum policyholder participation in the program, while at the same time
minimizing windfalls to policyholders that have virtually no probability of
succeeding in litigation against their insurers. Without this balance, the Resolution
Fund would not succeed.
Participation in the Resolution Fund by a policyholder is entirely voluntary; a
policyholder may either accept or decline the offer made by the Resolution Fund. If
a policyholder accepts the offer made by the Fund, it must agree to stay or dismiss
all peDding litigation against its insurer for claims arising under Superfund, and
must waive future claims against its insurers for pre-1986 costs. The policyholder
will then submit documentation of its eligible costs to the Resolution Fund for
payment. If the eligible costs were incurred before the policyholder accepted the
offer, those costs will be paid by the Resolution Fund in equal installments over 10
years. If the eligible costs are incurred after the policyholder accepted the offer,
they will be paid by the Resolution Fund as they are submitted in the context of an
ongoing cleanup. If, during the first ten years after enactment, the Fund does not
have sufficient funds to pay these costs as they are presented, the shortfall can be
amortized over five years.
If a policyholder declines the offer made by the Resolution Fund, only then may
it pursue litigation against its insurers. But, if the policyholder is not successful in
that litigation, it may not revive the offer from the Resolution Fund. If the
policyholder is successful in the litigation, the Resolution Fund will reimburse the
insurer for its liability, up to the amount of the offer made by the Resolution Fund
to the policyholder. In addition, if the policyholder is successful in the litigation,
but obtains a judgment that is less favorable than the offer made by the Resolution
Fund, the Resolution Fund has the discretion to reimburse the insurer for all or
some of its litigation costs.
-4-
The terms for the Fund that I have described are not the same as those
contained in the Administration's original bill. The changes reflect substantial
additional negotiations among interested parties, and restructure the necessary
compromises much more efficiently. From my point of view, the most substantial
change in the program was its transformation from a five-year authorization for
resolution payments to one in which the Fund will make offers of resolution for ten
years, and honor the commitments inherent in those offers until they are fully
discharged. These changes obviously expand the scope of the proposal, but they
also greatly reduce the uncertainty for both insurers and policyholders. Once the
Fund is up and running and achieves whatever participation level is necessary for
its continuation, it will proceed to resolve the vast proportion of claims.
To conclude, no one is happy with every aspect of the proposed Superfund
Reauthorization Bill. No one wants to have to invest scarce resources to clean up
problems left over from the past, but it has to be done, not only because Superfund
sites are a health hazard, but because they are also an economic hazard. These
sites need to be cleaned up and redeveloped so that they can add to the well-being
of the communities in which they are located, not subtract. We have spent an
enormous amount of time and effort trying to reach appropriate compromises on
difficult and delicate issues. The time is right for the passage of Superfund
reauthorization. The proposed bill makes great strides in addressing the
shortcomings of the current system. That is why the Administration is happy to
support it and, even more important, why it has received such widespread support
from those with an important stake in Superfund reform.
-5-
To claim the credit for an employee, an employer must
receive a written certification that the employee is a targeted
group member. Certifications for employees are generally
provided by state Employment Security Agencies. The employer
must have received or filed a written request for a certification
on or before the date a targeted member begins work. If the
employer has received a written preliminary determination that
the employee is a member of a targeted group, the employer may
file a written certification request within five calendar days
after the targeted member begins work.
III.
Criticisms of the TJTC and options for Reform
While the goals of the TJTC are laudable, the TJTC has been
subject to criticism. The most recent example of criticism of
the program is an August 1994 report by the Labor Department's
Office of Inspector General. Although the report notes that the
TJTC provides some benefits, the report concludes that the TJTC
is not cost effective and recommends that the Secretary of Labor
discourage further extensions of the credit.
To help crystallize discussions on the TJTC, I would like to
highlight three of the credit's main problems and offer very
general options and principles for addressing those concerns.
These problems are that the credit (i) provides a windfall to
employers, (ii) may encourage the churning of employees, and
(iii) promotes only limited training of employees for advanced
career positions.
A.
Employer windfall
Perhaps the most significant problem with the TJTC is that
it often provides a "windfall" to employers. The credit provides
a windfall to the extent it confers a benefit on employers (the
TJTC) for doing what they would have done (hire targeted
individuals) without that benefit.
The most direct way to reduce the windfall is to require
certification of eligibility before the hiring decision is made.
In this way, the TJTC can serve as an incentive in the hiring
decision. We are not unmindful that pre-hiring certification may
be perceived as conferring a stigma on job applicants. However,
the TJTC was designed to overcome any negative employer
perception (stigma) about the likely productivity of targeted
workers by rewarding employers for hiring them. In order for the
program to work at maximum effectiveness, employers need to be
aware that they are hiring targeted workers at the time the
hiring decision is made. A pre-certification system would ensure
that the credit was limited to employers that knowingly hired
targeted workers.
- 4 -
One drawback of a pre-certification system is that it would
plac 7 ~ la~ger burden on the Employment Agencies that perform the
cert1f1cat~o~s.
As part of our review, we plan to look at ways
of s~reamI1n~ng t~e work of these agencies and the level of
fund1ng requ1red 1n order for them to perform their roles at an
acceptable level.
Treasury would be very wary of endorsing any "selfcertification" system under which individuals or their employers
would certify ta~geted status with reduced oversight by
government agenc1es. We would be concerned that such an "honor
system~ i~ too susceptib~e to fraud.
Under the current regime,
the pr1nc1pal checks aga1nst fraud are that Employment Agencies
make the certifications and their actions are subject to audit by
the Department of Labor. We believe these checks are important
to curbing potential abuse and should not be replaced by more lax
measures.
B.
Churning of employees
Another serious criticism of the TJTC is that it may
encourage the "churning" or "turnover" of employees to maximize
the amount of the credit. A related problem is that short-term
positions subsidized by the credit are less likely to promote job
skills that are beneficial to more advanced job positions.
We have explored two broad approaches to the churning
problem. Under one approach, churning would be curbed by
increasing the number of hours an employee must work with an
employer before his or her wages could be taken into account in
computing the credit. The current minimum employment period,
which is the lesser of 90 days or 120 hours, translates into as
little as three weeks of full-time work.
The other approach would limit churning by "backloading" the
credit. Under current law, the credit is 40 percent of the first
$6,000 in wages paid to a targeted individual.
Under the
backloading approach, the credit rate applying to wages above
some threshold would be higher than the credit rate applying to
the initial wages. This shifts the incentive of employers in the
direction of paying higher wages and keeping their employees on
the job longer.
One possible downside of these reform proposal~ may be to
reduce the initial hiring incentive for some econom1cally
disadvantaged individuals compared to the inc 7ntive t~at exists
under the current credit. We also need to we1gh any 1ncreased
administrative burden resulting from a more complex credit.
- 5 -
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
Interstate Banking and Branching:
•
Permits a bank holding company to acquire a bank located in any state, beginning one
year after enactment.
•
Allows a bank to merge with a bank in another state, beginning June 1, 1997, so long
as neither state has taken legislative action to prohibit interstate mergers between the
date of enactment and May 31, 1997. States may authorize interstate mergers prior to
June 1, 1997.
•
Limits acquisitions and mergers other than initial entries into a state, if the resulting
holding company or bank would control: more than 10 percent of the deposits held by
insured depository institutions nationwide or 30 percent of the deposits in any state.
Allows states to waive the 30 percent deposit concentration limit.
•
Permits banks to establish branches in states in which the bank does not maintain a
branch only if a state authorizes de novo branching. Establishment of the initial
branch is subject to the same requirements, other than the deposit concentration limits,
that apply to the acquisition of a bank located in the state in which the branch is to be
established.
•
Applies to national bank branches the laws of the state in which the acquired or
established branch is located regarding community reinvestment, consumer protection,
fair lending and the establishment of intrastate branches. These laws apply to the same
extent as such state laws apply to a branch of a bank chartered by that state, except
when Federal law preempts, or when the Office of the Comptroller of the Currency
determines that the law has a discriminatory effect on the branch in comparison to
branches of state-chartered banks.
•
Allows foreign banks to establish branches, either de novo or by acquisition and
merger, in any state outside the state in which the bank has its U.S. headquarters to the
same extent that a domestic bank may establish such branches. Ensures a level
playing field between wholesale direct branches of foreign banks and domestic banks
by:
1)
Requiring a foreign bank to establish a separate subsidiary bank in order to
engage in interstate branching if the Federal Reserve Board or the OCC deem it
necessary to verify adherence to capital requirements; and
2)
Continuing to apply the Community Reinvestment Act to a foreign bank branch
resulting from the initial acquisition across state lines of an existing entity
already subject to the CRA.
Other Provisions:
•
Allows the Federal Deposit Insurance Corporation or the Resolution Trust Corporation,
as a conservator or receiver of failed depository institutions, to "revive," under certain
circumstances, tort claims that had expired under a state statute of limitations within
five years of the appointment of the conservator or receiver. This applies only to
egregious conduct, such as fraud or intentional misconduct resulting in unjust
enrichment or substantial loss to the institution.
•
Requires the Secretary of the Treasury to conduct a study of the strengths and
weaknesses of the U.S. financial services system in meeting the needs of users of the
system and submit a final report within 15 months of enactment. Directs the Secretary
to appoint between nine and 14 members of an Advisory Commission on Financial
Services, with which the Secretary is to consult in conducting the study.
Department of the Treasury
September 13, 1994
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 14, 1994
Contact: Peter Hollenbach
(202) 219-3302
AUGUST SAVINGS BONDS SALES REACH $645 MILLION
Savings Bonds sales in August reached $645 million, pushing the value of U.S. Savings Bonds
held by Americans to $178.2 billion, up 6 percent over a year ago.
Savings Bonds issued on or after March 1, 1993, and held five years or longer, earn the
market-based interest rate if it averages more than the guaranteed minimum of 4 percent. If
redeemed during the first five years, bonds earn 4 percent. Bonds issued before March 1993
retain their existing guaranteed minimum rates until they enter a new extended maturity period.
The current semiannual market-based rate effective May 1, 1994, through October 31, 1994, is
4.70 percent.
Interest earnings on Savings Bonds are exempt from State and local income taxes, and Federal
income taxes on the interest earnings can be deferred.
Current rate information can be obtained by ·calling the Savings Bonds Marketing Office's
toll-free number, 1-800-4US-BOND.
-more-
PA-156
(LB-108S)
STATISTICAL SUMMARY
Series EE' and HH U. S. Savings Bonds
Month of August 1994
ISSUES, REDEMPTIONS AND
OUTSTANDING
August
1994
August
1993
(In millions of dollars)
$ 645
$ 818
Accrued Discount (Interest
earned and added to Amount
outstanding) Series E & EE
756
786
Redemptions (Including
Accrued Discount)
All Series
970
765
3
1
Amount Outstanding
Net Decrease August
434
840
Total Outstanding
1994
Sales:
Series EE
Cash Adjustments from Series
HH Savings Bonds Exchanges
1993
Series E & EE
Series H & HH
$166,763
11,377
$157,169
11,079
Total All Series
$178,140
$168,248
000
DEPARTMENT
OF
THE
TREASURY (W)
FOR IMMEDIATE RELEASE
September 15, 1994
TREASURY
NEW S
CONTACf: Scott Dykema
(202) 622-2960
U.S., PORTUGAL INCOME TAX TREATY SIGNED
The Treasury Department said Thursday that the United States and Portugal have
signed the first income tax treaty between both nations.
The treaty is seen as an important step in expanding their tax treaty networks,
which facilitate commerce by lowering trade barriers and reducing the cost of doing
business overseas. Portugal has been the only member of the European Union without
an income tax treaty with the United States.
The treaty had been initialed July 14 and the formal signing was announced
Thursday in a ceremony in Washington attended by U.S. Secretary of State Warren
Christopher and Portuguese Foreign Minister Durao Barroso. The U.S. Senate must now
approve the new treaty before it can take effect.
The treaty would lower taxes on cross-border payments of dividends, interest,
branch profits and royalties. The current top rate on such dividends is 15 percent.
Beginning in 1997, that rate would decline to 10 percent for dividends paid by 25
percent-owned subsidiaries to their parent corporations; and it could decline to as low as
5 percent in such cases in later years, if Portugal grants a lower rate on dividends paid by
Portuguese corporations to their parent corporations in other European Union countries.
The top tax rate at source is 10 percent on interest and royalties, with an exemption of
interest in selected cases. Branch profits tax rates also would decline.
All these tax rates are significantly lower than would be imposed in the absence of
a treaty, and thus should improve the climate for bilateral investment.
The treaty also reduces taxes on other kinds of income, including business profits,
capital gains and personal service income. A number of administrative procedures also
are covered by the treaty, such as the exchange of tax information and the resolution of
disputes. Each country provides a foreign tax credit to prevent double taxation.
(MORE)
LB-1086
-2-
The benefits of the treaty are available only to residents of the two countries who
satisfy certain requirements. The benefits are not available to those entitled to the
benefits of certain tax-free zones.
The proposed treaty reflects current laws and tax treaty policies of the two
countries and follows a model draft income tax convention published by the Organization
for Economic Cooperation and Development. It is similar in many respects to the U.S.
income tax treaty with Spain.
The proposed treaty is subject to ratification. It will enter into force on the date
the instruments of ratification are exchanged, and its provisions will generally have effect
on the following January 1.
Copies of the treaty may be obtained by writing the Office of Public Affairs, U.S.
Treasury Department, Room 2315, Washington, D.C. 20220, or calling (202) 622-2960.
-30-
CONVENTION BETv."EEN
THE UK!TED STATES OF AMER!CA AND THE PORTUGUESE REPUBL!C
FOR TEE AVOIDANCE OF DOUBLE TAXAT!ON AND TEE
PREVE1\T:ON OF FISCAL EVASION ~!TH RESPECT TO
Th>:ES OK INCO~E
GDve=nme~~
e
of
=o~ven~~cn
~ncome,
~he
~or
Por~uguese
Republic, desi=ing
the evciden=e
have ag=eed as fellows:
0:
double
~o
~exation
conclude
en~
the
-2-
ARTICLE 1
Personal Scope
This Convention shall apply to persons who are
residents of one or both of the contracting states, except
as otherwise provided in the Convention.
ARTICLE 2
Taxes covered
-,
"
The existing taxes to which this Convention shall
(a)
in Portugal:
Pe~sonal
(i)
Rencimen~o
(i~)
income tax (Imposto sobre
Singula~es
das Pessoas
Co~po~a~e
income "tax
0
- IRS);
(I~Dos~c
scb~e
0
Ke:lcir.lentc das Pessoas Colectivas - IRC); anc
(iii~
I
'I
I
L~cal
su~tax
on
co~pD~ate
income tax
(:)er:-arr,a) ,
~nere.:.na:~er
,-
( : )\
re:erre:i to as
~he
"?or~uguese
"C.a>:")"
Federal income taxes imposed by the
:nternal Revenue Code (bu"C. exclucing social
(ii) the excise "C.ax
investme~t
sec~ior.
inoome of
~94C
of
~he
~:~h
p~~va"C.e
~espec~
to the
foundations under
:nternal Revenue Code,
- -: -
a c:
~
-3-
may be amended from time to time without changing
the general principle thereof,
(hereinafter referred to as "United States tax").
2.
The Convention shall apply also to any identical or
substantially similar taxes which are imposed after the date
of signature of the Convention in addition to, or in place
of, the existing taxes.
Co~trac~ing
State shall
The competent authorities of the
no~ify
each other of any significant
cnanges that have been made in their respective
taxatio~
lawS and of any official published material concerning the
applica~ion
of the Convention.
}'.R':"I CLE
3
General Definitions
1.
co~te>:t
For
t~e
of this Convention, unless the
p~rposes
othe:::-.. .· i se reau ires:
(a) t!le
te~s
"a
cc~tracti:"'lg
State" and "the other
Contract.:.n:; State" mear. Portugal or the Ur..:.ted St2tes
as the context
h( -)
re~ires;
the terTI', "Portugal" means the territory of the
?ort~guese
Rep~~lic
situated
i~
~he
EUrOpe2:"'l
Continent, the archipelagoes of hzores and
respective
internationa~
soverelg~
sea and any other zone .:.n
terr~torial
in a::::cordance
~lth
:a~,
rights
the
the
~ith
~adeira,
the
~hich,
of Portugal and
la~s
?ortu~uese
-
ReDutlic
has
.
respect to the
ex~loratio~
anD
.----- .. _-------------------------
-4-
exploitation of the natural resources of the seabed and
subsoil, and of the superjacent waters;
(c) the term "United States" means the United
States of America and, when used geographically, means
the States thereof, the District of Columbia, the
territorial sea adjacent to those States, and any othe::zone
adjacen~
la~s
of the United States and inte=national law, the
L~ited
Sta~es
explo::-a~ion
o~
in which, in accordance with the
has sove=eign ::-ignts with respect
and exploitation of the natural
~o
~he
reso~rces
the seabed and subsoil, and of the supe=jacent
·,,;c.~e::.-s
;
(d)
~c
there~o
a~
~he
'"Ce:"!!"! "person" includes
bu~
is not l':":r..i'"CeG
individual, a company, and any othe::.- body of
persons;
~e~
(e) the
e~~~~y
~hat
~s
"cor..pany" means any body corporate or
~::.-ea~ec
as a body
corpora~e
for
~ax
pt:::.-pcses;
0':
-!-'-.......
"e~-e""""'~~se
,'~
a Con ..... . _ac
.,.. ...... ~ng
.
S'"Cate"
and "er,te::-pr i se of ~he o~her Con'"C::-ac~ing State II mean /
respectively,
2.
an en~erprise carried on by a resident of
Con~rac:.ing S~2te
::-es~den:.
(9)
and an enterprise car::-ied on by
of the other
~he
~e:::-:T,
Con~racting
State;
"r.at,ional" means:
2.
-5-
(i) any individual possessing the nationality
of a Contracting State; and
any legal person, association, or other
(ii)
entity deriving its status as such from the laws
in force in a contracting State;
(h) the term
"interna~ional
traffic" means any
transport by a ship or aircraft operated by an
en~erprise
~ranspor~
o! a Contracting State except when such
is solely between places in the
Con~racting
o~her
Sta~e;
(i) -=he term "competent authorityll means:
(i) in the case of the United States:
Sesretary
(ii)
0:
o~
-=he Treasury or his delegate; and
~n
-=he case
Finance, the
(Direc~or
the
o~
D~rector
,
Por~ugal:
the
General of
Taxa~ion
Y.ir:is~er
Geral das Contribui90es e Impcstos)
or
the:r authorized representative.
2.
As regards the application
Con~racting
o~
the Convention by a
S-:.a-:.e, any te:::-rr, not defined therein shall,
ur:2.ess "':.he context ot.her·.·:ise requires, have the Jileanlng
~nlch
it has
taxes tc
u~der
~hich
the
~aws
o~
that State concerning -=he
the Convention applies.
-6-
ARTICLE 4
Residence
1.
For the
pu~oses
of this Convention, the term
"::- es ident of a Contracting State" means any person who,
under the laws of that State, is liable to tax therein by
::-eason of his
do~icile,
place o!
inco::-pora~ion,
na":ure.
Howeve::-,
~s
~rom
:::"5
~ax
~n
or any other criterion of a simila::te~
~hat
does not include any person that
S~a~e
in
respec~
only of income
sources in that State.
~.
a~
~o
liable
~his
residence, place of management,
Whe::-e by reason of the provisions of paragraph 2,
~nci\·idual
s-:a-:~5
residen~
of both Contracting
Sta~es,
-:hen
sha:l be de-:e:-rr.ined as !c.llo....·s;
(a)
S~a~e
is a
he shal: be deemed to be a ::-esident cf the
in which he has a
permanen~
home available to
:::..r..; :: he has a pe::-:r,anent home available to r:.il7'. in
bo~~
S-:a~e
S~a-:es,
~i-:h
he
sha~~
~he
which his personal and economic rela-:ions
are closer (cen-:er of
(b)
be deemed to be a resident cf
v~tal
~nterests);
:..: -:he State in which he has his center of
vi -:a 2. in-:eres~s ca::-'mot be de~errr.ined,
or if he does not
have a pe:-r..anent home available to him in either State,
he sha:: be deemed ~c be a resident of the State in
which he has an habitual abode;
-'-_. - ._------
-7-
(c)
if he has an habitual abode in both States or
in neither of them, he shall be deemed to be a resident
of the State of which he is a national;
(d)
if he is a national of both States or of
neither of them, the competent authorities of the
Contracting States shall settle the question by mutual
agreement.
~.
Where, by reason of the provisions of paragraph 1,
a person other
Con~racting
~han
S~a~es,
an in6ividual is a
::
~he
~e
compe~ent
se~tle
the question by
are unable
au~horities
p~rposes
be a resident o! either Contracting State for
0:
enjoying benefits under this Convention.
Fer the purposes
I.
bo~h
r..a}:e suc:, a dete::-J!'.ination, the pe;:!son shall no:: be
considere=
~he
o!
the competent authorities of the
contracting States shall endeavor to
~o
residen~
0:
this
Conven~i
on, the
pe::-r.,anen:: establ ishmen::" mea:":s a :: ixed pJ.. a ce
through
w~ich
tje business of an
en~erprlse
is
0:
~erTI',
buS iness
~hclly
partly carried on.
2.
The terTI'. "permanerl':
es~ab: ishmen~"
espec':"ally
(2)
a place 0: management;
incl udes
or
-8-
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, an oil or gas well, a quarry, or any
other
3.
place of extraction of natural resources.
A building site or a construction,
installation, or
assembly project., or supervisory activities in connection
~ith
such a site or project, or an
s~i~
r:g cr
~a~ura:
_.. -::
- - l .. ·
or drilling
usee for the exploration or development of
resources, const.it.utes a
pe~.anent
es~ablishment
.:.,.,(:
such sit.e, project, or activities last more than 6
--
..,
c~
ins~allation
.
!;c-: ..:':' ~:;stanci~g the prececing provisions
~~s:~ess
S-:a-:e
0:
-:~ro~9h
e~gage~
~or
a
i~s
o~n
nature in the other
enployees or any other
~his
Co~~rac~ing
perso~nel
such purpose for a period or periods amoun-:ing
exceec:~g
-:c cr
permanen~
0:
:~
~~e
agsregate 9
mon~hs
in any 12-rnonth
perioc cO:7'.lTlencing or encing in the taxable year concerned
sr,<=.::.:" bE- CE-E:i.ec
c-:her
have a
pE::7.ianen~
es":.abl ishment in the
S~c.-:e.
Nct~i~hstaneing ~he
_.
;.~-:: l C leI
not
~c
~c
-che
~e:-Ti.
include:
11
preceding provisions of this
pe :::-r.ICner,~ e S-:'2.!: 1 :"shmen~"
shall be deemed
-9-
(a) the use of facilities solely for the purpose
of
storage, display, or delivery of goods or
merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or
merchandise belonging t6 the enterprise solely for the
purpose of
s~orage,
~he
(c)
display, or delivery;
maintenance of a stock of goods
merchandise belonging to the
pu~pose
enter~~ise
of processlng by another
o~
solely for
~he
en~erprise;
(d) the maintenance of a fixed place of business
solely for
~he
purpose of purchasing goods
info::-rr,2.~ion,
Derch2.n::::ise, or of collecting
o~
:or
~he
er.terpr:.se;
(e;
the maintenance of a fixed place of business
solely for the purpose of c2.rrying on, for
er.terpr:.se, any
(f~
~he
ot~er
~he
cf a preparatory or
ac~ivity
maintenance of a fixed place cf business
solely :or any oo;;--J:ination of the activities mentioned
.
-.
(a )
-:'0
(e) (
provided that
~he
ove~all
f rorr.
~lng
activity of the fixed place of business resu ...l .....
~tls
co~~inatior.
is ::::f a preparatory or auxiliary
character.
E.
No~~ithstanding
2, wherE a persor. status to
~ho=
~he
o~her
parasra~~
provisions of paragraphs 1 and
than an agent cf an independent
7
a~~lies
-
lS
acting on behalf cf
-lO-
an enterprise and has and habitually exercises in a
Contracting State an authority to conclude contracts in the
name of the enterprise, that enterprise shall be deemed to
have a permanent establishment in that state in respect of
any activities which that person undertakes for the
en~erprise,
l~~ited
unless the activities of such person are
to those mentioned in paragraph 5 which, if exercised
~~xed
through a
place of business,
Flaee c: business a
provisions
o~
that
pe~anent
establishment under the
s,,-"pe!-"\'isory sE:::-vi::es or
pcra~rap~
~,
en~erprise
t~at
provisions
crdinary co,,-"rse
~he
S-::'a te merel}'
~us:ness
0:
t~rough
a
0:::- a:11' other agent 0: an
such persons are acting :n
their b,,-"siness.
fact that a company
is a resident
ca:-:::-les on
0:
t~at
0:
deemed to have a
Contract~ng
age:1~,
::1::'epenje:-:t status, p:::-ovlded
E.
paragraph 3
it ca:-ries on business in that state
.:::-c}:er, ge:1e:::-a: ::o::-:'...":.issi:::-:
-:~e
~he
~ot'be
shall
pe:-r:-.a:1e:-:t establ ishment in a
~e::ause
0:
the provisions
re~c:-::':"nc;:
a~
not make this fixed
pa~agraph.
Not~ithstanding
I.
wo~ld
the
o~her
w~ich
:s a resident
0:
a
CO:1tracting State, or -::'hat
in -:ha-: other State (whether through a
pe:-r.,a:1e!"l': es:.abl is.'1I:1e:1t c:::- othe:::-..:ise), shall no".:. c: .:. tsel:
------------------------------
-11-
ARTICLE 6
Income From Immovable Propertv (Real Property)
1.
Income derived by a resident of a Contracting State
from immovable property (real property), including income
froIT agriculture or forestry,
situated in the other
Contracting State may be taxed in that other State.
2.
The te::-rn
I.
immovable property" or
I'
rea 1 property,
I'
as the case may be, shall have the meaning that it has under
proper~y
the law of the Contracting State in which the
In
The te=m in any case shall include
property accessory
~o
immovable property (real
proper~y),
::. i ves-:.oc}: an=. equipment used in agr i cul tt:.re and : orestry
.\1.';'.':' cr.
the proYisions
::'a;)oe=. proper-:y apply,
property), and
:or
co~sidera-:lo~
~~neral
proper-:.y
deposits,
(real
The
derived :rern
:: om.
0:
..,,
.
righ~s
~he
a~
general
e: ir.Jllova1:1e
respec-:.ing
proper~y
(rea:
to variable or fixed pa}ments as
working 0:, or -:he right -:0 work,
so~rces,
and other natural resources.
proper~y).
=rovisio~s
~he
of paragraph 1 shall apply to income
direc-: use,
immovabl e property
let~ing,
or use In
a~y
ether
(reel prepe:-ty).
The provisions of paragraphs 1 and 3 shall a::'so
apply to the incoI7'e
0:
ust:.fruc~
0:
I
en-:.erprise an=.
::-o~
-:'0
irrJnovable property (:-eal p:-operty)
income frcIT
i~Dova~le
proper~y
(reel
-12property)
used for the performance of independent personal
services.
ARTICLE 7
Business Profits
1.
The business profits of an enterprise of a
Contrac~ing
S~ate
~he en~er?rise
other
~he
o~
unless
through a
:: the
permanen~
en~erprise
es~ablishmen~
carries cn or has
profi~s
business as aforesaid, the business
0:
enterprise may be taxed in the other State but only so
~~C~
c:
as is
t~e~
2.
0:
~~s:ness
pe!:T.,c!1e:-..:.
:~
~he
c~her
es~ab.l ishmen~
J~
~hat
Sta~e
De~anen~
carries on or has carried
Con~racting
State through a
si tua~e= therein, there sha:"l in
buCi"es C
_ _ ..
to
provisions of paragraph 3, where an
~he
Con~racting
c
.... "-J.... _ _
is~me~....
J ...........
-~e
es ~~~'
expec~ec
a~tributable
SutJect to
er.terprise
D~
S~ate
therein.
situc~ed
~hat Sta~e
carries on or has carried on business in ~he
Con~racting
carried
shall be taxable only in
D-O&i~S
_ _ '"-
__
~
~
,.~~-~
...
••
~
..l.~
~-.....
~
TIl."ah- be
I
__
'-
to illake i: :t were a distinct and independent
er.terprise engaged In
the same cr
.
...
S~~:lcr
~he
~.
sane or similar activities under
.
CCDc:t:ons and dea2ing wholly
':"ndependent2.y ',,'':' ~h --:he enterprise of which it is a pe:-r.,anent
es~a!::'ishmen~
-
anc ..... -..: .. any other associated enterprise.
-~
--------
-13-
3.
In determining the business profits of a permanent
establishment, there shall be allowed as deductions expenses
~he
which are incurred for the purposes of
permanent
establishment, including research and development expenses,
in~erest,
and other similar expenses and a reasonable
alloca~ion
of executive and
gene~al
administrative expenses,
....'he~her '::'ncurred in the State in which
estab2ishment is
~.
si~uc~ed
No business
~he per.manen~
or elsewhere.
prof~~s
shall be
pe::-r.,a:.ent esta;;l'::'shme:.-:. by reason of
at~ributed
~he
to a
mere purchase by
-:.ha-:. permanen-:. es-:.ablishment of goods or merchand'::'se for -:.he
e~ter;::r:se.
-:.he
b-...:s':ness -:;r::::-:.s
~o
be a-:.-:.r':buted to -:.he perl7lanent
es-:,c;;':'ishner:-:. shall be de-:.e:rr.ined by
year
u~':'ess
E.
are dealt
there
~s
good and
~he
su~ficient
Khere bus:ness Drof:ts inc:ude
same
rne~hod
reason to
i-:.e~s
of
year by
~he
inco~e
that
separate2y in other Ar-:.icles of the
Convention, the prov':sions cf those Artic2es sha12 not be
affec~ed
by -:.he prov:slo:,S
--_._-----------_. -- .- -
-
0:
--- -- _..
th':s hrticle.
_--------------------
-14ARTICLE 8
Shippino and Air Transport
f~om
1.
Profits of an enterprise of a Contracting State
the
ope~ation
~raffic
of ships or aircraft in international
shall be taxable only in that State.
2.
The provisions of the preceding paragraph shall
a!so apply to profits from participation in a pool, a joint
b~siness,
or an international operating agency.
Jl..RTICLE 9
Associated EnterDrises
i':!J e re :
ar.
;~)
~ar~:=:~a~es
=o~~r~_,
or
d~rec~2y
cac~~al
~he
(t;
c: a
er.~erprise
o~
or
Contrac~ing
indirectl~'
manage~en~,
in the
enterprise of the other
a~
same persons
part~cipate
~nd:rec~:v
~n ~he ffianagemen~,
e~~e~~~:se
c:
2
State
Con~~cc~:ng
directly or
control, or cacital c: an
S~a~e
and an
ente~p~ise
c:
and ~n either case centitions are made o~ imposed between
the t·...'c enterprises :.r. their com.'1Iercial or !inancial
re!a~ions ~~ic~ d:.::er :ro~ ~hose that wo~ld be made betweer.
:.ndependen~ enterp~~ses,
~~ese
conditions,
--
'-
,
wo~:d
~hen any p~o!i~s tha~,
but fo~
have accrued to one c: the
;::\. reaser.
-----------_._---- -------
0:
those cO:1di tic;)s
I
have net so
-15-
accrued, may be included in the profits of that enterprise
and taxed accordingly.
Where a Contracting State includes in the profits
2.
of an enterprise of that State, and taxes accordingly,
profits on which an enterprise of the other
Con~racting
State has been charged to tax in that other State, and the
competent
prcfi~s
~he
authori~y
of that other State agrees that the
so included are
~hat
~ade
between the two enterprises had been
~hat
would have been made between independent
~hen
~~at
~he
_!":
~he
ether
de~er:7.':'n.:..ns
c~her
~he
such
each
~he
Co:;~::-actins
~hose
en~erpr~ses,
shall make an appropriate
a~justment
tax charged therein on those profits.
a~jus~me:,.~,
provisions of
a~therities
cor.s~:~
Sta~e
cf
a~8un~
~o
would have ac=rued
of the first-mentioned State if the
enterpr~se
c8n~i~ions
profi~s
~~is
due regard shall be paid to
Conver.~ion
and the
co~petent
of the Contracting States shall if necessary
e~her.
;:ro·,is.:..ons of paragraph 1 shall
S~a~e
rela~':'ns
to
~he
no~
de~e::-n.ination
lil7.l t
of
~he
the
tax
:"iai:ility of a person, provided '"Chat. the detern,in2.tion of
that tax liability is consist.ent.
.:.n ":.t:.is
J..r~icle.
~ith
the principles stat.ed
-16ARTICLE 10
Dividends
1.
Dividends paid by a company that is a resident of a
Contracting state to a resident of the other Contracting
State may be taxed in that other State.
2.
However, such dividends may also be taxed in the
Contracting State of which the company paying the dividends
a
~s
=esiden~,
~he
~he
and according to the laws of that State, but
bene~icia:
owne~
:!.s
a resident of
othe= Cont=acting State, the tax so charged sha:l not
exceed l5 pe=cent c:
~~~~a:
t~e
of the dividends
gross amount of the dividends.
~he
The
agreement settle the pode of application of this
COPDa~v
=:v~dends
i~
respect of the profits out of which the
a=e paid.
:
t~e
bene:~cial
~tnEr
o~ne=
C~ntractinc_
lS
a
coppa~y
State and
_
~ha~,
tha~
_
_
~o~
&"
is a resident of the
~n
<0.
.....
__
._
unJ..·n-e~rup~ed
<:
VI. ...... _
0 ··
~
=:rectlv at least 25 pe=ce~t c: t~e capital
~:
the
s~a
__
CO~D. anv
•
n~t
D. a'.·inc. the divideno's, -he
.....
-~~
I... <.0.....
(capital social)
so
c~--ae~
•• Co _ . I,....
exceec:
(a) 'v:ith respect to dividends paid after Decer:-..!:>er
s~c::-.
c.iv:dends; anc.
-17(b) with respect to dividends paid after December
~hat
31, 1999, the rate
Portugal may apply to such
residen~s
dividends paid to
of European Union member
states, provided, however, that the applicable rate
shall not be less than 5 percent.
4.
Paragraph 3 shall not apply in the case of
dividends paid by a United States Regulated Investment
Co~pany
or a Real Estate
:ro~
dividends
apply.
s~all
:nves~ment
o~ner
2~
of
perce~t
ct~er~~se,
~.
!n
~he
In
0:
case
~he
case
~~vidends
t~e
dividends :rom a Real
Es~ate
is an individual holding a less
in
rate of
te:-rr.
0:
paragraph 2 shall apply if the beneficial
ir.~erest
~~e
Trust.
a Regulated :nvestment Company, paragraph 2
Trus~,
~he
!nves~ment
~he
Real
~ithholdins
"d~vidends"
:nCO::7,e :ro::: sr-.ares,
~sta~e
:nves~men~
applica~le
t~a~
~rust;
under domestic
as used in this Article means
I'j ouissance" shares,
fOL:.nders I s:-:'ares,
or ether rights, not being debt-claims, participating in
profits, as well as
~ncome
:s
saDe taxat:on treatment as income :ros
su~jected
s~ares
~o
t~e
from other corporate rights that
by the laws of the State of which the company making
The
the distribution is a resident.
:no:udes income
-
--
O ~~l'g~-~ons
'- ~
~o
the
,
ex~ent
:rc~
arrangements,
-ne
ca~-\.·~nc
~
-~.
- - _.
so
--~ah- -'"
c~aracter:zed
.
~e:-rr.
"dividends" also
including debt
-0 -p~-_t_~cipate
~
in profits,
-
under the law of the
:n the ::ase
-lBof
Po~tugal,
the term also includes profits
att~ibuted
(associay~o
an arrangement for participation in profits
pa~ticipac;:ao)
6.
under
em
.
The provisions of paragraphs 1, 2, and 3 shall not
apply if the beneficial owner of the dividends, being a
0:
reSldent
o~
a Contracting State, carries on
o~
has carried
business in the other Contracting State, of wt.ich the
cDmpany paying the dividends is a resident, through a
pe~aner.~
estab~ishment
situated therein,
or
pe=fo~s
or has
per: :::l::-17,ec i.n that other State independent personal ser\" ices
:r:::l~
a fixed base situated therein, and the holding in
respec~
cf
c8:::1eC7.e::
suc~
~tich
"","i~h
case
the dividencs are paid is effectively
such
~he
pe~anen~
prOVisions
estab2.ishment or fixed base .
0:
.
Article 7 (Business Profits)
cr Article l5
(Independen7. Personal Services), as the case
Thav be,
apply.
S~a~e
shal~
derives
S7.a~e,
prc:i~s
or inc:::lrne :roIT the other Contracting
that other State may net impose any tax on the
c:vicends paic
c:vide~cs
~y
the
co~pany,
except insofar as such
are paid tD a resident
0:
that
o~her
State or
:ns:::lfar as the hclding in respect ef which the dividends are
paic .:.s
effec~ively
connec~ec:
or a :ixec: base situatec
~n
,,'ith a perJr,anent establishment
that other State.
--------------------------------------------------------------------
-19ARTICLE 11
Interest
Interest arising in a Contracting State and derived
1.
by a resident of the other Contracting State may be taxed in
that ether State.
2.
However, such
in~erest
may also be taxed in the
contracting State in which it arises, and according to the
1a;..'s
0:
that State, but
the beneficial o·wner of the
0:
interest is a resident
the other Contracting State, the
tax so charged shall not exceed 10 percent
0:
amou~t
arising in one
a
C'.'- - -
~~c_e
the gross
such interest.
Not~~thstanding
~~terest
0:
.
i"
.
sna
__
De
exempt
the provisions of paragraph 2,
0:
the Contracting States
reside~t
:ro~
0:
an~
the other Contracting
tax in the
:irst-ment~oned
State,
(a) the debtor cf such interest is the Government
0:
that Contracting State, a political or
aj~:~:strative
subj:\'~sion
thereof, or any cf its local
authorities; or
(b) the interest :s paid to the Government ef the
ether Contracting State, to a political or
---=--=----- -
-20-
local authorities, or to an institution or organization
(including financial institutions) wholly owned by
them; o:r(c) it is interest on a long-term loan (5 or more
years) granted by a bank or other financial institution
that is a resident of the other contracting State.
,.
Notwithstanding the provisions of paragraphs 2 and
interest arising in one of the
aete~ined
~s
beneficially
by a resident cf the other contracting State may be
o~~ed
the
:a~~
States that is
by :r-eference to the profits of the issuer or of
c: its asso=iated enterprises and that
o~e
t~E
Contrac~ing
c~
t~at
~atE
Sta~e
in which it arises, and according to the
State, but the tax so charged shall not exceed
~~escribed
i~
paragraph 2 df Article 10
':'he te::-r.: "i.nterest" as used .1n this Convention
se=~red
:. C
(2 i
:~=o~e
~y
~o:::-tgagE,
a~d,
s~tJect
to paragraph 5 of
\" i ae:Jcs), ...."nether cr not carrying a right to
:ro~
gover~me~t
jebe~t~res,
l~=ludi:Jg
sec~ritles,
bones,
sec~rities,
p~e~i~rns
and income
c: tne State
c~ debent~res,
:~ ~~:ch
:ro~
bonds or
or prizes attaching to such
as well as al: other
assi::-:i:'cted tc
:a~
~rt~cle
the income arises"
-216.
The provisions of paragraphs 1, 2, and 4 shall not
apply if the beneficial owner of the interest, being a
resident of a Contracting State, carries on or has carried
on business in the other Contracting State, in which the
interest arises, through a permanent establishment situated
the~ein,
or
pe~forms
or has performed in that other State
independent
pe~sonal
services from a fixed base situated
~he~ein,
~he
and
effec~i vely
paid is
es~at:ishnent
,.
-"
'.
h::-",:.::.=~e
dee~e~
(Business
:e~
I.
~o
a~ise
0:
State a
as
I
a
~~
~he
of
a
In such case the
~his
perso~
p~ovisions
or Article 15 (Independent
A~ticle,
Contrac~ing
Contrac~:ng
De~.anent
\-;i th such pe::-rnanent
case may be
:oca: authority,
hovever, tne
res:dent
?rofi~s)
p~~poses
s~b~i\'isio~,
~here,
connec~ed
or fixed base.
Se:\'ices)
?e~sonal
in~eres~
debt-claim in respect of wr.ich the
o~
Sta~e
I
shall apply.
interes~
sha:: be
when
payer
resident
paying the
~he
0:
that
ln~erest,
State or not, has
~n
~s
S~a~e.
whether a
a Contract:ng
estat::shment or a fixed base and such
:nterest is berne by such pe::-rnanent estab:ishment cr fixed
base,
~he~
such
S~a te
:n -,.;:-.':'':::: the pe:-T.1anent estat-l ishl7lent or :. ixe::: base
~nterest
shall be oeemeo to arise
the
2n
~s
s~tuatec.
E.
Where, bv reason of a special
the payer and the bene:i.::ia:
o~ne~
rela~ionship
or between
bo~h
between
0:
the=
-22-
regard to the debt-claim for which it is paid, exceeds the
amount that would have been agreed upon by the payer and the
beneficial owner in the absence of such relationship, the
provisions of this
Ar~icle
shall apply only to the
In such case the excess
last-mentioned amount.
0:
shall remain taxable according to the laws
pay~ents
Contracting State, due regard being had to
0:
p~ovisions
~he
of the
pa~t
each
other
the Convention.
J....RTICLE 12
~
s~t~e=~
co~po~ation
~~
~he
Uni~ed
~::o~at:e
~nde~
Sucn tax,
howeve~,
the
(a) the
~n
~he U~~ted
to a tax
p~ovisions
~n
Po~tu9al
additio~
to
may be
t~e
tax
of t~is Conventio~.
may be imposed only on:
0:
por~ion
States,
0-
business profits of the
subject to tax in the Unlted
Prope~ty
(?ea: Pr=?er~y)) or ?a~ag~a?h ~ of Article l~
(Capi~al
C;ai~s),
that
A~ti=2.e
~he
6 (::1come from !m.'11ovatle
States
'unde~
S~ates
othe~
0:
is a resident
~hat
~e;:~esents
a:;;ount," as de:':'ne6
?evenue Code, as
~:tho~t
(t)
~n
_~ ~ay
changing the
the "c.ividend equivalent
section 884 of the
:r:Jte~nal
be amended from time to time
gene~al p~inciple the~ecf;
the excess, .:.: a~y,
0:
ane.
interest deductible in
-23-
attributable to a permanent establishment in the United
States or taxable in the United States under Article 6
(Income from Immovable Property (Real
or
Prope~ty»
paragraph 1 of Article 14 (Capital Gains), over the
interest paid by the permanent establishment or trade
or business in the United States.
The
2.
~ate
of the tax
to in
~efe~red
pa~ag~aph
shall not exceed the rate specified In paragraph 2
applicable,
of
~he
~ax
ne~cen~
and :0
i~
parag~aph
3 of Article 10
referred to in
parag~aph
in all
o~he~
o~,
~hen
(Dividends).
1(b) shall not exceed 5
the case of a bank that is a
pe~cen~
1(a)
residen~
of
Por~ugal
cases.
AR':'IC!..E 13
Rovalt:es
Rcya:ties arising in a Contracting State and pald
~o
c.
~es
i
of
der;~
~he
cthe~
Con~~a
cting
S~a::e
TIl a \-
be ::a>:e:: :.;-:
however, such royalties nay alse be taxed :n
---o
S .... c. .... _ :n ....·hich
la~s
of that State,
~oyal~ies
.loS a
res:den~
tax so charged shall
a~ount
bu~
nc~
of the royalties.
~hey
if
~he
cf the
~he
ar.lose, and
beneficial
ethe~
owne~
of the
Contracting State, the
exceed 10 percent cf the gross
The
co~petent
authori~ies
of the
Centract:ng States shall by mutual agreemen:: settle the mede
---- '------ ---_._--
>,
-243.
The term
I'
royal ties" as used in this Convention
means payments of any kind received as a consideration for
the use of, or the right to use,
a~~istic,
films,
or scientific work,
or films,
reproduction,
any copyright of literary,
including cinematographic
tapes, and other means of image or sound
any patent, trademark, design, or model, plan,
secret formula,
or p!"ocess, or
0:
use
0::-
or
~he
righ~
sc':'er:~ific
o~her
like
righ~
or
prope~~y,
indus~ria2.,
to use,
em.;.ioment
- , 0::- fo::- information
conce::-r:':'ng indust::-ia2., comrne!"cial, or scienti:ic experience.
- a:so includes
a
Con~rac~':'ng
~~ere
pa)~en~s
for technical assistance per:ormed
State by a !"esident
0:
such ass':'stance is !"elated to the application of any
The te:::.-m
ga~ns
de~ived
f!"o~
"roya2.~iesl
0::-
.
~isposi~ion
?!"ov':'sions of paragraphs
app:y :f
~he
beneficia2.
res':'den~
Gf a Con~racting S~ate,
or: bus:ness In the
royalties a:::-~se,
the::-ein,
0::-
p~ope!"ty
to the
~he!"ec:.
~~e
-:
also in::ludes
the use of such right or p::-operty in the
::ase of an al:enation cf such !"ight or
~se,
the other State
o~her
~h:::-o'..lgh
pe:::-fo~s
o~ner
of the
an:: 2 shall
roya2.~ies,
no~
being a
carries on or has carried
Con~::-acting
Sta~e,
in which the
a permanent es-cai:lishment situated
or has pe!"formed in ~hat othe::- S~ate
:ndependent pe!"scna: se~·ices from a fixed base situated
respec~
of 'v.'hi ch the
._-----_._------
-25-
royalties are paid is effectively connected with such
permanent establishment or fixed base.
In such case the
provisions of Article 7 (Business Profits) or Article 15
(Independent Personal Services), as the case may be, shall
apply.
5.
For purposes of this Article, royalties shall be
a~ise
deemed to
i~self,
that State
subdivision,
~esident
0:
autho~ity,
~he
pe~son
or resident of
~hat
paying the royalties,
State.
whethe~
a
one of the Contracting States or not, has in one
Cor.t~acti~g
the
a political or administrative
local
however,
Whe~e,
0:
in a Contracting State when the payer is
Sta~es
a permanent establishment or :ixed
~hieh
the liability to pay the
pe!T.,a!Je:-:-:. establ ishrnen-:. or :: ixec base, then the ::-oya2. ties
be deemed to a=ise in the State in v.Thieh the pe!Wanent
sha~:
0= :':'xed base is
es-:.a=::s~men~
S~a~E,
and
=cya2. ~ ies are not borne by a
~hE
es-:.a=~ishme:-:-:.
0=
f~xed
the =oyalties ::-ela-:.e
one
0:
~o
the Cont=aeting
desc=ibed in
arisins in
6.
the paye=
pa~ag~aph
tha~
Whe~e,
a~d
s~tuated.
base :n either
_, the
State,
Con~rac~ing
-:.he use 0:, or the
S~ates,
pe~,anent
any property
=oyalt~es
righ~
o~
bu~
-:'0 use,
~ight
shall be treated as
State.
by reason c: a special reiationsr.ip between
the be:-:e:ieial
o~ne=
0=
between both
0:
therr
------,,--------------------------
-26-
and some other
perso~,
the amount of the royalties, having
regard to the use, right, or information for which they are
paid, exceeds the amount which would have been agreed upon
by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply
In such case the excess
only to the last-mentioned amount.
Da~
of the payments shall remain taxable according to the
laws of each Contracting State, due regard being had to the
ether provisions of the
Conventio~.
h.R~I
C12 14
CaDita~
:~~~S
:ro::-
":.:JE
s~":.~2.":.e=
::::-:.he::-
der~ved
Gains
by a resident of a
Con~rac~ins
S~a~e
a:':'e:-,at:"on of iIilJ7\ovable prope::-ty (real p::-ope::-ty)
:;. the othe::- Cont::-ac-:.:"ng
Sta~e
may be taxed in that
S-:.a-:.e.
2.
5:-:'~2.-:.e~
?c::- the pt.:::-poses c: parag::-aph 1, irrJnovatle p::-ope::-ty
~~c:'udes
:n Portugal
ct~er rights
:~ a
stock, pa::--:'icipations,
0::-
conpa~y cr ether legal person the prope::-ty
:!7'....'";1O\.:able prope::-ty s: tuatec :.n ?ortuga2.; and ::-eal prope::-ty
situated in the Vn:ted States includes a United States ::-eal
Ga:ns
proper-:y
f::-o~
the
:o~.:"ng ~2.:--:'
aliena~_'on
-
of -:.he
of-
busi~ess
-o"a~~e
'"
v;,..)_
property
( persona ~')
0:
a
-27-
State has or had in the other Contracting State, or of
movable property pertaining to a fixed base that is or was
available to a resident of a Contracting State in the other
Contracting Stat.e for the purpose of performing independent
personal services,
pe~anent
such a
including gains from the alienation of
est.ablishment. (alone or with t.he whole
or such a fixed base, may be
enterprise)
~axed
in that other
St.at.e.
4.
S~at.e
Ga~ns
~rom
der~ved
~he
~n~erna~ional
by an en~erprise of a
alienation of ships or
~~ar.
Ga:ns fron
proper~y
~axa~le
only
aircra~t
operat.ed in
t.raffic or movable propert.y pert.aining t.hereto
(Roya:~:es)
6.
Contract~ng
~he
re~erre~
~n
~he
shall be taxable onlv in
a:iena~ion
o~
any property ot.her
t.o in paragraphs :
~~rough
5 sha:l be
Cont.ract.ing St.at.e of which t.he alienat.or
.:. s a res ide:"';~ .
:nde~enaen~
:ncome
.:.n respect.
an
0:
~naependent.
aer~ve~
?ersonal
Se~ices
by a resident. of a Ccntracting Stat.e
pro:ess~cnal
se~'ices
or other act.ivities of
charact.er sha:l be t.axable only .:.n t.hat. St.at.e
-28except in the
follo~ing
circumstances, when such income may
also be taxed in the other contracting state:
(a)
if he has or had a fixed base regularly
available to him in the other Contracting State for the
pu~pose
of performing his activities: in that case,
~o
only so much of the income as is or was attributable
~ha~
fixed base may be taxed in that
(b)
if his
s~ay
in
~he
other
~na~
o~
~uch
pe:::-fo:-med in
~hat
S~ate_
~axe~
in
.:. -
The
~e~.
espe=~al~y
:.ndeperlden~
ac~.:vities
arc~:~ec~s,
dentists,
o~he~
scientific,
29
~ha~
othe:::-
~o
S~a~e
may
artistic,
la ....'Ye_.,...s,
-
eng'nee-c::
-
-~,
and accountants.
Persona 1 Se:-v ices
the provisions of Ar~icles
(A:::-~is~es and Spor~srnen),
22.
20
, ,...
_0
(Diz-ectors
(Pensions, Annuities,
(Government Service), 22
and 23
--.
lite:::-a:::-y,
of physiCians,
-
DeDen:Se:1~
~ees),
exceeding in
"professional services" includes
independe~t
Su~ject
is
of the income as is derived
ac't:'::'vi~ies
be
S~a~e
ending in the taxable year concerned; in
case, only so
:ro-:-:. r.':s
o~
o~
183 days in any 12-month period
aggrega~e
cOr:'u"T1enc:'ng
Sta~e;
Cont~ac~ing
:er a period Dr periods amounting to
~he
o~her
(S~udents
a~d
T:::-ainees),
--- . ------. -----------------
-29-
salaries, wages, and other similar remuneration derived by a
resident of a contracting State in respect of an employment
shall be taxable only in that State unless the employment is
exercised in the other Contracting State.
If the employment
is so exercised, such remuneration as is derived therefrom
may be taxed in that other State.
2.
Notwithstanding the provisions of paragraph 1,
~emuneration
de~ived
by a resident of a Contracting State in
respect of an employment exercised in the other
S~ate
Cont~acting
shall be taxable only in the first-mentioned State if
(a) the
:o~
a
~ecipient
or
pe~iod
is present in the
pe~iods
othe~
not exceeding in the
123 days in any 12-month period conmencing
~he
taxable
yea~
(b) the
o~
State
agg~egate
enc.irJ.g in
concerned; and
re~uneration
is paid by, or on behalf of,
an employer who is not a resident of the other State:
(c) "Che
establish~ent
~emune~a-;:ion
~s
not
bo~ne
by a pe::-manent
or a fixed base which the employer has in
the other State.
~.
Article,
Not~i-;:hstanding
rernune~ation
State in respect of an
the preceding provisions of this
de~ived
by a resident of a Contrac"Cing
emplo)~ent
as a member of the reaular
complement of a ship or aircraft operated in international
traffic shall be taxable only In that State.
------------------_.
-30-
ARTICLE 17
Limitation on Benefits
1.
A resident of a Contracting state shall be entitled
to the benefits of this Convention only if such person is:
(a) an individual: or
(b) a Contracting State, a political or
administrative subdivision or local authority thereof,
or an institution or organization wholly owned by them;
or
(c) a company
(i) that is a resident of a contracting State
in whose principal class of shares there is
.
substantial and regular trading on a recognized
securities exchange, or
(ii) more than 50 percent of each class of
whose shares is owned by companies that are
residen~s
of either Contracting State, in whose
principal class of shares there is substantial and
regular trading on a recognized securities
exchange, or by persons referred to in
subparagraph (b); or
(d) an organization, trust, or other arrangement
referred to in subparagraph 3(b) of the Protocol,
provided that more than half of the members,
participants, or beneficiaries, if any, in such
orgar.ization, trust, or arrangement are
residen~s
of
--------------------------------------------------------------------------------
- 31
that Contracting State who are entitled, under this
Article, to the benefits of this Convention; or
(e) a person with respect to which both of the
following conditions are satisfied:
(i) the ultimate beneficial owners of more
than 50 percent of the beneficial interest in such
person (or, in the case of a company, more than 50
percent of the vote and value of each class of the
company's shares) are persons entitled to the
benefits of this Convention under this paragraph 1
or citizens of the United States; and
(ii) less than 50 percent of the gross lncome
of such person is used, directly or indirectly, to
meet liabilities (including liabilities for
interest or royalties) other than to persons
entitled to the benefits of this convention under
this paragraph 1 or citizens of
2.
~he
United
S~ates.
A resident of a Contracting State that is not
entitled to the benefits of this Convention under paragraph
1 shall, nevertheless, be entitled to the benefits of this
Convention
~ith
respect to an item of income derived from
the other State if:
(a) the resident is engaged in the active conduct
of a trade or business in the first-mentioned State
(other than the business of making or managing
investments, unless these activities are banking or
-
32 -
insurance activities carried on by a bank or insurance
company); and
(b) the item of income is connected with or
incidental to the trade or business in the firstmentioned State; and
(c) such trade or business is substantial in
relation to the activity in the other state that
generated the income.
3.
~he
A person that is not entitled to the benefits of
convention pursuant to the provisions of paragraph 1 or
2 may, nevertheless, be granted the benefits of the
Convent~on i !
~he
the competent authority of the State in which
income in question arises so determines.
For this
purpose, one of the factors the competent authorities shall
~ake
into account is whether the establishment, acquisition,
and maintenance of such person and the conduct of its
opera~ions
ob~aining
4.
did not have as one of its principal purposes the
of benefits under the Convention.
For purposes of subparagraph (c) of paragraph 1,
the term IIrecognized securities exchange" means:
(a) the NASDAQ System owned by the National
Associa~ion
of Securities Dealers, Inc. and any stock
exchange registered
wi~h
the Securities and Exchange
Commission as a national securities exchange for
purposes
0:
the Securities Exchange Act of 1934;
33 -
(b) the Lisbon and Oporto Stock Exchanges; and
(c) any other stock exchange agreed upon by the
competent authorities of the Contracting States.
5.
For purposes of subparagraph (e) (ii) of paragraph
1, the term "gross income" means gross receipts, or, where
an enterprise is engaged in a business which includes the
manufacture or production of goods, gross receipts reduced
by the direct costs of labor and materials attributable to
such manufacture or production and paid or payable out of
such receipts.
6.
Not~ithstanding
the provisions of paragraphs 1
through 5, the benefits of this Convention shall not be
allowed to any person that is entitled to income tax
benefits under the provisions of the legislation and other
measures relating to the tax-free zones (zonas francas) of
Madeira and Santa Maria Island, or to benefits similar to
those provided
~ith
respect to such tax-free zones that are
made available under any legislation or other measure
adopted by either Contracting State after the date of
signature of this Convention.
The competent authorities
shall notify each other of any such legislation or measure
and shall consult as to whether such benefits are similar.
- 34 ARTICLE
~8
Directors' Fees
Directors' fees and other similar payments derived by
resident of a Contracting
St~te
~
for services performed
outside that contracting State in his capacity as a member
of the board of directors or supervisory board (in Portugal,
conselho fiscal)
or of another similar organ of a company
that is a resident of the other Contracting State may be
taxed in that other State.
ARTICLE 19
Artistes
2.
a~d
Soo~tsmen
Notwithstanding the provisipns of Articles 15
(Indepencient Personal Services) and 16 (Dependent Personal
Services), income derived by a resident of a Contracting
State as an entertainer, such as a theatre, motion picture,
racio or television artiste, or a musician, or as an
ath:ete, from his personal activities as such exercised in
the other Contracting State, may be taxed in that other
State except where the amount of the compensation derived by
such entertainer or athlete, including expenses reimbursed
to him or borne on his behalf, from such activities does not
exceed 10,000 United States dollars or its equivalent in
Portuguese escudos fo~ the taxable year concerned.
2.
Where income in reSDect
of .oersonal activities
.
exercised by an entertainer or an athlete in his capacity as
-----_.-.
-
35 -
such accrues not to the entertainer or athlete but to
another person, that income of that other person may,
notwithstanding the provisions of Articles 7 (Business
Profits) and 15 (Independent Personal Services), be taxed in
the Contracting State in which the activities of the
entertainer or athlete are exercised, unless it is
established that neither the entertainer or athlete nor
persons related thereto participate directly or indirectly
in the profits of that other person in any manner, including
the receipt of deferred remuneration, bonuses, fees,
dividends, partnership distributions, or other
distributions.
3.
No~withstanding
.
the provisions of paragraphs 1 and
income derived by a resident of a Contracting State as an
2,
entertainer or athlete shall be exempt from tax by the other
contracting State if the visit to that other State is
substantially supported by public funds of the
first-mentioned State or a political or administrative
subdivision or local authority thereof.
ARTICLE 20
Pensions, Annuities, Alimony, and
Child Support
1.
Subject to the provisions of Article 21 (Government
Ser...rice) :
'-----......
..,........,-~-----------------------------------
-
3.6 -
(a) pensions and other similar remuneration
derived and beneficially owned by a resident of a
Contracting State in consideration of past employment
shall be taxable only in that State; and
(b) social security benefits and other public
pensions paid by a Contracting state to a resident of
the other Contracting state or a citizen of the United
States may be taxed in the first-mentioned state.
2.
Annuities derived and beneficially owned by a
resident of a contracting State shall be taxable only in
that State.
The tenn "annuities" as used in this paragraph
means a stated sum paid
pe~iodically
a specific time period,
unde~
payments in
(o~her
3.
re~urn
at stated times during
an obligation to make the
for adequate and rull consideration
than services rendered).
Alimony paid to a resident of a Contracting State
shall be -c.axable only in that State.
The term "alimony" as
used in this paragraph means periodic payments made pursuant
to a written separation agreement or a decree of divorce,
separate maintenance, or compulsory support, which payments
are taxable to the recipient under the laws of the State of
which he is a resident.
~.
Periodic payments for the support of a minor child
made pursuant to a written separation agreement or a decree
of divorce, separate maintenance, or compulsory support,
paid by a residen-c. of a Contracting S-c.ate to a resident of
-
37 -
the other Contracting state, shall be taxable only in the
first-mentioned State.
ARTICLE 21
Government Service
1.
(a) Remuneration, other than a pension, paid by a
Contracting State or a political or administrative
subdivision or a local authority thereof to an
individual in respect of services rendered to that
State or subdivision cr authority shall be taxable only
in that State.
(b) However, such remuneration shall be taxable
only in the other Contracting State if the services are
rendered in that State and the individual is a resident
of that State who:
(i) is a national of that State; or
(ii) did not become a resident of that State
solely for the purpose of rendering the services.
2.
(a)
Any pension paid by, or out of funds created
by, a Contracting State or a political or
administrative subdivision or a local authority thereof
to an individual in respect of services rendered to
that State, subdivision or authority shall be taxable
only in that State.
i
-I
I;
- 38 -
(b) However, such pension shall be taxable only in
the other contracting State if the individual is a
resident and national of that State.
3.
The provisions of Articles 15 (Independent Personal
services), 16 (Dependent Personal Services), 18 (Directors'
Fees), 19 (Artistes and sportsmen), and 20 (pensions,
Annuities, Alimony, and Child support) shall apply to
remuneration and pensions in respect of services rendered in
connection with a business carried on by a contracting State
or a poli~ical or administrative sUbdivision or a local
authority thereof.
ARTICLE 22
Teachers and Researchers
1.
An individual who is a resident of a Contracting
State inrnediately
befo~e
Visiting the other Contracting
State and who, at the invitation of the Government of the
other contracting State or of a university or other
accredited educational institution or recognized scientific
research institution of that other contracting State, or
under an official program of cultural exchange, visits that
other State solely for the purpose of teaching or carrying
out research at such a university or educational institution
shall be exempt from tax in both Contracting States on his
remuneration from such activity for a period not exceeding 2
years from the
da~e
c: his arrival in the other State.
An
39 -
individual shall be entitled to the benefits of this
paragraph only once and in no
even~
shall any individual
have the benefits of both this Article and Article 23
(Students and Trainees), either simultaneously or
consecutively.
2.
This Article shall not apply to income from
research if such research is undertaken not in the public
interest but primarily for the private benefit of a specific
person or persons.
ARTICLE 23
Students and Trainees
1.
(a) An individual who is a resident of a
Contracting State immediately before his visit to the
other Contracting State and who is temporarily present
in that other Contracting State for the primary purpose
of:
(i) studying at a university or other
accredited educational institution in that other
contrac~ing
State;
(ii) securing training required to qualify
him to practice a profession or professional
specialty; or
(iii) studying or doing research as a
recipient of a grant, allowance, or award from a
-
40 -
governmental, religious, charitable, scientific,
literary, or educational organization,
shall be exempt from tax by that other contracting
State with respect to the amounts described in
subparagraph (b) of this paragraph for a period not
exceeding 5 years from the date of his arrival in that
ot.her State.
(b) The amounts referred to in subparagraph (a) of
this paragraph are:
(i) payments from abroad for the purpose of
t.he individual's maintenance, education, study,
research, or training;
(ii) the grant, allowqnce, or award: and
(iii)
income from personal services performed
in that other Contract.ing State in an aggregate
amount not in excess of 5,000 United States
dollars or its equivalent. in Portuguese escudos
for any taxable year.
2.
An individual who is a resident of a Contracting
St.a~e immediat.ely before his visit to the other Contracting
St.at.e and who is temporarily present in that other
Cont.racting State as an employee of, or under contract with,
a resident
0:
the first-mentioned Contracting State,
for the
primary purpose of:
-----_. __ ... _--_.- --------------
- 41 -
(a) acquiring technical, professional, or business
experience from a person other than that resident of
the first-mentioned Contracting State, or
(b) studying at a university or other accredited
educational institution in that other contracting
State,
shall be exempt from tax by that other Contracting State for
a period of 12 consecutive months with respect to his income
from personal services in an aggregate amount not in excess
of 8,000 United States dollars or its equivalent in
Portuguese escudos.
3.
This article shall not apply to income from
research if such research is undertaken not in the public
interest but primarily for the private benefit of a specific
person or persons.
ARTICLE 24
Other Income
1.
I~ems
of income of a resident of a contracting
State, wherever arising, not dealt with in the foregoing
articles of this Convention shall be taxable only in that
State unless they arise in the other contracting State, in
which case they may also be taxed in that other State.
2.
The provisions of paragraph 1 shall not apply to
income, other than income from immovable property (real
property) as defined in paragraph 2 of Article 6 (Income
-
42 -
from Immovable Property (Real Property», if the beneficial
owner of the income, being a resident of a Contracting
State, carries on or has carried on business in the other
Contracting State through a permanent establishment situated
therein, or performs or has performed in that other State
independent personal services from a fixed base situated
therein, and the right or property in respect of which the
income is paid is effectively connected with such permanent
establishment or fixed base.
A~ticle
In such case the provisions of
7 (Business Profits) or Article 15 (Independent
Personal Services), .as the case may be, shall apply.
ARTICLE 25
Relief
1.
f~om
Double Taxation
In accordance with the provisions and subject to
the limitations of the law of the United States (as it may
be umended from time to time without changing the general
p~inciple hereof),
resident
0=
the United States shall allow to a
citizen of the United States as a credit against
the United States tax on income:
(a) the income tax paid to Portugal by or on
behalf of such citiZen or resident; and
(b)
in the case of a United States company owning
at least 10 percent of the voting stock of a company
that is a resident of Portugal and from which the
United States company receives dividends, the income
---------_ _-----_._------------------...
43
tax paid to Portugal by or on behalf of the
distributing company with respect to the profits out of
which the dividends are paid.
2.
In the case of an individual who is a citizen of
the United States and a resident of Portugal, income that
may be taxed by the United States solely by reason of
citizenship shall be deemed to arise in Portugal to the
extent necessary to avoid double taxation, provided that the
tax paid to the United States will not be less than the tax
that would be paid under the articles of this convention if
the individual were not a citizen of the United States.
3.
In the case of Portugal:
(a) Where a resident of Portugal derives income
that, in accordance with the provisions of this
convention may be taxed in the United States (other
than solely by reason of citizenship), Portugal shall
allow as a deduction from the tax on the income of that
resident an amount equal to the income tax paid in the
United States.
exceed that
Such deduction shall not, however,
pa~t
of the income tax, as computed before
the deduction is given, that is attributable to the
income that may be taxed in the United States;
(b) In the case of a Portuguese company that
receives dividends from a United States company in the
capital of which it holds directly a participation of
at least 25 percent, Portugal shall allow a deduction
:....---~--------
..
-----.-------------------
- 44 for 95 percent of such dividends included in the tax
base, provided that that participation was held for the
preceding 2 years, or trom the date of the organization
of the Portuguese company if that occurred later, but
in either case only if the participation was held
continuously throughout that period.
(c) Where, in accordance with any provision of the
Convention, income derived by a resident of Portugal is
exempt from tax in Portugal, Portugal may,
nevertheless, in calculating the amount of tax on the
remaining income of such resident, take into account
~he
exempted income.
ARTICLE 26
Non-Discrimination
1.
Na~ionals
of a Cont=acting State shall not be
subjected in ~he other Contracting State to any taxation or
any requirement connected the:-e'wi th which is other or more
burdensome than the taxation and connected requirements to
which nationals of that o~her S~ate in the same
circumstances are or may be SUbjected.
This provision shall
also apply ~o persons who are not residents of one or both
of the Contracting States.
However, for the purposes of
United States tax, and subject to Article 25 (Relie: from
Double Taxation), a United States national Who is not a
=esiden~ of the Uni~ed Sta~es and a Portuguese national who
---.-~---~--
-
1
45
is not a resident of the United States are not in the same
circumstances.
2.
The taxation on a permanent establishment that an
enterprise of a Contracting State has in the other
Contracting State shall not be less favorably levied in that
other State than the taxation levied on enterprises of that
other State carrying on the same activities.
This provision
shall not be construed as obliging a Contracting State to
grant to residents of the other Contracting State any
personal allowances, reliefs, and reductions for taxation
purposes on account of civil status or family
responsibilities that it grants to its own residents.
3.
Nothing in this Article shall be construed as
preventing either contracting State 'from imposing a tax as
described in Article 12 (Branch Tax) .
~.
Except where the provisions of paragraph 1 of
Article 9 (Associated Enterprises), paragraph 8 of Article
11 (Interest), or paragraph 6 of Article 13 (Royalties)
apply, interest, royalties, and other disbursements paid by
an enterprise of a Contracting State to a resident of the
other Contracting State shall, for the purposes of
determining the taxable profits of
such enterprise, be
deductible under the same conditions as if they had been
paid to a resident of the first-mentioned State.
S.
Enterprises of a Contracting State, the capital of
which is wholly or partly owned or controlled, directly or
,
-
46 -
indirectly, by one or more residents of the other
Contracting State, shall not be subjected in the
first-mentioned State to any taxation or any requirement
connected therewith that is other or more burdensome than
the taxation and connected requirements to which other
similarly situated enterprises of the first-mentioned State
are or may be sUbjected.
6.
The provisions of this Article shall,
notwithstanding the provisions of Article 2 (Taxes Covered),
apply to taxes of every kind and description imposed by a
Cont~acting
State or a political or administrative
subdivision or local authority thereof.
ARTICLE 27 .
Mutual Agreement Procedure
1.
Where a person considers that the actions of one or
both of the Contracting States result or will ~esult fo~ him
in taxation not in accordance with the provisions of this
Convention, he may, irrespective of the remedies provided by
the domestic law of those States, present his case to the
COID?etent authority of the Contracting State of which he is
a resident or national.
The case must be presented within 5
years from the first notifica~ion of the action resulting in
taxation not in accordance with the proviSions of this
Convention.
- 47 -
2.
The competent authority shall endeavor, if the
objection appears to it to be justified and if it is not
itself able to arrive at a satisfactory solution, to resolve
the case by mutual agreement with the competent authority of
the other Contracting State, with a view to the avoidance of
taxation that is not in accordance with the Convention.
Any
agreement reached shall be implemented notwithstanding any
time limits or other procedural limitations in the domestic
law of the Contracting States.
3.
The competent authorities of the Contracting States
shall endeavor to resolve by mutual agreement any
difficulties
o~
doubts arising as to the interpretation or
application of the Convention.
They may also consult
,
togethe~
for
~he
elimination of double taxation in cases not
provided for in the Convention.
In particular, the
competent authorities of the contracting States may agree on
the procedures for the application of the limits imposed by
the taxation at source of dividends, interest, and royalties
by
A~ticles
10 (Dividends), 11 (Interest) and 13
(Royalties), respectively.
~.
The competent authorities of the Contracting States
may communicate with each other directly
fo~
the purpose of
reaching agreement in the sense of the preceding paragraphs.
- 48 -
ARTICLE 28
Exchange of Information
1.
The competent authorities of the contracting States
shall exchange such information as is necessary for carrying
out the provisions of this Convention or of the domestic
laws of the Contracting
S~ates
concerning taxes covered by
the Convention insofar as the taxation thereunder is not
con~rary
not
to the Convention.
by Article 1 (Personal Scope).
res~ricted
informa~ion
Any
received by a Contracting State shall be treated
as secret in
~he
the
laws of
~o
The exchange of information is
domes~ic
persons or
manner as information obtained under
sa~e
~hat
authori~ies
state and shall be disclosed only
(including courts and
administrative bodies) involved in the assessment,
collection, or administration of, the enforcement or
prosecution in respect of, or the determination of appeals
in relation to, the taxes covered by the Convention.
persons or authorities shall use the
such purposes.
cour~
informa~ion
Such
only for
They may disclose the information in public
proceedings or in judicial decisions.
2.
In no case shall the provisions of paragraph 1 be
construed so as to impose on a Contracting State
~he
obligation:
(a) to
car~
out administrative measures at
variance ~ith the laws and administrative practice of
tha~
or
0:
the other Contracting State;
-
49 -
(b) to supply information that is not obtainable
under the laws or in the normal course of the
administration of that or of the other contracting
State;
(c) to supply information that would disclose any
trade, business, industrial, commercial, or
professional secret or trade process, or information
the disclosure of which would be contrary to public
policy.
3.
If information is requested by a Contracting State
in accordance with this Article, the other Contracting State
shall obtain the information to which the request relates in
the same manner and to the same extent as if the tax of the
:~~st-mentioned
State were the tax of that
were being imposed by that other State.
requested by the
compe~ent
othe~
State and
If specifically
authority of a Contracting State,
the competent authority of the other Contracting State shall
provide
info~ation
under this Article in the form of
depositions of witnesses and authenticated copies of
unedited original documents (including books, papers,
statements, records, accounts, and writings), to the same
extent such depositions and documents can be obtained under
the laws and administrative practices of that other State
with respect to its own taxes.
4.
For the purposes of this Article, the Convention
shall apply, notwithstanding the provisions of Article 2
----_ .. _... _---------------------
50 (Taxes Covered), to taxes of every kind imposed at the
national level by a contractin9 state.
ARTICLE 29
Diplomatic Aaents and Consular Officers
No~hing in this Convention shall affect the fiscal
privileges of diplomatic agents or consular officers under
the general rules of international law or under the
provisions of special agreements.
ARTICLE 30
En't:-y Into Force
1.
.
This Convention shall be subject to ratification in
acco:-dance
~ith
the applicable procedures of each
Contracting State and instruments of ratification shall be
exchanged at Lisbon as soon as possible.
2.
The Convention shall
en~er
into force upon the
exchange of instruments of ratification and its provisions
shall have effect:
(a)
in respect of taxes withheld at source, for
amounts paid or credited on or after the first day of
January next following the date on which the Convention
ente:-s into force: and
(b)
in respect of other taxes, for taxable years
besinning on or after the first day of
Janua~
next
._--------_.---------------------------------------
- 51 following the date on which the Convention enters into
force.
ARTICLE 31
Termination
This Convention shall remain in force until terminated
by a contracting State.
Either Contracting State may
terminate the Convention at any time after 5 years from the
date on which the Convention enters into force, provided
that at least 6 months' prior notice of termination has been
given through diplomatic channels.
In such event, the
Convention shall cease to have effect
(a)
in respect of taxes withheld at source, for
amounts paid or credited on or after the first day of
January next following the expiration of the 6-month
period;
(b)
in respect of other taxes, for taxable years
beginning on or after the first day of January next
following the expiration of the 6-month period.
---.
__
.
-
-----_._-------------------'
- 52 IN WITNESS WHEREOF, the undersigned, being duly authorized
by their respective Governments, have signed this
convention.
DONE at Washington, in duplicate, in the English and
Portuguese languages, both texts being equally authentic,
day of September, 1994.
FOR THE UNITED STATES OF
AMERICA:
L«fl~
FOR THE PORTUGUESE
REPUBLIC:
)
------_._-----_._---------------
PROTOCOL
At the signing today of the convention between the
United states of America and the Portuguese Republic for the
Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with Respect to Taxes on Income, the Contracting
States have agreed upon the following provisions, which
shall form an integral part of the Convention:
1.
With reference to Article 1 (Personal Scope):
(a)
(i) It is understood that the Convention will
not impose a tax that is not otherwise imposed under
the laws of the Contracting State concerned.
This
means that the Convention shall not restrict in any
manner any exclusion, exemption, deduction, credit,
other allowance, or tax incentive now or hereafter
accorded by the laws of the contracting States.
The
Convention shall not restrict the benefits conferred
under any other agreement between the Contracting
S~a~es
that entered into force prior to the date of
signature of this Protocol.
(ii) Notwithstanding any other agreement to
which the Contracting States may be parties, a dispute
concerning whether a measure is within the scope of
this convention shall be considered only by the
competent authorities of the Contracting States, as
defined in subparagraph l(i) of Article 3 (General
De:initions) of this Convention, and the procedures
under this Convention exclusively shall apply to the
~--------------------------------------.----------------------------------------
-
2 -
under this Convention exclusively shall apply to the
dispute.
(iii) Unless the competent authorities
determine that a taxation measure is not within the
scope of this convention, the nondiscrimination
obligations of this Convention exclusively shall apply
with respect to that measure, except for such national
treatment or roost-favored-nation obligations as may
apply to trade in goods under the General Agreement on
Tariffs and Trade.
No national treatment or most-
favored-nation obligation of any other agreement shall
apply
~ith
respect to that measure.
(iv) For the purpose of this paragraph, a
"measure" is a law, regulation, rule, procedure,
decision, administrative action, or any other form of
measure.
(b) Notwithstanding any provision of the
Convention except paragraph (c) of this provision, a
Contracting State may tax i~s residents (as detennined
under Article 4 (Residence)), and the United States may
tax its citizens, as if the Convention had not come
into effect.
For this purpose, the term "citizen"
shall include a former citizen whose loss of
citizenship had as one of its principal purposes the
avoidance of tax, but only for a period of 10 years
follo~ing such loss.
For the application of the
- 3 -
preceding sentence to a resident of Portugal, the
competent authorities shall consult under Article 27
(Mutual Agreement Procedure), upon request by the
Portuguese competent authority, on the purposes of such
loss of citizenship.
(c) The provisions of the preceding subparagraph
(b) shall not affect:
(i) the benefits conferred by a Contracting
State under paragraph 2 of Article 9 (Associated
Enterprises), under paragraphs l(b) and 4 of
Article 20 (Pensions, Annuities, Alimony, and
Child Support), and under Articles 25 (Relief From
Double Taxation), 26 (Non-Discrimination), and 27
(Mu~ual
Agreement Procedure); and
(ii)
the
benefi~s
conferred by a Contracting
State under Articles 21 (Government Service), 22
(Teachers and Researchers), 23 (Students and
Trainees), and 29 (Diplomatic Agents and Consular
Officers), upon individuals who are neither
citizens of, nor have immigrant status in, that
State.
2.
With reference to Article 2 (Taxes Covered):
(a) Article 2 does not apply to social security
contributions established under Portuguese law.
(b)
No~withstanding
l(b) of Article 2:
the provisions of paragraph
- 4 -
(i) a company that is a resident of Portugal
shall be exempt from the United States personal
holding company tax in any taxable year only if
all its stock is owned by one or more individuals,
who are not residents or citizens of the United
States, in their individual capacities for that
entire year; and
(ii) a company that is a resident of Portugal
shall be exempt from the accumulated earnings tax
in any taxable year only if it is a company
desc~ibed
in paragraph l(c) of Article 17
(Limitation on Benefits) .
3.
Wi~h
reference to paragraph 1 of Article 4
(Residence) :
(a) The term "resident of a Contracting State"
applies to partnerships, similar pass-through entities,
estates, and trusts only to the extent that income
derived by such partnership, similar entity, estate, or
trust is subject to tax in that State as the income of
a residen~, either in its hands or in the hands of its
partners or beneficiaries.
(b) The terT.l "resident of a Contracting State"
includes:
(i) any not-for-profit organization
constituted and maintained in that State,
provided that the laws of such State or of a
..
- 5 -
political or administrative subdivision thereof
limit the use of the organization's resources,
both currently and upon the dissolution or
liquidation of such organization, to the
accomplishment of the purposes that serve as the
basis for such organization's exemption from
income tax; and
(ii) a pension trust and any other
organization or arrangement constituted in that
State and operated exclusively to administer or
provide pension, retirement, or employee benefits,
that is established or sponsored by a person that
is
othe~'ise
a resident under Article 4
(Residence), notwithstanding that all or part of
the income of such organization, trust, or
arrangement may be exempt from income taxation in
that State.
(c) Portugal shall treat a United states citizen
or an alien admitted to the United States for permanent
residence (a "green card" holder) as a resident of the
United States only if he has a substantial presence in
the United States, or would be a resident of the United
States and not of a third country under the principles
of subparagraph (a) and (b) of paragraph 2 of Article 4
(Residence) .
- 6 4.
With reference to Article 5 (Permanent
Establishment):
The provisions of paragraph 4 shall apply only
~or
the
first 5 years in which the provisions of the Convention have
effect, as provided in paragraph 2(b) of Article 30 (Entry
into Force).
5.
With reference to Article 6 (Income from Immovable
PrODerty CReal Propertv»:
It is understood that the provisions described therein
shall also apply to income from associated movable
(personal) property and from the provision of services for
the maintenance or operation of immovable property (real
property) .
6.
With reference to paragraph 3 of Article 7
(Business Profits):
It is understood that each Contracting State may apply
its own domestic law, whether based on tracing or
allocation, for attributing research and development
expe~ses,
interest, and other similar expenses to a
permanent establishment situated in its territory, provided
that such rules are consistent with the provisions of
Article 7.
7.
With reference to Article 8 (Shippina and Air
TransDort) :
The term
II'
~ncome
from the operation of ships or
aircra:t in international traffic" will be defined in
-
7 -
accordance with paragraphs 5 through 12 of the Commentary on
Article 8 (Shipping, Inland waterways Transport and Air
Transport) of the 1992 Model Convention for the Avoidance of
Double Taxation with Respect to Taxes on Income and on
Capital of the Organization for Economic Cooperation and
Development.
8.
With reference to Article 10 (Dividends):
Although the substitute gift and inheritance tax
(imposto sobre sucessoes e doacoes por avenca) imposed by
Portugal is in fact a gift and inheritance tax and not an
income tax, it is agreed that if the rate of such tax is
increased above the rate applicable on the date of signature
of this Convention, such increase shall not apply to
.
cividends beneficially owned by residents of the United
States.
~o
It is understood that shares that have been subject
the substitute gift and inheritance tax are not subject
to taxes imposed by Portugal upon transfer by death or gift.
9.
Wi~h
reference to
Ar~icle
11
(Interest):
Paragraphs 2 and 3 shall not apply to the U.S. taxation
of an excess inclusion derived by a resident of Portugal
with
respec~
to a residual interest in a Real Estate
Mortgage Inves-cment Conduit ("REMIC").
Such amounts shall
be taxable at the rate provided by domestic law.
10.
With reference to Article 12 (Branch Tax):
If Portugal establishes hereafter, under its taxation
lav;, a tax comparable to the United States "branch tax I" the
•
-
8 -
provisions of this convention in respect of the "branch tax"
shall also apply in respect of such taxation, after any
necessary adjustment.
11.
With reference to paragraph 2 of Article 13
(Royalties) :
Royalties received in consideration for the use of, or
the right to use, containers in international traffic shall
be taxable only in the Contracting state of which the
recipient is a resident.
12.
With reference to paragraph 3 of Article 14
(Capital Gains):
(a) The term "activo" as used in paragraph 3 of
the Po!"tuguese text means "busin'ess property".
However, the term "activo" is also used in paragraph 2
as the translation of the term "property", it being
underst.ood that, in some cases, the tern "business
property" has a narrower meaning than the term
"property".
(b) It is understood that gains from the
alienation or transfer of movable (personal) property
that is effectively connected with a permanent
establishment or fixed base that a resident of a
Contracting State has or had in the other Contracting
St.at.e and that is removed from the other Contracting
State may be taxed in that other Cont.racting State in
accoidance ~ith its law, but only to the extent of the
u
-
9 -
gain that has accrued as of the time of such removal,
and may be taxed in the first-mentioned Contracting
State in accordance with its law, but only to the
extent of the gain accruing subsequent to that time of
removal.
(c) The tax liability, if any, imposed by Portugal
on the incorporation of a permanent establishment of a
u.s. company will be determined in accordance with
Decree Law 6/93, implementing the provisions of
Direc~ive
the
90/434/EEC of 23 July, 1990, with respect to
incorpora~ion
of branches in Portugal of companies
resident in other member states of the European Union.
13.
With reference to Article 15 (Independent Person21
Se::-v ices) :
The term "fixed base" shall be interpreted according to
pa~agraphs
3 and 4 of the Commentary on Article 14
(Independent Personal Services) of the 1992 Model Convention
fo~
the Avoidance of Double Taxation with Respect to Taxes
on Income and Capital of the Organization for Economic
cooperation and Development and of any guidelines that, for
the application of such term, may be developed by such
Organization in the future.
14.
With reference to Article 28 CExchanae of
Information) :
It is understood that the information that may be
exchanged includes information from records of financial
- 10
institutions, including records relating to third parties
involved in transactions with the taxpayer(s) and records
relating to persons referred to in paragraph 6 of Article 17
(Limitation on Benefits), and that such information will be
made available to the same extent as permitted by the
domestic law of the Contracting State from which the
information is requested.
It is further understood that the
appropriate tax authorities are empowered to request and
agree to assist in obtaining such records
~equests
~i~h
0:
pu~suant
to
made by the other contracting State in accordance
the provisions of Article 28 and the preceding sentence
this
:OR THE
parag~aph.
UK~~ED
STATES
FOR THE PORTUGUESE
REPUBLIC:
----=-- )/~---
--- -- ---- ------------------
DEPARTMENT
OF
THE
TREASURY
TREASURY (~if~.\1
NEW
S
\1 't==/f.~f.J""""""""""""""""1II
~I7Hq~
......................................
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 15, 1994
TREASURY SECRETARY BENTSEN TO SPEAK IN ORLANDO
Treasury Secretary Lloyd Bentsen will discuss the upcoming Summit of the Americas
1994 in a speech to Orlando-area business leaders. this Friday.
Secretary Bentsen's remarks will be at 2 p.m. this Friday, September 16, 1994 in the
Presidential Parlour of Church Street Station, 129 West Church Street, Orlando. A brief
press availability will follow the program.
The Summit of the Americas is an opportunity for President Clinton to join with the
33 democratically elected heads of state of the nations of the western hemisphere December
9-11, 1994 in Miami. The leaders are expected to discuss democracy and effective
government, prosperity and sustainable development.
The University of Central Florida, the Economic Development Commission of MidFlorida and the Metro Orlando International Business Council are sponsoring the forum.
-30Contact:
Chris Peacock/Treasury -- (202) 622-2960
Melanie Forbrick/Economic Development Commission -- (407) 422-7159
LB-1087
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September IS, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $16,763 million of 52-week bills to be issued
September 22, 1994 and to mature September 21, 1995 were
accepted today (CUSIP: 912794T38).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.37%
5.39%
5.38%
Investment
Rate
5.68%
5.70%
5.69%
Price
94.570
94.550
94.560
~112,OOO was accepted at lower yields.
Tenders at the high discount rate were allotted 20%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
"" Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-I088
Received
$53,405,245
Accepted
$16,763,190
$47,938,472
869,773
$48,808,245
$11,296,417
869,773
$12,166,190
4,300,000
4,300,000
297,000
$53,405,245
297,000
$16,763,190
DEPARTMENT
'lREASURY
~~~~~~
....
OF
THE
~~/78~9~
....................
TREASURY
NEWS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
OrnCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
September 16, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
ON THE SUMMIT OF THE AMERICAS
TO BUSINESS AND COMMUNITY LEADERS
ORLANDO, FLORIDA
Thank you, Lt. Governor MacKay, and good afternoon to all of you. I see Ruben
Askew. He knows more about trade than any of us. And Jim Bacchus -- we'll miss him
in Congress.
The Lt. Governor made me sound so special. I'll tell you a story the
Congressman will appreciate. I spoke to 50 kids the other day, and I asked how many
wanted to be doctors or nurses -- and every hand went up. Then I asked how many
wanted to be a congressman -- and some hands went up, but not a lot. Finally, I asked
how many wanted to be the Treasury Secretary -- and nobody taised their hand. Not a
one.
Well, I want to offer a preview of the Summit of the Americas today, and to talk
about the importance of Latin America.
I just have to look at Treasury's Customs Office in Miami to understand the
importance of Latin America. For years, JFK was the number one port of entry for
passengers and cargo coming into this country. Now Miami International is on par with
JFK.
And if Orlando International keeps growing -- there's been a 10 fold increase in
passengers in 10 years .- you'll be replacing Miami next. The interesting thing is
Orlando gets half its customers from Europe, Miami gets them from Latin America, so
Florida has half the world covered.
This is an election year, and people will talk about families. They'll talk about
jobs. I hope candidates .- and I don't care if they're Democrats or Republicans -understand that for families to have jobs, we need to export. \Ve need to trade. We
LB-I08'.)
-2-
need to keep airports and ports busy. We need to grow economies, and that's a key
issue for this summit.
I'm looking forward to this one. I noticed how the President picked the location:
Miami in December. Last winter, we had a jobs summit and he picked Detroit. So, he's
learned!
We've never had this big of a summit in the country. The last time all the nations
of the hemisphere met on this scale was in 1967 in Punta de Este in Uruguay. Lyndon
Johnson was President, and when he went there Congress said don't make any promises
and don't write any checks.
Heading into that one, Lyndon thought it would bea disaster, because the
President of the United States is supposed to be all-powerful and come with a lot of aid.
But when the Latin leaders saw he was just like them, they had a great deal of sympathy.
After that, he probably had the warmest relationship any President has ever had with
Latin American leaders.
In 1961, President Kennedy started the Alliance for Progress with our Latin
neighbors. He was to go to that summit -- it was in Uruguay, too -- but at the last
minute he cancelled out and sent instead the Treasury Secretary, Douglas Dillon. The
reason the President pulled out was we were in the middle of the Berlin crisis. The
Berlin wall was going up.
How ironic, isn't it? We've come full circle in this world.
In the last five years, the symbol for the new democracies has been in the east: in
Germany, where the wall came down; in Eastern Europe; and in Russia.
But look south -- look south for democracies, for growth, for free markets.
Look at Argentina. Who ever thought a Peronista would lead his country to
privatize companies, and open markets, and lower tariffs?
Look at Chile. I meet with Finance Minister Eduardo Aninat and before him,
Alejandro Foxley, both educated in America. Minister Aninat and President Frei are
building on the economic revolution there, continuing the free market systems that
President Aylwin and Minister Foxley put in place.
Look at Mexico. I was born and reared on that border. I watched election after
election, where leaders would win by running against the Colossus of the North. Now
they look at the U.S. as an opportunity for trade.
-3-
Last week I visited with President-Elect Zedillo. He'll be the third Mexican
President in a row to be educated in America. We talked how he wants to continue the
work President de la Madrid and President Salinas made toward a free-market system.
Look what free-market systems in Latin countries do for us. During the first half
of 1994, the United States sold about the same amount of goods to the 80 million people
in Mexico as to the 125 million in Japan.
We sold more than twice as much to the 150 million people in Brazil than to the
180 million in Indonesia; more to Venezuela than to Russia; about as much to Ecuador
as to Poland and the Czeck Republic combined.
Four years in a row, we've seen Latin America sustain solid economic growth.
Europe had a recession, Japan had a recession, but not Latin America.
Our exports to Latin America and the Caribbean are up 155 percent since 1987,
while our exports to the rest of the world rose less than 90 percent.
And capital is going into Latin America, not coming out.
In the last 10 years, the total value traded on the seven largest Latin stock
markets increased from $7 billion to $86 billion.
Investment is way up. At first the money came from the Latins, bringing home
the money they sent out a dozen years ago. And then American investors saw it as an
opportunity. And now the capital comes from around the world. In fact, net foreign
direct investment flows to Latin America have nearly doubled from 1988 to 1993.
And inflation is not the problem it once was. Remember when they had tripledigit inflation? You try manufacturing a product when your raw material goes up 100
percent a year. Now, inflation is at single-digit levels in many of the countries. We're
seeing annual inflation rates lower than the monthly rates used to be.
These things have happened because governments unilaterally have made reforms.
They knew they'd be in the best interest of their country.
Have all the problems in Latin America been solved? Of course not.
There's Cuba. There's Haiti. There are drug problems. There's still corruption.
There are environmental concerns. There are still many inefficient state enterprises
that need to be privatized. New infrastructure -- roads and bridges and communication
links -- must be built.
-4-
But one finance minister after another has told me: Lloyd -- we don't want aid
from the United States. We want trade.
Some people think that's new and different. I've been around a few years.
Countries always want to trade. Countries always talk about partnerships. They always
talk about cooperation. Look -- the big news that came out of the summit in 1967 in
Punta de Este was an agreement that we'd have a Latin American Common Market by
1985.
Nice words, but there were more plans, than actions.
Let me tell you what's different now. Latin America is politically and
economically ready to trade. These countries have dramatically changed. They've
opened their societies. They've opened their markets. They have the stability needed to
deal with problems. That's the difference.
Maybe there's no common market, but there are 23 trade agreements within our
hemisphere, and that's resulting in a trading boom within the region.
Thanks to NAFTA, trade between the U.S. and Mexico is up 18 percent this year.
Thanks to the Mexico-Chile Free Trade Agreement, trade between those two is up 100
percent in three years. Because of the Mercosur, trade between Brazil and Argentina is
up 191 percent in three years.
These trade agreements -- this opening up of markets with neighbors -- are taking
place all over Latin America. I think it should be looked on as a prelude to an objective
of an open market throughout the hemisphere, with the U.S. and Canada being part of
it. We have to work with Congress to make sure we're a leader in hemispheric trade
liberalization.
This hemisphere is changing, and what we'll be doing in Miami is looking at
shaping it; looking to see how we're going to need each other, and help each other.
We're now in the process of consulting with the 33 other countries that will be
there. When you do a business meeting, you have two or three companies in the room,
and you can proceed. When you have 34 heads of state in a room, the trustees of more
than 700 million people, it takes time to prepare for one of these. Time and luck!
But what's coming out of the consultations we've been having are three themes:
the need to make democracy work, the need to make democracy prosper, and the need
to make democracy endure. That's what will be discussed in Miami.
Let me take them one at a time -- briefly.
-5-
First, making democracy work. I remember when Governor Chiles was Senator
Chiles. He was my desk mate in the Senate. We'd talk about the frustrations in
Washington, and the gridlock, and the bureaucracy. I know he ran for governor because
he felt he could make more of a difference on a state level than at the federal level.
The truth is, it's no different in Washington than Caracas or Mexico City.
Everyone needs to re-invent government.
I'll give you a success story from the Miami Customs office. The Vice President
just gave them an award for this. Timing is everything to our customers, because we're
inspecting flowers and vegetables, and fruits. Working with the customers, we've cut the
inspection time.
Now, when they unload flowers from a plane, thereis not an inspection stop. The
x-ray machines are along the line to the warehouse, so as they move, we move in
parallel. We do paperwork by computer, even before the plane lands. One customer
even has a TV camera in Columbia so we sit in Miami and watch them load.
At the summit, we'll share ideas on re-inventing government. I'm sure we'll talk
about how to fight the drug trade, how to fight money laundering, and how to fight
corruption that might threaten democracy.
Now on the second theme, making democracy prosper, we'll talk about how we
can integrate the hemisphere economically.
We'll discuss the steps that will move us to freer trade and investment flows.
I have a feeling we'll talk a lot about infrastructure. Last November, I hosted a
meeting of the finance ministers of the Asia-Pacific countries. In Asia, $1 trillion will be
spent on infrastructure projects between now and the end of the decade. At that
meeting we talked about getting the private sector involved, and I think you'll see that
here, because the potential in Latin America is also vast.
Third, and finally, we'll discuss making democracies endure. Here in the sunshine
state, it's easy to offer the sunny picture of Latin America.
But there's a dark side. Forty-six percent of Latin America's people live in
poverty. The difference between the rich and the poor in these countries is among the
greatest in the world.
If you want to maintain support for democracy and market economies, you can't
have almost half your people living in poverty.
-6-
So, we'll talk about that, we'll talk about producing healthier and more educated
citizens, and we'll discuss protecting environmental resources. That's certainly a priority
of Vice President Gore.
I think it will be a good summit. You'll see the summit generate specific
initiatives to give life to these three themes.
Let me end with this. Over the years, I've talked and many people have talked
about the 20th Century as the American Century.
People say that the 21st Century will belong to Asia. Or to Japan. Or to China.
Or to Europe.
Don't scratch us out yet.
I see American businesses more competitive than they've been in years. They're
on top. In fact a study came out last week that ranks America first among 40 industrial
nations -- the first time we've been on top since 1985.
And now businesses are investing at record rates.
We've created 4 million jobs in the last 19 months. We're growing faster than any
other G-7 country. Interest rates have risen, but in historical terms they're low. Inflation
is the lowest it's been in 20 years. We've cut the budget deficit -- finally. We're
eliminating a quarter of a million federal jobs. I have 8,000 fewer positions at Treasury
than the day I walked in.
Maybe you can't tell this from the nightly news, but take it from a fellow who
knows Washington: this Congress has been as productive as I've seen in years.
I see the growth potential in Latin America. I see the able leaders those
democracies have produced. And I say, if we show leadership, the next century can be
the Americas Century.
We'll know more after Miami.
Thank you very much.
-30-
DEPARTMENT
OF
THE
TREASURY (.)
TREASURY
NEW S
.
_ 17Hq~"""""""""""""""""'"
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR RELEASE AT 4:30 P.M. (EDT)
September 16, 1994
Contact: Michelle Smith
(202) 622-2960
BENTSEN NOTES PROGRESS IN FINANCIAL SERVICES TALKS
Treasury Secretary Lloyd Bentsen today welcomed the announcement by the Japanese
Ministry of Finance that it would permit a certain class of asset-backed securities to be issued
offshore and resold into Japan.
"I hope this will lead to broader liberalization of the asset-backed securities market in
Japan, which would be an important step forward in the development of Japan's capital
markets," Secretary Bentsen said.
Secretary Bentsen also welcomed several other recent actions by the Japanese
Ministry of Finance in response to concerns expressed by the international fmancial
community and other developments. Several items were noteworthy: the relaxation of
restrictions on certain over-the-counter derivative products, on access by fmancial institutions
in Japan to options traded on overseas exchanges, on the ability of securities firms to engage
in currency swaps, on the ability of banks and securities firms to net their foreign exchange
and derivatives exposure, on corporate debt issuance in Japan and on the 90-day seasoning
requirement for sovereign Euroyen issues.
"These steps represent encouraging signs of progress in the fmancial services
negotiations under the Framework agreement," Secretary Bentsen said.
The Secretary also said, however, that we have seen very little progress toward the
central U.S. objectives of increasing access for U.S. firms to the private and public pension
fund market, improving opportunities for participation in the primary market for corporate
securities and on the relaxation of Japan's comprehensive set of controls on international
capital transactions.
"Progress in these areas will be critical if we are to reach a successful agreement on
fmancial services under the Framework and in the multilateral negotiations on fmancial
services under the Uruguay Round," Secretary Bentsen said.
Treasury Under Secretary for International Affairs Lawrence Summers will travel to
Tokyo September 19-20 to lead negotiations on fmancial services under the Framework and
to continue normal consultations on macroeconomic issues.
-30-
LB-I090
THE NORTH AMERICAN FREE TRADE AGREEMENT
A GUIDE TO CUSTOMS PROCEDURES
PREFACE
O n December 17, 1992, Prime Minister Brian Mulroney in Ottawa, President
Carlos Salinas de Gortari in Mexico City and President George Bush in Washington,
D.C. signed the North American Free Trade Agreement (NAFTA). These three
ceremonies marked the end of a process that began on February 5, 1991 when the
three leaders announced they would negotiate the NAFTA.
As a result of the successful conclusion of these negotiations the NAFTA entered into
force on January 1, 1994. One of the main results of the Agreement is the elimination
of tariffs between Canada, Mexico and the United States on nearly all qualifying goods
by the year 2003. Chapter 5 of the Agreement attempts to ensure that customs
procedures will facilitate trade flows as much as possible.
This guide was written with input from the Governments of Canada and Mexico and
concentrates on explaining Chapters 4 and 5 of the NAFTA, where the rules of origin
and procedural obligations relating to customs administration are described. We have
also provided sources of further information in the three countries. We hope it gives
importers, exporters and manufacturers an overview of the benefits and requirements
of the Agreement.
J.
GEORGE
WEISE,
Commissioner of Customs.
May 1994.
THIS GUIDE WAS DESIGNED TO ONLY PROVIDE GENERAL INFORMATION ON THE
NORTH AMERICAN FREE TRADE AGREEMENT. DETAILED INFORMATION AND ADVANCE
RULINGS SHOULD BE OBTAINED FROM THE SOURCES LISTED IN CHAPTER 15 OF THIS
GUIDE, PARTICULARLY FROM THE CUSTOMS ADMINISTRATION OF EACH NAFTA
COUNTRY.
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ISBN O~16045046~2
TABLE Of CONTENTS
Chapter
Page
1
Description of the NAFT A
Objectives ............................................................. .
Tariff Phaseout ......................................................... .
2
Rules of Origin
Purpose ...............................................................
Wholly Obtained or Produced .............................................
Meets Annex 401 Origin Criterion ..........................................
Produced in the NAFTA Territory Wholly of Originating Materials ..................
Unassembled Goods and Goods Classified with Their Parts .......................
.
.
.
.
.
6
6
Other Instances to Confer Origin
Intermediate Materials ....................................................
Accumulation ..........................................................
De Minimis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fungible Goods and Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
7
9
11
14
Other Provisions Relating to Origin
Accessories, Spare Parts and Tools . . . .
Packaging for Retail Sale. . . . . . . . . . . .
Packing for Shipment .. . . . . . . . . . . . .
Transshipment. . . . . . . . . . . . . . . . . . . .
Operations That Do Not Confer Origin.
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14
15
15
16
16
Provisions for Specific Sectors
Textiles ................................................................
Automotive Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electronic Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Agricultural Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
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Certificate of Origin
Language ............................................................. .
Scope ................................................................ .
Completion of Certificate ................................................. .
Importers' Obligations .................................................... .
Exporters' and Producers' Obligations ........................................ .
Certificate of Origin (specimen)
United States ....................................................... .
Canada ........................................................... .
Mexico ............................................................
Entry Procedures
Claims ............. ··.················································ .
Procedures in Canada .................................................... .
Procedures in Mexico. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Procedures in the United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
A GUIDE TO CUSTOMS PROCEDURES
2
2
22
22
23
23
23
24
27
29
31
31
32
32
I
Table of Contents-continued
Pagp
8
Origin Verifications
(~f.)rl(")r (111 y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Questionnaires ......................................................... .
Verification Visits ....................................................... .
33
33
34
9
Penalties .................. ·················································
34
10
Denial of Benefits . .......................................................... .
35
11
Advance Ruling Procedures
Generally ............................................................. .
Procedures in Canada .................................................... .
Procedures in Mexico .................................................... .
Procedures in the United States ............................................. .
35
36
36
37
Appeal Procedures
Generally ............................................................. .
Procedures in Canada .................................................... .
Procedures in Mexico .................................................... .
Procedures in the United States ............................................. .
37
37
38
38
Country of Origin Marking
Generally ............................................................. .
Method ............................................................... .
Containers ............................................................. .
Exemptions ............................................................ .
Goods Not Marked at Time of Importation .................................... .
40
41
41
41
42
Effect of the NAFT A On:
Drawback and Duty Deferral Programs ....................................... .
Commercial Samples and Printed Advertising Materials .......................... .
Temporary Admissions ................................................... .
Repairs and Alterations ................................................... .
User Fees ............................................................. .
Antidumping and Countervailing Duties ...................................... .
Assembly Operations (U.S. HTS 9802.00.80) .................................. .
GSP/GPT/MFN ......................................................... .
42
44
44
45
45
45
46
46
Contacts for Additional Assistance
Canada ............................................................... .
Mexico ............................................................... .
United States ........................................................... .
48
49
49
Other Useful Publications
Canada ................................................................
Mexico ................................................................
United States ............................................................
50
51
52
Appendix A
Annex 403.1-List of Tariff Provisions for Article 403(1) .......................... .
53
Appendix B
Annex 403.2-List of Components and Materials ................................
55
12
13
14
15
16
;;
NORTH AMERICAN FREE TRADE AGREEMENT
]
~
1 DESCRIPTION OF THE NAFTA
Objectives
Tariff Phaseout
The objectives of this Agreement, as elaborated more specifically through its
principles and rules, including national treatment, most-favored-nation treatment and transparency, are to:
•
eliminate barriers to trade in, and facilitate the cross-border movement of,
goods and services between the territories of the Parties;
•
promote conditions of fair competition in the free trade area;
•
increase substantially investment opportunities in the territories of the
Parties;
•
provide adequate and effective protection and enforcement of intellectual
property rights in each Party's territory;
•
create effective procedures for the implementation and application of this
Agreement, for its joint administration and for the resolution of disputes;
•
establish a framework for further trilateral, regional and multilateral cooperation to expand and enhance the benefits of this Agreement.
The NAFTA eliminates tariffs on most goods originating in Canada, Mexico and
the United States over a maximum transition period of fifteen years. The schedule to eliminate tariffs already established in the Canada-United States Free
Trade Agreement will continue as planned so that all Canada-United States
trade is duty-free in 1998. For most Mexico-United States and Canada-Mexico
trade, the NAFTA will either eliminate existing customs duties immediately or
phase them out in five to ten years. On a few sensitive items, the Agreement
will phase out tariffs over fifteen years. NAFTA-member countries may agree to
a faster phaseout of tariffs on any goods.
During the transition period, rates of duty will vary depending upon in which
NAFT A country the goods were produced. That is, the NAFTA may grant a
Canadian good entering the United States a different NAFTA rate than the same
Mexican good entering the United States. For most goods imported into
Canada, there will be three NAFT A rates; the rate depends on whether the
goods are of U.S. origin, Mexican origin or produced jointly with U.S. and
Mexican inputs. To know which rate of duty applies, traders must first establish
that the goods meet the NAFT A rules of origin and then use the tariff rules
found in Annex 302.2 of the NAFTA.
Generally, tariffs will only be eliminated on goods that "originate" as defined in
Article 401 of the NAFT A. That is, transshipping goods made in, say Guatemala, through Mexico will not entitle them to preferential NAFT A duty rates.
The NAFT A does provide for reduced duties on some goods of Canada,
Mexico, and the United States that do not originate but that rneet specified
conditions. For example, limited quantities of goods that are non-originating
may be eligible for preferential NAFTA treatrnent under special tariff-rate
quotas.
A GUIDE
TO CUSTOMS PROCEDURES
.
1
The NAFT A creates a free trade area, not a common market. Customs administrations will still exist and goods entering Canada, Mexico or the United States
must still comply with each country's laws and regulations. The NAFT A does
not allow for the unchecked movement of goods among Canada, Mexico and
the United States.
2 RULES OF ORIGIN
Purpose
The NAFT A grants benefits to a variety of goods from the region. Maximum
benefits are reserved for those goods that "originate" in the region. "Originating" is a term of art used to describe those goods that meet the requirements of
Article 401 of the Agreement. Article 401 of the Agreement establishes which
goods originate and precludes goods from other countries from obtaining those
benefits by merely passing through Canada, Mexico or the United States. Thus,
not all goods made in Canada, Mexico and the United States qualify for NAFTA
benefits. Traders must carefully research the terms of the Agreement to determine whether their goods are entitled to NAFT A benefits-they should not
assume that they are entitled to NAFT A benefits merely because they were
made in a NAFTA country. It is possible, for instance, for goods not to originate
in Canada, Mexico or the United States as that term is defined in the NAFTA,
but still be an article of Canada, Mexico or the United States for country of
origin marking, statistical or other purposes.
Article 401 oi the Agreement defines "originating" in four ways: goods wholly
obtained or produced in the NAFT A region; goods produced in the NAFTA
region vv'holly from originating materials; goods meeting the Annex 401 origin
rule; and unassembled goods and goods classified with their parts which do not
met the Annex 401 rule of origin but contain 60 percent regional value content
USi,lg the transaction method (50 percent using the net cost method).
Wholly Obtained
or Produced
Goods wholly obtained or produced entirely in Canada, Mexico or the United
States contain no foreign materials or parts from outside the NAFT A territory.
Article 415 defines goods wholly produced in the NAFT A region as:
(al
mineral goods extracted in Canada, Mexico or the United States;
Silver mined in Mexico is originating because it is extracted in the territory of one
ot' the Parties.
(bl vegetable goods, as such goods are defined in the Harmonized System,
harvested in Canada, Mexico or the United States;
Wheat grown in Canada is originating because it is harvested in the territory of one
oi the Parties.
(cl
2
live animals born and raised in Canada, Mexico or the United States;
NORTH AMERICAN FREE TRADE AGREEMENT
]
(d)
goods obtained from hunting, trapping or jishing ill emelda, Mexico or the
United States;
(e)
goods (fish, shellfish and other rnarine life) taken from the sea by vessels
registered or recorded with Canada, Mexico or the United States and flying
its flag;
(£)
goods produced on board factory ships from the goods referred to in
subparagraph (e) provided such factory ships are registered or recorded
with that country and fly its flag;
(g)
goods taken by Canada, Mexico or the United States or a person of these
countries from the seabed or beneath the seabed outside territorial waters,
provided that Canada, Mexico or the United States has rights to exploit
such seabed;
(h)
goods taken from outer space, provided they are obtained by Canada,
Mexico or the United States or by a person of these countries and not
processed in a non-NAFTA country;
(i)
waste and scrap derived from
(j)
Meets Annex 401
Origin Criterion
•
production in Canada, Mexico
and/or the United States, or
•
used goods collected in Canada,
Mexico and/or the United States,
provided such goods are fit only for
the recovery of raw materials; and
goods produced in Canada, Mexico or the United States exclusively from goods referred to in
subparagraphs (a) through (i), or
from their derivatives, at any stage
of production.
Copper wire recovered
in Canada from scrap
telephone or electrical
wires is wholly obtained
or produced in Canada
regardless of where it was
originally produced.
Silver jewelry made in the United
States from silver mined in Mexico
is wholly obtained or produced in
the NAFTA territory because it is
made exclusively of a mineral
good extracted in Mexico.
Article 401 (b) indicates that goods
may "originate" in Canada, Mexico or the United States, even if they contain
non-originating materials, if the materials satisfy the rule of origin specified in
Annex 401 of the Agreement. The Annex 401 rules of origin are commonly
referred to as specific rules of origin and are based on a change in tariff classification, a regional value-content requirement or both. Annex 401 is organized
by Harmonized Tariff Schedule (HTS) number, so one must know the HTS
number of a good, and the HTS numbers of all the non-NAFT A materials used
to produce the good, to find its specific rule of origin and determine if the rule
has been met. An nex 401 gives the appl icable ru Ie of origi n opposite the HTS
number.
Tariff Change. When a rule of origin is based on a change in tariff classification, each of the non-originating materials used in the production of the goods
must undergo the applicable change as a result of production occurring entirely in the NAFT A region. This means that the non-originating materials are
classified under one tariff provision prior to processing and classified under
another upon completion of processing. The specific rule of origin in Annex
401 defines exactly what change in tariff classification must occur for the goods
to be considered "originating."
.
A WIDE TO CUSTOMS PROCEDURES
3
Frozen pork meat (HTS 02.03) is imported into the United States from Hungary and
combined with spices imported from the Caribbean (HTS 09.07-09.10) and cereals
grown and produced in the U.s. to make pork sausage (HTS 16.01). The Annex 401
rule of origin for HTS 16.01 states:
A change to heading 16.01 through 16.05 from any other chapter.
Since the imported frozen meat is classified in Chapter 2 and the spices are classified
in Chapter 9, these non-originating materials meet the required tariff change. One
does not consider whether the cereal meets the applicable tariff change since it is
originating-only non-originating materials must undergo the tariff change.
Regional Value Content. Some Annex 401 specific rules of origin require that
a good have a minimum regional value content, meaning that a certain percentage of the value of the goods must be from North America. Article 402
gives two formulas for calculating the regional value content. In general, the
exporter or producer may choose between these two formulas: the "transaction value" method or the "net cost" method.
Having two methods gives producers more than one way of demonstrating
that the rule of origin has been satisfied. The transaction value method is
generally simpler to use but a producer may choose whichever method is
most advantageous.
The transaction value method calculates the value of the non-originating
materials as a percentage of the GATT transaction value of the good, which is
the total price paid for the good, with certain adjustments for packing and
other items, and is based on principles of the GATT Customs Valuation Code.
The essence of this method is that the value of non-originating materials can
be calculated as a percentage of the invoice price which is usually the price
actually paid for them. Because the transaction value method permits the
producer to count all of its costs and profit as territorial, the required percentage of regional value content under this method is higher than under the net
cost method.
However, there are a number of situations where the transaction value method
cannot be used and the net cost method is the only alternative. The net cost
method must be used when there is no transaction value, in some related
party transactions, for certain motor vehicles and parts, when a producer is
accumulating regional value content (see page 9 for a discussion of accumulation), as well as to determine the regional value content for designated intermediate materials (see page 7). The producer may also revert to the net cost
method if the result using the transaction value method is unfavorable.
The formula for calculating the regional value content using the transaction
value method is:
RVC
= __T_V_-_V_N_M__
TV
x 100
where
4
RVC
is the regional value content, expressed as a percentage;
TV
is the transaction value of the good adjusted to an F.O.B. basis; and
VNM
is the value of non-originating materials used by the producer in the
production of the good.
NORTH AMERICAN FREE TRADE AGREEMENT
]
The net cost method calculates the regional value content a'> a percentage of
the net cost to produce the good. Net cost represents all of the costs incurred by
the producer minus expenses for sales promotion (including marketing and
after-sales service), royalties, shipping and packing costs and non-allowable
interest costs. The percentage content required for the net cost method is lower
that the percentage content required under the transaction value method
because of the exclusion of certain costs from the net cost calculation.
The formula for calculating the regional value content using the net cost
method is:
RVC
=
NC
~(NM x
700
where
RVC
is the regional value content, expressed as a percentage;
NC
is the net cost of the good; and
VNM
is the value of non-originating materials used by the producer in the
production of the good.
An electric hair curling iron (HTS 8516.32) is made in Mexico from Japanese hair
curler parts (HTS 8516.90). Each hair curling iron is sold for US$4.40; the value of
the non-originating hair curler parts is US$1.80. The Annex 401 rule of origin for
HTS 8516.32 states:
A change to subheading 8516.32 from subheading 8516.80 or any other
heading; or
A change to subheading 8516.32 from subheading 8516.90, whether or not
there is also a change from subheading 8516.80 or any other heading,
provided there is a regional value content of not less than:
(a) 60 percent where the transaction value method is used, or
(b) 50 percent where the net cost method is used.
The first of these two rules is not met since there is no heading change, therefore
the producer must verify if the curling irons can qualify under the second rule. In
the second rule the required subheading change is met (from HTS 8516.90 to
8516.32) so one proceeds to calculate the regional value content. The regional
value content under the transaction value method is:
(4.4~.~~ .80)
x 100 = 59%
The hair curler is not considered an originating good under this method, since the
required regional value content is 60 percent where the transaction value is used.
Instead, the producer uses the net cost method. The total cost to produce the hair
curler is US$3.90, which includes US$0.25 for shipping and packing costs. There
are no costs for royalties, sales promotion or non-allowable interest. The net cost is
therefore US$3.65. The regional value content under the net cost method is:
(3.6~.~~ .80)
x 100
= 50.1 %
The hair curler would be considered originating, since the required regional value
content is 50 percent where the net cost method is used.
A GUIDE TO CUSTOMS PROCEDURES
5
Produced in the
NAFTA Territory
Wholly of
Goods also originate if they are produced entirely in Canada, Mexico and/or
the United States exclusively from materials that are considered to be originating according to the terms of the Agreement.
Originating
Materials
Company A imports whole raw bovine skins (HTS 41.01) into Mexico from Argentina and processes them into finished leather (HTS 41.04). The finished leather is
then purchased by Company B to make leather eyeglass cases (HTS 4202.31). The
rule of origin for HTS 41.04 states:
A change to heading 41.04 from any other heading, except from heading 41.05
through 41.11.
The finished leather originates in Mexico because it meets the Annex 401 criterion.
Assuming the eyeglass cases do not contain any non-originating materials, they
originate since they are made wholly of a material that is originating (because it
satisfied the Annex 401 criterion).
Unassembled
Goods and
Goods Classified
with Their Parts
6
In some cases, a good that has not undergone the required tariff change can
still qualify for preferential NAFTA treatment if a regional value-content requirement is met. This NAFT A provision may only be used under two very
specific circumstances. However, it may never be used for wearing apparel
provided for in Chapters 61 and 62, and textile articles of Chapter 63 of the
Harmonized System. The two circumstances where the provision may be used
are where goods do not undergo the tariff change required by Annex 401
because:
•
the goods are imported into Canada, Mexico or the United States in an
unassembled or a disassembled form but are classified as assembled
goods pursuant to General Rule of Interpretation 2(a) of the Harmonized
System, or
•
the goods are produced using materials imported into a NAFTA country
that are provided for as parts according to the Harmonized System, and
those parts are classified in the same subheading or undivided heading as
the finished goods.
NORTH AMERICAN FREE TRADE AGREEMENT
]
l
3 OTHER INSTANCES TO CONFER ORIGIN I
The four main criteria set out in Chapter 2 of this publication are the basic
conditions to confer origin. However, a good that does not meet such requirements may, in some cases, qualify as originating by using additional options
described below.
Intermediate
Materials
For the purpose of calculating the regional value content of final goods (using
either the transaction value method or the net cost method), Article 402(10)
allows a producer to designate as an intermediate material any self-produced,
originating material used in the production of the final goods. As long as the
intermediate material qualifies as an originating material, its entire value may
be treated as originating in determining the regional value content of the
finished goods.
The purpose of the intermediate material designation is to treat vertically
integrated manufacturers more nearly in the same manner as producers who
purchase materials from independent suppliers. If you produce your own
materials from non-NAFT A inputs, the intermediate materials provision may
help your goods to qualify as originating. This provision covers all goods and
materials except:
•
automotive goods defined in Article 403(1) and described in Annex 403.1
and;
•
components described in Annex 403.2, specifically engines and gearboxes.
An intermediate material is a self-produced material, designated by the producer, that meets the rules of origin of Article 401 and that is incorporated into
the final good. Article 415 defines a self-produced material as a material produced by the same party that produced the final goods and which is used in the
production of those final goods.
An intermediate material may be composed of originating and non-originating
submaterials. After determining that an intermediate material satisfies the
applicable rule of origin under Article 401, the total cost to produce that intermediate material is treated as an originating cost. In other words, the producer
would not include the value of the non-originating materials used to produce
the intermediate material as part of the value of non-originating materials when
calculating the regional value content of the final goods. The benefit of designating an intermediate material is that the producer may treat self-produced
materials similarly to the way in which he would treat an originating material
purchased at arm's length for purposes of determining the value of the nonoriginating materials of the final goods.
If the intermediate material must satisfy a minimum regional value content to
qualify as originating, the net cost method must be used to calculate that
regional value content.
A producer may make any number of intermediate material designations
provided that no material subject to a regional value-content requirement may
be designated as an intermediate material if it contains submaterials also
subject to a regional value-content requirement that were also clesignated as
intermediate materials.
A GUIDE TO CUSTOMS PROCEDURES
7
OUTER RACE
BALLS
8483.90.30 8483.90.30
STEEL
7219.32.00
GASKETS
4016.99.50
IMPELLER
8413.91.90
BEARING ENGINE BLOCK CRANK SHAFT
8482.10.10
8409.99.10
8483.10.10
ee ee ee ee
V
V
ROD-END BEARING
8483.30.80
v
..
CYLINDER
8412.21.00
CASING
8412.90.90
V
V
IMPELLER ASSEMBLY
8413.91.90
ENGINE
8408.90.90
v
..
PUMP
8413.60.00
Company Z manufacturers forklift trucks in Canada and makes some of the materials
used in their production. As illustrated in the graphic above, each geometric symbol
represents a material. The circles at the top (i.e., outer races, balls, steel, gaskets,
impellers, bearings, engine blocks, crank shafts) are materials acquired from sellers
in non-NAFTA countries. The squares are self-produced materials (i.e., rod-end
bearings, casings, impeller assemblies, engines). They are considered horizontal
materials in relation to each other. The impeller assemblies may not be deSignated
as intermediate materials because they do not meet the Annex 401 rule of origin ("A
change to subheading 8413.91 from any other heading"). However, the rod-end
bearings, casings and engines could all be designated intermediate materials
provided they satisfy the applicable Annex 401 rules of origin (the casings undoubtedly meet the rule of origin, which provides for "a change to subheading 8412.90
from any other heading"). The engines and rod-end bearings meet the required tariff
change prescribed in the Annex 401 rules of origin but would also have to meet a
regional value-content requirement to qualify as originating.
The rod-end bearings and casings are used in the production of the cylinders.
Likewise, the impeller assemblies and engines are used in the production of the
pumps that drive the hydraulic mechanisms of the forklifts. The cylinders and pumps
(represented by triangles) are intermediate materials that are horizontal in relation to
each other and vertical in relation to the materials from which they were made. As
long as there is no regional value-content requirement for more than one intermediate material in the vertical stream, each new material may be designated as an
intermediate material.
The cylinders originate because the rod-end bearings meet the required tariff shift
("A change to heading 8412.10 through 8412.80 from any other heading") and the
casings are originating (and therefore are not required to undergo the prescribed
tariff change). Thus, Company Z may choose to designate both the rod-end bearings
and the cylinders as intermediate materials because only one of them is subject to a
regional value-content requirement.
The engines and pumps, however, are both subject to regional value-content
requirements and therefore Company Z must choose which is most advantageous:
to designate the engines as an intermediate material or to designate the pumps.
B
NORTH AMERICAN FREE TRADE AGREEMENT
]
Where a single producer designates intermediate materials that qualify as
originating solely based on a tariff change, that is, without having to satisfy a
regional value-content requirement, subsequent designations can be made with
previously designated intermediate materials. Thus, in the example above, if the
engine were not subject to a regional value-content requirement, both it and
the pump could be designated as intermediate materials.
There are two methods for determining the value of an intermediate material:
•
the total cost incurred with respect to all goods produced that can be
reasonably allocated to that intermediate material; or
•
the aggregate of each cost that forms part of the total cost incurred with
respect to that intermediate material that can be reasonably allocated to that
intermediate material.
The two methods allow producers to select the one that best fits their production and accounting practices. The value of the intermediate material should be
approximately the same using either method. However, the net cost method
must be used for intermediate materials subject to a regional value-content
requirement. Article 402(8) of the Agreement lists those costs which may not
be included when calculating the regional value content of the intermediate
material using the net cost method:
•
sales promotion, including marketing and after-sales service costs;
•
royalties;
•
shipping and packing costs;
•
now-allowable interest costs.
Although these costs are excluded in the net cost calculation, they do form part
of the total cost of the material. Accordingly, costs such as royalties are excluded when calculating the net cost for purposes of determining whether the
material satisfies a regional value-content requirement (and thus originates and
can be designated an intermediate material), but are included in the total value
of the material once its origin has been determined. As noted above, the total
value of an intermediate material may be counted as an originating cost.
Accumulation
When producers determine the regional value content of goods, the entire
value of the materials used in the production of the goods that they acquire
from suppliers is considered as wholly originating or wholly non-originating, as
appropriate. The accumulation provision allows the producer or exporter of
goods to choose to include as part of the goods' regional value content any
regional value added by suppliers of non-originating materials used to produce
the final goods. Thus, accumulation allows the producer to reduce the value of
the non-originating materials used in the production of the good, by taking into
account the NAFTA inputs incorporated into those non-originating materials.
Thus, where a producer finds he is unable to satisfy a regional value-content
requirement based on (i) his own processing costs and (ii) the value of originating materials he uses to produce a good, accumulation allows him to include
(iii) any regional value added in the NAFTA territory by other persons who
produced non-originating materials that were subsequently incorporated into
the final good.
A Gt}lDE TO CUSTOMS PROCEDURES
9
~-------~------------------~'----------------------------------------------~
The conditions for using accumulation are:
•
producers/exporters who choose to use accumulation must use the net cost
method to calculate any regional value content;
•
producers/exporters of goods must obtain information on net cost and the
regional value content of non-originating materials used to make their
goods from the producers (suppliers) of those materials-it will not be
obtained by government authorities;
•
all non-originating materials used in the production of the goods must
undergo the tariff classification change set out in Annex 401 of the Agreement, and the goods, must satisfy any applicable regional value-content
requirement, entirely in the territory of one or more of the NAFTA countries; and
•
the goods must satisfy all other applicable requirements of the rules of origin.
Company A imports unfinished bearing rings (HTS 8482.99) into Canada from Japan
and further processes them into finished rings (HTS 8482.99.11 in Canada). Since the
finished bearing rings contain non-originating materials, they must satisfy the Annex
401 origin criterion to be considered originating. The Annex 401 origin criterion for
HTS 8482.99 is:
A change to subheading 8482.91 through 8482.99 from any other heading.
Since the unfinished bearings rings are classified in the same tariff subheading as the
finished rings, there is no change in headings. Accordingly, the finished bearing rings
cannot be considered originating, even though they contain some regional value
content by virtue of the labor and other costs associated with the finishing operations
in Canada.
Company A's per unit cost is:
Non-originating (japanese) materials .......................... $0.75
Originating materials .......... ....................................... 0.15
Labor ......................................................................... 0.35
Overhead ....................................................... ........... 0.05
Total cost ........................................................... 1.30
Subsequently, Company A sells the finished rings (HTS 8482.99.11 in Canada) for
$1.45 to Company B in the United States, who incorporates the rings into ball
bearings (HTS 8482.10). Company B exports the bearings to Mexico and wants to
claim NAFTA preferential treatment. The rule of origin for HTS 8482.10 is:
A change to subheading 8482.10 through 8482.80 from any subheading outside
that group, except from Canadian tariff item 8482.99.11 or 8482.99.91, U.s. tariff
item 8482.99.10A*, 8482.99.30A*, 8482.99.50A* or 8482.99.70A* or Mexican
tariff item 8482.99.01 or 8482.99.03; or
A change to subheading 8482.10 through 8482.80 from Canadian tariff item
8482.99.11 or 8482.99.91, U.S. tariff item 8482.99.10A*, 8482.99.30A*,
8482.99.50A* or 8482.99.70A* or Mexican tariff item 8482.99.01 or 8482.99.03,
whether or not there is also a change from any subheading outside that group,
provided there is a regional value content of not less than:
(a) 60 percent where the transaction value method is used, or
(b) 50 percent where the net cost method is used.
'Designates numbers that were to be developed as a result of the NAFTA.
10
NORTH AMERICAN FREE TRADE AGREEMENT
The bearings do not meet the tariff change described in the first rule.
They do, however, meet the tariff change described in the second rule and,
provided they satisfy one of the two regional value-content requirements, can be
considered originating. Company B knows it is short in meeting the regional
value content under either method so it decides to accumulate its regional value
content with that of Company A. Assuming Company A sold the rings to Company B for $1.45 per unit, and A is willing to disclose to B the regional value
content in the finished rings that it sold to B, the following demonstrates the
benefits of accumu lation:
Without Accumulation
Non-originating ring (A) .............................
Originating material (B) .............................
Labor (B) ....................................................
Overhead (B) .............................................
Total ..........................................................
$1.45
$0.45
$0.75
$0.05
$2.70
With Accumulation
Non-regional value content of ring (A) .......
Regional value content of ring (A) ..............
Originating material (B) .............................
Labor (B) ....................................................
Overhead (B) ............................ '" ..............
Total ..........................................................
$0.75
$0.55
$0.45
$0.75
$0.05
$2.55
The $0.75 represents the value of the non-originating materials, which in this
case are the unfinished bearing rings imported into Canada from Japan.
The regional value content, using the net cost method, is:
RVC
RVC
NC
VNM
= NC -
VNM x 100
NC
regional value content
net cost
value of non-originating materials
Therefore, the regional value content calculation, with and without accumulation,
is:
Without Accumulation
With Accumulation
$2.70 - $1.45 x 100 = 46%
$2.70
$2.55 - $0.75 x 100 = 71 %
$2.55
Thus, accumulation allows Company B to qualify the bearings as originating by
aggregating the regional value content of both Company A and Company B.
De Minimis
Although requiring a change in tariff classification is a very simple principle, it
requires that all non-originating materials undergo the required change. A very
low percentage of the materials may not undergo the tariff change, thus preventing the goods from originating. Therefore, the Agreement contains a de
minimis provision that allows goods to qualify as originating provided such
materials are not more than a certain percentage (seven percent in most cases)
of the transaction value of the goods adjusted to an FOB basis or, in some
cases, of the total cost of the goods.
A (Jf)IDE TO CUSTOMS PROCEDURES
11
In addition, where failure of materials to undergo a required change in tariff
classification triggers a requirement for a minimum regional value content, the
calculation of that content is waived if the value of all non-originating materials
used in the production of the goods is not more than the specified de minimis
amount.
However, if after application of the de minimis allowance the goods must still
meet a regional value-content requirement in order to qualify as originating
(that is, if the value of all non-originating materials exceeds the applicable de
minimis allowance), the value of all non-originating materials must be taken
into account in calculating the regional value content.
A manufacturer purchases inexpensive textile watch straps made in Taiwan (HTS
91.13), to be assembled with originating mechanical watch movements (HTS
91.08) and originating cases (HTS 91.12). The value of the straps is less than seven
percent of the transaction value of the final watch (HTS 91.02) adjusted to an FOB
basis.
The Annex 401 origin criterion for HTS 91.02 is:
A change to heading 91.01 through 91.07 from any other chapter; or
A change to heading 91.01 through 91.07 from 91.14, whether or not there is
also a change from any other chapter, provided there is a regional value content
of not less than:
(a) 60 percent where the transaction value method is used, or
(b) 50 percent where the net cost method is used.
Only non-originating materials need undergo the required tariff classification
change: in this case, the textile straps. The straps do not satisfy either of the
indicated tariff changes but since their value is less than seven percent of the
transaction value of the finished watch adjusted to an FOB basis, the de minimis
rule applies and the watches can be considered originating.
Textiles. For textile goods classified in Chapters 50 through 63 of the Harmo-
nized System, the de minimis rule is applied by weight (instead of value) to the
component of the good that determines its tariff classification, as determined in
accordance with the General Rules of Interpretation of the Harmonized System.
A Mexican manufacturer produces women's shirts which have knit bodies and
woven sleeves. The composition of the knit bodies is 60 percent cotton, 35 percent
wool, and 5 percent rayon, by weight. The sleeves are made of Japanese fabric that
is 100 percent polyester. Since the knit bodies give the garments their essential
character, the shirts are classified under HTS 6106.10. The Annex 401 rule of origin
criterion for HTS 6106.10 is "yarn forward" (see Chapter 5 of this publication for
rules of origin for textiles). Assuming the cotton and wool portions of the bodies
meet the yarn-forward rule, the garment can still be considered originating even if
the rayon yarn was from China since it falls under the de minimis provision. The
sleeves are ignored in determining whether the shirts originate because only the
component that determines the tariff classification of the goods is considered
when applying the de minimis provision.
12
NORTH AMERICAN FREE TRADE AGREEMENT
]
Agricultural Products. The ;\llicl(' 4()S (/(' n7ll7imi, ILlII' do("- li()t clpply If)
agricultur,)1 good" provided for in Ch"ptr'I'" I throll,~h .!7 ()j tlw f Lllm()ni/('ci
System unlc'ss till' non-originating m,)terial" dn- clN.,itieci in "Llhlw,)dingc,
different from the subheadings in 'which 1111' iini"hed good" <1re c las"ifi('d.
Ground coffee, sold in retail package", i~ produced in Mexico (HTS 0901.21 i. Most
of the bea ns a re grown, md roasteci in Mex ic 0 but to gi ve the coffee a un iq ue
flavor the producer acids ,"I1W ro.1,ted beall" from Kenya (HTS ()901.21 J. The value
of the beans from Kenya is 5 percent of the tr~lIlsaction value, adjusted to an FOB
basis, of each retail package. The Anllex 4()1 origin criterion for HTS 09.01 is:
A change to heading 09.01 through 09,10 from allY other chapter.
The coffee cannot be considered originating because the Kenyan beans do not
undergo the required tariff change. The de minimis rule does not apply because
the Kenyan beans are classified in the same subheading as the final good.
Note: If green (unroasted) coffee were imported from Kenya and roasted in
Mexico, the de minimis rule would apply because green coffee beans are classified
in HTS 0901,11, a different subheading, Thus, the ground coHee in retail packages
qualifies as originating,
Cigars, Cheroots, Cigarrillos and Cigarettes. The de minimis amount for these
products is nine percent, not seven percent, of the transaction value adjusted to
an FOB basis,
Excluded Products. The Article 405 de minimis rule does not apply to the
following materials:
•
certain dairy products and preparations that are used in the production of
goods provided for in Chapter 4 of the HTS;
•
goods provided for in Chapter 4 of the HTS and some dairy preparations
that are used in the production of certain goods containing milk, milk solids
or butterfat;
•
some fruits and juices used in the production of certain juices and juice
concentrates;
•
coffee beans used in the production of unflavored instant coffee (note: the
Annex 401 origin criterion for unflavored instant coffee allows up to 60
percent non-originating coffee, so substantial allowance is already made for
non-origi nati ng inputs);
•
fats, lards, oils and related products provided for in Chapter 15 of the HTS
that are used in the production of Chapter 15 goods (except olive, palm,
and coconut oils, where the de minimis rule does apply);
•
Cane and beet sugar used in the production of sugars, syrups and other
products provided for in HTS headings 1701-1703;
•
Sugar, molasses, sugar confectionery and other goods provided for in
Chapter 17 of the HTS and cocoa powder provided for in HTS 18,05 that
are used in the production of chocolate and other food preparations containing cocoa;
•
beer wine and other fermented beverages provided for in HTS headings
22.03-22.08 used in the production of alcoholic beverages and related
products provided for in HTS headings 22,07 and 22,08;
13
A GUIDE TO CUSTOMS PROCEDURES
~------------------------~'------------------------------------------------------~
Fungible Goods
and Materials
•
any non-originating material used in the production of many major appliances such as refrigerators, freezers, air conditioners, stoves, ranges, trash
compactors, clothes-dryers and washing machines;
•
printed circuit assemblies used in the production of a good if the change in
tariff classification prescribed by Annex 401 for that good places restrictions
on their use.
According to Article 415 of the NAFTA, fungible goods are goods that are
interchangeable for commercial purposes, and have essentially identical properties. When a producer mixes originating and non-originating fungible goods,
so that physical identification of originating goods is impossible, the producer
may determine origin of those goods based on any of the standard inventory
accounting methods (e.g., FIFO, LIFO) specified in the Uniform Regulations.
These provisions apply equally to fungible materials that are used in the production of a good.
Company Y of Mexico supplies clips to airplane manufacturers throughout North
America. Some of the clips Y supplies originate in Mexico and others are made in
China. All of the clips are of identical construction and are intermingled at Y's
warehouse so that they are indistinguishable. On January 1, Company Y buys 3000
clips of Mexican origin; on January 3 it buys 1000 clips of Chinese origin. If
Company Y elects FIFO inventory procedures, the first 3000 clips it uses to fill an
order are considered Mexican, regardless of their actual origin.
~
4 OTHER PROVISIONS RELATING TO ORIGIN
Accessories,
Spare Parts and
Tools
Accessories, spare parts, and tools that are delivered with the goods and that
form part of the goods' standard accessories, spare parts, or tools, are considered originating if the goods originate, and are disregarded in determining
whether all the non-originating materials undergo any Annex 401 tariff change.
This provision applies provided the accessories, spare parts and tools are
invoiced with the goods and the quantities and value are customary for the
goods. However, if the goods are subject to a regional value-content requirement, the value of the accessories, spare parts, and tools shall be taken into
account as originating or non-originating materials, as the case may be, in
calculating the regional value content of the goods.
High definition television receivers originating in Mexico are sold with remote
controls made in Taiwan. The remote controls are invoiced and packed with the
television receivers and are of a kind customarily sold with high definition
television receivers. Since the television receivers originate, the remote controls
are considered originating for purposes of satisfying the required change in tariff
claSSification. The remote controls must, however, be counted as non-originating
materials in the regional value-content calculation.
14
NORTH AMERICAN FREE TRADE AGREEMENT
Packaging for
Retail Sale
In the NAFT A, packaging and packing are used in different contexts. Packaging is used when referring to retail sale while packing is for shipping purposes.
Packaging materials and containers in which goods are packaged for retail
sale, if classified with the goods, are disregarded in determining whether all
the non-originating materials used in the production of the goods undergo the
applicable change in tariff classification set out in Annex 401. However, if the
goods are subject to a regional value-content requirement, the value of the
retail packaging materials and containers is taken into account as originating
or non-originating materials, as the case may be, in calculating the regional
value content of the goods.
Leather footwear (HTS 64.03) is made in Mexico. The shoes are wrapped in tissue
paper and packed in cardboard boxes described with the brand logo for retail sale;
both the tissue paper and the cardboard box are of Brazilian origin. The Annex 401
origin criterion for 64.03 is:
A change to heading 64.01 through 64.05 from any heading outside that group,
except from subheading 6406.10, provided there is a regional value content of not
less than 55 percent under the net cost method.
Although the tissue paper and cardboard box are disregarded for purposes of the
tariff change, their value must be counted as non-originating when calculating the
regional value content.
Packing for
Shipment
Packing materials and containers in which goods are packed for shipment are
disregarded in determining whether the non-originating materials used in the
production of the goods undergo an applicable change in tariff classification
set out in Annex 401. They are also disregarded in determining whether the
goods satisfy a regional value-content requirement.
Company X makes chairs (HTS 9401.69) in Mexico from Swedish furniture parts
(HTS 9401.90). Company Y of Canada buys chairs from Company X for C$l 0.90;
this price includes C$0.90 for Guatemalan crates used to hold each chair during
international transit. The Annex 401 origin criterion for HTS 9401.69 is:
A change to subheading 9401.10 through 9401.80 from any other chapter; or
A change to subheading 9401.10 through 9401.80 from subheading 9401.90,
whether or not there is also a change from any other chapter, provided there is
a regional value content of not less than:
(a) 60 percent where the transaction value method is used, or
(b) 50 percent where the net cost method is used.
The value of the Swedish parts is C$4.1 o. Under the transaction value method, the
regional value content is:
10.00 - 4.10 100 = 590;:
10.00
x
0
The chair does not originate because it does not have a minimum regional value
content of 60 percent. Note that the packing and shipping costs ($0.90) were
deducted from the transaction value prior to calculating the regional value
content.
[
A CUIDE TO CUSTOMS PROCEDURES
15
Transsh ipment
Goods that qualify as originating will lose that status if they subsequently
undergo any operation outside the NAFTA region, other than unloading, reloading, or any other operation necessary to preserve them in good condition
or to transport the goods to Canada, Mexico or the United States.
Surgical instruments made in the United States (wholly of originating materials) and
cotton gowns and bandages made in Mexico (from fibers and fabric wholly grown
and produced in Mexico) are sent to the Dominican Republic where they are
packaged together and then sterilized for use in operating rooms. Upon their return
to the United States, the medical sets are not eligible for preferential treatment
under the NAFTA because they underwent operations in the Dominican Republic
that were not necessary to preserve the goods in good condition or to transport
them to the United States.
Operations That
Do Not Confer
Origin
Article 412 provides that goods shall not be considered to originate if they are
merely diluted with water or another substance that does not materially alter
the characteristics of the goods. Thus, mere dilution--even if it results in a
change in tariff classification-is not sufficient to confer origin. However,
dilution coupled with another process may be sufficient to materially alter the
characteristic of the goods and thereby confer origin.
Article 412 also indicates that goods will not be considered to originate if a
preponderance of the evidence establ ishes that any production or pricing
practice has been used to circumvent the intent of the Chapter 4 origin rules.
The rules of origin are designed to ensure that the processing and costs incurred
with respect to the products are commercially significant and appropriate to the
goods, as defined by the tariff change rules and, when applicable, the value
content rules.
~
5 PROVISIONS FOR SPECIFIC SECTORS
Textiles
Rules of Origin. The NAFTA provisions on trade in textiles and apparel are
particularly detailed. The Annex 401 origin criteria aim to ensure that most
of the production relating to textiles and apparel occurs in North America.
The basic origin rule for textile and apparel articles is "yarn-forward." This
means that the yarn used to form the fabric (which may later be used to
produce wearing apparel or other textile articles) must originate in a
NAFT A country. Thus, a wool shirt made in Canada from fabric woven in
Canada of wool yarn produced in Argentina would not be considered
originating since the yarn does not originate within a NAFTA country. If,
however, Argentine wool fiber was imported into Canada and spun into
wool yarn, which was then used to produce the wool fabric, the shirt
would be considered originating,
16
NORTH AMERICAN FREE TRADE AGREEMENT
]
Less demanding rules of origin govern certain knitted underwear, brassieres,
and shirts made from fabric in short supply in North America, and textile and
apparel articles made from fabric not commonly produced in North America.
For example, silk and linen apparel articles follow a single-transformation
instead of a "yarn-forward" rule. Thus, silk blouses are considered originating
even if made from non-originating fabric, provided the fabric is cut and sewn in
one or more NAFTA countries. These exceptions give producers flexibility to
import materials not widely produced in North America.
On the other hand, stricter rules of origin exist for certain textile and apparel
articles made of fibers that are produced in abundance in Canada, Mexico and
the United States. For example, cotton yarn and cotton knitted fabrics follow a
fiber-forward rule for goods traded between the three countries while manmade fiber sweaters follow a "fiber-forward" rule as to trade between the
United States and Mexico.
Tariff Preference Levels. To allow flexibility, textile and apparel exports will
have access to tariff preference levels (TPLs). This means that specified quantities of certain fibers, yarns and fabric that do not meet the Article 401 origin
criteria, but which are subject to significant processing in one or more NAFTA
countries, can still be eligible for preferential NAFTA rates. Amounts of these
goods exceeding the tariff preference level will be subject to most-favorednation (MFN) rates of duty. For example, apparel goods made from non-originating fabric that is cut and sewn in North America may be eligible for TPLs.
Tariff Elimination. The United States and Canada will continue to apply the
rates of duty negotiated in the Canada-United States Free Trade Agreement as
to trade between them.
With respect to trade between Mexico and Canada, tariffs for most textile
articles will be phased-out over a period of eight years; for apparel, the adjustment period is ten years.
With respect to trade between Mexico and the United States, tariffs for many
textile and apparel articles will be completely eliminated upon entry into force
of the Agreement (tariff staging category A). Others will be eliminated over a
six-year period, and all tariffs on textile and apparel articles will be eliminated
within ten years. Moreover, Appendix 2.1 to Annex 300-8 provides that duties
for articles in the 86 (six-year) and C (ten-year) tariff phaseout categories shall at
no time exceed 20 percent ad valorem. Although this maximum rate of 20
percent applies until the stipulated rate reductions result in an ad valorem rate
that is 20 percent or less, it does not serve as the base for subsequent rate
reductions.
*Fiber must be made in
NAFT A region and subsequent processing must occur in NAFTA region.
"Yarn must be made in
NAFT A region and subsequent processing must occur in NAFTA region.
A CUIDE TO CUSTOMS PROCEDURES
17
The U.S. tariff on Mexican babies' sweaters of synthetic fibers (HTS 6111.30.40) is
scheduled for a 86 (six-year) phaseout. Applying Appendix 2.1, the phase out will
proceed as follows:
Base rate
(percent)
1994 ..................................
1995 ..................................
1996 ..................................
1997 ..................................
1998..................................
1999..................................
34.6
22.6
18.0
13.5
9.0
4.5
Calculated
reduced rate
(percent)
22.6
18.0
13.5
9.0
4.5
0.0
Effective rate
(percent)
20.0
18.0
13.5
9.0
4.5
0.0
Note that the calculated reduced rate column shows the rate that would apply for a
six-year phaseout under the 86 staging schedule. However, since the phaseout rate
cannot exceed 20 percent, the effective rate in 1994 is different, as shown in the
effective rate column. Also, the effective rate for 1994 (20%) does not serve as the
base rate for the subsequent tariff reductions. The calculated reduced rate for 1994
becomes the base rate for calculating subsequent reductions.
Quantitative Restraints (Quotas). Upon entry into force of the Agreement, all
prohibitions, restrictions, and consultation levels on imports and exports will
be eliminated for originating textile and apparel articles. Thus, all import
quotas for originating textile articles will be eliminated immediately. The
United States will maintain import quotas for non-originating goods from
Mexico in 14 categories; ten of them will be eliminated on the first day of the
eighth phaseout year, and the last four categories on the first day of the tenth
year.
Special Regime. The "Special Regime" provided bilateral access to the U.S.
market for certain apparel articles assembled in Mexico of fabric formed and
cut in the United States. This agreement was embodied in the U.S. tariff under
HTS 9802.00.8010. Similar liberal access was also given to articles which
were assembled in Mexico from fabric formed and cut in the United States,
and which were then acidwashed, bleached, dyed or permapressed. Under
the NAFTA, the United States eliminated all duties and quotas applied to both
these categories of goods. These goods are now classifiable under a new tariff
number, HTS 9802.00.90, that provides for:
Textile and apparel goods, assembled in Mexico in whole of fabrics
wholly formed and cut in the United States, which (a) were exported
in condition ready for assembly without further fabrication, (b) have
not lost their physical identity in such articles by change in form
shape or otherwise, and (c) have not been advanced in value or
improved in condition abroad except by being assembled and except
by operations incidental to the assembly process, provided that goods
classifiable in chapters 61, 62 or 63 may have been subject to
bleaching, garment dyeing, stone-washing, acid-washing or permapressing after assembly as provided herein.
This new tariff classification covers all textile and apparel goods that meet this
description (e.g., handbags and hats), not just those categories that were covered by the Special Regime.
18
NORTH AMERICAN FREE TRADE AGREEMENT
]
De Minimis. For Il'\lile goodc, lld',c,ili('d
tlil()U)2,h (,? (Ji tlw H,;imcmized Sy<.,I('lll, Ilw (/,' IlllI)/II)/, dllHHIIi! ic, ',('\'('11 IWI( ('Ill iJv wl'lgill IIn',ll"J(1 ;;i
value) of the (UmpOrll'111 (lilli" g(lod tll,ll ddl'IIllIIll'C, ih tdrift (I,]c,,,itir ,Ilioll 1\('('
page 12).
Automotive
Products
111 ( II'lIlt('I,> 'il)
Rules of Origin. lile N:-\fT;\ rules ot origin for ,wtomotiv(' produr Ie., are h,1S('d
on t1 tarili change alone or a tdriff ( hclllgC and (] rcgional valw'-contC'llt requi1ement. The Agrl'enwnt requil'cs that the I'l'gional value (ontcnt for these prodll( Ie.,
be calculated using the net (ost method. The regional value-content requirf'ment for autos and light vehicle':>, and t[wil' engincs and transmis'iions, will he
50 percent under the net cost method when the agreement enters into force; this
percentage will he increased to 62.5 percent over an eight-year transition
period. The regional value-content requirement for other vehicles (c.g., tractors,
vehicles for the transport of 16 or more persons, trucks), and their engines dnd
transmissions, as well as other auto parts, will be 50 percent under the net cost
method; this percentage will be increased to 60 percent over an eight-year
transition period. The ultirnate regional value-content requirements will be
phased in as follows:
Phase-In of Regional Value Content Requirements
Effective dates
1/1/1994Autos and light vehicles listed in Annex 401.1
Other heavy duty trucks listed in Annex 403.2
50'Yr,
50'Yr,
1/1/199(1
1/l/lOUl
56(~;j)
62. S(~~)
55'Yr,
hO%
Tracing. Tracing ensures greater accuracy in calculating the regional value
content by tracking the value of major automotive components and subassemblies imported into the NAFT A region, so that the non-originating value of these
components and subassemblies is reflected in the regional value-content calculation of the motor vehicle or in auto parts destined for original equipment use.
This significantly limits the phenomenon known as "roll-up" and "roll-down,"
whereby the full value of goods is counted as originating or non-originating
content even though they may contain a mix of originating and non-originating
materials. For those components subject to tracing, any non-originating (nonNAFT A) value will remain non-originating through all stages of assembly to the
time of calculation of the regional value content of the motor vehicle (or auto
part destined for original equipment use). A list of articles that must be traced for
passenger vehicles and light vehicles is contained in Annex 403.1 (see Appendix A on page 53); the list of parts to be traced for other vehicles is in Annex
403.2 (see Appendix B on page 55). The value of traceable automotive components is determined at the time the non-originating components are received by
the first person in Canada, Mexico or the United States who takes title to them,
after importation from outside the NAFT A region. The value of the components
will be determined in accordance with standard valuation norms and will
generally be the transaction value. Certain costs must be added to the transaction value if not included in it (e.g., packing, selling commissions).
Election to Average. Producers of automotive goods may elect to average their
costs when calculating the regional value content. A motor vehicle producer
may average the calculation over its fiscal year either by all motor vehicles or
only those motor vehicles in a category that are exported to another NAFT A
party. The four categories are:
A {;UIDE TO CUSTOMS PROCEDURES
19
------~--------------------~,------------------------------------------------------~
•
the same model line of motor vehicles in the same class of vehicles produced in the same plant;
•
the same class of motor vehicles produced in the same plant;
•
the same model line of motor vehicles produced;
•
special averaging rules for CAMI Automotive, Inc.
Producers of components that must be traced may also average their costs. A
producer may average its calculation:
•
over the fiscal year of the motor vehicle producer to whom the good is sold;
•
over any quarter or month, or
•
over its fiscal year, if the good is sold as an aftermarket part.
Producers may elect to calculate the average separately for any or all goods sold to
one or more motor vehicle producers or calculate separately those goods that are
exported to Canada, Mexico and/or the United States.
Other Provisions. The provisions on accumulation, fungible goods, and intermediate materials may be used to integrate and rationalize production processes
throughout Canada, Mexico and the United States. Components that are subject to
tracing for autos and light vehicles may be designated as intermediate materials.
Producers may not, however, designate as an intermediate material any traceable
component for motor vehicles other than autos and light vehicles.
liberalization of the Mexican Market. The NAFTA will significantly liberalize
access to the Mexican market in automotive products, including:
Electronic
Products
•
the immediate reduction by 50 percent of tariffs on passenger automobiles,
with remaining tariffs phased out in equal stages over 10 years;
•
the immediate reduction by 50 percent of tariffs on light trucks, with remaining
tariffs phased out in equal stages over five years;
•
tariffs on all other vehicles phased out in equal steps over ten years;
•
the immediate elimination of tariffs on certain auto parts, with duties on most
other parts phased out over five years;
•
restrictions on the import of used cars into Mexico will be phased out between
2009 and 2019.
Rules of Origin. The rules of origin for a significant number of electronic products
(e.g., computers, telecommunications equipment, televisions, machine tools,
semiconductors) are based strictly on a tariff change. This tariff change is structured
to require that key subassemblies of the product be produced in North America.
Where necessary, the tariff schedules of Canada, Mexico and the United States
were modified to accommodate these rules of origin.
Television receivers with a picture tube of more than 14 inches in diameter may be
considered originating only if the picture tube is produced or assembled in North
America.
20
NORTH AMERICAN FREE TRADE AGREEMENT
]
Other electronic products may originate in one of two ways: by satisfying a
tariff change or by meeting a less substantial tariff change and a regional valuecontent requirement. The first tariff change is generally stricter (requiring the
non-originating materials to be classified in another chapter) and therefore has
no regional value-content requirement. The alternative tariff change frequently
involves a transformation of parts into a finished good. Since this alternate tariff
change reflects a lesser degree of processing, the regional value-content requirement ensures significant North American content.
Harmonization of MFN Rates. In one of the most unique features of the
NAFT A, the three countries will harmonize, in a series of staged reductions,
their respective most-favored-nation tariff rates on computers, computer parts
and certain computer peripherals. Once the duty rates for these articles are
harmonized, duties on goods will be payable only once upon entering the
NAFT A territory. Once within the NAFT A territory, these articles are considered
originating and may move among Canada, Mexico and the United States
without payment of duty.
In addition, on January 1, 1994, the three countries changed their most-favored-nation tariff rates to free on virtually all semi-conductors and all local
area network apparatus.
Agricultural
Products
Market Access. The provisions for agricultural goods were negotiated bilaterally. As a result, different provisions apply as to trade between Mexico and the
United States, than to trade between Canada and Mexico. For trade between
the United States and Canada, the NAFTA incorporates the provisions of the
United States-Canada Free Trade Agreement (CFT A).
Annex 703.2, Section A, of the Agreement applies to trade between the United
States and Mexico. Mexico will replace import licensing requirements on U.S.
agricultural products with either a tariff-rate quota or an ordinary tariff, that will
be phased out over a 1O-year period, with the exception of corn, dry beans and
milk powder which will be phased out over a lS-year period. Import quotas
imposed under Section 22 of the U.S. Agricultural Adjustment Act, as amended
(7 U.s.c. 624) will be replaced with tariff-rate quotas for Mexico which will
also be phased out over a 1O-year period, with the exception of peanuts which
will be phased-out over a lS-year period. Section 22 import quotas will remain
in place for all imports from countries other than Mexico, including those from
Canada. Quantities within the quota amounts will be subject to duty-free
treatment while quantities in excess of the tariff-rate quota will be subject to an
over-quota tariff.
Mexico and the United States will gradually liberalize bilateral trade in sugar.
Both countries will apply tariff-rate quotas of equivalent effect on third country
sugar by the sixth year after the Agreement enters into force. All restrictions on
trade in sugar between the two countries will be eliminated by the end of the
lS-year transition period. Details on the special provisions relating to market
access for sugar during th·e transition period are provided in Annex 703.2,
Sections A and B.
Section B of Annex 703.2 relates to trade between Canada and Mexico. Both
countries will eliminate all tariff and non-tariff barriers on their agricultural
trade, with the exception of those in the dairy, poultry, egg, sugar and syrup
sectors. Canada immediately exempted Mexico from import restrictions covering wheat, barley, and their products, beef and veal, and margarine. Canada
[
A GUIDE TO CUSTOMS PROCEDURES
21
and Mexico eliminated immediately or will phase out within five years tariffs
on many fruit and vegetable products, while tariffs on remaining fruit and
vegetable products will be phased-out over 10 years.
Safeguard Provisions. Safeguard provisions were included in the NAFT A to
protect against import surges of certain sensitive goods while their tariffs are
being phased out. A NAFTA country may invoke this safeguard mechanism in
the form of a tariff-rate quota for agricultural goods specified in Annex 703.3 of
the Agreement. This means that a designated quantity of imports will be allowed to enter at the NAFT A preferential tariff rate. Once the trigger level is
met, the importing country may apply an over-quota rate which is to be the
lesser of the most-favored-nation (MFN) rate in effect as of July 1, 1991, or the
prevailing MFN rate. Tariffs on the in-quota volume will be phased out over a
ten-year period. However, there will be no phaseout period for the over-quota
tariff, until the tenth year of the Agreement, at which time the in-quota and the
over-quota tariffs will be eliminated. These safeguard provisions apply bilaterally for trade between Canada and Mexico, and for trade between the United
States and Mexico.
For trade between the United States and Canada the "snap-back" provision
under the Canada-United States Free Trade Agreement will remain in effect for
those products designated under that Agreement. "Snap-back" is a mechanism
that allows the United States or Canada to apply a temporary duty on certain
fresh fruits and vegetables originating in the other country and imported into its
territory when import prices fall below a certain percentage of the average
monthly import price, and planted acreage of the agricultural product is within
certain limits.
Agricultural Marketing Standards. The NAFT A provides that when either
Mexico or the United States applies a measure regarding the classification,
grading or marketing of a domestic agricultural good, it will provide no less favorable treatment to like products imported from the other country for processing.
~
6 CERTIFICATE OF ORIGIN
Canada, Mexico and the United States established a uniform Certificate of
Origin to certify that goods imported into their territories qualify for the preferential tariff treatment accorded by the NAFT A. Only importers who possess a
valid Certificate of Origin may claim preferential tariff treatment for originating
goods.
language
A uniform Certificate of Origin is used in all three countries and is printed in
English, French or Spanish. The Certificate shall be completed in the language
of the country of export or the language of the importing country, at the
exporter's discretion. Importers shall submit a translation of the Certificate to
their own customs administration when requested.
Scope
A Certificate of Origin may cover a single importation of goods or multiple
importations of identical goods. Certificates that cover multiple shipments are
called blanket certificates and may apply to goods imported within any twelve-
22
NORTH AMERICAN FREE TRADE AGREEMENT
]
month period specified on the Certificate. Although a Certificate of Origin may
cover goods imported over not more than a twelve-month period, it remains
valid for NAFTA preference claims made up to four years from the date upon
which it was signed.
A machine made in Canada qualifies for NAFT A tariff treatment and is exported with
a Certificate of Origin signed on January 1, 1995. The U.S. importer does not enter
the machine for consumption but instead places it in a customs bonded warehouse.
He overlooks the Certificate of Origin and fails to claim NAFT A treatment for the
machine upon entry into the warehouse. If the U.S. importer withdraws the machine
from the warehouse for consumption on January 17, 1999, he will be barred from
claiming NAFTA treatment upon withdrawal because the Certificate is over four years
old and is no longer valid.
Completion of
Certificate
Importers'
Obligations
The Certificate of Origin must be completed and signed by the exporter of the
goods. Where the exporter is not the producer, the exporter may complete the
Certificate on the basis of:
•
knowledge that the good originates;
•
reasonable rei iance on the producer's written representation that the good
originates; or
•
a completed and signed Certificate of Origin for the good voluntarily
provided to the exporter by the producer.
Importers claiming NAFTA preferential tariff treatment shall make a declaration,
based on a valid Certificate of Origin in their possession, on the import documentation. Where no claim for preferential tariff treatment is made at the time
of importation, importers may request preferential tariff treatment no later than
one year after the date on which the good was imported, provided a Certificate
of Origin for the goods is obtained.
Importers must provide the Certificate to the importing country's customs
administration upon request, and must submit a corrected declaration and pay
the corresponding duties whenever there is reason to believe that the Certificate
contained inaccurate information.
The customs administration of the importing country may deny preferential
tariff treatment to the goods if the importer fails to comply with any of the
customs procedures set out in Chapter Five of the NAFTA.
Importers must maintain records pertaining to the importation for five years or
such longer period as may be specified by their country.
Exporters' and
Producers'
Obligations
Exporters or producers that prepare Certificates of Origin shall provide copies to
their own customs administration upon request.
Exporters or producers that provide a Certificate of Origin must maintain
records pertaining to the exportation for five years or such longer period as may
be specified by their countries.
Exporters or producers that complete a Certificate of Origin shall notify all
parties to whom the Certificate was given of any change that could affect its
accuracy or validity.
A GfJ!DE TO CUSTOMS PROCEDURES
23
Ap.oyed Itvough 1213 1/96
OMS No. 151~204
DEPARTMENT OF THE TREASURY
UNITED STATES CUSTOMS SERVICE
See bade 01 loon to( Papor.
"""' Reduction Act Nobco
NORTH AMERICAN FREE TRADE AGREEMENT
CERTIFICATE OF ORIGIN
~19~C~FR~18~1~.1~1~,~18;'~·~~~~~~n"v,~_______________________ _
2 BLANKET PERIOD (DDIMMlYY)
'N
Please p_rintor..'L't'pe~--. __- - - - - - - - - - - - - - - - - • EXPORTER NAME AND ADDRESS
FROM
TO
TAX IDENTIFICATION NUMBER:
4. IMPORTER NAME AND ADDRESS
"3 -PRODUCER NAME AND ADDRESS
TAX IDENTIFICATION NUMBER:
TAX IDENTIFICATION NUMBER:
T~'FF
HS
CLASSIFICATION
NUMBER
5.
DESCRIPTION OF GOOD(S)
7.
8.
PREFERENCE PRODUCER
CRITERION
9.
NET COST
10.
COUNTRY
pFORlGlN
______ . ______________________________________~~~~--~--_r----_+--------r_--
I CERTIFY THAT:
• THE INFORMATION ON THIS DOCUMENT IS TRUE AND ACCURATE AND I ASSUME THE RESPONSIBILITY FOR PROVING SUCH REPRESENTATIONS. I UNDERSTAND THAT I AM LIABLE FOR ANY FALSE STATEMENTS OR MATERIAL OMISSIONS MADE ON OR IN CONNECTION WITH THIS DOCUMENT;
• I AGREE TO MAINTAIN, AND PRESENT UPON REOUEST, DOCUMENTATION NECESSARY TO SUPPORT THIS CERTIFICATE, AND TO
INFORM, IN WRITING, ALL PERSONS TO WHOM THE CERTIFICATE WAS GIVEN OF ANY CHANGES THAT COULD AFFECT THE ACCURACY OR VALIDITY OF THIS CERTIFICATE;
• THE GOODS ORIGINATED IN THE TERRITORY OF ONE OR MORE OF THE PARTIES. AND COMPLY WITH THE ORIGIN REQUIREMENTS
SPECIFIED FOR THOSE GOODS IN THE NORTH AMERICAN FREE TRADE AGREEMENT. AND UNLESS SPECIFICALLY EXEMPTED IN
ARnCLE 411 OR ANNEX 401, THERE HAS BEEN NO FURTHER PRODUCTION OR ANY OTHER OPERATION OUTSIDE THE TERRITORIES
OF THE PARTIES; AND
(
'I
--pa
• THIS CERnFICATE CONSISTS OF
r.le
11
L
J PAGES, INCLUDING ALL ATTACHMENTS.
AUTHORIZED SIGNATURE
NAME (Pnnr or Type)
lIb. COMPANY
---------+-,,=--d:-.T:::,~TL;-:Eo--------------------------
I
h'..--DA-T-E ("'Dc;o;D'7IMc-:MIYY)~c=--------------~-----,I-.,.,.---~-=(V701C7.- e ) c - - - - - - - - - - - - - - - c :(:=Fa-csl"7m/-=/e--=)--------.--
I
T~L3~~~~E C>
Customs Form 434 (121793)
24
NORTH AMERICAN FREE TRADE AGREEMENT
]
r----------------------------------________________________________________
PAeERWORK REDUCTION ACT NOTICE· ThiS inlonnahon IS nceded
10
carry oul
~
I
Sta1ement RequHed by 5 Cf-Il 1320;:1 n,e esll1nated aver3ge burden ass.cx:li:\leD With thiS cullec
the terms of the Nonh Amencan Free Trade Agreement (NAFTA) NAfTA requires I
hon 01 Information IS 15 mlf'ules per respondent or recordkeeper depending on Individual CirCum
11":::, upon request, an I~POr1er must provide CuslOms with pr<x>f of Iho 8"-Porter'S writ. :
sl.)rlCCS Commenl':,
the accuracy ollilis tlurden estimate and suggeshons lor
len. cer1:flcal,.on 01 the ongln 01 Ih.8 goods The certification is ess.entlall0 substantiate thiS burdon should be
to U S Customs Ser-lICf~ PapBrwOrl< Manal)ement Brancn
compliance wltl1 the rules of ongln under the Agreement You are r6qulwd to give us
Ington DC 20229. and to the 0111(:6 01 Managemont and Budgel. Papef"'N0rk RooucltGn Pr01ecl
thiS Information \0 obtain a benefit
(lSlS·0204). Washington DC 20503
I
NORTH AMERICAN FREE TRADE AGREEMENT CERTIFICATE OF ORIGIN INSTRUCTIONS
For purposes of obtaining preferential tariff treatment, this document must be completed legibly and in full by the exporter
and be In the possession of the Importer at the time (he declaration is made. This document may also be completed voluntarily by the producer for use by the exporter. Please print or type:
FIELD 1:
State the lull legal name, address (Including counlry) and legal tax Idenlilicalion number ollhe exporter Legallaxallon number IS In Canada. em
pi oyer number or importer/exporter number aSSigned by Revenue Canada, In MeXICO, fedoral taxpayer's reglslry number (RFC), and In Ihe Unlle,j
States, employer's idenliflcatlon number or SOCIal Security Number
FIELD 2:
Complete field if the Certificate covers multiple shipments of identical goods as deSCrIbed in Field # 5 that are Imported into a NAFT A counlry lor a
speCified penod of up to one year (the blanket period). "FROM" IS the date upon which the Certificate becomes applicable to the good covered by
the blanket CerHlcats (It may be pnor to the date of Signing thiS Certlflcale) "TO" IS the date upon which the blanket penod exp"es The Imponalion of a good for which preferential treatment IS claimed based on this Certificate must occur between these dates
FIELD 3:
State the full legal name, address (including country) and legal tax identlficallon number, as defined in Field #1, of the producer. If more than one
producer's good is Included on the Certificate, attach a list of additional producers, Including the legal name. address (lOcludlng country) and legal
tax Idenlificatlon number, cross-referenced to Ihe good described in Field #5 If you wish thiS information to be confidential, it IS acceptable to slale
"Available 10 Customs upon request" If the producer and the exporter are the same, complete field wilh "SAME" If the producer IS unknown. It IS
acceptable to stale "UNKNOWN"
FIELD 4:
State the full legal name, address (including counlry) and legal tax idenllfication number, as defined in Field N1. of the importer 11 Ihe Importer is not
known, state "UNKNOWN"; if multiple importers, state "VARIOUS".
FIELD 5:
Provide a full description of each good. The descnplion should be sufficient to relate It to the inVOice description and to the Harmonized System
(H S) descnption of the good. If the Certificate covers a single shipment of a good, include the invoice number as shown on the commerCial InvOice If nol known. indicate another unique reference number, such as Ihe shipping order number
FIELD 6:
For each good described in Field #5. identify the H.S. tanH classification to six digits. If the good is subject 10 a speCific rule of origin In Annex 401
that requires eight digits, identify to eight dlglls, using the H.S. tanH claSSification of the country Into whose lerritory Ihe good IS Imported
FIELD 7:
For each good described in Field #5, state which criterion (A through F) is applicable. The rules of ongin are contained in Chapter Four and Annex
401. AddltionaJ rules are described in Annex 703.2 (certain agricultural goods), Annex 300-B. Appendix 6 (certain textile goods) and Annex 308.1
(certain automatic data processing goods and their parts). NOTE: In order to be entitled to prelerilntlal tarlH treatment, each good must meel
at least one 01 the criteria below.
Prelerence Criteria
A
The good is "wholly obtained or produced entirely" in the terntory of one Or more of the NAFTA countries as referenced in Article 415 Note: The
purchase of a good In the territory does not necessarily render It "wholly obtained or produced". If the good is an agricultural good. see also
crilerion F and Annex 703.2. (Reference: Article 40 1(a) and 415)
B
The good is produced entirely in the territory of one or more of the NAFTA countnes and satisfies the specific rule of origin, set out In Annex 401,
that applies to its tariff claSSification. The rule may inClude a lariH classlficallon change, regional value-<:onlent requirement, or a combination Ihere·
of. The good must also satisfy all other applicable requirements of Chapter Four. If the good IS an agricultural good, see also critenon F and Annex
7032 (Reference: Article 401(b))
C
The good is produced entirely in the territory of one Or more of the NAFT A countries excluslyely from originating materials. Under thiS critenon, one
or more of the materials may not fall within the definition of "wholly produced or obtained", as set out in Article 415. All materials used In the production of the good musl qualify as "originating" by meeting Ihe rules of Article 401(a) through (d). If the good is an agricultural good, see also cntenon
F and Annex 7032, Reference: Article 401 (c).
D
Goods are produced in the territory of one or more of the NAFTA countries but do not meet the applicable rule of origin, set out in Annex 401, because certain non-originating materials do not undergo the required change in tanH claSSification. The goods do nonetheless meet the regional value-content requirement specified in Article 401 (d). This critenon is limiled to the following two circumstances:
1
The good was imported into the territory of a NAFT A country in an unassembled or disassembled form but was classified as an assembled
good, pursuant to H.S. General Rule of Interpretation 2(a). or
2.
The good incorporated one or more non-originating materials, provided for as parts under the H.S., which could not undergo a change In tarill
claSSification because the heading provided for both the good and its parts and was not further subdivided into subheadings, Ql the subheading
provided for both the good and its parts and was not further subdivided.
NOTE: This criterion does not apply to Chapters 61 through 63 of the H.S. (Reference Article 40 1(d))
E
Certain automatic data processing goods and their parts, specified in Annex 308.1. that do not originate in the territory are conSidered Orlglnallng
upon importation into the territory 01 a NAFT A country from the territory of another NAFT A country when the most-favored-nalion tanH rate of the
good conforms to the rate established in Annex 3081 and is common to all NAFTA countries. (Reference: Annex 30B.l)
F
The good is an originating agricultural good under preference criterion A, B, or C above and is not subject to a quantitative restriction in the Importing NAFTA country because it is a "qualifying good" as defined in Annex 703.2, Seclion A or B (please specify). A good listed in AppendiX 703 2B 7
is also exempt from quantitative restrictions and is eligible for NAFT A preferential tanH treatment if it meets the definition of "qualifying good" In Section A of Annex 703.2. NOTE 1: This criterion does not apply to goods that wholly originate In Canada or the United States and are Import·
ed Into either country. NOTE 2: A tariff rate quota Is not a quantitative restriction.
FIELD 8:
For each good described in Field #5, state "YES" il you are the producer of the good If you are not the producer of the90od. slate "NO" followed
by (1), (2), Or (3), depending on whether this certificate was based upon: (1) your knowledge of whether the good qualifies as an onglnaling good,
(2) your reliance on the producer's written representation (other than a Certificate 01 Origin) that the good qualifies as an originating good, or (3) a
completed and signed Certificate for the good, voluntarily provided to the exporter by the producer.
FIELD 9:
For each good described in field #5, where the good is subject to a regional value content (RVC) requirement. indicate "Ne" if the RVC IS calculated
according to the net cost method; otherwise, indicate "NO". If the RVC IS calculated over a penod of time. further Identify the beginning and ending
dates (DD/MMlYY) of thai period. (Reference. Articles 402.1, 402.5).
FIELD 10:
Identify the name of the country ("MX" or "US" for agricultural and textile goods exported to Canada; "US" or "CA" for all goods exported to MeXICO,
or "CA" or "MX" for all goods exported to the United States) to which the preferential rate of customs duty applies, as set out In Annex 302 2, In accordance with the Marklng Rules or in each party's SChedule of tariH eliminatlOn
For all other originating goods exported to Canada, indicate appropriately "MX" or "US" If the goods originate in that NAFT A country, Within the
meaning of the NAFTA Rules of Origin Regulations, and any subsequent processing in the other NAFT A country does not Increase the transaction
value of the goods by more than seven percent; otherwise" JNT" for jOint production (Reference: Annex 302.2)
FIELD 11:
This field must be completed, signed, and dated by the exporter. When the Certificate IS completed by the producer for use by the exporter. It must
be completed, signed, and dated by the producer. The date must be the date the Certlficale was completed and Signed.
-- - - Cusi"0-m--=s-'F"'o=-=r=m--:4"'3o:i4 (lm93)(Back)
A GUIDE TO CUSTOMS PROCEDURES
'>
25
DEPARTMENT OF THE TREASURY
Ap<OYed
tIvough
12f.ll/96
OMB No. 151~. ~
Customs Fonn 4~ lor Papo,.
""'" Reduc110n ~ NotICe
UNITED STATES CUSTOMS SERVICE
NORTH AMERICAN FREE TRADE AGREEMENT
CERTIFICATE OF ORIGIN CONTINUATION SHEET
19CFR 18111.18122
HST~'FF
5.
T.
CLASSIFICATION
NUMBER
DESCRIPTION OF GOOD(S)
8
PREFERENCE PRODUCER
CRITERION
9
NET COST
10
,s()(JNTR~
,.,..ORIG..
-------- -f--------+------+-------
-
26
-
--'-----
--'- - ---. ---'-C"U-s---:t-o-m-S~Fo-O-r-m-----'4=3-=-4A~-'-(1~2~1~79;'-;;3)
NORTH AMERICAN FREE TRADE AGREEMENT
]
1+1
R l ". t'rlue C ,jlldl;,l
CUStoms EXLI:'-.t.' ~illd T dXdllon
Hl'\ t~nU CandUd
Acclse, Oouanes ct ImpOI
.
PROTECTED (when cotnPleteci,
-
North American Free Trade Agreement
CERTIFICATE OF ORIGIN
Please Print or Type
(Instructions Attached)
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Blanke] PerIod
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! Ta;.; Iden\lhcallon Number
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~ Peodu,ee s Name and AdOees;
_ _ ImpOr1er!', Name and Address
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Tax Idenlilicalion Number ...
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l'Ie HS Tariff
Descflptlon of Good(s)
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) T a)( Identilication Number •
ClaSSification
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Prelerence
Criterion
Producer
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Net Cost
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Country
of Origin
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I certify that:
the Information on this document Is true and accurate and I assume the responsibility for proving such representations. I understand that I am liable for any
false statements or material omissions made on or In connection with this document;
I agree to maintain, and present upon request, documentation necessary to support this Certificate, and to inform, In writing, all persons to whom the
Certificate was given of any changes that would affect the accuracy or validity of this Certificate;
the goods originated In the territory of one or more of the Parties, and comply with the origin requirements specified for those goods In the North American
Free Trade Agreement, and unless specifically exempted In Article 411 or Annex 401, there has been no further production or any other operation outside the
territories of the Parties; and
this Certificate consists of ____ pages, Including all attachments.
AuHlorlzed Signature
Company
Name
Tille
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B 232E (93/12)
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Date (DO I MM I YYI
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FAX
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Canada
PonIed en Canada
A GUIDE
TO CUSTOMS PROCEDURES
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27
NORTH AMERICAN FREE TRADE AGREEMENT
CERTIFICATE OF ORIGIN INSTRUCTIONS
.-~.
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r \.H purpo"(,,:> 01 0bl<1In"lg pr('lpr('ntl~! l.lnH treatment. this document must be completed legibly and in full by the exporter and be in the possession of the importer
at ~ ...,(' !I"',' the declaration IS made This document may also be completed voluntarily by the producer for use by the exporter Please pont or type
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[uvers n'...Jltlple shlpmen!s ,)1 1,](''''!lcal goods as described In Field 51hat are Imported Into a NAFTA counfry lor a speC/lied period 01 up 10
of nOM" 1;-> !hp dat(' uron I"-;hlch H'lc Cer1lflcate becomes applicable 10 the good covered by the blanket Cer1rflcate (II may be pnor to the date 01
"TO" I"> the date upon .... hlch the blanket period expires The importation of a good for which preferential tanH treatment IS claimed based on thiS
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,1d\.~'I'S~. 11('ll1UCIr'lQ ::OU!ltr)1 Jnd Icq.)i tax-Identification number of the exporter Legal lax Identification number IS In Canada, employe/ numfJ(>1
[lcJ'1-'Il-t~' dJ:~oIJnt?d by Revenue Canadd In MeXICO, federal taxpayer's registry number (RFC). and In the United Stales, employer's Idenlilication
(r:.J<;1 I)CCUf
between these dales
Slale 1'1(' tull 1£'9<11 'lame, address (Including countr1 ) and legal lax Identification number, as defined In Field 1, of the producer If more than one producer's good IS
,nc,udl'"C1 on tnt: Cer1Itrc.at(: a\!ac~\ a 1151 01 the additional producers. Including the legal name, address (Including country) and legal tax Identification number, cross
reterenced to the good d",:,.erlt,ed
10
FIeld 5 If you Wish thiS Information to be confidential, It IS acceptable to state -Available to Customs upon requesf
and Ihc exponer are the same. complete lleld With 'SAME'
Field 4
It the producer
If the producer IS unknown, It IS acceptable to state 'UNKNOWN'"
Stale the lull legal name address (Including country) and legal tax Identification number, as defined In Field 1, of the Importer
If Importer IS not known, state
"UNKNOWN" If muiliple Importers. slale 'VARIOUS'
Field 5'
Pro .... lde a full dezflptlon 01 each good The descnptlon should be suHlclent to relate It to the Invoice descnptlon and to the Harmonized System (HS) descnptlon of the
gO()(j lithe Cenilicate covers a single shipment of a gOOd, Include the InVOice number as shown on the commerCial InvOice II not known, indicate another unique
reference number such as the Shipping order number
Field 6
Fo( each good descnbed
10
Field 5, Iden!!ty the HS tanH dassdlcatlon to
SIX
digIts
If the good IS subject to a specIfic rule of ongln in Annex 401 that requires eight digits,
Idenltly to eight digitS. uSing Ihe HS tan11 classification of the country Into whose temtory the good IS Imported
FIeld 7:
For each 9()()(1 descnbed In Field 5, state which cntenon (A through F) IS applicable. The rules of ongln are contained In Chapter Four and Annex 401. Additional rules
are des-cnt)ed In Annex 7032 (certain agncultural goodsr. Annex 300-8, AppendIx 6A (certam lex1IJe goods) and Annex 308.1 (certain automallc data processIng goods
and Ihelr pdrts) NOTE: In order to be entitled to preferential tariff treatment, each good must meet at least one of the criteria below.
P-1el~~n~~le_I1a
A
The good IS 'wholly obtained or produced entlrelya In the terntory of one or more of the NAFTA CQuntnes, as referred to In ArtIcle 415. NOTE: The purchase of a good In
a
the ternlory does not necessanly render It 'wholly obtained or produced If the good IS an agricultural good. see also cntenon F and Annex 703.2
(Relerence
ArtIcle 401(a) and 415)
B
The good 1$ producec entirety In the territory of one or more 01 the NAFT A countnes and satisftes the speCIfiC rule of ongin, set out in Annex 401, that applies to Its tanN
ctasSlfrcahon The rule may Include a tanH classlltcalton change, regional value-content requirement or a comblnatron thereof. The good must also satisfy all other
appllcabte requirements of Chapter Four If the good IS an agnculturat good, see also c([tenon F and Annex 703 2 (Reference' Article 401(bIJ
C
The good IS produced entirely In the teffltory of one Or more of the NAFTA countries exclUSively from originating materials Under this criterion, one or more of the
malenaJs may not lall Within the definition of ·wholly produced or obtained', as set out in Article 415. All matenals used in the production of the good must quahty as
'onglnallng' by meellng Ihe rules 01 ArtIcle 401 (a) through (d) 11 the good IS an agrrcultural good, see also critenon F and Annex 703,2. (Reference,· Article 401(c))
o
Goods are produced In the leHllory of one or more of the NAFT A countfles but do not meet the appltcable rule of Ortgln, set out in Annex 401, because certain
non-ongmallng materials do not undergo the reqUired change In tanH clasSlilcatlon The goods do nonetheless meet the regional value-content requirement specified In
Article 401 (dl ThiS cnteflon IS limited to the followlna two circumstances
the good was Imported Into the ternfory of a NAFT A counfry In an unassemhled Of disassembled form but was claSSified as an assembled good, pursuant to HS
General Rule of Interpretation 2(a). or
the good Incorporated one Or more non-onglnatlng mafenals. prOVided tor as par1s under the HS. whIch COuld not undergo a change In tariH classification because the
headIng prOVIded lor bolh Ihe good and liS parts and was nollurther subd,v,ded Inlo subheadrngs, or Ihe subheadIng prOVided for bolh the good and its parts and was
not further SubdiVided
NOTE: This criterion does not apply 10 Chapters 61 through 63 of the HS (Relerence ArtIcle 401(d))
Certain automatic data processing goods and their parts, speCified In Annex 308.1, that do not orglnate In the terntory are conSidered onglnatlng upon importallon mto the
tern tory 01 a NAFTA counfry from the terntory 01 another NAFTA country when the Most-Favoured-Natlon Tanff rale of the good conforms to the rate established In
Annex 308 1 and IS commom to all NAFT A countnes (Reference Annex 308 1)
The gOOd IS an onglnatlng agncultural good under preference cntenon A, 8 or C above and 1$ not subject to a quantitative restnctlon in the Importing NAFTA country
because It IS a 'quallfylng good' as de!rned In Annex 7032, Secllon A or 8 (please specify) A good lIsted In AppendIX 7032,8.7 is also exempt from quantital;ve restrictions
and IS elIgIble lor NAFT A prelerenllal tanff trealmenllf It meets the dell","on of 'qualifylng good' In SectIon A 01 Annex 703 2 NOTE 1: This criterion does not apply to
goods that wholly originate in Canada or the United States and are imp"rted into either country. NOTE 2: A tariff rate quota is nol a quantitative reS1riction.
Field 8:
For each good descnbed ,n FIeld 5. Slale 'YES' II you are the producer 01 the good If you are not the producer of Ihe good, state 'NO" followed by (1), (2), or (3),
dependIng on whelher Ihls cen,I'cate was based upon (1) your knowledge of whether the good qualif,es as an onglna"ng good, (2) your reliance on the producers wntton
representatron 10lher Ihan a Certlilcale of Ongln) thai the good qualIfIes as an onglnatrng good, or (3) a completed and Signed Certificate for the good, voluntanly prOVIded
to Ihe exporter by the producer
F,eld 9.
For each good deSCribed In Field 5, where the gOOd IS subject to a regional value content (RVe) requirement, Indicate -NC· If theRVC 15 calculated according to the net
cost method otherv.!lse Indicate 'NO' If the RVe IS calculated according to the net cost method over a perrod of time, further Identify the beginning and ending dates
IDD MWYY) ollhal penOd (Relerence ArtIcles 4021,4025)
Field 10
IdentIfy Ihe name ollhe counlry I'MX' or 'US'lor agncuflural and lextlle goods expaned 10 Canada, 'US' or 'CA'lor all goods exported 10 MeXICO; or "CA" or "MX'lor all
9ood~ exported to the United States) to which the preferential rate of customs duty applies, as set out In Annex 302 2. In accordance With the Marking Rules or In each
Party s Schedule of tanti eliminatIon
For all other ofJglnatmg goods exported to Canada. IndIcate appropnalely "MX" or 'US' It the goods orglnate In that NAFTA CQuI"'ltry, WIthin the meaning of the NAFTA
RUles of Ongln Regulations and any subsequent proceSSing In the other NAFT A country does not Increase the transactror, value of the goods by more than 7 °/0,
ot~el"Ywlse Ind.cafe as 'JNT" tor JOJn! production (Reference Annex 302 2)
ThiS field must be complefed signed and dated by the exporter When the Cenlflcate IS completed by the producer for use ty the exporter it must be completed, SIgned
and dated by the producer The date mus! be the date the Cer1rflcate was completed and Signed
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28
NORTH AMERICAN FREE TRADE AGRE~
]
Tratado de Libre Comercio de America del Norte
Certificado de Origen
(lnstrucciones al reverso)
Llenar a maquma
0
con letra de molde
I Nombre y dorruClllo del el;porudor
2 Perlodo que cubre
D D
De
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A
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D D
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Numero de Registro Fiscal
3. Nombre y dOm1ciho del productor
4 Nombre y donucllio del Importador
Numero de reglstro fiscal
Numero de Reglstro Fiscal
6. C1astficaci6n
arancelaria
5. Descripc,6n del 00') b,en(e,)
Declara bajo protesla de
deCIT .....erdad
7. Cnleno para
trala oreferenclal
8 Productor
9 Costo Nero
10 Pals de ongen
que
- La lO{onnacl6n conlenlda en eSle documento es verdadera y exaCla, y me hagc respcnsab1e de comprobar 10 aqui declarado ESloy conSClcnte que sere responsable por cualqulcr
deciaracI6n faJs.a U orrusi6n hecha en 0 relacionada con el pres.ente documeolD
. Me compromelo a conservar y presenla!. en casa de ser requendo. los documentos necesanos que respalden el conleRlde del preseote ceroflcado, as( como a nOllficar por e..,cnw a
lodas las personas a qUlenes entregue el presente cemficado, de cualqUler cambia que pudlera afeclar la exactltud a vahdez del mlsmo
-Los bleoes son angmanas del territono de una 0 mas de las partes y cumplen con los requisitos de: ongen que les -:'011 aphcables conforme al Tratado de L\bre Cameroo de Amenca del
None. no han sldo obJeto de procesamJento ultenar 0 de cualquier otra operacI6n fuera de los temtanos de las Panes, salvo en los casaS pemurldos en eI articulo 411 0 en el Ane"xo 4() I
ho)as, mcluyendo lodos sus anexos
ESle cerllflcado se campone de
Empresa:
I I. Fmnaautonzada:
Cargo
Nombre:
Fecha:
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A GUIDE TO CUSTOMS PROCEDURES
Fax.
29
fRATADO Dr L1BRE COMERCIO DE AMERICA DEL NORIT
INSTRlICCIONES PARA EL LLENADO
DEL CERTIFIC ADO DE ORIGEN
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~r,jn,"clUl\' r~!(,CTn..:la..I rstc d,X1J.ffirnt" ddxrj s.cr llenado to forma legltJk yen su IOla1idad pot d ex.porudor del bien. y d Importador deb<=ra tenetla en su poder aJ mOmtnlil
Clu~d~ '" rJr,-,H~n del pwdu':WI llenar de miV'lcra yoluntana est( dexumcnlO. a fin de que .'>Col uuhudo pot cl cl(porudor del bien Favor de lIenar a miqulO& 0 con Irlll dr
Inq','n.nh\n
rl IlUPlrr,. Je IJrnlltILl,,,"In drl p.rrrlfl (\ rl nllmcro d<' Idcnufl(aclQn del lmporudor/cl(portador, aslgnado pOt cI Mln1stcno de Ingreso,> de Canada
1 n I,,, .',UJ,)I 1 nL,j,\\ do:' "mtn~a
cl numcrn de Idcnoflcacl(')n del palr'on 0 ('I numcro del 5.(:guro SOCial
1-\\1["1) : \}d'(~rJ. Ilrn.I.I'(" \(,1" rn (J._...., dt "lur d ccI11flu.d,\ amparc van as ImpQruclOne.s de blen~s Jdtl'ltlCOS a los dcscnlos cn d Campo 5. Que sc lmporu:n a algun pats PaN &1 Tralado de LIb"" ComercHl dt
"lll~ll~J Jel r-.;"ru: (11..<.:1\..... 1 en un perludu espc~lrl":O nu mayor de un ana (pcrtodo que cubre) La palabra "DE" debera Ir scgulda por la fecha (OtalMes/Afto) a paror de la cual c:I CerufICado unpan, d bien dcscnto
(" d ,nll!I~JJ,' 11 \!.l Ic~hi rurJr <;("r 4Jlt.l'n,)f il la frlh.a de flnna del Cert.lfl~do) U pAiabn. "A" deber1 Ir scgulda por 1a fecha (Ofa/McsJAllo) en la que venct c.I pertodo que cubrt: el Certfflc.ado La ,mporUClOn
Jel t>,rn \u)rh' • [rat" 100.1'1,.(\.1.11') prekrrnClal (Iln base cn e~te Cen/(lcado debera cfecluarS(: durante las fechl5 mdL\:adas
~ Ind!\jue el n,HT1/:1rc ~"mpkt(l. denommaClOn () razOn soo,iI. aom!('IIJO (l1lcluyendo d pah) y d numcro de reglstro fiscal del productor. lal como sc descnlX' en eI campo 1 En caso de que eI Cel'llflCldo
0 r.u6n sOCial. domlCtho (Incluyendo el pats) y mlmero de ttglslro fiscal. hac1endo
rclefTndJ dlrc... l.l JI bien, JOlnh) en d lampo ~ CU.a.J1do ~ de~e que 101. mform.clOn conlenlda en estc campo sea confHknclal. podra se~alarsc de 13 SlgUlcnte rn.a.J1er.L -d'SPOOlbleA a sollcltud de la aduana" En (&so
de '1UC cI pwdudnT ~ el npnnadur <,.e.a.J1 la mlsma pc~onil. mdlque 1.10 palaora ~m,smo" En Ca.'lO de dcsconocers.e la Idenudad del produclOr. IOdlcat Is p~abra Adesconocldo
( A, ... !F"{)
&mr Jre /:Ilenn Jr fTl~\ de un prududor. anel,(' una lIsu de los productores adlclOnaks. lnduyendo eI nombre completo. dcnominaCl6n
<. "''''''0'' InJI<.ju(' cI nombrr lOmpklo. dcnommanOn 0 uz6n ~lal. domlcllio (mcluyendo cJ pals) y eI nOmero de n:g"sr.ro flscaJ del Importador. u..1 como sc descnbe en cI campo 1 En caso de no conocerst II
ldcn!ldad del lmponadl)T. Indllar la palabra "de<,.Conoc,do" TralAndose de vaIlOS utlportadores. IOdlCar 1.1 palabra Adlversos-
{ ... --u'o
~ Prl'puruone una deKnpll~n compkta de cada b«=n Col descrrpcl(~n deber<1 s.cr suficlcnte para relac!onarla con 1a descnpCJ6n contenlda en la factura. as! como con la descnpt:u~n que cOITeSPQndlo aJ
b,en en d SLStcfTla Armonludo En casQ de que cI CemflCado ampa.« un" sol.1o Importacl6n dd bien. debcri lndlcarsc cI numero de (actura. tal como apa.rect en la (actura comert:laJ En caso de de.sconocel'5C. debcri
InJlllo1\.l" DUO numero de rdemua UnILD. como cI numero de orden de emba~ue
CAMPO 6 [)c...la~ 101. da.slflloiloLl6n arancclana a ~l~ dlglt()~ que corrrsponda en eI Sistema Armol'lludo a cada bien de.scnto en eI campo 5 En caso de que cI b,en estt slIJeto a una ~gla espe.clfica de oogen qUI:
re'luler.a ocl'llJ dlpfOS. de conforTnld.}d (on el aneJ.o 401. deiX'd dnlarars.c a ocho dfgllQ.S la dastficacJ(~n arancelana del Slslt'ma Armonludo que correspond a en eI pats a cu)'o tt:lTitorio se Imporu eI bltn
CAMPO 7 IdenlJfll.lue el cntcf1() apllo.hle (de la A a 1;10 F) para cada bien descnto en el campo 5 Las regl.a.s de ongen sc enclXntran en el capItulo 4 y en eI aneJ.o 401 del TI..CAN EXlstt:n n:glas a(hclOnaJcs en el
.t.rl('l" 70) ~ {det(lmlnado~ pfllductn~ .,!!:ropccuarlo~l. aptndKe 6 A del anOl) Ji)(l-8 (deturnmados producws leltde~} y anna J08! (detcrmJnado~ blenes para procesamlenlo aulOm.1uco de: datos y sus panes)
NOT A P.ra poJel gl)lilJ' del tralo arancela.no pn::(trenclal. cada bIen dtberj cumpln alguno de los slgu,entes (ntenos
A U ~len 1."' ""bremdo en su (mahdad 0 produCldd enceramen(C' ell d tern/uno de uno 0 mll de los palses partes del lL-CAN. de confomlldad con eI articulo 415 NOTA La compu de un bIen en cI tcmtono de
un paf\ <.it'! TLCA/'. nll nelC\.l.f!amenlC In ..:onvlefU en 'obtenldo en su rota lid ad 0 proouCido enteramente" 5, d bIen cs un producto agropecuano. vtase d cnteno F y eI Anexo 7032 (Rcferenc,a Articulo 401
41 ~)
(J I ~
8
cl bIen cs prlldulldo enll'raJnentc en el temtllno de uno 0 mas de los p,uses partes del TI£AN y cumplc con 130 regia especfflC.1 de ongen estableC1da en el Anexo 401. aplicable a su clasifICacl6n annc.clanl
L~ rq:ld plXdc IndUI! un camhg) de da.slf!cacu'ln uVlcda.na. un rcquISJlO de valor de contcmdo regIOnal 0 una combmacH"ln de ambos EI bien debe cumphr t.arnb'~n con tooos los dema... requisllos apucables del
CapllUlu IV ~,n (aso de \.jue cI /:lIen s.ea un produClo agropccuolflO. vta.se tamb,tn d cnteno F y cI AnCl.o 7032 (Rc:fertncla' Artfculo 401(b»
(' EI bien es pr"dulld<.l enu:ramentc- en tc-mfono de unn 0 mis de 10~ p.l.!~S partes del 1LCAN elcJu.slvamentc COl} matenaks onglnilnos B.3.)O este cnteno. uno 0 mis de los matenaies puede no estar InciUldo
en I~ dcrlnKu"Jn de "llbtcnldl) en su hltaltdad II pnxlucldo en!trament('" conforme .11 articulo 415 Todos los mat.enaJes usados en 101. produccl6n del bien deben cahflcar como -ongmanos". 01.1 cump\lr con alguM
de I.l.\ ~~Ia..~ de ,)ngen drl articulo 4()l\a) a {d) 51 e1 b,en es un prodUCIO agropccuano. vta.sc tambltn eJ cn1Cno F y e1 Anno 7032 (Referencla: aniculo 4OI(c»
{) Fl /:lIen e~ pnldU(ldo en e1 [em((lnn dt uno ,1 mas d~ lo~ PaJS<CS partes del TLCAN. pero no cumplc con la regia de ongen aphcablc establecida en el ancxo 401. porqut alguno de los matenales no ongmanos
no> ~vmple Clm d ~.lmhl<.) de d.lsdKa(l(w arancda.n.l rtQuendo EI bIen. SII'I embargo. cumple can cl reqUlSItO de valor de contenldo reglonaJ establccldo en cI articulo 401(d} Estt: critt:no es apiLcable Onlcame:ltt
a lJ. ~ J" \ (I r( un \1 arK I.l.\ SIg UIe nte s
I H b,en se !mp')n,~ .al ICmtonu de un pais parte dd rrCAN SIn ('nsarno/ar 0 des.ensamblad<l. pero sc claslfico como un bIen ensarnolado de confonmdad con la reg/a general de Jnt.erpreta.clr'ln 2(01.) del
S\stemJ Arm,lnlzad,l. ,)
~ EI hlen lnc')(p<.'ra uno l) mas mat.l'na!cs no on,!!:lna.nos daSlflcadu$ como partes de con(ormldad con cI SIstema Annonlz.ado. que no pudleron cumphr con eI cambia de claslficacl6n arancelaru pOn:jut
la p.u1lda e\ I. mlSmJ. tan!C1 p.ua e1 bIen ~-OfTlO pJ.ra sus partes. y no se dIVide en SUbpartldas. 0 las subpartlda es 101 mlsma. tanto para eI bien. como para sus paru:s. y esta no se subdivide
NOTA, f-.-Sle ,ntf'ln' no
0
.lrh'.lbk a
"lS
(aplful,)s 61 a t>J rlrl SI$ICma AmlOnludo (Refer-enna Artkulo 401(d»
Algunt'~ hlene, de pr,>("OaITllenfO aUlllm.11Ko de datos y sus partes. compn:ndldos en eI anelO 308 I. no onglnar10s del temtono de uno 0 mas de los P,U5C:S pa.Itt:S del TLCAN. sc considenn como SI fUlr1.l1
"(l~\flarH)S a./ m"m~nh) de ~u lmport.J.":Hin aJ tcmtQnl) de un pah partl' del 1LCAN procedentes del terntono de otro pars parte dcJ ILCAN. cUaJ1do la tasa arancdana de nacl6n mis (a\loreclda apbcab!e al bIen
5.C ~Iu~ta ;]I 101. tas') e~tabk(ldJ en d Anelo 308 I )' es cornun par" lodos los paJse5 partes del l1..CAN (Refertncla AneJ.o 308 I)
F
F- fJ hlen cs un pr'~U~hJ "grc1 f1('CuM\O ~)ng1nano de conformldad con el .;-nlCno para trato prefettnc1aJ A. B 0 C. arnba men('Jonados. y no esY. sujeto a restncclOnes cuantltauvJ..<j en t1 pais Importador del lLCAN
dcblJQ a qur es un l:or(~du(hl (altrl..:adll confurme aJ Anelo 7032. Secu6n A a B (favor de especlflcar) Un tHen hstado en eI aptndlcc 703.2.8.7 est! tambu!n e:tento de restncclOnes cuantltaUva..s y uene derecho
.. lT~l):o)T lIi.{,> Jr.lCllcl.'In,' p~frlTnnal. s,emp~ Que cumpla con 101. d('flnKIOn de "prodvcto callflCado" de la xcclOn A del Ane:w 7032 NOTA I' Estt: cnleno no es aphc.able a blenes que son totaImente onglnil'los
de <'lonloJ.t 0 l"5 bud,)s l'nld l1\ quc ~ lmporten a cuaJqulen. de d1cbos pints NOTA 2 lin a(jDce!.cUPO no es una r-estnccl6n cuantll..ao.va.
t~1 <u ~,)nf!Jf1I" (JZ,lOdbk en unJ de..:iJ.racJOn escnta del produ((vr (dlstHlta a un certlflCado de ongen) de que e! bIen Call fICa como QriglDaJ1o. 0
(1\ un ('erflfleld,' 4U~ amparc d bIen. Henado y fmnado pM cI prorluctor. proporclOnado 'Yoluntana.mente pOT cl productor .1 exportador
~1'l~,\.';-)"~\;'ilr~l~:Jl\ /:I~~n
'<
1
(
In•.:nh) ~n ":J.mr l) 5 (uand0 el bIen ~SlC \uJeto a un re\.julSllO de \alor de contenldo ~giOnal /VCR). mdlque "CN" Sl el VCR sc calcul6 con base en el rnttodo de casto neto. de 10 CQotnnO
~ ~.lkuJ.~ Je acuerd,).ll m~fodo de C0,>(0 net~) en un pcrlodo de lIempo ldentlflquc las fcchas de 101(10 y condUSlon (DDIMMlAA) de dlcho periodo. (Refer~nCla, artfculos 402.1 y 4025)
~":~"~~'!~l~~~~~~l ~lll~,~'mt':d~,~1 t~:~,)I,"\\1~"
lrl-,-~I.lnJ en ~aj.l. pane
-
J.
0 "~l'" trat..1nd,~~ de /:I\enes agropccuanos 0 lC~ulcs oportados a Canad~. -EU" 0 "CA~ para todos los blenes exportados a Mexlco. 0 -CA- 0 ~MX- pm todos
4 uC C'l rTCspondc la tJ...SJ. ar.ln~cl.tna prcfercnClal .}phcable Clln los ttrmmos del an<.':,-o 3022. de confOrTTlldad con las Reglas de Marcado 0 en la hst.a de des,ra vw6n
P.lIJ k,J,,' I"" JemJ" h:enn ,'n,!!:,naIlIlS eJ.POT1.ldl)~ a Can.ldl nd
"MX'
-EL'"
,
r.l~ u;ue
o · . scgun corresponda. Sol los blenes ongmatl en esc pafs parte del l1...CAN. en los ltrmlnOS del"anell:o 302.2 y d ..,l.Ior
Jc Jr.lI'<. ..... c'c'n Jc 1,,<, henn '1.' 'o.t ha m~rement.1do en mob de '1'l
;" - ,
IX'
go
pmctsamlento ultenor en eI otro pars pane del TLCAN. en caso contrario. Indlque -JNr por producc1l1n conJunta (RcferenCla AneIO
l<ig-f--j'MPPI'SOR AUTORIZADO POR LA SHCP PARA IMPRIMIR fORMAS fISCAl£S PERMISO • 322-A-B-llll
~3_0__________________N_O_R_T~H~A~M~fR=/~CA~N~F2Rf~f~T~RA~D~f~A~G~R~f~~~EN:T~______________ ~
7 ENTRY PROCEDURES
Claims
A claim for preferential NAFT A treatment is normally made on the customs
documents used when the goods enter Canada, Mexico or the United States.
Procedures will vary because the forms and practices of each country are
different.
Procedures in
Canada
To claim preferential tariff treatment under the NAFTA, importers shall make
the written declaration of origin by completing field number 14 of the Canada
Customs accounting document, 83, with the appropriate code for the tariff
treatment claimed. Importers must have the Certificate of Origin in their possession at the time of declaration but do not have to present the Certificate at that
time. However, it must be available upon request for presentation to Canada
Customs.
Low Value Commercial Importations. In order to claim NAFT A preferential
tariff treatment on commercial importations valued at less than US$l 000,
importers must have certification of origin in the form of a statement either
included in the invoice or attached to the invoice. The formal Certificate of
Origin is not required, provided that the importation is not part of a series of
importations arranged to circumvent the formal certification requirements.
Declaration of Origin After Importation. Importers may apply for a refund of
duties where the imported goods would have qualified for preferential treatment at the time of entry but no claim was made because the importer did not
have a Certificate of Origin at that time.
Any person who paid the duties on the goods may apply for the refund within
one year from the time the goods were originally accounted for. The application for refund will be:
•
made on a Canada Customs from 8 2 under legislative authority 74 (1) (e1)
of the Customs Act;
•
supported by a valid and complete Certificate of Origin; and
•
made at the customs office in the region where the goods were released or,
where goods were imported by mail, at any customs office in Canada.
Corrections to Declaration of Origin. Importers or owners of goods for which
preferential tariff treatment under the NAFT A was claimed or any person
authorized to account for those goods shall make a correction to the declaration of origin and pay any duties which may be owing on the amount. The
correction must be made:
•
within 90 days after the person has reason to believe that the original
declaration is incorrect; and
•
on a properly completed Canada Customs form 8 2 under legislative authority 32.2(1) of the Customs Act.
Jt (]{)IDE TO CUSTOMS PROCEDURES
31
Procedures in
Mexico
importers sh,ll1 use a customs broker (a private-sector provider of services) of
(hoil t' to obtdin release of the merchandise. The customs agent shall provide to
importers ,111 necessary information relating to applicable duties and non-tarifi
regulations. The customs entry shall be accompanied by:
•
the commercial invoice when the customs value of the merchandise is
determined in accordance with transaction value and exceeds US$300, or
the equivalent in another foreign currency. The invoice shall be prepared in
Spanish. in cases where it is not, a translation may be prepared on the
reverse or in the body of the invoice;
•
the bill of lading or airway bill of lading, endorsed by the transport company;
•
documents evidencing compliance with requirements relating to restrictions
and non-tariff regulations applicable to the importation;
•
proof of the country of origin, and country of export, as appropriate;
•
the document demonstrating guarantee for the payment of additional
amounts that may arise if the declared value is less than the estimated price
established by the Secretary of the Treasury and Public Credit for the merchanc-lise which has been undervalued;
Commercial invoices are not required for imports and exports made by foreign
embassies and consulates or by their officials and employees; those relating to
electric energy, crude petroleum, natural gas and their derivatives when made
by pipeline; nor for personal effects. The importer shall present a declaration in
writing and under oath for the customs officials, with those elements that permit
determination of the customs value of the merchandise. A copy of this declaration shall be given to the customs broker or attorney for use in determining the
customs value on the entry.
The customs agent prepares the import entry using information provided by the
importer and pays monies owed to the private bank located within Customs.
The customs broker then presents the merchandise, accompanied by the
previously paid customs entry, to the mechanism for random selection for
examination.
The customs official activates the mechanism for random selection, which
determines whether or not the shipment will be examined. If the shipment is
designated for review, the examination shall be accomplished within three
hours. This period may be greater when discrepancies are discovered. If the
shipment is not designated for review, it will be released immediately so that it
may proceed to its destination.
importers shall retain documentation that proves the legal importation of the
merchandise, in case the fiscal authorities require clarification after customs
clearance.
Procedures in
the United States
32
Existing entry procedures will continue to be used under the NAFT A. As with
other trade preference programs, importers must claim NAFTA benefits to
receive preferential duty treatment. In the United States, a claim is made by
inserting "MX" or "CA," as appropriate, as a prefix to the tariff classification
number on Customs Form 7501. The Importer of Record's signature on the CF
7501, in conjunction with this prefix, constitute the importer's written declaration that the goods are entitled to benefits.
NORTH AMERICAN FREE TRADE AGREfNfENT
]
Pursuant to Article 503 of the Agreement, the U.S. does not require a Certificate
of Origin for entries valued at US$1250 or less. For commercial shipments,
however, the invoice accompanying the irnportation should inclucle a statement certifying that the goods qualify as originating goods.
District Directors rnay require c1 valid Certificate of Origin before allowing
NAFT A treatment if they determine that a series of importations was used
instead of a single importation to evade the requirement to obtain a Certificate
of Origin.
Claims After Importation. Occasionally, claims for NAFT A treatment will not
be made when merchandise is entered. In some cases this may be because the
Agreement prohibits importers from claiming preferential treatment under the
NAFTA unless they possess a valid Certificate of Origin, which may not be
obtained until after the goods are entered. Or importers may simply not be
aware that the goods qualify for preferential treatment.
Where goods would have qualified for preferential treatment when imported
but no claim was made at that time, importers may apply for a refund of any
excess duties paid as a result of the goods not having been accorded NAFT A
treatment. Requests for refunds must be made within one year after the date of
importation.
Importers should request refunds from the Customs District Director of the port
where the goods were entered. Requests must be in writing and shall include:
•
a declaration that the goods qualified as originating goods at the time of
importation;
•
a copy of the Certificate of Origin;
•
other supporting documentation as required.
Importers are required to promptly make corrected declarations and pay any
duties owed if they determine that a Certificate on which a declaration was
based contained incorrect information.
~
8 ORIGIN VERIFICATIONS
Generally
The NAFT A authorizes the importing country's customs administration to
conduct verifications of the exporter or producer to determine whether goods
qualify as originating as certified by the Certificate of Origin. Verifications are
principally conducted by written questionnaires and verification visits. Additional verification can be done by telephone, facsimile or other means.
Questionnaires
Questionnaires may be sent by the importing country to an exporter/producer
who executed a Certificate of Origin. They are used to help determine if the
exporter's/producer's goods meet the NAFT A rules of origin. The information
requested on the questionnaire should be information used by the exporter/
producer to determine whether its goods qualify for NAFT A preferential treatment before signing the Certificate of Origin. If insufficient information is
[
A CUIDT TO CUSTOMS PROCEDURES
33
fl ll )\ Ill. 'II ('11 till' qUl,<,tionnairc to make a determination of origin, a Customs
','I 111,\\ \ )1lt-lI11 ,ldclitional information by undertaking ,I customs verification
\ 1~lt\ltl'r thl' l uc;tOIliS author'it)' of the importing country establishes whether
till' :c',()(lc/ urlgirlates, it must issue a written determination to the exporter/
prodult'r mdicatlllg its findings,
(ill
Verification Visits
il
Veriti(Alun \ I"its are performed by the customs administration of the importing
lountrv in the territory of the exporting country, and are used to verify that the
t',\porter's/producer's goods meet the NAFT A rules of origin,
Prior to conducting a verification visit, the customs administration must provide
written notification of its intention to conduct the visit to the exporter or producer whose premises are to be visited, and to the customs administration Jnd
the embassy of the NAFT A country in whose territory the visit will occur,
Written consent from the exporter or producer whose premises are to be visited
must be obtained prior to conducting the visit. The exporter or producer whose
goods are the subject of a verification visit has the right to designate two observers to be present during the visit.
If an exporter or producer of goods that are subject to a verification of origin
does not consent to the verification visit within 30 days of receiving notification
of the proposed visit, or does not cooperate during the visit, preferential NAFTA
tariff treatment may be withdrawn from the goods. The exporter or producer
will still have the right of review and appeal against this determination.
An origin determination is made upon completion of a verification visit. This
determination can be reviewed and appealed in the importing country. Any
confidential business information that is collected may only be disclosed to
authorities who are responsible for the administration and enforcement of
determinations of origin, and of customs and revenue matters.
~
9 PENALTIES
1
Canada, Mexico and the United States maintain measures imposing criminal,
civil or administrative penalties for violations of their laws and customs procedures, including those relating to the NAFT A. For example, an exporter or
producer who falsely represents on a NAFT A Certificate of Origin that a good
qualifies as originating may be penalized. An importer may also be penalized
for making a false claim for preferential NAFTA treatment on the customs
import documentation.
Exporters and producers may avoid such penalties if they promptly and voluntarily advise all concerned parties of the incorrect information contained in the
Certificate of Origin. Importers may avoid penalties if they promptly and voluntarily submit a corrected customs declaration and pay any duties that are owed
upon learning of the incorrect information contained in the Certificate of
Origin.
Importers, exporters and producers who prepare a Certificate of Origin may
also be penalized for failing to retain their records as required by the NAFTA
(generally five years).
:au::&;;:s.
34
NORTH AMERICAN FREE TRADE ACBHMENT
]
10 DENIAL Of BENEfITS
in some instances, the importing country's customs administratioll IlldY choo<.,e
to deny NAFTA benefits for failure to comply with its custmnc, regulJtions.
Exampit's of conduct which may re<.,ult in the dt'nial of preter(,llti,11 tlPatment
include:
•
failurE' to provide a certificate of origin for commercial importations valuecl
at US$l 000 (US$1250 for importations into the United States) or I('<.,s, when
there are reasonable grounds for believing that the importation tmms part of
a series of importations carried out with the purpose of l'v(lding the cprtification of origin requirement;
•
failure by the person who signed a Certificate of Origin to consent in
writing to a verification visit during the 30 days after notice of an intent to
conduct such a visit is sent.
A country may also deny benefits once its customs administration verifies that a
good does not qualify as originating. Where two or more verifications indicate
a pattern of conduct by an exporter or a producer of false or unsupported
representations that a good qualifies as originating, the customs administration
of the importing country may withhold preferential tariff treatment from identical goods exported or produced by that person, until compliance with the rules
of origin is established.
~
11 ADVANCE RULING PROCEDURES
Generally
[
importers, exporters and producers of goods may obtain advance rulings from
the customs administrations of Canada, Mexico and the United States regarding
application of the NAFTA to future importations of goods into each country.
Canada, Mexico and the United States will issue advance rulings on:
•
whether materials imported from non-NAFT A countries and used in the
production of a good undergo the tariff change set out in Annex 401 as a
result of production occurring entirely in the NAFT A region;
•
whether a good satisfies a regional value-content requirement;
•
for purposes of determining whether a good satisfies a regional valuecontent requirement, the appropriate basis or method for value to be applied by an exporter or producer in the territory of another NAFTA country,
in accordance with the principles of the Customs Valuation Code, for
calculating the transaction value of the good or of t.he materials used in the
production of the good;
•
for purposes of determining whether a good satisfies a regional valuecontent requirement, the appropriate basis or method for reasonably allocating costs, in accordance with the allocation methods set out in the
Uniform Regulations, for calculating the net cost of a good or the value of
an intermediate material;
A CUrVE TO CUSTOMS PROCEDURES
35
•
whether a good qualifies as an originating good;
•
whether a good that re-enters its territory after the good has been exported
from its territory to the territory of another NAFT A country for repair or
alteration qualifies for duty-free treatment under the NAFT A;
•
whether the proposed or actual marking satisfies country of origin marking
under Annex 311 of the Agreement;
•
whether an originating good qualifies as a good of Canada, Mexico or the
United States under Annex 300-8 (Textile and Apparel Goods), Annex
302.2 (Tariff Elimination) or Chapter Seven (Agriculture and Sanitary and
Phytosanitary Measures); or
•
whether a good is a qualifying good under Chapter Seven.
Canada, Mexico and the United States are bound by the rulings they issue.
Rulings will be applied to importations covered by the ruling beginning on the
date of issuance or on such later date specified in the ruling. An advance ruling
may not be applied if it is determined that imported goods differ materially from
the goods which were the subject of the ruling or if the person requesting the
ruling has failed to act in accordance with the terms and conditions of the
ruling.
If an advance ruling is no longer valid it may be modified or revoked. Generally
the modification or revocation will only apply to importations that occur after
the date of the modification or revocation. Reassessments will only be made
retroactively in certain limited circumstances such as when the person to whom
the advance rul ing was issued has not acted in accordance with its terms and
conditions or when the modification or revocation is to the benefit of the
person who requested the ruling. A person who has received an advance ruling
has the right to appeal that ruling.
Procedures in
Canada
Importers in Canada, and exporters and producers of goods in Mexico and the
United States may obtain an advance ruling regarding future importations.
Requests should be made in writing to the Chief Rulings and Appeals in the
customs region in which most of the importations will occur. Customs will
review all written applications and will advise the applicant of any additional
information that is required. A standard has been set for issuing these rulings
within 120 days from the receipt of complete information.
An advance ruling number can be noted on the Certificate of Origin, the
Canada Customs Invoice, or in the description field on the 83 accounting
document. Although anyone importing the goods covered can use the number
and is encouraged to do so, the ruling is only binding with regard to the person
or persons to whom the ruling was issued. All information received is treated as
confidential and therefore details of the ruling will only be released to the
person to whom the ruling was issued.
Procedures in
Mexico
36
Importers in Mexico, and exporters and producers in Canada and the United
States may request an advance ruling from the General Direction of Revenue
Policies and International Fiscal Affairs, Undersecretariat of Revenue, Ministry
of Finance and Public Credit (Direcci6n de Polftica de Ingresos y Asuntos
Fiscales Internacionales, Subsecretarfa de Ingresos, Secretarfa de Hacienda y
Credito Publico).
NORTH AMERICAN FREE TRADE ACRf£MENT
]
Applications must be submitted in writing, according to the provisions established in Articles 18 and 34 of the Fiscal Code of the Federation and limited to
matters described in Article 509 of the Agreement.
'
The competent authority must treat the information received as confidential.
Therefore, details of the ruling will only be released to the person to whom the
ruling was issued. The authority must issue the ruling within four months.
Procedures in
the United States
Importers in the United States, and exporters and producers of goods in Canada
and Mexico, may obtain advance rulings regarding application of the Agreement to prospective and ongoing transactions from the U.S. Customs Service.
Advance rulings must be requested in accordance with the procedures described in Title 19 of the Code of Federal Regulations, Part 181.93. Requests
must be written in English and must contain a complete statement of all relevant facts relating to the NAFTA transaction. Such facts include: the names,
addresses and other identifying information of all interested parties (if known);
the name of the port of place at which any good involved in the transaction will
be imported or which will otherwise have jurisdiction with respect to the act or
activity described in the transaction; and a description of the transaction itself,
appropriate in detail to the subject matter of the requested advance ruling.
Advance rulings may be requested from the Office of Regulations and Rulings,
1301 Constitution Avenue, NW, Washington, D.C. 20229, or the Area Director
of Customs, New York Seaport, 6 World Trade Center, New York, NY 10048.
For questions relating to regional value-content requirements, requests can be
expedited by sending them directly to the Office of Regulations and Rulings.
~
12 APPEAL PROCEDURES
Generally
The NAFTA grants various parties the right to appeal origin determinations,
country of origin marking determinations and advance rulings made by any
NAFT A country. Each country must provide at least one level of administrative
review independent of the official or office responsible for the determination
that has been appealed. In addition, each country must ensure that judicial or
quasi-judicial review is provided in accordance with its domestic law for
persons whose appeals are denied at the administrative level.
Origin determinations may be appealed by the person who completed and
signed the Certificate of Origin or by the importer claiming preferential NAFT A
treltmen!. The person who signed the Certificate of Origin may appeal,
whether or not an identical appeal on the origin of goods has been filed by the
importer. Persons whose goods have been the subject of a country of origin
marking determination or who have received an advance ruling may also
appeal unfavorable decisions.
Procedures in
Canada
In Canada, an appeal of an origin determination is known as a request for the
redetermination of the origin of the goods and may be requested by the person
who completed and signed the Certificate of Origin or by the importer. A
request by the person who completed and signed the Certificate of Origin
~[____ ~________________A_C~~~/D_f__TO__C_U_S_~_O_M_S_P_R_O_C_f_D_U_R_f_S______________________37~
should be made in writing to the Chief Rulings and Appeals in the customs
region in which most of the importations occurred. The application may contain multiple requests for goods imported under different transactions and line
numbers if all the requests involve the origin of a single product. The transaction and line number of the importation or importations in question must be
submitted with the request.
The person who completed and signed the Certificate of Origin will be informed by letter of the outcome of the request for the redetermination of the
goods. The decision made pursuant to a request for redetermination of the
origin of goods can be further appealed by the person who requested the
redetermination through the provisions set out in the Customs Act.
An appeal of an advance ruling or a marking determination may be requested in
writing from the office that issued the ruling or made the marking determination.
Procedures in
Mexico
Differences with final determinations issued by the customs authorities shall
proceed according to the recourses established in the Federal Fiscal Code,
except that appeals shall be made by the interested party before filing suit in the
Federal Fiscal Court.
When an appeal is filed against determinations made in terms of Article 31 of
the Customs Act, the customs authority may reinstate the administrative procedure, as appropriate, before issuing the resolution that will conclude the appeal, as well as resolving the appeal and issuing a new determination to replace
the contested one.
The appeal shall be filed with the authority that issued or executed the contested
determination, within 45 days following the effective date of the notification.
If the party's domicile is outside the town in which the customs authority that
issued or executed the contested determination is located, the appeal may be
filed in the nearest tax office or sent by certified mail with return receipt, as
long as the mailing is made from the place where the appellant lives. The date
of filing shall be the date on which the appeal is submitted or mailed, as the
case may be.
If the decision of the fiscal authority is adverse, the party may appeal the
decision to the Federal Fiscal Court, a quasi-judicial body. The decision of the
Federal Fiscal Court may be appealed by either party to the Judicial Court.
Decisions of this court may be appealed to the Supreme Court.
Procedures in
the United States
38
Appeals of Advance Rulings. Persons who request an advance ruling may
obtain administrative review of that ruling in accordance with Title 19, Code of
Federal Regulations, § 181.102. Appeals must be filed within 30 calendar days
after issuance of the ruling and shall contain:
•
the name and address of the person seeking review (or of his or her agent);
•
the Customs identification number or employer identification number in the
case of a U.S. importer, the employer number or importer/exporter number
assigned by Revenue Canada in the case of a Canada exporter or producer,
and the federal taxpayer registry number (RFC) in the case of a Mexican
exporter or producer;
•
the number and date of the advance ruling;
NORTH AMERICAN FREE TRADE AG/lfEMENT
]
•
the numbers and dates of any involved entries;
•
the nature of, and justiiication ior, the objection.
Protests of Origin Determinations. Exporters and producers in Canada and
Mexico who completed a Certificate of Origin may obtain administrative
review of an origin determination by filing a protest in accordance with Title
19, Code of Federal Regulations, § 174.12, within 90 calendar days after the
date of liquidation of the entry. Protests shall be filed on Customs Form 19 or a
letter of the same size clearly labeled "Protest" and setting forth the same
content as the Form 19. Protests shall be filed with the district director of the
port of entry. Protests shall contain the same information as noted above for
advance rulings, as well as the date of liquidation of the entry for the goods
which is the subject of the protest. A protesting party may file one protest for
multiple entries filed in the same district if all the entries involve the same
merchandise and the protest involves a decision common to all the entries.
If requested by all interested parties (e.g., the exporter, producer and/or importer), Customs will consolidate multiple protests of a single determination of
origin and one notice of its decision will be issued to all parties without regard
to whether the notice reflects confidential business information. Where all
interested parties do not request consolidation, the U.S. Customs Service may
consolidate the protests for internal processing but will issue separate, confidential notices to each protestant.
If the U.S. Customs Service decides to allow the protest of a producer or exporter, either in whole or in part, any monies owed by the Government will be
refunded to the party that paid those duties (generally the importer) even if that
party never filed a protest.
Protests and Petitions for Reconsideration of Marking Decisions. U.S. importers may protest adverse marking decisions in accordance with Title 19, Code of
Federal Regulations, § 174.12. Protests must be made within 90 calendar days
after the date of the issuance of Customs Form 4647 (Notice to Mark and/or
Notice to Redeliver) or within 90 calendar days of the date of liquidation in the
case of the assessment of marking duties. Exporters and producers in Canada
and Mexico do not have an independent right to protest adverse marking
decisions. However, they may intervene in any protest filed by the importer by
following the procedures described in Title 19, Code of Federal Regulations,
§ 181.115. To assist the exporter/producer to adequately prepare an intervention protest, the U.S. Customs Service will issue a statement within 30 days
concerning the basis for the marking decision if requested by the exporter/
producer in accordance with Title 19, Code of Federal Regulations, § 181.113.
To intervene in an importer's protest, the exporter or producer must file a typewritten statement of intervention, in English, with the district director or port
director with whom the importer's protest was filed. This statement shall be in
the form of a letter, signed by the exporter or producer, and shall contain:
[
•
the name and address of the exporter or producer (or authorized agent);
•
the employer number assigned by Revenue Canada for Canadian exporters
or producers, and the federal taxpayer registry number (RFC) for Mexican
exporters or producers;
•
the number and date of each entry involved in the adverse marking decision;
A OOIDE TO CUSTOMS PROCEDURES
39
•
,) "PC( itie de<;cription of the merchandise;
•
.1 l
•
cl
•
a statement as to whether the exporter/producer requested the basis of
Customs' decision in accordance with Title 19, Code of Federal Regulations, § 181.113, and a copy of the response (if available);
•
the number assigned to the importer's protest;
•
a statement that the intervenor is the exporter or producer of the merchandise and, if the intervenor is the exporter, a statement that it maintains
sufficient records to enable Customs to evaluate the merits of its claim
regarding the adverse marking decision;
•
a statement regarding whether the intervenor desires confidentiality in
accordance with Title 19, Code of Federal Regulations § 181.121. Absent
this statement, Customs will issue a consolidated response to all interested
parties without regard to confidentiality.
umplete "taternent of all relevant facts relating to the adverse marking
deei"ion and the transaction to which it relates, including the date of the
decision;
dct,1ilecl statement of position regarding why the exporter/producer
believes the marking decision is contrary to Annex 311 of the NAFTA;
If the importer does not protest a marking decision within 90 days, the exporter/
producer may petition Customs for reconsideration of the adverse marking
decision. The petition for reconsideration shall contain the same information as
an intervention protest and shall be filed in the same manner.
Judicial Review. Any party whose appeal, protest or petition for reconsideration
has been denied, in whole or in part, may contest that denial by filing a civil
action in the United States Court of International Trade within 30 days after the
date of the mailing of the notice of denial.
~
13 COUNTRY Of ORIGIN MARKING
Generally
For goods made in one country with no foreign inputs, determination of the
country of origin is easy-it is the country of production. Increasingly, however,
goods are processed in multiple countries using both domestic and foreign
materials, thereby complicating the determination of the country of origin. To
provide greater certainty to this process, the NAFT A provides that Canada,
Mexico and the United States shall write specific rules defining "country of
origin." These are the Marking Rules, which are used to determine country of
origin. The Marking Rules are distinct from the rules of origin that are used to
determine whether a good is originating. The Marking Rules are all based on a
tariff change and are largely the same in all three countries.
Originating goods and goods which undergo the specific tariff classification
changes prescribed by the Marking Rules are considered goods of Canada,
Mexico or the United States (as appropriate) and are subject to the Agreement's
provisions on marking. Goods may be marked with the country of origin in
English, Spanish or French, except that Canada, Mexico and the United States
may, as part of their general consumer information measures, require that an
40
NORTH AMERICAN FREE TRADE AGREEMENT
]
imported good be marked with its country of origin in the same manner as
prescribed for domestic goods. Unless specifically exempted, Canada, Mexico
and the United States may require that goods imported from another NAFT A
country be marked in a conspicuous pl,He legibly, indelibly, and sufficiently
permanently to indicate to the ultimate purchaser the country of origin of the
article. Such marking requirements must comply with the NAFT A's general
provisions on methods of marking, exemption<" etc.
Method
Cenerally, goods oj Canada, Mexico and the United States may be marked
using any reasonable method, including stickers, labels, tags, or paint. The
marking must be conspicuous, legible and sufficiently permanent to survive
normal distribution and store handling.
Containers
A usual container imported empty, whether or not disposable, need not be
marked with its country of origin. (A usual container is one in which the good
will ordinarily reach its ultimate purchaser.) However, the master container in
which the usual containers are imported may be required to be marked with
the country of origin of its contents.
A wine producer in California imports empty glass bottles made in Mexico to bottle
its wine. The empty glass bottles need not be individually marked "Mexico" but the
United States may require that the outer cardboard box in which the bottles are
imported be marked "Mexico."
A usual container imported filled, whether or not disposable is not required to
be marked with its own country of origin. A NAFT A country may, however,
require that the container be marked with the country of origin of its contents,
unless the contents are marked with their country of origin and the container
can be readily opened for inspection of the contents, or the marking of the
contents is clearly visible through the container.
Exemptions
[
Canada, Mexico and the United States shall exempt from country of origin
marking requirements a good of another NAFT A country that:
•
is a crude substance;
•
is imported for use by the importer and is not intended for sale in the form
in which it was imported;
•
is to undergo production in the territory of the importing country by the
importer, or on its behalf, in a manner that would result in the good becoming a good of the importing country under the marking rules;
•
by reason of its character, or the circumstances of its importation, the
ultimate purchaser would reasonably know its country of origin even
though it is not marked;
•
was produced more than 20 years prior to its importation;
•
for purposes of temporary duty-free admission, is in transit or in bond or
otherwise under customs administration control;
•
is an original work of art; or
•
is provided for in subheading 6904.10 [ceramic building bricks, blocks and
tiles], or heading 8541 [diodes, transistor and similar semiconductor devices] or 8542 [electronic integrated circuits and microassemblies).
A'c;UIDE TO CUSTOMS PROCEDURES
;
41
Additional products are exempt from country of origin marking requirements,
but Canada, Mexico and the United States may require that their outermost
usual containers be marked to indicate the country of origin of the goods they
contain. These include a Canadian, Mexican or U.S. good that:
Goods Not
Marked at Time
of Importation
•
is incapable of being marked;
•
cannot be marked prior to exportation to the territory of another NAFT A
country without causing injury to the goods;
•
cannot be marked except at a cost that is substantial in relation to its customs value so as to discourage its exportation;
•
cannot be marked without materially impairing its function or substantially
detracting from its appearance.
•
is in a container that is marked in a manner that will reasonably indicate the
good's origin to the ultimate purchaser.
•
was imported without the required marking and cannot be marked after its
importation except at a cost that would be substantial in relation to its
customs value, provided that the failure to mark the good before importation was not for the purpose of avoiding compliance with the requirement.
Importers are allowed, where administratively practicable, to mark goods that
are not marked at the time of importation, prior to their release from customs
control or custody. This rule applies unless an importer has repeatedly violated
the country of origin marking requirements after receiving written notification
that the goods are required to be marked prior to importation.
Canada, Mexico and the United States may impose special marking duties or
penalties for repeated violations of country of origin marking requirements after
written notification, as well as for removal of the goods from customs custody
or control before the goods have been marked. Additional duties or penalties
may also be imposed for deceptive marking.
~
14 EFFECT OF THE NAFTA ON:
Drawback and
Duty Deferral
Programs
The NAFTA provisions on drawback and duty deferral will apply to goods imported
into Canada or the United States and subsequently exported to the other country
(i.e., Canada or the United States) on or after january 1, 1996. The NAFTA provisions on drawback and duty deferral will apply to goods imported into Canada or
the United States and subsequently exported to Mexico, or imported into Mexico
and subsequently exported to Canada or the United States, on or after january 1,
2001. Thus, transactions involving either the importation of goods into Mexico or
the exportation of goods to Mexico will not come under the drawback and duty
deferral provisions of the NAFTA until january 1, 2001.
Drawback. Drawback is the refund, reduction or waiver in whole or in part of
customs duties assessed or collected upon importation of an article or materials
which are subsequently exported.
Under the NAFTA, the amount of customs duties that will be refunded, reduced
or waived is the lesser of the total amount of customs duties paid or owed on
42
NORTH AMERICAN FREE TRADE ACRf.fMENT
]
the goods or materials when imported into a NAFTA country and the total
amount of customs duties paid or owed on the finished good in the NAFT A
country to which it is exported.
No NAFT A country, on condition of export, will refund, reduce or waive the
following: antidumping or countervailing duties, premiums offered or collected
pursuant to any tendering system with respect to the administration of quantitative import restrictions, tariff rate quotas or trade preference levels, or a fee
pursuant to Section 22 of the
Agricultural Adjustment Act. Moreover, same
condition substitution drawback will be eliminated effective January 1, 1994.
u.s.
Duty Deferral Programs (Inward Processing). Duty deferral programs include
foreign trade zones, temporary importations under bond, bonded warehouses,
"maquiladoras," and inward processing programs. The NAFTA provides a new
method for duty remission with respect to importations of goods under any of the
above duty deferral programs that are subsequently exported to another NAFT A
country. Upon exportation, the goods will be treated as if withdrawn for domestic
consumption, thus subject to the applicable customs duties. The customs administration assessing such duties may waive or reduce them by an amount that does not
exceed the total custom duties paid to the NAFTA country to which the goods are
exported. Such reduction or waiver will be made when the claimant presents
satisfactory evidence of the customs duties paid in the NAFTA country to which the
article was exported. The claimant has 60 days to present this satisfactory evidence,
otherwise the customs administration of the exporting country will collect the
duties. Should a claimant subsequently obtain satisfactory evidence, the duties may
In this example, Company A imports fabric from the United States into Mexico to
make ironing board covers. The fabric is entered under the maquiladora regime
and no duty is paid. Company A exports the ironing board covers to Company Bin
Canada, who pays $20 in import duties to the Government of Canada. If the
ironing board covers were withdrawn for consumption in Mexico, $100 would be
owed to the Government of Mexico for customs duties. Therefore, that is the
amount Company A owes the Government of Mexico. Mexico, however, may
reduce the amount Company A owes by $20 if Company A gets a receipt from
Company B as evidence that this amount was paid to the Government of Canada
and submits that receipt within 60 days. The total amount paid is still that which
would have been owed if the goods had been withdrawn for consumption in
Mexico ($100), except that $80 has been paid to the Government of Mexico and
$20 to the Government of Canada.
[~_____________________A__ffi~~/_D_f_~_O__
C_U_ST_O~M~S_P~R~O_C_fD__U_R_fS______________________4_3~
be refunded to the extent allowed, upon timely presentation of the evidence
according to the laws and regulations of each NAFT A country.
Commercial
Samples and
Printed
Advertising
Materials
The NAFT A provides for the duty-free importation of certain commercial
samples and printed advertising materials. The commercial samples must be of
negligible value, that is, their value cannot exceed one U.S. dollar (or the
equivalent in the currency of Mexico or Canada) or they must be marked, torn,
perforated or otherwise unsuitable for sale or use except as commercial
samples. Only printed advertising materials classified in Chapter 49 of the
Harmonized Tariff Schedule can be imported duty-free under this provision.
The list includes brochures, pamphlets, leaflets, trade catalogues and yearbooks.
Temporary
Admissions
The NAFT A requires Canada, Mexico and the United States to grant duty-free
temporary admission to certain classes of goods imported from another NAFTA
country. Duty-free entry cannot be conditioned on whether or not directly
competitive or substitutable goods are available in the importing country. In
addition, the goods do not have to originate in a NAFT A country.
Certain Professional Equipment, Sports Goods, and Goods for Display. A
person can temporarily import duty-free: professional equipment (tools of the
trade), equipment for the press or for sound or television broadcasting, cinematographic equipment, goods for sports purposes, and goods for display or
demonstration. As a condition of duty-free entry, a NAFTA country may require
that these goods:
•
not be sold or leased while in its territory;
•
be accompanied by a bond if they are not originating goods as defined in
Chapter 4 of the NAFT A;
•
only remain in the importing country until the departure of the person or
within a reasonable time established by each country;
•
be capable of identification when exported;
•
be imported in no greater quantity than is reasonable for its intended use;
•
be imported by a national or resident of another NAFT A country that seeks
temporary entry;
•
be used solely by or under the personal supervision of the person importing
the good in the exercise of the business activity, trade or profession.
Commercial Samples and Advertising Films. Commercial samples and advertising films may also be imported temporarily without payment of duties. As a
condition of duty-free entry, a NAFTA country may require that these goods:
44
•
be imported solely for the solicitation of orders for goods, or services from
another country;
•
not be sold, leased or put to any use other than exhibition or demonstration
while in its territory;
•
be capable of identification when exported;
•
be exported within such period as is reasonably related to the purpose of
the temporary admission; and
•
be imported in no greater quantity than is reasonable for its intended use.
NORTH AMERICAN FREE TRADE AGXFEMENT
...
]
Repairs and
Alterations
Pursuant to a Warranty. None of the NAFT A countries may assess customs
duties on goods that arC' exported for repair or alteration in another NAFT A
country pursuant to a warranty and then re-imported. This is true regardless of
the origin of the goods and regardless of whether the goods could have been
repaired or altered in the exporting country.
Not Pursuant to a Warranty. A NAFT A country may, however, choose to assess
customs duties on the value of the repairs or alterations performed in another
NAFTA country that are not pursuant to a warranty. The rate of duty applied is
the preferential NAFTA r,lte, regardless whether the goods repaired or altered
are originating. Candela will assess duties on the value of ,>uch I"epairs or dlterations pC'rformed in Mexico and the United States using the rate of duty applicable under the Canada-United States Free Trade Agreement, as Incorporated
into Annex 307.1 of the NAFTA, for goods from both coulltries. Mexico will not
assess duties on repairs or alterations performed in the United States or Canada.
The United States will not dssess duties on rep,lirs or alter,ltions performed in
Mexico, not pursuant to a w,HTanty, but will assess duties on those performed
in Canada.
User Fees
Canada. CanacLl Customs h,lS no lIser fees.
Mexico. Mexico will eliminate its customs processing fee on june 30, 19<)9, for
originating goods from both Canada and the United States. The fee will not be
eliminated in stages--it vvill continuE:' to apply unlil JunE:' )(), 1999, when it will
be eliminated entirely.
United States. Goods originating in Canada, that qualify to be marked a"
Canadian goods according to the Marking Rules, are exempt from thE:' merchandise processing fee as of january 1, 1994. For goods originating in Mexico that
qualify to be marked as Mexican goods pursuant to Annex 31!, the merchandise processing fee will be eliminated on juneW, 1999. There will not be any
stJged phaseout of the fee for Mexican goods-it vv'ill continue to apply until
June 30, 1999, when it will be eliminated completely. Other fees are unaffected
and v\ill be collected whether the goods originate in Canada or Mexico. Other
fees include harbor rnaintenance, cotton, beet, pork, honey, etc. Mail entries
will continue to be subject to a US$5 processing ice.
Neither Mexico nor the United St,ltes may raise its LiseI' fees ,lS to goods oithe
other pending elimination of the fee on june 30, 1999.
Antidumping and
Countervailing
Duties
Under the NAFTA, Canada, Mexico and tilt' Uniteci St(lte~ retaill the light to
apply their antidurnping and counter\',liling duly Icl\vS to goods importnl frorn
anothel" NAFTA country. The Agreement "lso establishes ,1 ll11'ch,mlslll for
independent bindtion,ll panels to rcvicw final antidumping ,mel coulltl'r",liling
duty determinations by administrati"e authorities in e,)ch country Pliv,ltl'
parties wishing to contest an administrative decision rcspcl ling g()()cI~ ()j d
NAFTA country may Icquest thdt ,1 p,1Ilei be established. In such eN':,. til('
panel process will substitute for d()nlt'~tic judicial re\iew in the COUlllr'v \\lwre
the administrative decision was made.
A binational panel will decide whether the ,1Iltiduillping 01 countl'lvdiling
determination was made in accorclJn( (' with the domestic lc1w of the impmtlllg
country. If a binational panel finds that an error was committed in the
_[______ ~______________A_~~U~D
__f_T_O_C_U_S_T_O_M
__
S_P_R_O_C_ED
__U_R_fS_______________________4_5~J
antidumping or countervailing determination, it may send the decision back
to the appropriate government agency for correction. Decisions by a panel
are binding and cannot be appealed to a domestic court. In addition, the
Agreement establishes safeguard mechanisms designed to guarantee the
integrity of the panel process.
For example, if a Mexican exporter wishes to challenge a final determination
rendered by the U.5. Department of Commerce before a binational panel,
the Mexican exporter must file its complaint with the appropriate office in
SECOFI. The Government of Mexico, in turn, may request binational panel
review on behalf of the Mexican exporter.
Assembly
Operations (U.S.
HTS 9802.00.80)
Many U.S. imports from Mexico and Canada are entered under U.S. tariff
item 9802.00.80, which provides for a reduction in duties for articles assembled abroad in whole or in part of U.S. components. The duty on such
articles is assessed on the full value of the article, less the cost or value of the
U.S. components.
The rate applied to the dutiable value is that which would apply to the article
as imported if it were not classified under HTS 9802.00.80. Hence, the duty
reduction does not result from using a different rate of duty but rather by
deducting the cost or value of the U.S. components from the total value of
the article. Under the NAFT A, HTS 9802.00.80 may be used in conjunction
with the preferential rate of duty that would apply to the article if it were
classified in Chapters 1-97 of the tariff, provided the article originates and
complies with all other requirements relating to the NAFTA. (For information
on how the NAFT A will affect textile products under the Special Regime, see
Chapter 5 of this publication.)
Races (HTS 8482.99.10) made in the United States are exported to Mexico for
incorporation into ball bearings (HTS 8482.10.50). The remaining components are
all made in Mexico. The imported ball bearing is considered originating because it
is produced entirely in Canada, Mexico and/or the United States exclusively from
originating materials (see Article 401 (d)) and, accordingly, it is entitled to the
NAFTA preferential rate of duty-9.9 percent during the first year of the Agreement.
Assuming the total value of each ball bearing is US$l 0.40 and the value of the U.s.
races in each bearing is US$2.40, the dutiable value is US$8.00 (US$l 0.40 - US$2.40).
The duty calculation is:
9802.00.80
8482.10.50
$ 2.40
$ 8.00 x 9.9% = 0.80
The duty liability using only the preferential NAFT A rate would be US$1.03 per
bearing. By using HTS 9802.00.80 in conjunction with the preferential rate of duty,
additional savings of US$O.23 per ball bearing are made.
GSP/GPT/MFN
Generalized System of Preferences (United States). President Clinton terminated the designation of Mexico as a beneficiary developing country for purposes of the Generalized System of Preferences (GSP), effective January 1,
1994. Goods of Mexico entered on or after January 1, 1994 must meet the
NAFT A rules of origin to qual ify for reduced rates of duty; if they do not, they
are dutiable at the MFN rate.
General Preferential Tariff (Canada). As different preferential tariff schemes
each have their own unique rules of origin, it is possible that goods exported
46
NORTH AMERICAN FREE TRADE AGREEMENT
from Mexico which cannot be considered originating under the NAFTA
might still be eligible for the General Preferential Tariff (GPT) when imported into Canada. However, traders should be aware that the GPT is
separate from the NAFTA and Canada is not under any obligation to continue such benefits.
Most-Favored-Nation Rates of Duty. Generally, the NAFTA does not affect
the countries' most-favored-nation (MFN) rates of duty. That is, each country
continues to assess duty on non-NAFT A goods as it did in the past. Products
processed in Canada, Mexico and/or the United States that do not qualify for
NAFT A preferential treatment also continue to be subject to MFN rates of
duty (or to GPT rates, in the case of Mexican products imported into
Canada).
With limited exceptions, Canada, Mexico and the United States will not
harmonize their MFN rates of duty. Canada, Mexico and the United States
are harmonizing, in a series of staged reductions, their MFN tariff rates on
computers, computer parts and certain computer peripherals. Once the duty
rates for these articles are harmonized, duties on these goods will be payable only upon entering the NAFT A territory. Once within the NAFT A
territory, these articles may move among Canada, Mexico and the United
States without payment of duty.
In addition, on January 1, 1994, the three countries changed their MFN tariff
rates to free on virtually all semiconductors and all local area network
apparatus.
[
A GUIDE TO CUSTOMS PROCEDURES
47
15 CONTAGS fOR ADDITIONAL ASSISTANCE
Canada
\:.-\FT:\ Intorm,ltion Desk
R('\l'nut' Cm,1(b Customs, Excise and Tax
1~t Floor
) ) ) 1\\,1( kenzie Avenue
()tt,l\\'cl, ()ntario K 1A OL5
Tt.,I: (6])) 9-+1-0965; FAX: (613) 941-8138
,I (JI
,-Il'/UlrtC'
,,\'.\F
r·\ i"u(")
dlUi (//(>nt ,J,.",t,Jnc('
on
Clnariidn Custom< and
Thl' Direc tor
Poli( y and Administration
Antidumping and Countervailing Division
Rpvenue Canada Customs, Excise and Tax
191 Laurier Avenue, W.
Ottawa, Ontario K 1A OL5
Tel: (6])) 954-7251; FAX: (613) 941-2612
I For /llfoll1ldflOn on
under
Clfl,l(},l"
.l(illl/n"frdti \ (' pro( edur('< dnd im estigations
dnt/ciulllplflg ,JIlci (ounten ailing dutl' laws)
The Secretary,
Canadian International Trade Tribunal
)65 L1Urier Avenue, W.
Ottawa, Ontario K 1A OG7
T('I: 1(13) 993-4601; FAX: (613) 998-4783
/F{)f /llfornldtlOll
II/hulldl)
on
48
/llforllldflOn Oil
(For publications on NAFTA and informdtion on export
programs dnd services. Info Export is a counselling and
reference centre for Canadian exporters and companies
interested in world markets)
Canada Communications Group
Publ ications
Ottawa, Ontario K1 A OS9
Tel: (819) 956-4802; FAX: (819) 994-1498
(To order certain publications)
Manager of Origin Audits
6th Floor
Sir Richard Scott Building
191 Laurier Avenue, W.
Ottawa, Ontario K1 A OL5
Tel: (613) 954-5641; FAX: (613) 954-4494
(For information on regional value content or audits)
th" mi(' offhe Canadian International Trade
TIll' Secretary, Canadian Section
NAFTA Secretariat
9() Sparks Street, Su ite 705
Ottawa, Ontario K 1P 5B4
Tel: Ib1 J) 992-9380; FAX: (613) 992-9392
,For
Info Export
External Affairs and International Trade Canada
125 Sussex Drive
Ottawa, Ontario K 1A OG2
Tel: (613) 994-4000 (Ottawa area), 1-800-267-8376;
FAX: (613) 996-9709
the IlIlldt/onal panel review processl
Chief, Interdepartmental Programs
Commercial Operations
Revenue Canada, Customs, Excise and Tax
5th Floor
555 Mackenzie Avenue
Ottawa, Ontario K1 A OL5
Tel: (613) 954-7129; FAX: (613) 952-1698
(For information on the Marking Program)
NORTH AMERICAN FREE TRADE AGREEMENT
]
Contacts for Additional Assistance-continued
Mexico
Secretarfa de Comercio y Fomento Industrial
(SECOFI)
Subsecretarfa de Negociaciones Comerciales
Internacionales
Calle Alfonso Reyes No. 30
Colonia Condesa
c.P. 06140 Mexico, D.F.
for calls from outside Mexico:
52-5-211-3545,52-5-211-3405,
52-5-211-0872,52-5-211-3050,
52-5-211-3301, 52-5-211-0952
for calls within Mexico: 91-800-90415;
FAX: 52-5-224-3000
SECOFI
Delegacion Nuevo Leon
Licenciado Carlos Alberto Garcfa Triana
Edificio Cintermex, Local 88
Avenida Fundidora y Adolfo P.
Monterrey, N.L.
Tel: 6 96 480, 6 96 481,696 482, FAX: 6 96 487
(For int(JrmatlOn on exporting trom Mexic 0 to the United State<;.
('xport('(\ may also cont,lc t other regIOnal SECOFI oiticc',1
Secretarfa de Hacienda y Credito Publico
Subsecretarfa de Ingresos
Direccion General Fiscal Internacional
Avenida Hidalgo #77, Modulo 1
Planta Baja, Colonia Guerrero
Delegacion Cuauhtemoc
06300 Mexico, D.F.
SECOFI
Delegaci6n Jalisco
Licenciado Hector Rafael Perez Partida
Avenida Mariano Otero 3431
Colonia Valle Verde
Guadalajara, Jalisco
Tel:6210694,6211642,6211115
FAX: 6 21 13 60, 6 21 0534
(For import requirements reiating to the NAFTAI
Banco Nacional de Comercio Exterior, S.N.C.
Camino a Sta. Teresa 1679
01900 Mexico, D.F.
Tel: 52-5-227-9078
United States
NAFTA Information System
Automated Facsimile Delivery System
Tel: (202) 927-1692 or 927-1694
(An automated system that transmits information on the NAFTA
directly to any facsimile machine in the United State5~available
24 hours a day)
NAFT A Help Desk
U.S. Customs Service
1301 Constitution Avenue, N.W., Room 1325
Washington, D.C. 20229
Tel: (202) 927-0066; FAX: (202) 927-0097
(For technical assistance on US customs laws and the NAFTA. as
they relate to goods imported into the United States~available
Monday-Friday, 8:00am-5:00pm EST)
U.S. Department of Commerce
Office of Mexico, Room 3022
14th Street and Constitution Avenue, N.W.
Washington, D.C. 20230
Tel: (202) 482-0300
(For information on exporting from the United States to Mexico)
U.S. Department of Commerce
Office of Mexico
Flash Facts System
Automated Facsimile Delivery System
(Available in the U.S. only)
Tel: (202) 482-4464
U.S. Department of Commerce
Office of Canada, Room 3033
14th Street and Constitution Avenue, N .W.
Washington, D.C. 20230
Tel: (202) 482-3101
(For informatIOn on exporting irom the United States to Canadal
U.S. Department of Agriculture
The Interamerica Group
South Building, Room 5506
14th Street and Independence Avenue, SW
Washington, D.C. 20250
Tel: (202) 720-1340
(For information (except phytosanitary norms) on importing
agricultural products into the United States under the NAFTAI
U.S. Department of Agriculture
Animal and Plant Health Inspection Service
Trade Support Group
South Building, Room 1128
14th Street and Independence Avenue, SW
Washington, D.C. 20250
Tel: (202) 720-7677
(For Ifltormation on phytosanitary norm5 atiecting ,lgncultural
imports into the United Statesl
(An automated system available 24 hours a day, that will transmit
a wide range of information directly to your facsimile machine.
Topics include: NAFTA 's expected impact on the US. economy;
trade, economic, and marketing data; Mexican regulatory requirements; and Mexico's investment climate)
[
-----·---~--,AMG.-,UIDE
TO CUSTOMS PROCEDURES
49
16 OTHER USEFUL PUBLICATIONS
Canada
Tht' I(>flrm ing publication5 are all free and are available from:
Into hport
hternal Affairs and International Trade Canada
1~ 'i Sussex Drive
Ottawa, Ontario K 1 A OG2
Tel: (() 1 3) 944-4000 (Ottawa area); 1-800-267-8376; FAX (613) 996-9709
Publications are available in English and French; publications denoted by (*) contain English and French.
NAFTA: What's It All About (99 pages)
(Th" hanriho()" prm lries a ('omprehmsive gUide to the NAFTA)
(This document outlines the key issues addressed in the
11 'i'i Ii
The North American free Trade Agreement at a
Glance (24 pages)
I Thi,
hooklet provide, a ba.'Ic overview ot the benefits of
NAFTA)
(]9'1
i)
Agreement! (March 1993)
North American free Trade Agreement-Media Kit·
(40 pages)
!This publication contains copies of the Press Release,
North American free Trade Agreement (approx.
)000 pages)
I Th('
Highlights of the North American free Trade
Agreement (4 pages)
agreement between the Governments of Canada, the
United Mexican States and the United States of America)
(0('( ember 1 99.!1
The North American free Trade Agreement-
Backgrounder, Ministerial Statement. Highlights of the NAFTA
and the Chronology) (February 1993)
North American free Trade Agreement-Canadian
Environmental Review· (28 pages)
(This executive summary provides an analysis of the potential
environmental effects of Canada's participation in the NAFTA)
Errata * (39 pages)
I The
err,lIa table to the December 17 NAFTA text) (April 1993)
The following publication is available in English or French from the nearest regional Canadian Customs office.
Importing Goods into Canada (62 pages)
IA genf'ral guide to preparing the documents required for the
Importation of commercial goods in Canada)
50
NORTH AMERICAN FREE TRADE AGIlEEMENT
]
Other Useful Publications--continued
Mexico
The following documents are available from:
Tratado de libre comercio en America del Norte: La
industria textil (Monografia 13)
SECOFI
Piso 18
Coordinaci6n Sectorial
Alfonso Reyes No. 30
06179 Mexico, D.F.
HC 003.13
Secretarla de Comercio y Fomento Industrial
(Mexico 1991)
u.s. Exports to Mexico: A State-By-State Overview,
1987-90
HC 010
TLC 001
U.S. Department of Commerce (U.S.A. 1991)
Las relaciones comerciales de Mexico con el mundo
TLC 001.1
Secretarfa de Comercio y Fomento Industrial
(Mexico D.F. 1990)
Tratado de libre comercio en America del Norte:
Reglas de origen (Monografia 1)
Tratado de libre comercio: Bases de la negociaci6n
del tratado de fibre comercio entre Mexico, Canada
y Estados Unidos
Jaime Serra Puche, Secreta ria de Comercio y
Fomento Industrial (Mexico 1991)
La adhesi6n de Mexico al GA TT (Repercusiones
internas e impacto sobre las relaciones MexicoEstados Unidos)
TLC 028
Blanca Torres, EI Colegio de Mexico (Mexico 1989)
La cuenca del pacifico
TLC 003.1
Secretarfa de Comercio y Fomento Industrial
(Mexico 1991)
HC 029
Tratado de libre comercio en America del Norte:
Soluci6n de controversias (Monografia 3)
EI acuerdo marco de cooperaci6n entre los Estados
Unidos Mexicanos y la Comunidad Econ6mica
Europea
TLC 003.3
Secreta ria de Comercio y Fomento Industrial
(Mexico 1991)
Tratado de libre comercio en America del Norte:
Practicas desleales de comercio (Monografia 6)
TLC 003.6
Secreta ria de Comercio y Fomento Industrial
(Mexico 1991)
Tratado de libre comercio en America del Norte:
Normas (Monografia 8)
TLC 003.8
Secreta ria de Comercio y Fomento Industrial
(Mexico 1991)
Tratado de libre comercio en America del Norte:
Servicios (Monografia 9)
TLC 003.9
Secreta ria de Comercio y Fomento Industrial
(Mexico 1991)
Tratado de libre comercio en America del Norte:
Sector automotriz (Monografia 10)
TLC 003.10
Secretaria de Comercio y Fomento Industrial
(Mexico 1991)
Tratado de libre comercio en America del Norte:
fnseres domestieos (Monografia 11)
Banco Nacional de Mexico (Mexico D.F.)
HC 035
S.R.E., SECOFI, BANCOMEX, CEMAI (Mexico 1991)
Tratado de fibre comercio entre Mexico y Chile
TLC 047
Secretarfa de Comercio y Fomento Industrial
(Mexico 1992)
A North American Free Trade Agreement: The
Elements Involved
HC 062
Michael Hart, University of Ottawa (Canada 1990)
Algunos efectos del acuerdo de libre comercio en la
administraci6n de las empresas y el apoyo de
asesores extern os en economia
HC 063
I\\auricio Mobar,ik Gor1l:alC'z (Mexico 19()1
J
Las relaciones comerciales de Mexico con el
mundo: desafios y oportunidades
HC 064
Secretarfa de Comercio v Fomento Industrial
(Mexico 19(0)
Canada and a Mexico-United States Trade Agreement Working Paper
TLC 068
Department of Finance (Canada 19C)O)
TLC 003.11
Secretarfa de Comercio y Fomento Industrial
(Mexico 1991)
[
~DE TO
CUSTOMS PROCEDURES
51
Other Useful Publications--continued
United States
[)oclIf7l('nh
flllhli~hecl hV the U.S. government may be purchased from:
Superintendent of Documents
u.s. Covernment Printing Office
W,lshington, D.C. 20402~9328
Tpi: (202) 78~~3238
North American free Trade Agreement, Volumes I & /I
Cost: US$40.00
Stock Number: 041 ~OOl ~00407 ~6
I The
t("t
01
the agreement. with the specific rules of origin)
Importing into the United States
Cost: US$6.50
Stock Number: 048-002-00116-8
(A comprehensive guide to the procedures. laws and
regulations governing imports into the United States)
Annex 302.2: Schedule of the United States
Cost: US$37.00
Stock Number: 041 ~001 ~()0408~4
(The l,rl'll'wnll.!1 (\JAFTA dUll r,lle, Ih,11 1\/11 apply to products
lJl)ported IIlto the tl/lIt('r/
(Spanish translation of Importing into the United States)
.~/d/e')
Harmonized Tariff Schedule of the United States
Cost: US$50.00
Stock Number: 949-010-00000-7
Annex 302.2: Schedule of Canada
Cm!: US$U.OO
S!o(~ Number: 041 ~001 ~00409~2
I"('{('r{'n/ldl NATTA dUI\' r,lIl" /hal
Im/)ur/I'd Illlo ( dn,)(ia)
I 'ht'
1\
ill ,JPplv 10 products
1I11PUI/t'(i/ll/O .\ r,'\I'
(A Itst o{ all the lariff classifications and accompanying duty
rates applicable 10 goods imported into the United States)
Title 19, Code of federal Regulations
Cost: US$35.00
Stock Number: 869-019-00061-5
Annex 302.2: Schedule of Mexico
Cost: US$ 38.00
Stock Number: ()41 ~O() 1~0041 0~6
" he pr('{I'r{'lllldl .\j·\n·\ dUll ral(', Ihal
Importar en los Estados Unidos
Cost: US$6.00
Stock Number: 048-002-00115-0
1\
ill appil- to produ( 15
(The Customs Regulations of the United States)
uJ
(Prices ,1re ,1S of April 799-1 and are subject to change. Add 25% for international orders.)
52
NORTH AMERICAN fREE TRADE AG~fMENT
]
APPENDIX A
Annex 403.1
list of Tariff Provisions for Article 403(1)
Note: For purposes of reference only, descriptions are provided next to the corresponding tariff provision.
40.09 ............................. '" .....
4010.10 .................................
40.11 .....................................
4016.93.aa ............................
4016.99.aa ............................
7007.11 and 7007.21 ............
7009.10.................................
8301.20.................................
8407.31 .................................
8407.32 .................................
8407.33 .................................
8407.34.aa ............................
8407.34.bb ............................
8408.20 .................................
84.09 .....................................
8413.30 .................................
8414.59.aa ............................
8414.80.aa ............................
8415.81 through 8415.83 ......
8421.39.aa ............................
8481.20,8481.30 and
8481.80 .................................
8482.10 through 8482.80 ......
8483.10 through 8483.40 ......
8483.50 .................................
8501.10 .................................
8501.20 ....................... ..........
8501.31 ........................... ......
8501.32.aa ............................
8507.20.aa, 8507.30.aa,
8507.40.aa and 8507.80.aa ...
8511.30 .................................
8511 .40 .................................
8511.50 .................................
8512.20 .................................
8512.40 .................................
[
tubes, pipes and hoses
rubber belts
tires
rubber, gaskets, washers and other seals for automotive goods
vibration control goods
laminated safety glass
rear-view mirrors
locks for the kind used on motor vehicles
engines of a cylinder capacity not exceeding 50cc
engines of a cylinder capacity exceeding 50cc but not exceeding 250cc
engines of a cylinder capacity exceeding 250cc but not exceeding 1000cc
engines of a cylinder capacity exceeding 1000cc but not exceeding
2000cc
engines of a cylinder capacity exceeding 2000cc
diesel engines for vehicles of Chapter 87
parts of engines
pumps
turbochargers and supercharges for motor vehicles, where not provided for
under subheading 8414.80
turbochargers and superchargers for motor vehicles, where not provided
for under subheading 8414.59
air conditioners
catalytic converters
valves
ball bearings
transmission shafts and housed ball bearings
flywheels
electric motors
electric motors
electric motors
electric motors that provide primary source for electric powered vehicles
of subheading 8703.90
batteries that provide primary source for electric cars
distributors
starter motors
other generators
other lighting or visual signalling equipment
windscreen wipers, defrosters
A GUIDE TO CUSTOMS PROCEDURES
53
Appendix A-continued
. .................... .
W; It)(ll .
. . . . . . . . . . . . . . . . . . . . . . ..
B'l~;-.~ I .
W;~;-~9 .................................
B'l lh.SO ................................
B'llh.90 .................................
W; F. 10 .aa ............................
H')39.IO .................................
Wi 19 .21 .................................
BS44.30 .................................
B7 .06 .....................................
87.07 .....................................
870B.l0.ad ............................
8708.21 .................................
870B.29.aa ............................
8708.29.bb ............................
8708.29.cc ............................
870H.29.dcl ............................
cassette decks
radios combined with cassette players
radios
switches
junction boxes
motor control centers
seal beamed headlamps
tungsten halogen headlamps
wire harnesses
chass is
bodies
bumpers, but not parts thereof
safety seat belts
body stampings
inflators and modules for airbags
door assemblies
airbags for use in motor vehicles, where not provided for under
subheading 8708.99
870B.39 ................................. brakes and servo-brakes, and parts thereof
870B.40 ................................. gear boxes, transmissions
8708.50 ................................. drive axles with differential, whether or not provided with other
transmission components
8708.60 ................................. non-driving axles, and parts thereof
870B.70.aa .... ........................ road wheels, but not parts or accessories thereof
B70B.BO ................................. suspension shock-absorbers
8708.91 ................................. radiators
870B.92 ................................. silencers (mufflers) and exhaust pipes
B70B.93.aa ............................ clutches, but not parts thereof
870B.94 ................................. steering wheels, steering columns and steering boxes
870B.99 ..1a ............................ vibration control goods containing rubber
8708.99.bb ............................ double flanged wheel hub units
870B.99.c( ............................ airbags for use in motor vehicles, where not provided for under
subheading 8708.29
870B.99.c1d ............................ half-shafts and drive shafts
B70B.99.ee ............................ other parts for powertrains
8708.99.ff .............................. parts for suspension systems
8708.99.gg ............................ parts for steering systems
870B.99.hh ............................ other parts and accessories not provided for elsewhere in subheading
870B.99
9031 .BO ................................. monitoring devices
9032.89 ................................. automatic regulating instruments
9401.20 ................................. seats
54
NORTH AMERICAN FREE TRADE AGREEMENT
APPENDIX B
Annex 403.2
List of Components and Materials
1. Component: Engines provided for in heading 84.07 or 84.08
Materials: cast block, cast head, fuel nozzle, fuel injector pumps, glow plugs, turbochargers and
superchargers, electronic engine controls, intake manifold, exhaust manifold, intake/exhaust valves,
crankshaft/camshaft, alternator, starter, air cleaner assembly, pistons, connecting rods and assemblies
made therefrom (or rotor assemblies for rotary engines), flywheel (for manual transmissions), flexplate
(for automatic transmissions), oil pan, oil pump and pressure regulator, water pump, crankshaft and
camshaft gears, and radiator assemblies or charge-air coolers.
2. Component: Gear boxes (transmissions) provided for in subheading 8708.40
Materials: (a) for manual transmissions-transmission case and clutch housing; clutch; internal shifting
mechanism; gear sets, synchronizers and shafts; and (b) for torque convertor type transmissionstransmission case and convertor housing; torque convertor assembly; gear sets and clutches; and
electronic transmission controls.
[
-k6f:JJDE TO CUSTOMS PROCEDURES
U.S. GOVERNMENT PRINTING OffICE
55
1994 0 - 1:'4-750 QL: 3
ISBN 0-16-045046-2
90000
DEPARTMENT OF THE TREASURY
U.S. CUSTOMS SERVICE
WASHINGTON, DC
Revised May 1994
Customs Publication No. 511
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 19, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,626 million of 13-week bills to be issued
September 22, 1994 and to mature December 22, 1994 were
accepted today (CUSIP: 912794P57).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.59%
4.61%4.61%
Investment
Rate
4.71%
4.73%
4.73%
Price
98.840
98.835
98.835
Tenders at the high discount rate were allotted 76%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-1091
Received
$48,727,633
Acce12ted
$11,626,421
$42,714,390
1,364,033
$44,078,423
$5,613,178
1,364,033
$6,977,211
3,065,210
3,065,210
1,584,000
$48,727,633
1,584,000
$11,626,421
UBLIC DEBT NEWS
Dcpartmcnt of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 19, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,736 million of 26-week bills to be issued
September 22, 1994 and to mature March 23, 1995 were
accepted today (CUSIP: 912794R22).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.03%
5.05%
5.05%
Investment
Rate
5.23%
5.25%
5.25%
Price
97.457
97.447
97.447
Tenders at the high discount rate were allotted 24%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED ( in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-I092
Received
$49,087,734
AcceQted
$11,736,480
$43,300,906
1,248,828
$44,549,734
$5,949,652
1,248,828
$7,198,480
2,950,000
2,950,000
1,588,000
$49,087,734
1,588,000
$11,736,480
DEPARTMENT
OF
THE
TREASURY
17H'l
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622.2960
For Release Upon Delivery
Expected at 9:30 a.m.
September 20, 1994
STATEMENT OF MAURICE B. FOLEY
DEPUTY TAX LEGISLATIVE COUNSEL (TAX LEGISLATION)
BEFORE THE
SUBCOMMITTEE ON EMPLOYMENT, HOUSING AND AVIATION
COMMITTEE ON GOVERNMENT OPERATIONS
UNITED STATES HOUSE OF REPRESENTATIVES
Mr. Chairman and distinguished Members of the Subcommittee:
I am pleased to have this opportunity to present the views
of the Treasury Department with respect to the targeted jobs tax
credit ~C). The TJTC is a tax credit for employers which was
enacted to promote private-sector hiring of workers with special
barriers to employment.
The TJTC is jointly administered by the Treasury Department
through the Internal Revenue Service (IRS) and the Department of
Labor through its Employment Service. The IRS is responsible for
tax-related aspects of the program and the Employment Service,
through the network of State Employment Security Agencies, is
responsible for defining and documenting worker eligibility.
A table providing a listing of the estimated annual cost of
the program in terms of foregone tax revenues from Fiscal 1986
through Fiscal 1994, is attached to my statement.
I.
Background
The TJTC was enacted by the Revenue Act of 1978 as a
substitute for what had been a broad-based new jobs tax credit.
Congress concluded that the unemployment rate had declined
sufficiently so that it was appropriate to focus employment
incentives on individuals with high unemployment rates and other
groups with special employment needs.
The credit initially was scheduled to expire on December 31,
1981 and applied to wages earned in the first and second years of
employment.
The first-year credit was equal to 50 percent of the
first $6,000 earned by a TJTC-hire and the second-year credit was
25 percent of the first $6,000 earned.
LB-I093
The TJTC has been extended on a short-term basis numerous
times over the years. Revisions also have been made by a number
of tax laws to adjust the amount of the credit, close loopholes,
and alter the targeted groups of individuals covered by the
credit.
The TJTC was amended and extended for one year through
December 31, 1982 by the Economic Recovery Tax Act of 1981. This
Act eliminated retroactive certifications of worker eligibility.
using retroactive certifications, an employer could claim credits
for TJTC-eligibles who already were on the firm's payroll,
resulting in no new job creation. The 1981 Act also required
that one targeted group -- cooperative education students -- be
economically disadvantaged in order to be covered by the credit.
without this constraint, employers were able to receive subsidies
for hiring individuals they likely would have hired in the
absence of the credit. The 1981 Act also increased the number of
targeted groups and reduced certain restrictions on eligibility
within existing categories.
The TJTC was extended for two more years through December
31, 1984 by the Tax Equity and Fiscal Responsibility Act of 1982.
This Act extended the credit to employers hiring economically
disadvantaged 16 and 17 year-olds for summer employment. The
1982 Act also deleted one of the targeted groups -- former public
service employment participants under the Comprehensive
Employment and Training Act.
The Deficit Reduction Act of 1984 extended the TJTC for
another year through December 31, 1985, after which it expired.
It was extended retroactively for three more years through
December 31,1988 by the Tax Reform Act of 1986. The 1986 Act
reduced the amount of the credit to 40 percent of the first
$6,000 earned and eliminated the second-year credit.
Employees
also were required to work for a minimum of 90 days or 120 hours
to be covered by the credit (14 days or 20 hours for summer
youths). A minimum employment period was imposed to limit the
"churning" of employees by some employers.
"Churning" involves
maximizing the amount of credit by rapidly turning over workforce
to hire additional targeted members.
The Omnibus Budget Reconciliation Act of 1987 eliminated the
credit for wages paid to individuals who perform duties similar
to those of workers who are participating in or are affected by a
strike or lockout. The Technical Corrections and Miscellaneous
Revenue Act of 1988 extended the credit for an additional year
through December 31, 1989; reduced the summer youth credit from
85 percent to 40 percent of the first $3,000 earned; and
eli~inated 23 and 24 year-olds from the targeted group of
economically disadvantaged youths.
-
2 -
The TJTC was extended for nine more months through September
30, 1990 by the Omnibus Budget Reconciliation Act of 1989. This
Act also reduced the burden placed on local Employment Service
offices of verifying worker eligibility. The 1989 Act required
employers requesting certification of a job applicant for which
there had not been a written preliminary determination of
eligibility (a voucher) to specify at least one, but not more
than two, targeted groups to which the individual might belong.
The employer also had to certify that it had made a good faith
effort to determine the individual's eligibility. The prior
practice of asking local Employment Service offices to verify
TJTC-eligibility of all new hires burdened these offices without
creating new jobs. The employer firms already had decided to
hire the individuals, although the individuals had not yet been
put on the payroll.
The Omnibus Budget Reconciliation Act of 1990 retroactively
extended the TJTC for 15 months through December 31, 1991. The
conference agreement also clarified the definition of one of the
targeted groups. This group -- "ex-convicts" -- was defined to
include persons who are placed on probation by State courts
without a finding of guilty. The TJTC was further extended for
six months through June 30, 1992 by the Tax Extension Act of
1991.
Most recently, the credit was extended retroactively for 30
months by the Revenue Reconciliation Act of 1993. The 1993 Act
extended the TJTC to cover individuals who begin work for an
employer after June 30, 1992 and before January 1, 1995.
II.
Current Law
Under current law, a TJTC is available to employers for up
to 40 percent of the first $6,000 of wages paid to a certified
worker in the first year of employment. This translates into a
potential credit of $2,400 per targeted worker. The worker must
be employed for at least 90 days or work at least 120 hours.
(The credit for summer youth is 40 percent of the first $3,000 of
wages, or $1,200, and these individuals must work for 14 days or
20 hours.)
The employer's deduction for wages is reduced by the
amount of the TJTC.
Certified workers must be economically disadvantaged or
disabled individuals in one of nine targeted groups. These
groups are (1) youth 18-22 years old; (2) summer youth age 16-17;_
(3) cooperative-education students age 16-19; (4) ex-offenders;
(5) Vietnam-era veterans; (6) vocational rehabilitation
referrals; and individuals receiving (7) general assistance, (8)
Supplemental Security Income, or (9) Aid to Families with
Dependent Children.
-
3 -
For purposes of the TJTC, a worker is economically
disadvantaged if the worker's family income is 70 percent or less
of the "lower living standard income level". This level is
revised periodically to account for changes in the Consumer Price
Index and varies by geographic and urban area.
To claim the credit for an employee, an employer must
receive a written certification that the employee is a targeted
group member. Certifications for employees are generally
provided by State Employment Security Agencies. The employer
must have received or filed a written request for a certification
on or before the date a targeted member begins work.
If the
employer has received a written preliminary determination that
the employee is a member of a targeted group, the employer may
file a written certification request within five calendar days
after the targeted member begins work.
III.
1994 Report by the Labor Department's
Office of Inspector General
A recent report by the Labor Department's Office of
Inspector General identified a number of problems with the TJTC.
I will highlight some of these problems, but will leave most of
the discussion of the report (and other studies on the credit's
effectiveness) to Assistant Secretary Ross. The report
recommended that the Secretary of Labor discourage further
extensions of the credit.
The study examined the records of a sample of 1,150
individuals from 9 states who received eligibility certifications
from July 1, 1991 to June 30, 1992. Interviews were conducted
with both employers and participants. Employers were asked
whether or not their firm would have hired the individual if the
tax credit were not available. This question was the primary
method of determining the effect of the TJTC.
Although
benefits, the
to employers,
power, and is
the report notes that the TJTC provides some
report concludes that the TJTC provides a windfall
does not promote long-term productivity or earning
not cost effective. According to the report:
• Employers would have hired 92 percent of eligible workers
without the credit.
• In general, TJTC jobs were entry-level, low-paying, low-skilled
positlons similar to jobs the individuals held both before and
after their TJTC employment.
• The benefits of the program (measured as the gross wages paid
to the 8 percent hired due to the credit plus estimated
~educ~ions in social program payments) were only 37 percent of
-
4 -
the costs (measured as foregone tax revenues and administrative
costs of the Department of Labor).
It is i~portant to bear in mind, however, that the study was
commissioned as an audit, rather than a scientific, study.
Therefore, it cannot provide a definitive assessment of the
effectiveness of the TJTC program. The study was not scientific
in the sense that it did not compare results in its sample with
results in a control group of individuals with similar
characteristics who did not participate in the TJTC. The study
made comparisons to other low-wage workers but did not control
for differences in age, sex, type of industry, and other factors.
other possible problems in methodology include the wording
of the question asked of study participants (would the employer
have hired the employee if there were no TJTC?). This wording
may have biased results, since only yes or no answers were
solicited.
Even if the TJTC did not directly control a hiring
decision, it may have indirectly influenced the hiring of TJTC
eligibles by, for example, altering recruiting practices.
In summary, this report is a useful component of the process
of monitoring the effectiveness of the TJTC. However, the
report's conclusions need to be weighed along with its
limitations before reaching a final determination as to the
overall effectiveness of the TJTC program.
IV.
Administration's Position
The employment of economically disadvantaged and disabled
workers is one of the Administration's most pressing concerns.
We realize, however, that the current version of the TJTC may not
be the most efficient way to address this problem. The revenue
loss from a one-year extension of the credit in its current form
is approximately $336 million over 5 years, while a permanent
extension of the current law credit would lose approximately
Sl.428 billion over 5 years. Because we are very concerned about
the efficient use of government revenues, we believe that the
problems undermining the credit's effectiveness must be addressed
before pursuing an extension of the credit.
The Inspector General's report raises significant concerns
regardIng the effectiveness of the credit. As a result of the
problens identified in the report, we are engaged in a policy
reVle~ of the credit to determine whether legislative and
regula~ory modifications of the credit may improve its
e:tec~lveness.
Over the next several months we plan to continue our work
~~~~ ~nc ~aoor Department.
We also want to work with Congress to
a~velo~ proposals that will address, in a cost effective manner,
~nc e~ployrncn~ problems of economically disadvantaged and
-
5 -
disabled workers. In this process we will be guided by the
following principles: the need to increase the credit's
effectiveness, the need to encourage longer-term employment so
that the credit is an effective mechanism for enhancing basic
job-related skills, and the need to accompany any changes with a
more systematic study of the TJTC's effectiveness and
administration.
We plan to complete our analysis of this issue prior to
submission of the Administration's budget proposal for Fiscal
Year 1996. If we decide to support extension of the credit, our
recommendations will be reflected in that document.
This concludes my prepared remarks. I would be pleased to
respond to any questions you may have at the conclusion of Mr.
Ross' testimony.
'
-
6 -
Attachment 1:
Revenue Cost of the Targeted Jobs Tax Credit, 1986-1994
(in millions of dollars)
Fiscal Year
Tax Revenue
Reduction·
1986
259
1987
197
1988
244
1989
273
1990
253
1991
261
1992
265
1993
208
1994
243
Offlce of Tax Analysis
~.S. Treasury Department
September 14, 1994
* The estlmates for FY 1994 are based on current law under which the
credlt will expire on December 31, 1994.
disabled workers. In this process we will be guided by the
following principles: the need to increase the credit's
effectiveness, the need to encourage longer-term employment so
that the credit is an effective mechanism for enhancing basic
job-related skills, and the need to accompany any changes with a
more systematic study of the TJTC's effectiveness and
administration.
We plan to complete our analysis of this issue prior to
submission of the Administration's budget proposal for Fiscal
Year 1996. If we decide to support extension of the credit, our
recommendations will be reflected in that document.
This concludes my prepared remarks.
I would be pleased to
respond to any questions you may have at the conclusion of Mr.
Ross' testimony.
.
-
6 -
Attachment 1:
Revenue Cost of the Targeted Jobs Tax Credit, 1986-1994
(in millions of dollars)
Fiscal Year
Tax Revenue
Reduction*
1986
259
1987
197
1988
244
1989
273
1990
253
1991
261
1992
265
1993
208
1994
243
Offlce of Tax Analysis
~.S. Treasury Department
September 14, 1994
* The estlmates for FY 1994 are based on current law under which the
credlt will expire on December 31, 1994.
DEPARTMENT
OF
FOR RELEASE AT 2:30 P.M.
September 20, 1994
THE
CONTACT:
TREASURY
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $23,200 million, to be issued
September 29, 1994. This offering will result in a paydown for
the Treasury of about $1,100 million, as the maturing weekly
bills are outstanding in the amount of $24,291 million.
Federal Reserve Banks hold $6,346 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive~nders.
Federal Reserve Banks hold $2,811 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-I094
DEPARTMENT
OF
THE
TREASURY {~'l.li
\1-
~ ~"
\'<'~':"
TREASURY
NEW S
~17Rq~. . . . . . . . . . . .. .
. . . . . . . . . . . . . .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
September 20, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $23,200 million, to be issued
September 29, 1994. This offering will result in a paydown for
the Treasury of about $1,100 million, as the maturing weekly
bills are outstanding in the amount of $24,291 million.
Federal Reserve Banks hold $6,346 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive~nders.
Federal Reserve Banks hold $2,811 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts maybe issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-I094
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED SEPTEMBER 29, 1994
September 20, 1994
Offering Amount .
$11,600 million
$11,600 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 P6 5
September 26, 1994
September 29, 1994
December 29, 1994
June 30, 1994
$11,062 million
$10,000
$ 1,000
182-day bill
912794 R3 0
September 26, 1994
September 29, 1994
March 30, 1995
September 29, 1994
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:"00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY {W}
TREASURY
NEW S
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
ORAL STATEMENT
STATEMENT OF THE HONORABLE RONALD K. NOBLE
UNDER SECRETARY FOR ENFORCEMENT U.S. DEPARTMENT OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON OVERSIGHT
OF THE COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
SEPTEMBER 20, 1994
Mr. Chairman and Members of the Subcommittee,
I am very
pleased to have the opportunity this morning to outline the
direction oE-Xreasury's fight against money laundering.
I
am
especially happy to continue the dialogl:e that Chairman Pickle
and I began at the San Antonio field hearings on money laundering
in July 1993.
I have submitted a full statement for the hearing
record.
Sitting alongside me is Stan Morris, the Director of the
Financial Crimes Enforcement Network ("FinCEN").
In my testimony I want to describe briefly Treasury's
assessment of the money laundering problem, the organizational
and policy changes Treasury is making, and where we expect those
changes to lead.
The thrust of the steps we are taking is easy to
summarize:
Treasury must lead the effort against money
laundering, by putting in place a concerted policy aimed at
prevention, detection, and enforcement.
First, prevention, by using Treasury's regulatory
authority,
LB-1095
in partnership with the financial sector, to make
~
illicit funds mo~e difficult to move-into
u.s.
financial
institutions or across the border.
Second, detection, that is; sophisticated use of
artificial intelligence, the financial database, reports by
financial institutions, and historical case intelligence to
recognize money laundering activity, and to inform enforcement
agencies and, where appropriate, the financial system, of what
has been found.
Third, swift and effective enforcement of the law;
Treasury agencies must continue to pave the way by developing
aggressive and imaginative enforcement programs against those who
seek to launder funds.
But no one agency or group of agencies
can deal with money laundering by themselves.
Over 100 federal
offenses may serve as the basis for a money laundering charge;
these offenses cut across the entire range of federal law
enforcement agencies.
If we want to make real progress, Treasury
must use its information resources to empower other federal
agencies, and state, local, and, in particular cases, foreign
officials to move against the problem.
In short, we must be as
flexible and inventive as the money launderers.
Money laundering is fundamentally simple.
It involves
disguising assets so they can be used without detection of the
illegal activity that produced-them.
between this activity and tax evasion.
There is a close connection
Left unchecked, money
laundering will erode our voluntary tax system and the integrity
of our financial institutions.
Although we tend naturally to
- 2 -
l~
focus on cash, money laundering is
currency.
just about placement of
It can extend to any actions that help the proceeds of
crime -- in whatever form -- move through the financial system.
The profits of crime that are bled into the financial
system each year are staggering and detrimental by any calculation.
Debates about the amount spent annually on narcotics are
continuing.
One hears figures of $30 billion, $55 billion, and
$100 billion or more.
Many believe that it is simply not
possible to pinpoint the amount.
And it is clear that money
laundering extends far beyond hiding narcotics profits.
The
totals increase rapidly when one considers, for example, trade
fraud and tax evasion subject to the money laundering statutes,
as well as terrorism and arms smuggling.
Bank, medical, and
insurance fraud -- which can also entail significant laundering
of funds -- add many additional billions to the annual estimates.
But money launderers are responsive to what we do.
Banks, through the combined efforts of Treasury agencies, federal
and state banking regulators, and the industry itself, have
undergone a revolution in attitudes and compliance since the
early 1980s.
Banking regulators and the banking community have
responded in many positive ways to the challenges posed by money
laundering, making it far more difficult to pass large amounts of
cash directly into the.nation!sbanks·and far easier to identify
and isolate those institutions and officials that are still
willing to help or turn a blind eye toward money launderers.
-
3 -
In response, the money launderers have increasingly
turned to other "trade routes" to move their funds.
The routes
include increased use of many varieties of non-bank financial
institutions -- currency exchange houses, money transmitters,
check cashers, and so-called "giro" houses and "remittance
corporations" -- which combine several money movement services in
one location.
They include smuggling, an old-fashioned activity
to which technology has provided sophisticated tools, as well as
bulk purchases of retail goods for resale and use of false
invoicing of legitimate shipments to provide a reason for money
transfers.
So the problems we confront today, ironically, are the
fruits of our successes over the past 10 years.
The challenge
now is to frame the policies for the next 10 years.
Last fall I established the Money Laundering Task
Force, composed of representatives of all Treasury enforcement
bureaus and offices, to begin a long-term review of Treasury's
approach to money laundering.
I wanted to know if we could
really make a difference, given a phenomenon like money
laundering.
I think we can, if we mobilize all the resources
available, both in the public and private sectors, and at all
levels of government.
That's what we've set out to do.
And as I indicated,
we've set up a strategy in which prevention, detection, and
enforcement are coordinated to re-enforce one another.
We're
hoping to build better nets so that fewer fish get through by
- 4 -
harnessing the ability of financial-i~stitutions themselves with
cost-efficient and meaningful rules;-linked with increasingly
sophisticated use of information to detect money laundering, and
continued development of creative enforcement programs.
No one should doubt the size of the tasks we've set
before us.
There are more than 250,000 financial institutions of
all shapes and sizes subject to the Bank Secrecy Act's rules, and
examination for compliance with those rules is delegated by
Treasury to federal and state banking agencies, the Postal
Service, the Internal Revenue Service, and the Securities and
Exchange Commission.
I should also mention the nation's non-financial trades
and businesses, which are required to report large cash
transactions on Form 8300 under the Internal Revenue Code.
Chairman Pickle has long recognized the problem such cash
transactions pose for income tax compliance and for attempts to
fight money laundering.
The information on Form 8300 is
invaluable for non-tax enforcement purposes in light of the
trends in money laundering.
We are grateful for the Chairman's
continuing efforts to obtain a legislative change that would
reinstate Treasury's ability to use the information for non-tax
criminal investigations and permit the dissemination and analysis
of Form 8300 .. cash._tr.ansaction reports along the lines permitted
for reports filed under the Bank Secrecy Act; we continue to hope
that this crucial change can be made soon.
-
5 -
Although we think the three-pronged strategy will
ultimately make for better enforcement, I don't want to imply
that no significant progress has been made.
efforts are paying off.
Our enforcement
We have forced the money launderers into
alternative, often complex, and more costly transactions.
The
"charge" for money laundering has increased to take account of
the increased risk of apprehension, and our intelligence
indicates that money launderers are having to change their
methods constantly in response to regulatory and enforcement
measures.
Finally, we believe that mainstream, legitimate
u.s.
financial institutions have been sensitized to the problem of
money laundering.
The increased integrity of our financial
system may be an intangible measure of our success, but it is an
important one nonetheless.
Mr. Chairman, we know that your Subcommittee had been
particularly concerned with our civil penalty process.
another area where we have made significant progress.
Here is
Since your
1992 hearing, Treasury has assessed over 40 civil money penalties
against banks, non bank financial institutions, casinos and
individuals for a total of almost 8 million dollars.
There are
also several other cases which are settled in principle or in
active negotiation.
The.three~pronged
strategy -I've described calls for a
combination of Treasury resources in new ways.
To implement the
strategy, I have revised the structure of Treasury's own efforts.
-
6 -
I've started with FinCEN.--In May, I asked stan Morris,
who had served for 18 months as my chief of staff and had
previously served as Director of the-Marshals Service and as a
Deputy Director of the Office of National Drug control Policy, to
become FinCEN's Director.
FinCEN's Director has been given full
responsibility for administration of the Bank Secrecy Act, so
that information and policy can affect one another in more
productive ways; as part of the change, the Office of Financial
Enforcement is being consolidated with FinCEN.
I have also
directed FinCEN to continue the work of the Task Force by
implementing regulatory initiatives and to assist in coordinating
the efforts of all of Treasury's anti-money laundering components
to develop effective strategies to combat financial crime.
Interagency coordination continues to improve.
Major
task force efforts are under way all along the Southwest Border
and in New York and South Florida.
The profile of Project EI
Dorado in The New Yorker several weeks ago testifies both to the
work our agents are doing and to the public perception that our
counter-money laundering efforts can make a real difference.
As I have already noted, money laundering cannot be
exclusively a province of federal law enforcement.
We need to
use our expertise to assist state and local officials who are
much closer to many institutions through which money launderers
seek increasingly to move funds.
Project Gateway, announced at the San Antonio hearing
last year, is a good example. Gateway seeks to get our informa-
7 -
tion resources directly to state and--local investigators by
giving each state on-line access to~he BSA information at the
Detroit Computing Center.
The experience of Texas has borne out
our hopes for the Program.
Texas investigators found useful information in almost
60 per cent of more than 5,700 queries Texas conducted during the
six month Gateway test period.
For example, in september 1993,
investigators used their access to the data base to identify
potentially suspicious activity.
One business with unusual
activity had identified itself as an accounting office.
In fact,
it was a Houston giro house that subsequently was convicted of
illegally transmitting money to Panama.
Other targets, casas de
cambio as well as giro houses, have also been identified.
Texas
tells us that the biggest limitation now facing its officials is
a shortage of investigators and computer resources to analyze and
use the tremendous volume of valuable data available through
Gateway.
The Gateway pilot project with Texas has been so
successful that we are expanding this project to all 50 states.
Currently, we have signed MOUs with 23 states and taking the
technical steps necessary to bring those states on line within
the next two months.
In £act, MrAChairman, -Christine Reis, a senior analyst
in the Financial Crimes Division of Texas' Attorney General's
Office, is on a 30-day detail to FinCEN to help implement and
improve Gateway.
Chris is the person who operated the Gateway
-
8 -
system in Austin during the Gateway-pilor project, and she'll
continue to do so.
George Albreck, -the Special Agent in 'Charge
of the Financial Section in the Pennsylvania Attorney General's
narcotics unit, is also on a 30-day detail to FinCEN.
Chris and
George are in the audience this morning, and I'd like to ask them
to stand.
Finally, I want to say a word about Treasury's
international efforts.
We are committed to an international
approach to dealing with financial crime.
That commitment is not
only a matter of policy but of necessity.
We know that money
laundering will move to countries with the weakest anti-money
laundering programs.
So we are working with individual countries
and international organizations -- especially the Group of 7's
Financial Action Task Force -- to do what we can to help
countries around the world build strong domestic programs as
effective as ours and assure that those countries will cooperate
in international investigations, prosecutions, and forfeiture
actions.
such cooperation has increased dramatically in the last
five years.
We have begun in an encouraging way to work on joint
matters with the Mexican government, a step that can have
immediate benefits in our domestic enforcement efforts,
especially along .the Southwest Border.
We have worked
cooperatively with a number of governments in major cases, such
as Operation Primero, as commissioner weise will describe.
-
9 -
I hope that my remarks have provided an outline of
Treasury's strategic objectives.
I~elieve
that we have laid a
strong foundation for a Treasury-wide strategy, and that we are
making progress.
But we clearly need to do more, as I've
explained, and so we're hard at work.
I intend to re-evaluate
our progress and strategy constantly to ensure that our methods
are adjusted to reflect the ever-changing nature of money
laundering.
I cannot end without noting personally my appreciation,
and that of Secretary Bentsen, for the role Chairman Pickle has
played in the evolution of the policies I have described today.
For many years, the Chairman has proved that constructive -even, at times, pointed -- criticism is the truest measure of
spirited interest in and support for Treasury's programs.
Much
of our progress in the BSA penalty area and Form 8300 enforcement
can be attributed to the frequent, albeit not always gentle,
prodding of the Chairman.
We also are grateful for his efforts
toward securing the authority of the IRS Criminal Investigation
Division to apply recovered funds to ongoing enforcement efforts.
We will miss his wisdom, insights, and humor.
standard for those who succeed him.
- 10 -
He has set a high
DEPARTMENT
OF
THE
TREASURY (~.'£)
~
\1-
"til
'<'~'\'
TREASURY
NEW S
~/7Xg~II. . . . . . . . . . . . . . . . . . . .I I....... .
................................
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
STATEMENT OF THE HONORABLE RONALD K. NOBLE
UNDER SECRETARY FOR ENFORCEMENT
U.S. DEPARTMENT OF THE TREASURY
BEFORE THE SUBCOMMITTEE ON OVERSIGHT
OF THE COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
SEPTEMBER 20, 1994
Mr. Chairman and Members of the Subcommittee,
I am very
pleased to have the opportunity this morning to testify about the
~irection
of Treasury's fight against money laundering.
especially happy to continue the dialogue that
Chair~an
am
I
Pickle
and I began at the San Antonio field hearings on money laundering
in July 1993.
sitting alongside me is Stan Morris,
the Financial
also hear
Cri~es
testi~ony
Enforcement Network
the Director of
("FinCD~").
'{ou will
today from Commissioner Richardson of the
Internal Revenue Service, and Commissioner
We~se
of
t~e
Customs
Service.
During
assessment of the
~y
statement,
~onev
I want to focus on Treasury's
laundering
proble~,
and policy changes Treasury is making,
changes to lead.
the organl=ational
and where we expect those
Secretary Bentsen has made money laundering and
financial crime a top Treasury enforcement priority,
and
=
believe we are moving into place a series of positive measures
that will result in significant proaress against the problem.
LB-1096
Although the problem of money laundering is a very
complex one, the thrust of the steps we are taking is easy to
summarize:
Treasury must lead the effort against money
laundering, by putting in place a concerted policy aimed at
prevention, detection, and enforcement.
First, prevention, by using Treasury's regulatory
authority, in partnership with the financial sector, to make
illicit funds more difficult to move into
u.s.
financial
institutions or across the border.
Second, detection, that is, sophisticated use of
artificial intelligence, the financial database, reports by
financial institutions, and historical case intelligence to
recognize money laundering activity, and to inform enforcement
agencies and, where appropriate, the financial system, of what
has been found.
Third, swift and effective enforcement of the law;
Treasury agencies must continue to pave the way by developing
aggressive and imaginative enforcement programs against those who
seek to launder funds.
But no one agency or group of agencies
can deal with money laundering alone.
Over 100 separate federal
offenses are included in the definition of a "predicate act" that
will support a money laundering charge.
These offenses cut
across the entire range of federal law enforcement agencies.
Accordingly, if we want to make real progress, Treasury must also
use its information resources to empower other federal agencies,
and state, local, and, in particular cases, foreign officials to
- 2 -
move against the problem.
In short, we must be as flexible and
inventive as the money launderers.
We've based our strategy on our sense of the evolution
of the money laundering threat.
I'd like to discuss our
assessment of the threat before giving you a fuller explanation
of the three-pronged strategy I've just outlined.
An Assessment of the Threat.
When I survey money
laundering, I am reminded of the saying that "the more things
change, the more they remain the same."
Money laundering is fundamentally simple.
It involves
disguising assets so they can be used without detection of the
illegal activity that produced them.
between this activity and tax evasion.
There is a close connection
Left unchecked, money
laundering will erode our voluntary tax system and the integrity
of our financial institutions.
Although we tend naturally to
focus on cash, money laundering is not just about placement of
currency.
It can extend to any actions that help the proceeds of
crime -- in whatever form -- move through the financial system.
The profits of crime that are bled into the financial
system each year are staggering and detrimental by any calculation.
Debates about the amount spent annually on narcotics are
continuing.
One hears figures of $30 billion, $55 billion, and
$100 billion or more.
Many believe that it is simply not
possible to pinpoint the amount.
And it is clear that money
laundering extends far beyond hiding narcotics profits.
The
totals increase rapidly when one considers, for example, trade
-
3 -
fraud and tax evasion subject to the money laundering statutes,
as well as terrorism and arms smuggling.
Bank, medical, and
insurance fraud -- which can also entail significant laundering
of funds -- add many additional billions to the annual estimates.
Money laundering, like the crimes whose profits it
hides, can take as many forms as the financial sector offers for
legitimate activity.
The tools of the money launderer range all
the way from complex financial transactions carried out through
webs of wire transfers to and from networks of-shell companies,
to old-fashioned, if increasingly inventive, smuggling.
Money launderers are responsive to what we do, and the
problems we confront today, ironically, are the fruits of our
successes over the past 10 years.
Banks, through the combined efforts of Treasury
agencies, federal and state banking regulators, and the industry
itself, have undergone a revolution in attitudes and compliance
since the early 1980s.
Banking regulators and the banking
community have responded in many positive ways to the challenges
posed by money laundering, making it far more difficult to pass
large amounts of cash directly into the nation's banks and far
easier to identify and isolate those institutions and officials
that are still willing to help or turn a blind eye toward money
launderers.
In response, the money launderers have increasingly
turned to other "trade routes" to move their funds.
- 4 -
First, non-bank financial institutions.
As opportu-
nities for easy or low-risk placement of funds directly into the
banking system have dried up, launderers have come to move
illicit funds through non-bank institutions, a range of large to
small less-traditional financial intermediaries that includes
currency exchange houses, called "casas de cambio" along the
border, money transmitters, check cashers, and so-called "giro
houses" and "remittance" corporations.
Currently, non-bank financial institutions are subject
to fewer regulatory requirements and examinations,
maki~g
them
potentially more vulnerable to money laundering.
But this is not a homogeneous industry.
There are many
established nationwide companies that service legitimate financial needs of individuals and small businesses and have adopted
far-reaching compliance programs.
However, a certain percentage
of these businesses exists precisely to meet the demand for money
laundering services.
Second, smuggling.
The art of smuggling is ancient
probably like money laundering itself
but the techniques
Treasury has encountered recently can only be described as state
of the art.
As Commissioner Weise can tell you, funds have been
found hidden on persons, in cereal boxes, and in what appear from
the outside to be bowling balls, specially manufactured with
hollowed interiors precisely to smuggle cash in bulk out of the
country.
- 5 -
Third, trade techniques, more commonly associated with
tariff or tax evasion, are used increasingly by money launderers,
especially those moving money to and from South America.
The
techniques involve, for example, false invoicing to overstate the
value of goods.
Such manipulation is now used to hide transfers
of drug money out of and, for reinvestment, into the U.S.
Fourth, use of retail goods.
Money launderers are also
moving funds out of the country by-purchasing large blocks of
consumer goods that can then be resold in other countries, again
in order to generate funds with a superficially legitimate origin
for reinvestment.
Finally, cross-border reinvestment.
We have to
remember that many money launderers ultimately want to place
their laundered funds back in the United States economy, either
to finance further criminal activities or to invest in legitimate
business.
An
area of growing importance is understanding the
manner in which instruments from other countries -- such as bank
drafts
are used to recycle dollars smuggled or wired out of
the united States.
When those dollars are recycled back, they
won't come in bags full of cash that a well-trained teller could
identify, but, perhaps, as multiple foreign bank drafts, an
investment by a shell corporation, or a Certificate of Deposit
used as collateral for a loan.
Some of the results of these trends can be easily seen
along the Southwest border.
Cooperation of Texas banks with
authorities has improved significantly, and the traffickers have
-
6 -
switched to non-bank institutions, especially casas de cambio,
front companies, check cashers, and "giro house" money
transmitter or remittance activities.
The volume of cash
apparently passing through casas de cambio in Texas remains far
in excess of the apparent needs of legitimate commerce.
cross-border smuggling, based on alliances between
u.s.
Finally,
and
Mexican criminal organizations, is clearly on the rise.
The same general trends can be found in other areas,
New York, for example.
operation on an
~pper
A small seemingly innocuous check cashing
Manhattan or Queens street can in reality
be assisting each day in the laundering of tens of thousands of
dollars.
Cargo shipments passing through Kennedy Airport
undoubtedly contain more smuggled currency than can be
effectively detected.
Treasury's Response.
Last fall I established the Money
Laundering Task Force, comprised of representatives of all
Treasury enforcement bureaus and offices, to begin a long-term
review of Treasury's approach to money laundering.
I wanted to
know if we could really make a difference, given a phenomenon
like money laundering.
I think we can, if we mobilize all the
resources available, both in the public and private sectors, and
at all levels of government.
That's what we've set out to do.
And as I indicated,
we've set up a strategy in which prevention, detection, and
- 7 -
enforcement are coordinated to re-enforce one another.
We're
hoping to build better nets so that fewer fish get through.
Prevention.
Recent legislation has given us tools
we've never had before.
These include, importantly, power
directly to prescribe money laundering policies and procedures at
all financial institutions, bank and non-bank; power to order
reporting of suspicious transactions of all kinds; power to track
and now to register non-bank financial institutions.
I want to use these new tools wisely_and costeffectively, and to fine tune the ones we've had for some time.
Let me explain in more detail.
Prevention means working with the legitimate businesses
that see potential money launderers first, up close, that is,
with the banks, money order sellers, check cashers, and other
agencies through whom criminals seek to move ill-gotten funds.
These businesses are our partners in prevention.
At the same time, we have to recognize that compliance
by financial institutions is not cost-free, and we want to assure
that the manner in which they're working with us -- to keep
records, track transactions, report suspicious transactions
efficient and effective.
is
So we've reached out to the industry.
The BSA Advisory Group, created in response to the 1992
legislation, plays a crucial role.
We have assembled thirty
experts from private industry and government so that the Group
can be a "think tank" to come up with the best ways to exercise
-
8 -
our respective responsibilities and capabilities in the fight
against money laundering.
We're also trying to make compliance more efficient.
We've redesigned the CTR form and withdrawn or streamlined
certain regulatory requirements.
These steps don't mean that
we're trying to reduce the level of protection against money
laundering in the financial sector.
On the contrary, we're
trying to identify unnecessary burdens so that the banks and
other institutions can devote resources where they will do the
most good.
Detection.
Detection is the "universal joint" between
prevention and enforcement.
The work of detection seeks first to
evaluate how the system is working, whether institutions are
following the rules, and what the government is learning from the
information it receives.
It emphasizes passing information to
the enforcement agencies and takes from them information
indicating that changes in the prevention structure are needed.
It is here that information technology can play the
biggest role, within government and the financial industry.
FinCEN's artificial intelligence program is one effort to broaden
our detection capabilities by surveying each CTR and CMIR as it
is filed against a set of rules designed to indicate potentially
illegal activity; we're still evaluating the results of the first
year of the program's operation, but initial returns show that
the AI branch at FinCEN has sent out 102 case reports, of which
at least 75 per cent are being used in active investigations.
-
9 -
Customs's experience in behavior analysis and profiling
techniques, along with the agency's use of data bases, is another
example of our harnessing of technology.
We also have to be prepared to help affirmatively.
As
I indicated, 1n many cases incoming laundered funds will not
appear as cash; and sophisticated information processing
techniques may be the only means of identifying suspect
transactions within a financial institution's funds' transfer
records.
But timely identification can happen_only if we:
(1)
provide better guidance about what can or should
appear suspicious,
(2) create a single reporting mechanism involving
reporting to a single agency, and
(3) provide better feedback after the fact.
We plan to use our authorities to initiate a high
degree of federal oversight over the manner in which non-bank
financial institutions adopt the same sorts of prevention and
reporting mechanisms as banks.
No one should doubt the size of the tasks we've set
before us.
As the attached chart indicates, there are more than
250,000 financial institutions of all shapes and sizes subject to
the Bank Secrecy Act's rules, and examination for compliance with
those rules is delegated by Treasury to federal and state banking
agencies, the Postal Service, the Internal Revenue Service, and
the Securities and Exchange Commission.
- 10 -
I should also mention the nation's non-financial trades
and businesses, which are required to report large cash
transactions on Form 8300 under the Internal Revenue Code.
Chairman Pickle has long recognized the problem such cash
transactions pose, not only for income tax compliance but for
counter-money laundering programs.
The Rayful Edmonds and
Rosenthal prosecutions illustrate the problem plainly.
The
information on Form 8300 is invaluable for non-tax enforcement
purposes in light of the trends in money laundering.
We are
grateful for the Chairman's continuing efforts to obtain a
legislative change that would reinstate Treasury's ability to use
the information for non-tax criminal investigations and permit
the dissemination and analysis of Form 8300 cash transaction
reports along the lines permitted for reports filed under the
Bank Secrecy Act; we continue to hope that this crucial change
can be made soon.
Enforcement.
Finally, enforcement.
to deploy our enforcement resources wisely.
We have attempted
But those resources
are not unlimited, and we have to use available information to
act where we can have the most impact.
The customs Service has
increased the scope of its efforts to stop outbound smuggling,
but it can't be everywhere along our thousands of miles of
border.
Nor could the IRS, customs, or the Secret Service
identify and investigate all of the complex transactions which
may involve potentially illicit funds.
As Commissioner weise
will testify, better targeting is critical.
- 11 -
I think our enforcement efforts have begun to payoff.
Our success cannot be measured only by the numbers of cases
prosecuted and assets seized.
We have forced the money laun-
derers into alternative, often complex, and more costly transactions.
The "charge" for money laundering has increased to take
account of the increased risk of apprehension, and our intelligence indicates that money launderers are having to change their
methods constantly in response to
measures.
r~gulatory
and enforcement
Finally, we believe that mainstream 7
legitimate
u.s.
financial institutions have been sensitized to the problem of
money laundering.
The increased integrity of our financial
system may be an intangible measure of our success, but it is an
important one nonetheless.
Mr. Chairman, we know that your Subcommittee had been
particularly concerned with our civil penalty process.
an area where we have made significant progress.
Here is
Since your 1992
hearing, Treasury has assessed over 40 civil money penalties
against banks, non bank financial institutions, casinos, and
individuals for a total of almost 8 million dollars.
There are
also several other cases which are settled in principle or in
active negotiation.
We also expect the changes I have described in our
prevention and detection strategies to show significant gains in
our enforcement success.
Our initial emphasis on prevention and
detection reflects our feeling that is the best way, in the long
term, to help enforcement.
- 12 -
The Money Laundering Task Force's efforts have "gone a
long way toward defining how Treasury can best engage the
assistance of the financial industry.
The Task Force also
identified a number of steps that need to be taken to improve our
overall efforts.
I have directed FinCEN to continue the work of
the Task Force by implementing regulatory initiatives and to
assist in coordinating the efforts of all of Treasury's antimoney laundering components to devBlop effective strategies to
combat financial crime.
Organizational Chap4es.
I have also moved to revise
the structure of Treasury's own efforts.
I've started with FinCEN.
When it was created four
years ago, FinCEN was focused solely on detection.
Its work has
been very encouraging, but I wasn't satisfied that its scope was
sufficiently broad for the strategy we had in mind.
In May, I asked stan Morris, who had served for 18
months as my chief of staff and had previously served as Director
of the Marshals Service and as a Deputy Director of the Office of
National Drug Control Policy, to become FinCEN's Director.
It
wasn't easy for me to give up stan's full-time counsel, but I
wanted him to be in charge of a major initiative.
FinCEN's Director has been given full responsibility
for administration of the Bank Secrecy Act.
The change has been
made to permit information and policy to be merged and to affect
one another in more productive ways.
- 13 -
As part of the change, the
Office of Financial Enforcement is being consolidated with
FinCEN.
At the same time, of course, organizational changes
have taken place at IRS and are under review at customs.
Interagency coordination continues to improve.
Major task force
efforts are under way all along the southwest Border and in New
York and South Florida.
The profile of Project El Dorado in The
New Yorker several weeks ago
testi~es
both to the work our
agents are doing and to the public perception that our countermoney laur.dering efforts can make a real difference.
There is no reason that money laundering should be
exclusively a province of federal law enforcement.
We need to
use our expertise to assist state and local officials who are
much closer to many institutions through which money launderers
seek increasingly to move funds.
Project Gateway, announced at the San Antonio hearing
last year, is a good example. Gateway seeks to get our
information resources directly to state and local investigators
by giving each state on-line access to the BSA information at the
Detroit computing Center.
The experience of Texas has borne out
our hopes for the Program.
Texas investigators found useful information in almost
60 per cent of more than 5,700 queries Texas conducted during the
six month Gateway test period.
For example, in September 1993
investigators used their access to the data base to identify
potentially suspicious activity.
One business with unusual
- 14 -
activity had identified itself as an accounting office.
-In fact,
it was a Houston giro house that subsequently was convicted of
illegally transmitting money to Panama.
other targets, casas de
cambio as well as giro houses, have also been identified.
Texas
tells us that the biggest limitation now facing its officials is
a shortage of investigators and computer resources to analyze and
use the tremendous volume of valuable data available through
Gateway.
The Gateway pilot program with Texas_has been so
successful that we intend to expand this project to alISO
states.
Currently, we have signed MOUs with 23 states and are
taking steps to bring those states on-line within the next two
months.
In fact, Mr. Chairman, Christine Reis, a senior analyst
in the Financial Crimes Division of Texas' Attorney General's
Office, is on a 30-day detail to FinCEN to help implement and
improve Gateway.
Chris is the person who operated the Gateway
system in Austin during the Gateway Pilot, and she'll continue to
do so.
George Albreck, the Special Agent in Charge of the
Financial section in the Pennsylvania Attorney General's
narcotics unit, is also on a 30-day detail to FinCEN.
Chris and
George are in the audience this morning, and I'd like to ask them
to stand.
Finally, I want to say a word about Treasury's
international efforts.
We are committed to an international
approach to dealing with financial crime.
- 15 -
That commitment is not
only a matter of policy but of necessity, because we live in a
world that is constantly shrinking, and organized criminal
activity does not respect national borders.
We know that money
laundering activity gravitates to countries with the weakest
anti-money laundering programs.
So we are working with
individual countries and international organizations -especially the Group of 7's Financial Action Task Force -- to do
what we can to help countries around the world build strong
domestic programs as effective as ours and assure that those
countries will cooperate in international investigations,
prosecutions, and forfeiture actions.
Such cooperation has
increased dramatically in the last five years.
We have begun in an encouraging way to work on joint
matters with the Mexican government, a step that can have
immediate benefits in our domestic enforcement efforts,
especially along the Southwest Border.
We have worked
cooperatively with a number of governments in major cases, such
as Operation primero, as Commissioner weise will describe.
I hope that my remarks have provided an outline of
Treasury's strategic objectives.
I believe that we have laid a
strong foundation for a Treasury-wide strategy, and that we are
making progress.
But we clearly need to do more, as I've
explained, and so we're hard at work.
I intend to re-evaluate
our progress and strategy constantly to ensure that our methods
are adjusted to reflect the ever-changing nature of money
laundering.
- 16 -
I cannot end without noting personally my appreciation,
and that of Secretary Bentsen, for the role Chairman Pickle has
played in the evolution of the policies I have described today.
For many years, the Chairman has proved that constructive -even, at times, pointed -- criticism is the truest measure of
spirited interest in and support for Treasury's programs.
Much
of our progress in the BSA penalty area and Form 8300 enforcement
can be attributed to the
prodding of the Chairman.
frequent,-~lbeit
not always gentle,
We also are grateful for his efforts
toward securing the authority of the IRS Criminal Investigation
Division to apply recovered funds to ongoing enforcement efforts.
We will miss his wisdom, insights, and humor.
standard for those who succeed him.
- 17 -
He has set a high
Financial Institutions Subject
to the Bank Secrecy Act
1'189
FEDERAL RESERVE
1,688
Member Banks
Foreign Banks & Agencies
Foreign Rep. Offices
Other Foreign Bank Orgs.
NCUA
12,581
National Banks
Foreign Banks & Agencies
Savings Associations
Insured Credit Unions
CASINOS
350
Casinos with gross annual
revenue In excess of $1 M
operate in 23 states.
48 states have gambling.
Brokers/Dealers
All 50 States, plus
Territories
Commercial Banks
Savings Banks
Foreign Banks & Agencies
Non-bank Financial
Institutions (Money
Transmitters, Check
Cashers, Currency
Exchanges, Issuers/
Redeemers of Money
OrderslTraveler's Checks)
All 50 States
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"'1I4i1:111i• • • • • • • • • • • • • • • • • •
1789
REDUCTIONS
ENHANCEMENTS
Revise Reporting Forms
' Streamlining Suspicious
~ CTR
Transaction Reporting
~ eMIR
~ Improved Wire Transfer
~ CTRC
Recordkeeping Requirements
~ FBAR
• Revised Foreign Bank Draft
Simplify Exemption Process
Reporting I
Withdraw Notice Requiring
Anti-Money Laundering/ "Know
Mandatory Aggregation
Your Customer Programs"
Withdraw Notice Requiring
~ Enha~cin~ Money Laundenng
Mandatory Magnetic Filing
Examl~atlon Procedures
Reduce Recordkeeping
• Establishing Interagency
Requirements for Purchases
Money Laundering Training
of Monetary Instruments /~:,~,
NBFI's
~~ ~ Clarify Definitions
f
.f
~ State Licensing and Regulation
~
Federal Registration
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"S:I
Constant
Vigilance
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 20, 1994
CONTACf: Scott Dykema
(202) 622-2960
SECRETARY BENTSEN ANNOUNCES FOLEY NOMINATION
Treasury Secretary Uoyd Bentsen announced Tuesday the nomination by
President Clinton of Maurice B. Foley to be a judge on the U.S. Tax Court.
Foley, currently Deputy Tax Legislative Counsel in Treasury's tax policy office,
would be the first African-American to serve on the Tax Court. His nomination is
subject to Senate confirmation. The 19-member court settles disputes between taxpayers
and the Internal Revenue Service.
The court is headquartered in W~hington and has a field office located in Los
Angeles. The court conducts trial sessions at various locationc; around the country.
In his current job at Treasury, Foley, 34, is generally responsible for domestic tax
legislative issues. Before that he was tax counsel for the U.S. Senate Finance Committee
(1988-1992). Prior to working on Capitol Hill, he was an attorney for the Legislation
and Regulations Division at the Internal Revenue Service (1985-1988).
He is a graduate of Swart~more College (1982) and Boalt Hall School of Law at
the University of California at Berkeley (1985). He received a Masters of Law in
Taxation from Georgetown University Law Center (1988). He is married to Cassandra
Green-Foley. They have three children: Malcolm, Corinne and Nathan.
-30-
LB-1097
DEPARTMENT
OF
THE
TREASURY
.,.
•
J
TREASURY
i(~rl
NEW
S
. . . . . . . . . . . . . .\t~'TO~I.~~.~. . . . . . . . . . . .. .
17Kq~
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
TEXT AS PREPARED FOR DELIVERY
FOR IMMEDIATE RELEASE
September 21, 1994
American Business Conference
Speech by
Lawrence H. Summers
Under Secretary of the Treasury
for International Affairs
I am delighted to have this chance to speak to the American Business Conference. As
CEO's of dynamic, cutting-edge companies, you are well-placed to seize the opportunities
otfered by a brightening world economy. Today I would like to talk to you about global
economic prospects, and what we are doing to help you take advantage of them.
None of what we in government do would matter without a hungry, adaptive private
sector. I'm excited about how American companies have re-engineered for the present
recovery:
o
Unit labor costs rose by only 0.6 percent last year -- the smallest advance
since 1965. In manufacturing, unit labor costs actually fell by 1.6 percent,
and they continue to drop. On a trade weighted average, we're doing much
better than our competitors.
o
Manufacturing productivity soared by 5.6 percent over the first half of this
year. Productivity in the private, non-farm sector grew by an average 2.5
2
percent yearly from 91 to 93, after three flat years.
o
Government will do its part, cutting 272,000 federal jobs over the next five
years.
We worry about fighting off Japan and Germany, but they're not even close.
o
The WorId Competitiveness Report, the most respected independent study,
ranked us first among 41 countries. Germany was only fifth -- and Japan
didn't even make it into the top 10.
That kind of private sector -- one that produces the Microsofts and Thermo Electrons
of the world -- flourishes only if supported by a government committed to exports.
o
The Clinton administration has done more to foster exports than any
administration in recent memory. Promoting exports has been a cornerstone
of our economic and foreign policy.
We
s~rt
from the principle that exports must be our top priority. Exports open whole
new regions to our products. They force us to do battle with the best finns worldwide.
They ensure that American business stays nimble, adapting to new challenges. And they
provide the kind of jobs that will last, because they require our workers be the best in the
world.
Export Activism
The Clinton administration's approach to trade embodies a philosophy which I call
export activism. What is export activism? I can start by describing what it isn't.
Export activism is not the sort of reactive protectionism too often embraced in the
past. Markets. not bureaucrats, best decide where investments should flow. More market-
3
driven trade is good -- it's good for jobs and productivity, for producers who get lower-cost
inputs, and consumers who reap the benefits. And trade does far more to improve living
standards than do heavy-handed labor, environmental, or protectionist policies -- either at
home or abroad.
But export activism also is not laissezjaire. If markets are a fact, it's also a fact that
other countries sometimes meddle with them. The laissez jaire purists think that no matter
what other countries do, the right thing for the United States to do is simply to keep our
markets open. That "tum the other cheek" mentality isn't shared by the Clinton
administration.
What export activism is, is pragmatic. It's a real world approach, one that recognizes
that more trade is good for the United States and other nations. But we also recognize that
markets won't always open on their own. In a world in which some countries act
strategically, the United States must use its might to force down barriers around the world.
We carry out this export activist philosophy through several avenues. Policies that
promote sustained growth in the world economy, multilateral agreements to bring down
barriers, regional & bilateral agreements that integrate dynamic areas, and unilateral actions
to knock down protectionists are all essential. Vigorous promotion of U.S. exports has been
a hallmark of this administration's approach. I would like to say a few words about each of
these five areas.
Sustained Growth
Sustained growth provides the bedrock for export expansion. Pursuing sound fiscal
policies is the first thing a president must do to lay the basis for growth. That's why cutting
4
the budget deficit early on was so important. We succeeded.
o
The United States next year will have the smallest budget deficit, as a share of
income, of all the G-7 countries.
Keeping the U.S. deficit low was just part of a three-pronged strategy for world
growth that we and the G-7 countries agreed upon last year. European interest rate cuts, and
Japanese fiscal stimuli were the other two prongs.
o
The Gennans have done their part, easing the discount rate down by over 400
basis points over the past two years.
o
Japan has taken some steps to open the fiscal spigots, including tax cuts to
boost consumption.
The three prong strategy has worked.
o
All signs point to 3.6 percent U.S. growth this year, levelling off at 2.5 to 3
percent growth for 95 and beyond.
o
We expect U. S. exports to grow 8 % this year, to $493 billion. That's twice
1993's rate of growth.
o
We've added 4.3 million new jobs over the past year and a half, and have cut
unemployment down to 6.1 percent.
o
We've kept the inflation genie in the bottle: it's holding at about 2.7 percent.
Our export markets are picking up steam, though they're a bit behind us.
o
Germany is powering a European recovery: we expect 1.6 to 2 percent
German growth this year, speeding up to 2.7 % in 1994.
o
OEeD Europe as a whole should match that growth rate by next year. We
5
think there's still some slack in the European economy and hope the Germans
don't pull in the monetary and fiscal reins too tightly.
o
Japan's rebound remains a bit feeble, and will show only about a half a
percent growth this year. Japan may add a point next year. We think the
Japanese should keep income taxes low so as not to choke off the fledgling
recovery.
Export Promotion
Vigorous and direct promotion of U.S. exports is a second prong of our export
activism. The President's phone call to Saudi Arabia and Ron Brown's visit to China were
not isolated efforts.
o
High-level involvement by administration figures won dozens of contracts
worth more than ten billion dollars for U. S. businesses last year.
This sort of export promotion may sound like it circumvents the market. In an ideal
world, it wouldn't be necessary. But this is not an ideal world. Foreign governments fight
to win contracts for their industries; this administration will use its full power to counter
them.
Let me cite just a few of the many other export promotion strategies we've
originated.
Tied aid -- in which countries donate credits but specify it can only be used to buy
their products -- choked off as much as $15 billion worth of potential U.S. exports two years
ago.
Exim, the Export-Import Bank, has announced that the United States will match other
6
countries use of tied aid for key competitive projects. Countries now know that if they even
think of granting tied aid, the U.S. will fight them tooth and nail.
o
These and other initiatives have reduced the use of tied aid credits worldwide
from $15 billion in 1992 to $7 billion last year. That's $8 billion more worth
of business for which American firms can now compete on an equal footing.
o
We continue to slash export controls, to make sure exporters don't face homegrown hurdles. We've cut the total value of goods requiring some export
licenses or authorizations by more than $30 billion over the past year alone.
And we want to cut up to $40 billion more, and have proposed a new Export
Administration Act to do it.
American support for the Multilateral Development Banks, or MOBs, bolsters our
exports to new markets.
o
Last year, U. S. firms won contracts totalling more than $2.7
billion on projects funded through the MOBs.
The banks lend a major chunk of their funding for structural adjustment. That helps
countries change their trade policies and open markets -- creating new points of entry for
U.S. firms.
o
Our exports to countries getting such help from the banks have risen 15.5
percent yearly in Latin America, and 7.3 percent yearly in Asia. That
compares with only 3.7 percent export growth for the countries which didn't
get such help.
i\Iultilateral Agreements
7
Nailing down multilateral trade agreements is a third prong of our export activist
approach. Multilateral agreements pull new nations into the school of free-traders, while
opening whole new sectors for our most competitive industries.
Completion of the Uruguay Round will provide a massive shot in the arm to U.S. and
world trade.
o
The pact will add some $100 to $200 billion to U.S. income, while creating as
many as 1.4 million new American jobs within 10 years. The whole world
will enjoy a $750 billion tax cut in the form of tariff reductions.
But the round remains a mammoth, uncashed check. Congress hasn't passed the
implementing legislation yet, and the administration is wrestling to have that done by the end
of the year. Delaying adoption or tacking on amendments is a dangerous strategy. It tempts
other countries to unravel the deal. We must cash this check now.
One of the most exciting aspects of the Uruguay Round is that it will bring whole new
areas for American businesses under the free-trade umbrella. For the first time some of the
sectors in which we do best -- intellectual property, services, agriculture -- will be opened to
our firms.
Financial services is one industry where we lead the world. Uruguay didn't let us
complete our work on opening global fmancial markets. We will go back to the negotiating
table January 1, and plan to push through an agreement by June of next year.
I subscribe to the bicycle theory of freeing trade. If we don't keep peddling forward,
the bicycle keels over. We can't rest with the end of the Uruguay round -- liberalization
must continue.
8
That's why we are already working with our major economic partners -- Japan, the
European Union, and Canada -- to develop strategies to open whole new markets for our
business. Communications, high-tech industri'es, harmonization of standards are all ripe for
progress.
We also want to broaden our focus from trade alone, to opening new regions for our
investment. U.S. capital paves the way for exports. Where American investments are
secure, exports soon follow.
o
We've negotiated nearly 30 bilateral investment treaties, most with newly
emerging democracies and Latin American states.
o W e want to turn next to erecting multilateral investment regimes to secure new
regions for our business.
Let me say a word here about fast track negotiating authority. With fast track,
Congress can only vote yes or no on agreements negotiated by the President. This means
that opponents of trade agreements can't tack on hundreds of amendments.
Other countries won't even sit at the bargaining table with the President if they know
Congress can change any agreement he reaches. Fast track authority is therefore essential, if
the President is to be able to win new, market-opening pacts for American business.
The administration reluctantly bowed to congressional opposition, and has decided not
to seek fast track authority as part of the Uruguay Round implementing legislation. It is
critical that we get fast track as soon as possible next year. If we don't win it now, it may
be years before the process of strengthening and deepening free trade pacts can continue.
Bilateral
A~eements
9
Regional and bilateral agreements form a fourth prong of our export activism.
NAFTA was as big a legislative fight as there ever was. The administration took on
some of its strongest constituencies to pass this groundbreaking initiative. We're already
reaping the benefits.
o
Our exports to Mexico rose nearly 17 percent during the first six months of
1994. In fact, Mexico has bumped Japan as our second-biggest export market.
o
Sales to Canada, our largest market, were up 9 percent.
o
NAFTA has also added 100,000 jobs to the U.S. economy so far.
But trade pacts with developing regions, such as NAFTA, do more than just fatten
our balance books. They test what we're made of as a people -- the role we want to play in
the world. Are we a nation governed by fear, or guided by hope? Do we fear countries like
Mexico? Or are we confident enough to seize the business and trade opportunities they
provide, to embrace change and compete?
Passage of NAFTA sent a clear message about how far we will go to support bold
economic reform around the world. Dozens of regions where reform has yet to take hold
will look to NAFTA as an example. These regions will generate the exciting new markets of
the future.
We have not rested on our laurels. In fact, we're turning our sites beyond NAFTA,
to all of Latin America.
o
Our exports to the South grew to $78.2 billion in 1993 -- a full 50% more
than Japan -- and were 13 % higher in the first-quarter of 1994 than one year
before.
10
We want to redouble our efforts to open these new markets to trade. President
Clinton plans to start the process this December, when he hosts the Summit of the Americas
-- the first meeting of hemispheric leaders since the 60s.
We strongly hope to enter into free trade negotiations with Chile.
o
Chile over the past decade has pursued the kinds of model growth and trade
promoting strategies we want all Latin America to follow.
o
The Chileans have slashed tariffs to uniform levels and thrown their doors
open to imports and investments.
o
They've got one of the most dynamic stock markets in the region, capitalized
at near 100% of their GDP.
o
Poland took Chile's mammoth privatization scheme as a blueprint.
o
The market has rewarded Chile -- with growth averaging 6 % yearly since the
late 1980s.
A free trade agreement with Chile would make that country the entry-point for
American business in the region. It would also convince other states to follow Chile's
example.
Asia's rise to economic might may well turn out to be the most important event of
our era.
o
The 17 Pacific nations who belong to the Asia-Pacific Cooperation forum
represent the most rapidly growing markets in the world.
o
They account for a full 57 % of total U. S. exports.
o
Our sales to the developing Asian states have grown nearly 15% yearly since
11
the middle of the 1980s.
o
And contrary to popular beliefs about Japanese dominance, U.S. exports to
developing Pacific states are running neck and neck with Japan's.
o
By the year 2,000 -- even leaving Japan out -- more than 75 million Asian
households will have attained middle class wealth. That's 75 million homes
demanding pharmaceuticals, communications, entertainment, financial services
-- the very things we do best.
o
Even more households will be there in 20 years, as giants such as China and
Indonesia start to reach middle class status.
Now is the time for us
to
strike. We must strengthen our foothold in Asia, to ensure
no nation overtakes us. The APEC summit hosted by President Clinton last year launched
our campaign to use the forum to foster deeper trade and investment relationships.
Unilateral Measures
Unilateral measures must be retained in our arsenal. They bring the full force of
American trade law to bear against nations which refuse to dismantle barriers. That is why
President Clinton took the bold step of extending his Super 301 powers to punish
protectionist nations
Some critics think that tools like Super 301 represent a form of managed trade. The
charge is groundless. Unilateral measures are part and parcel of the administration's
multilateral efforts through GATT. In the real world, America's influence can often bring
barriers down faster than can working through GATT's multilateral fora. That helps all of
our trading partners.
12
Japan's markets remain a problem for us. We are making a decisive push through the
Framework talks to remove structural barriers. We look for progress very soon for many
industries, including fmancial services, autos and auto parts, government procurement, and
intellectual property.
Conclusion
These five steps -- laying ,a base for growth, promoting exports, working to bring
down trade barriers globally, pursuing regional opportunities, and addressing the problems of
free riders on the international trading system -- constitute the essence of our export activist
philosophy. President Clinton sums it up when he declares that America must compete, not
retreat.
As I said earlier, none of what we in the government do would matter if the United
States did not have a powerful and adaptive private sector.
I've talked about how important exports are for our own prosperity. I'd like to
conclude by noting how important exports are for the world.
If we've learned anything over the past 40 years, it's that the,world economy is not a
zero-sum game. More trade is good both for us and our partners. Exports are the engine
for growth here at home. But trade also lays the basis for growth overseas, opening new
regions for development and prosperity. The key is for the United States to forge ahead into
these markets, to embrace challenges posed by a dynamic and changing world. We must
compete, not retreat. Thank you.
DEPARTMENT
OF
THE
.,:..'
"/c
TREASURY {t.fij~'~"· ·':.""l
,1"<'
,&
'b'
';-
TREASURY
NEW S
~J7H'l~ _ _ _ _ _ _ _•
_ - - - - - -. . . . .
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 20, 1994
BENTSEN TO REVIEW CUSTOMER SERVICE INITIATIVES AT DULLES
Treasury Secretary Lloyd Bentsen will visit Dulles Airport Thursday to discuss
initiatives that enable passengers and cargo to be processed more quickly and efficiently.
The Secretary's visit, part of the National Performance Review's national customer
service initiatives, will be on Thursday, September 22 at 2:30 p.m.
He will tour the U.S. Customs Service's international arrivals area with Customs
Commissioner George Weise and discuss Customs new customer service standards. Secretary
Bentsen will also speak with Customs passenger service representatives, a new position
responsible for assisting international passengers, and airline representatives.
Passenger service representatives are one of the Custom's customer service initiatives
that currently are in place in \ 0 major American airports (Dulles, Chicago, Boston, Miami,
Atlanta, Houston, Dallas, Los Angeles, Honolulu and Detroit).
Contacts:
Treasury, Jon Murchinson (202) 622-2960
U.S. Customs Service, Janice Mosher (202) 927-0227
-30-
LB-\ 099
DEPARTMENT
OF
THE
TREASURY (~tl
~...(~~
~~,
TREASURY
NEW S
~J7Hqc.... _ _ _ _ _ _ _ _ _ _•
_ - - - - - - - - -. .
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 20, 1994
STATEMENT BY SECRETARY BENTSEN ON JAPANESE TAX MEASURES
I am plea.sed that the Japanese authorities have decided to delay their planned increa.se
in consumption taxes until April 1997, and to make permanent cuts in income taxes. This delay
in the consumption tax will continue the stimulus to Japan's recovery, which needs to gather
momentum. A strong, domestic demand-led recovery in Japan is important to reduce Japan's
trade surplus.
-30-
.B-1100
DEPARTMENT
OF
THE
TREASURY
TREASURY
{f.1fiJ
NEW
S
\t~~T;:r~~.f/. . . . . . . . . . . . . ._
• ...............
J?K9.......
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622.2960
FOR RELEASE AT 2:30 P.M.
September 21, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $28,250 MILLION
The Treasury will auction $17,250 million of 2-year notes
and $11,000 million of 5-year notes to refund $23,465 million of
publicly-held securities maturing September 30, 1994, and to
raise about $4,775 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $2,204 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the public include $1,486
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format. All competitive and noncompetitive awards will be at the highest yield of accepted
competitive tenders.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms
and conditions set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public of
marketable Treasury bills, notes, and bonds.
Details about each of the new
attached offering highlights.
000
Attachment
LB-llOl
secu~ities
are given ln the
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED SEPTEMBER 30, 1994
September 21, 1994
Offering Amount .
Description of Offering:
Term and type of security
Series
CUSIP number
Auction date
Issue date
Dated date
Maturity date
Interest rate
Yield .
Interest payment dates.
Minimum bid amount
Multiples .
Accrued interest
payable by investor
Premium or discount .
$17,250 million
$11,000 million
2-year notes
AL-1996
912827 R3 8
September 27, 1994
September 30, 1994
September 30, 1994
September 30, 1996
Determined based on the
highest accepted bid
Determined at auction
March 31 and September 30
$5,000
$1,000
5-year notes
S-1999
912827 R4 6
September 28, 1994
September 30, 1994
September 30, 1994
September 30, 1999
Determined based on the
highest accepted bid
Determined at auction
March 31 and September 30
$1,000
$1,000
None
Determined at auction
None
Determined at auction
The followinq rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $5,000,000 at the highest accepted yield
(1) Must be expressed as a yield with two decimals, e.g., 7.10%
Competitive bids
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
Maximum Award .
Receipt of Tenders:
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Noncompetitive tenders
Prior
to 1:00 p.m. Eastern Daylight Saving time on auction day
Competitive tenders
Full
payment
with tender or by charge to a funds account at a
Payment Terms .
Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY C.)
TREASURY
NEW S
PREPARED STATEMENT OF R. RICHARD NEWCOMB
DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL
DEPARTMENT OF THE TREASURY
before the
COMMITTEE ON FOREIGN RELATIONS
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY,
TRADE, OCEANS AND ENVIRONMENT
UNITED STATES SENATE
September 21, 1994
Chairman Sarbanes and Members of the Committee:
Good morning.
I
am here to discuss the Administration's
proposed Iraq Claims Act of 1994 (S. 1401).
The Administration's proposed Iraq Claims Act of 1994 was
developed to provide a fair and orderly system for satisfying the
claims of U.S. nationals and the United states against Iraq.
The
Iraq Claims Act incorporates the best approach to compensation
issues,
one that will permit available assets to be allocated
equitably among similarly-situated claimants.
The bill authorizes
adjudication of U.S. nationals' claims in a single forum, applying
consistent
standards
of
proof,
and
permits
the
President
to
compensate claimants by vesting blocked Iraqi assets in the united
states.
LB-IH!l
We
believe
approaches
segments
this
approach
represented
of
the
by
business
is
other
far
preferable
proposals
community,
or
to
piecemeal
compensating
individual
small
litigation
resulting in a race to the courthouse, either of which will result
in inequitable rates of recovery.
The Iraq Claims Act establishes an orderly procedure
adjudicating claims.
for
It complements the U.N. compensation program,
which was set up to handle claims resulting from Iraq's invasion
and occupation of Kuwait.
priority for
Like the U.N. program, it establishes a
non-commercial
claims made
by veterans
of Desert
Shield and Desert Storm or other individuals arising out of Iraq's
invasion and occupation of Kuwait, or the 1987 attack on the U.S.S.
Stark.
equally.
Beyond that, all similarly-situated claimants are treated
This evenhanded treatment of claims is consistent with
our administration of the sanctions and the. longstanding U.S.
Government policy of preserving blocked assets as a pool against
which all claimants are given an opportunity to seek recovery.
Applicable SUbstantive law to be applied to the claims of U.S.
nationals is the responsibility of the Foreign Claims Settlement
Commission.
In considering the compensation of U.S. nationals, the United
States must consider the interests of all U.S. claimants, and
attempt to preserve their access to an equitable settlement regime.
The United States is committed to a fair and equitable distribution
2
of the available
funds
among all U. s.
claimants.
If
blocked
property forms the basis of the compensation funds, it is not in
the
interest
of
the
United
distribution of this property.
states
to
permit
a
piecemeal
Piecemeal distribution based on a
race to the courthouse will result in variable rates of recovery by
u.s. nationals on their claims against Iraq, and may result in some
u.s. nationals obtaining little or no recovery.
been followed consistently through the
This policy has
Iraq program and other
sanctions programs including, for example, the Iran hostage crisis
of 1979-81 where nearly $12 billion was blocked.
An equitable
claims resolution program was established through the Iran-U.S.
Claims Tribunal and various escrow accounts established by the
Algiers Accords.
There is no reason that one class of unsecured creditors, such
as those holding certain letters of credit, should rate more highly
than
other
unsecured
contract claims.
creditors
with
receivables
breach
of
Moreover, this bill also addresses individuals
with death, injury or expropriation claims.
including
or
unsecured
letters
of
credit
Unsecured creditors,
holders,
should
not
be
compensated 100% at the expense of veterans and individuals, whose
recoveries would be reduced or even eliminated so that a small
group of businesses could receive full compensation.
3
A version of this bill (H.R. 3221) was approved by the House
of Representatives on April 28.
The version passed by the House is
similar in all essential respects with the original Administration
proposal (5. 1401).
We hope that the members of the Committee and
the Congress will join us in supporting the inclusive and equitable
approach taken in the Iraq Claims Act of 1994.
I thank you for the opportunity to appear before the Committee
this morning.
I will be pleased to respond to any questions.
-30-
4
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 21. 1994
MEDIA ADVISORY
The time of Treasury Secretary Lloyd Bentsen' s visit to the U. S. Customs Service
facilities and initiatives at Dulles Airport has changed. The new time is 3 p.m. on Thursday,
September 22, 1994. Parking will be available for television crews on the departure ramp
above the international arrivals terminal. Other press should park in the short-term lot.
Once in the main terminal proceed to the Customs Registration Window for an escort to the
international arrivals area.
Contacts:
Treasury. Jon Murchinson (202) 622-2960
U.S. Customs Service. Janice Mosher (202) 927-0227
-30LB-1103
DEPARTMENT
OF
THE
TREASURY
a._ _ _ _ _ __
_-----_~178r:.C)
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
September 22, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
ON CUSTOMER COMMITMENTS BY U.S. CUSTOMS
AT DULLES INTERNATIONAL AIRPORT
I've been looking forward to this one, because I spend a lot of time on airplanes
and at airports. Somebody figured out that I've visited 12 airports already this month,
and I still have two more trips to make.
Let's be honest. As Treasury Secretary, I walk in, I'm on a Diplomatic Passport, I
have Secret Service, and I have people who want to fill out my papers for me and take
the luggage.
But don't think I don't see lines. Don't think I don't understand that people are
dead tired when they walk in the gate. They've been on a plane for 14 hours and the
last thing they want to do is have their luggage searched.
When I was Senator Bentsen, I'd get letters. Nobody wrote me to say:
"The Customs inspectors in Dallas or Houston did wonderful work today."
But I received a few who didn't like being stopped and searched. It made them
mad. Mad enough to write me.
I'd send the letters to Customs; Customs would send them to the field office; four
months later, nobody in the field remembered the incident; and the customer would get
a plain vanilla letter back, probably more to please me than the taxpayer.
We're trying to change that. We're trying to make everyone who walks through
the gate a happy customer. The Commissioner took you through the commitments
Customs is making.
Let me tell you the results at Dulles. I'm going to brag today -- big time.
LB-II04
2
In 1992, it took, on average, 35 minutes to clear passengers through Customs once
they received their luggage. In 1994, it took, on average, 5 minutes.
Pretty impressive, but those numbers won't make a bit of difference if
enforcement results decline. They haven't.
In 1992, there were 9 large heroin seizures, for 16 pounds. In fiscal '94, we've had
19 heroin seizures at Dulles, for 59 pounds.
If you ask the Customs inspectors here, what's more important, they'd probably
say the enforcement results. They're here to make seizures.
Now, the customer probably thinks differently. He or she doesn't like to wait -and I don't blame them -- but the five minute wait is a lot better than a 35 minute one.
Usually customers have choices. They rent a car, they can go to Hertz or Avis.
They pick an airline, they can go to United or TWA or whatever. But when it's time to
turn in your declaration, they can only come to us. We're it. We're a monopoly.
I used to own a business, and I know what drives businesses to do better -competition. Monopolies don't have competition. But that doesn't mean public servants
don't have pride. That doesn't mean we can't re-invent ourselves like they do in the
corporate world everyday.
I think of what we've done in this Administration in the last 20 months. I think of
the deficit reduction. I think of the Brady Law and the assault weapons ban and
NAFfA All of that produces headlines.
But at the end of the day, it's the governing that is important. The inspectors
here who catch the drug smugglers, the tax collectors at IRS, the people in the Mint who
make the coins, the ATF agents who fight the criminals.
These are the people on the front lines. These are the people making a
difference. And these are the people re-inventing our government. I can't re-invent
government by signing an order. They have to do it.
Customs lowered the customer processing time and upped the enforcement results
by re-inventing the process; by training inspectors on what to look for insofar as potential
smugglers; by getting rid of the old thinking that you have to search everyone, and
figuring out instead who are the risky travellers; and by working with the airlines to
gather information as the passengers board, to do the analysis as the plane is in the air,
and to search the people they suspect might be breaking the law.
3
And the story on what Customs has done for business shipments is just as
incredible. It used to take 24 to 48 hours to clear cargo. Now we clear cargo
electronically, before the planes even land.
You know, I've been in the public eye for about 30 years. Today, I want the sun
to shine on Customs.
So, Pat Solan, can you please stand up, again. And please stay standing.
As you've heard, one more thing we're doing is to have Passenger Service Reps.
If there's a problem, the customer can go immediately to the rep and it'll be solved on
the spot.
Pat, I don't envy you. The only people who go to you are ones with a bone to
pick.
But Pat, I want you to know that when you speak, and you iron those problems
out, you're speaking for Lloyd Bentsen. And next time I have the time, and I'm in your
neighborhood, I'm going to stop in to have a visit with you and hear how it's going.
Of course, we'll only have five minutes to visit, because that's how long it should
take to get me through here, right?
Thank you all, and keep up the good work. I'm watching you.
-30-
Department of the Treasury
U.S. CUSTOMS SERVI€E
FOR IMMEDIATE RELEASE
September 22, 19,.(·".'
:m, L I' .t,
CONTACT:
i
I '
.,J ..,J ~
I J d
't
JON MURCHINSON
U. S • TREASURY
(202) 622-2960
DENNIS SHIMKO SKI
U.S. CUSTOMS SERVICE
(202) 927-2205
BENTSEN REVIEWS COSTOMER SERViCE INITIATIVES AT DULLES
WASHINGTON--Treasury Secretary Lloyd Bentsen today visited
Dulles Airport and the u.S. Customs Service to assess first-hand
the improvement that the agency's new customer service standards
have had on the quick, efficient processing of passengers and
cargo.
The Secretary, along with u.S. customs Service commissioner
George Weise, toured the airport's international arrivals area
and met with Customs' passenger service representatives, a new
position created to facilitate the processing of passengers, and
airline officials.
Holding up Customs' new service standards as a model for
reinventing government, Bentsen said that, on average, passengers
clearing customs at Dulles Airport now enjoy much faster
processing compared to two years ago, from 35 minutes in 1992 to
five minutes this year.
-moreLB-llOS
2
At the same time, Bentsen said, heroin seizures by customs
inspectors have increased from nine large seizures totaling 16
pounds in 1992, to 19 seizures totaling 59 pounds so far this
fiscal year.
"Customs lowered the customer processing time and upped the
enforcement results by re-inventing the process," Bentsen said in
prepared remarks. "They accomplished this by training inspectors
on what to look for insofar as potential smugglers are concerned;
by getting rid of the old thinking that you have to search
everyone, and figuring out instead who are the risky travellers
by working with the airlines to gather information. I'm glad to
see the partnerships that Customs and the airlines have
initiated."
customs commissioner Weise said, "All airports are basically
the same in that the people in them are always in a hurry. But
sometimes these folks have problems. That's where our passenger
service representatives come in. Their goal is to help their
customers feel comfortable with the Customs process and to
educate the community at large about the mission of the agency."
Weise said the new passenger service representatives at
Dulles are among those currently in place at 10 major American
airports, including, Dulles, Chicago, Boston, Miami, Atlanta,
-more-
3
Houston, Dallas, Los Angeles, Honolulu and Detroit.
Passenger service representatives are supervisory customs
inspectors who wear special identification over business attire.
They are within easy reach of customers, including first-time and
well-seasoned travelers, airline and airport personnel, travel
agents, political leaders, community groups and children. Their
visibility is promoted through posters at airport terminals.
The specially trained officers educate their customers about
u.s.
duty regulations on purchase of foreign goods to avoid
misunderstandings later on. They also inform on-duty Customs
inspectors about incoming international flights and sensitize
them to cross-cultural differences.
Last year, Customs added representatives to international
airports at Boston, Chicago, Honolulu and Houston, which doubled
outreach to 28 percent of the 55 million air passengers cleared
by customs. Of the total, customer service airports accounted for
nearly 16 million passengers, with 1.4 million at Boston; 2.4
million at Chicago; 1.3 million at Dallas-Fort Worth; .76 million
at Detroit; 2.6 million at Honolulu; 1.4 million at Houston; and
5.8 million at Los Angeles.
###
D EPA R T MEN T
0 F
THE
TREASURY
T REA SUR' Y
NEWS
September 22, 1994
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of
August 1994.
As indicated in this table, U.S. reserve assets amounted to $75,740 million at the end
of August 1994, up from $75,443 million in July 1994.
End
of
Month
Total
Reserve
Assets
Gold
Stock 1/
Special
Drawing
RightsYJ/
1/
Reserve
Position in
IMF1/
July
75,443
11,052
9,696
42,512
12,183
August
75,740
11,054
9,837
42,688
12,161
Foreign
Currencies
1994
1/
Valued at $42.2222 per fine troy ounce.
1/
Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.
1/
Includes allocations of SDRs by the IMF plus transactions in SDRs.
~/
Valued at current market exchange rates.
LB-J ;:'06
Monthly Treasury Statement
of Receiplsdand Outlays
of the United States Government
For Fiscal Year 1994 Through August 31, 1994, and Other Periods
Highlight
The eleven-month cumulative deficit through August 31 for Fiscal Year 1994 is $207.3 billion
compared to a cumulative deficit of $263.8 billion for the comparable period in Fiscal Year
1993.
RECEIPTS, OUTLAYS, AND SURPLUS/DEFICIT
THROUGH AUGUST 1994
1400
Contents
1200
Summary, page 2
B
I
1000
Receipts, page 6
L
L
800
Outlays, page 7
600
Means of financing, page 20
400
Receipts/outlays by month, page 26
0
N
200
Federal trust funds/securities, page 28
I
S
Receipts by source/outlays by
function, page 29
Explanatory notes, page 30
Compiled and Published by
Department of the Treasury
Financial Management Service
Introduction
of receipts are treated as deductions from gross receipts. revolving and m~
ment fund receipts. reimbursements and refunds of mOl1les preViously expen(je(j are
treated as deductions from gross outlays. and Interest on the publiC debt (pulJOc
Issues) is recogl1lzed on the accrual baSIS Malor Information souroes InclUde
accounting data reported by Federal entities. disbursing officers. and Federal
Reserve banks.
I··.· ~ 1. "'il'}\ T'<'.1,,)(\ Statement of Receipts and Outlays
01 the United States
IS prepared by the Financial Management Service. Department of
"', I ',',''''u'\ dn(i after approval by the Fiscal ASSistant Secretary of the Treasury. is
1""'".111\ relt'ased on the 15th workday of the month follOWing the reporting month.
1",· "Ulllll.Hlon 15 based on data prOVided by Federal entities. disburSing officers.
," ...... "".'."1 ~tT :-;,
,lfhi
r pdf'r ,tl
Reserve banks
Triad of Publications
The MTS is part of a triad of Treasury finanCial reports. The Daily Treasury
Statement is published each working day of the Federal Government. It provides
data on the cash and debt operations of the Treasury based upon reporting of the
Treasury account balances by Federal Reserve banks. The MTS IS a report ot
Government receipts and outlays. based on agency reporting The U.S Govemment
Annual Report is the official publication of the detailed receipts and outlays of the
Government. It is published annually in accordance with legislative mandates given
to the Secretary of the Treasury.
Audience
TtlP ~ITS IS published to meet the needs of: Those responsible for or interested
,f! itl,· ca,h pOSition of the Treasury. Those who are responsible for or interested in
ttle Government s budget results. and IndiYlduals and bUSinesses whose operations
ciepef!ei upon or are related to the Goyernment's financial operations.
Disclosure Statement
TtllS <;tatement summarrzes the finanCial actlyitles of the Federal Government
dno off-budget Federal entities conducted In accordance With the Budget of the U.S
Cowlnmen\. I e receipts and outlays of funds. the surplus or defiCit. and the means
ul Iinanong the defiCit or dispOSing of the surplus. Information is presented on a
moddled cash baSIS receipts are accounted for on the baSIS of collections: refunds
Data Sources and Information
The Explanatory Notes section of this publication provides information concerning the flow of data into the MTS and sources of information relevant to the Mrs
Table 1. Summary of Receipts, Outlays, and the Deficit/Surplus of the U.S. Government, Fiscal Years 1993 and 1994,
by Month
[$ millions]
Period
FY 1993
October
November
December
January
February
March
Apnl
May
June
July
August
September
Year-to-Date
FY 1994
October
November
December
January
February
March
April
May
June
July
August
Year-Io-Dale
Receipts
Outlays
Deficit/SurpluS
76.829
74.629
113.686
112.716
65.979
83.288
132.017
70,642
128.570
80.630
86.737
127,504
125.620
107.355
152,633
82.899
114,477
127.263
124.200
107.605
117,471
120.207
109.815
118,939
48.792
32.726
38.947
-29.817
48,498
43.974
-7.817
36.963
-11.099
39,577
23.078
-8,564
'1.153.226
'1.408.485
'255.258
78.668
83.107
125.408
122.966
72,874
93.108
141.326
83.546
138,124
84.827
97.338
124,090
121.488
'133,114
107.718
114.440
125.423
123.872
3115.602
123.275
118.025
121.513
45,422
38.381
7,705
-15,248
41,566
32.315
-17.454
32.057
-14.850
33.198
24,174
1.121.292
1.328.559
207.268
:'"',2 recE'(rf outlay and defrclt fIgures differ from the FY 1995 Budget, released by the Office
~.." \lJ.'1dye m e n t and Budge! on February 7. 1994. by $589 million due mainly to reVISions In data
",1,-""''''''9 the fe!ease of the Final September Monthly Treasury Statement
(~)
'Outlays have been decreased In December t 993 by $547 mrllion to reflect agl!flCY dell'
preViously reported. by the Federal Flnancmg Bank for the Federal TranSit Admlnlstra\J()11 "
outlays
3.I.nciudes a reclassification from a budgetary status to a nonbudgetary status of $3 milliO'1 lC1
the Mantlme Admlnlstrabon, Mantlme Guaranteed Loan FinanCing Account--
2
Table 2. Summary of Budget end Off-Sud get Results and Financing of the U.S. Government August 1994 and
Other Periods
'
[$ millions]
Total on-budget and off-budget results:
Total receipts
1,259,905
1,025,722
1,354,333
70,949
26,389
816,949
304,343
925,569
334,336
742,648
283,074
1,000,459
353,874
............
121,513
1,328,559
1,480,013
1,289,545
1,521,447
............
95,279
26,233
1,077,997
250,563
1,199,239
280,774
1,051,088
238,457
1,229,419
292,028
-24,174
-207,268
-220,108
-263,823
-167,114
-24,330
+156
-261,048
+53,780
-273,670
+53,562
-308,440
+44,617
-228,960
+61,846
24,174
207,268
220,108
263,823
167,114
52,350
-9,802
-18,374
196,994
22,419
-12,145
210,584
12,506
-2,982
257,964
17,996
-12,137
175,699
...... . . ..
Total surplus (+) or deficit (-)
On-budget surplus (+) or deficit (-)
Off-budget surplus (+) or deficit (-)
..............
Total on-budget and off-budget financing
Means of financing:
...........
Borrowing from the public .
Reduction of operating cash, increase (-)
By other means
... No Transactions.
Note: Details may not add to totals due to rounding.
'These figures are based on the Mid-8ession Review of the FY 1995 Budget, released by the
Office of Management and Budget on July 14, 1994.
Figure 1, Monthly Receipts, Outlays, and Budget Deficit/Surplus of the U.S. Government, Fiscal Years 1993 and 1994
$ billions
Outlays
14
12
100
80
Budget
Estimates
Next Fiscal
Year (1995)'
1,121,292
.
On-budget outlays
Off-budget outlays
Prior
Fiscal Year
to Date
(1993)
97,338
On-budget receipts .
Off-budget receipts
Total outlays .
Budget
Estimates
Full Fiscal
Year'
Current
Fiscal
Year to Date
This
Month
Classification
.
··\',. ..... .
,
,,
,
...... ,
'
"
.
..
,,'
,,
,, ,
'
',.
..
.... -'
..
··. ..
...
,,
'
,
''
.,'
J
'
~'
-
60
Receipts
40
20
0
-20
Deficit(-)/Surplus
,
,
i
Dec.
Feb.
Apr.
I i i
Jun.
Aug.
Oct.
FY
FY
94
93
3
i i i
Dec.
Feb.
Apr.
I
I
Jun.
Aug.
-8,585
Figure 2.
Monthly Receipts 01 the U.S. Government, by Source, Fiscal Years 1993 and 1994
$ billions
ITotal Receipts
Oct.
Dec.
Feb.
Apr.
Jun.
Aug.
I
Oct.
Dec.
Feb.
Apr.
Jun.
Aug.
Jun.
Aug.
FY
FY
93
94
Figure 3. Monthly Outlays of the U.S. Government, by Function, Fiscal Years 1993 and 1994
Total Outlays
Jun.
Aug.
Oct.
FY
FY
93
94
Dec.
4
Feb.
Apr.
Table 3. Summary of Receipts and Outlays of the U.S. Government, August 1994 and Other Periods
[$ millions]
This Month
Current
Fiscal
Year to Date
43.170
3.108
484.775
113.119
454.027
93.010
549.583
139.374
26.389
7.631
4.880
391
5.989
1.239
2.039
2.502
304.343
84.853
27.659
4.250
49.707
13.971
18.300
20.315
283.074
76.957
26.143
4.357
43.672
11.527
17.156
15.799
334.336
93.763
27.767
4.729
54.594
14.197
20.064
21,497
Total Receipts ................................................ .
97,338
1,121,292
1,025,722
1,259,905
(On-budget) ................................................. .
70,949
816,949
742,648
925,569
(Off-budget) ................................................ .
26,389
304,343
283,074
334,336
185
288
38
224
4.131
205
22.683
2.629
2.371
1,455
2.350
2.470
213
9.659
56.103
2.633
242.166
27.806
21.285
15.782
2.208
2,417
182
10.764
59.018
2.481
254.870
26.789
27.556
15.107
2.749
2.870
197
11.369
63.250
3.276
267,404
30.623
25.708
17.296
26.547
26.711
2.547
495
774
2.908
494
3.763
282.978
286.977
24.282
6.049
9.089
34.707
4.791
233.575
258.752
272.795
23.013
5.823
9.254
41.614
5.010
30.895
314.964
314.747
26.337
7.083
10.744
36.917
5.786
36.820
19.686
4
3.120
503
423
1.304
3.272
123
278.403
11.238
33.158
5.248
111
12.301
35.255
683
275,463
7.144
32,490
5.325
500
13.075
33.717
827
299.003
11.115
37.898
6.238
783
14.227
38.177
1.049
-568
-1.053
3.023
3.531
-19.136
5.308
7.102
9,473
-699
-3.051
-85.534
-31.776
-82.154
-31.563
-85.891
-37.300
Total outlays .................................................. .
121,513
1,328,559
1,289,545
1,480,013
(On-budget) ................................................. .
95,279
1,077,997
1,051,088
1,199,239
280,774
Classification
Comparable
Prior Period
Budget
Estimates
Full Fiscal Year'
Budget Receipts
Individual Income taxes
Corporation income taxes
Social insurance taxes and contributions:
Employment taxes and contributions (off-budget)
Employment taxes and contributions (on-budget)
Unemployment insurance
Other retirement contributions
Excise taxes
Estate and gift taxes
Customs duties
Miscellaneous receipts
Budget Outlays
Legislative Branch
The Judiciary
Executive Office of the President
Funds Appropriated to the President
Department of Agriculture
Department of Commerce
Department of Defense-Military
Department of Defense-Civil .................................. .
Department of Education
Department of Energy ....................... .
Department of Health and Human Services. except Social
Security
Department of Health and Human Services. Social Security
Department of Housing and Urban Development
Department of the Interior
..................... .
Department of Justice .................................. .
Department of Labor
............... .
Department of State
Department of Transportation ........................... .
Department of the Treasury:
Interest on the Public Debt
Other
..................... .
Department of Veterans Affairs
EnVIronmental Protection Agency
General Services Administration
National Aeronautics and Space Administration
Office of Personnel Management
Small Business Administration
Other independent agencies:
Resolution Trust Corporation
Other
Undistributed offsetting receipts:
Interest
Other
(Off-budget) ............................................... ..
26,233
250,563
238,457
Surplus (+) or deficit (-) ................................... .
-24,174
-207,268
-263,823
-220,108
(On-budget) ................................................. .
-24,330
-261,048
-308,440
-273,670
+156
+53,780
+44,617
+53,562
(Off-budget) ................................................ .
'Ouijays have been decreased in December 1993 by $547 million to reflect agency debt
previously reported. by the Federal Financing Bank for the Federal Trans,t Administration. as
outlays.
Note: Details may not add to totals due to rounding.
'These figures are based on the Mid-Session Review 01 the FY 1995 Budget. reteased by the
Off,ce of Management and Budget on July 14. 1994.
5
Receipts of the U.S, Government, August 1994 and Other Periods
Table 4.
[$ millions]
--.--
This Month
Classification
Gross
Receipts
IndivIdual Income taxes:
Withheld
PrpSldentlal Election Campaign Fund
Other
I
Refunds
(Deduct,
Prior Fiscal Year 10 Date
Current Fiscal Year to Date
1Receipts
.
40.459
1
4.015
Gross
Receipts
I
Refunds
(Deduct,
1
Receipts
Gross
Receipts
I
Refunds
(Deduct,
I
Receipt,
398.436
27
129.192
424.498
69
135.236
.........................
44,475
1,305
43,170
559,802
75,027
484,775
527,655
73,629
454,021
Corporation income taxes ....................................
4,079
971
3,108
125,283
12,164
113,119
105,639
12,629
93,010
23.835
261.258
14.424
-45
745
260.513
14.424
-45
244.261
11.421
-12
Total-Individual income taxes
Social insurance taxes and contributions:
Employment taxes and contnbutlons:
Federal old-age and survivors Ins. trust fund:
Federal Insurance Contributions Act taxes
Self-Employment ContributIOns Act taxes
DepOSits by States
Other
23.835
..)
..)
(00)
(00)
23.835
23.835
275.638
745
274.893
255.670
255.670
2.554
2.554
27,987
1,543
80
27.907
1.543
26.180
1.225
26.180
1.225
0)
1
-1
(
(
Total-FOASI trust fund
Federal disability Insurance trust fund:
Federal Insurance Contributions Act taxes
Self-Employment Contributions Act taxes
Receipts from railroad retirement account
DepoSits by States
Other
r
Total-FDI trust fund
Federal hospital insurance trust fund:
Federal Insurance Contnbutions Act taxes
Self-Employment Contribuhons Act taxes
Receipts from Railroad Retirement Board
DepoSits by States
Railroad retirement accounts:
RaIl Industry pensIon fund
Railroad SOCIal Security equIvalent benefit
(0 0)
(0 0)
..
(
r
)
(
..)
(")
0)
(00)
2.554
2.554
29.530
80
29.450
27.404
27.404
7.241
7.241
73
..
76.227
4.888
394
76.155
4.888
394
(00)
(0 0)
(0 0)
69,381
3.727
381
)
69.381
3,727
381
-3
7.241
7.241
81.509
73
81.437
73.486
73.486
(
Total-FHI trust fund
244.261
11.421
-12
-3
237
169
16
221
169
2.180
1.280
44
2.136
1.280
2.199
1.283
11
2.188
1,283
34.036
16
34.020
390.137
941
389.196
360.042
11
360,031
unemployment Insurance:
State taxes deposIted In Treasury
Federal Unemployment Tax Act taxes
Railroad unemployment taxes
RaIlroad debt repayment
4.163
727
1
10
4.163
716
1
22.163
5.539
27
32
22.163
5.436
27
32
20.582
5.528
64
88
Total-Unemployment Insurance
4.890
10
4.880
27,761
27.659
26.262
Total-Employment taxes and contributIons
103
103
118
118
20,582
5.409
64
88
26.143
Other retirement contnbutlons:
Federal employees retIrement - employee
contributions
Contributions for non-federal employees
382
9
382
9
4.159
91
4.159
91
4,271
87
4.271
87
Total-Other retirement contributions
391
391
4.250
4.250
4.357
4,357
Total-Social insurance taxes and
contributions ........................................
Excise taxes:
MIscellaneous eXCIse taxes'
Airport and airway trust fund
Highway trust fund
Black lung dIsabIlity trust fund
39,318
26
39,292
422,148
1,044
421,104
390,661
129
390,532
4.171
478
1.582
47
290
3.881
478
1.582
47
30,033
4,673
15.988
536
1.005
28
490
29.028
4.644
15.498
536
24.487
2.866
16.544
581
509
15
283
23.978
2,852
16,262
581
.....................................
6,279
290
5,989
51,230
1,523
49,707
44,478
806
43,672
Estate and gift taxes .........................................
1,294
54
1,239
14,323
352
13,971
11,813
286
11,521
...............................................
2,117
78
2,039
19,080
780
18,300
17,893
737
17,156
2.090
418
5
2.090
412
16.910
3.425
21
16.910
3,405
12.824
3.130
155
12.824
2.975
2,502
20,336
21
20,315
15,954
155
15,799
Total-Excise taxes
Customs duties
Miscellaneous Receipts:
DepoSits of earnIngs by Federal Reserve banks
All other
........................
2,507
5
... , ....................................
100,069
2,730
97,338 1,212,202
90,910 1,121,292 1,114,094
88,372 1,025,722
......................................
73,679
2,730
70,949
907,035
90,086
816,949
831,020
88,372
.. ..
26,389
26,389
305,167
825
304,343
283,074
Total -
Miscellaneous receipts
Total -
Receipts
Total -
On-budget
Total -
Off-budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
'InCludes amounts for the Windfall profits tax pursuant to P L 96-223
No Transactions
(' ') Less than $500.000
Note Details may not add to totals due to rounding
6
742,648
283,074
-
Table 5.
Outlays of the U.S. Govemmer1t, August 1994 and Other Periods
[$ millions]
This Month
Current Fiscal Year to Date
Gross )APPlicable) Outlays
Outlays
Receipts
Gross )APPlicable) 0 II
Outlays
Receipts
u ays
Prior Fiscal Year to Date
Classification
Legislative Branch:
36
60
Senate
House of Representatives
Joint items
Congressional Budget Office
Architect of the Capitol .............................. .
Library of Congress
Government Printing Office:
Revolving fund (net)
General fund appropriations
General Accounting Office
United States Tax Court
Other Legislative Branch agencies
Proprietary receipts from the public
Intrabudgetary transactions
Total-Legislative Branch ............................... .
....
(
(
)
)
36
60
6
2
395
708
68
19
25
13
25
454
4
9
4
9
31
31
2
2
6
2
14
1
176
8
36
90
390
29
27
-1
-3
2
14
7
394
694
68
19
168
454
Outla s
-~~r---Y
Gross )APPlicable
Outlays
Receipts
415
702
1
414
10
691
72
72
20
198
306
9
20
189
306
36
90
390
29
27
-7
-12
-28
98
397
30
30
28
98
397
30
30
2,350
2,234
23
22
22
7
--7
5
27
2,208
-3
-12
185
2,381
2
2
23
278
277
9
2,346
103
3
9
2,343
103
2,307
89
2.307
89
289
288
2,473
3
2,470
2,418
2,417
3
3
4
36
52
125
37
50
95
37
50
95
213
182
182
584
253
3,830
2,656
16
61
787
4,524
3,032
-3
24
31
563
777
-777
727
-727
1,361
6,066
8,395
1,290
7,105
187
2
31
-5
The Judiciary:
Supreme Court of the United States ..................... .
Courts of Appeals. District Courts, and other judicial
services
Other
Total-The Judiciary
Executive Office of the President:
Compensation of the President and the White House
Office
Office of Management and Budget
Other
........................... .
31
31
36
52
125
38
38
213
31
159
137
837
3,830
2,656
16
61
27
4
Total-Executive Office of the President
Funds Appropriated to the President:
Intemational Security Assistance:
Guaranty reserve fund
Foreign military financing grants
Economic support fund
Military assistance
Peacekeeping Operations
Other ............................... .
Proprietary receipts from the public
Total-International Security Assistance
124
159
137
Total-Agency for Intemational Development
International Monetary Programs ................. .
Military Sales Programs:
Special defense acquisition fund
Foreign military sales trust fund
Kuwait civil reconstruction trust fund
Proprietary receipts from the public
Other
Total-Funds Appropriated to the President .......... .
27
224
4,524
3,032
-3
24
31
291
-291
383
42
7,427
41
879
200
390
774
223
391
223
391
26
26
879
200
390
67
67
1,469
1,469
1,388
1,388
125
125
58
54
1,313
565
469
1,313
565
469
1,263
651
445
1,263
651
445
4
89
44
708
56
-56
330
61
269
3,097
29
3
9
45
192
81
1
29
-43
9
438
107
58
54
93
-38
14
651
-736
-2
636
793
2,304
2,993
87
192
-139
82
179
220
6
331
4,926
1,018
-38
-231
-1
1,029
159
12,062
(
(
15
1,029
..
..)
(
1,145
5
1,875
1,650
7
)
..
47
805
589
-805
852
2,142
128
194
8
179
-123
120
3,908
4,759
1,054
3,705
-231
429
250
-91
12,062
237
11,914
)
7
12,112
-12,112
(
)
-1,145
5
57
224
24,401
774
44
57
736
-2
Peace Corps
.................. .
Overseas Private Investment Corporation ..
Other
Total-International Development ASSistance
1
2
3
41
Total-Multilateral Assistance
Agency for International Development:
Functional development aSSistance program
Sub-Saharan Africa development aSSistance
Operating expenses ........................ .
Payment to the Foreign Service retirement and
disability fund
Other
Proprietary receipts from the public
Intrabudgetary transactions
1
2
3
425
International Development Assistance:
Multilateral Assistance:
Contribution to the International Development
ASSOCiation
............... .
International organizations and programs
Other.
93
14,742
..
-1
70
-1
429
193
(
..)
12,460
57
19
9,659
25,761
43
11.914
7
-12,460
19
14,997
10,764
Table 5. Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
This Month
Classification
Gross !APPlicabie
Outlays
Receipts
Department of Agriculture:
Agncultural Research Service
Cooperative State Research Service
ExtenSion Service
Antmal and Plant Health Inspection Service
FDOd Safety and Inspection Service
Agncultural Marketing Service
Soil Conservation Service:
Watershed and flood prevention operations
Conservation operations
Other
Agncultural Stabilization and Conservation Service:
Conservation programs
Other
Farmers Home Administration:
Credit accounts:
Agricultural credit insurance fund
Rural housing insurance fund
Other.
Salaries and expenses
Other
..............
Total-Food and Nutrition Service
Forest Service:
National forest system
Forest and rangeland protection
Forest service permanent appropriations
Other
...........
...........
Total-Forest Service
Other
Proprietary receipts from the public ..
Intrabudgetary transactions
Total-Department of Agriculture
Department
Economic
Bureau of
Promotion
639
430
393
435
459
624
661
402
370
441
454
669
668
247
525
75
247
525
75
212
524
75
212
524
75
26
71
1.929
734
1,929
734
1,858
693
1,858
693
1,653
2,934
2,101
3,842
9
583
84
1,814
2,964
1
2
269
1,288
(")
-101
95
3
583
81
4,589
1,551
6,619
4,781
1,838
1,229
480
368
286
20
-1,154
1,227
958
214
29
2,519
689
10,159
209
23,538
176
28
39
8
26
71
2
3
661
402
370
441
454
69
427
84
239
-15
188
52
8
..
52
8
1,921
4,223
( )
-101
96
232
6,140
155
1,229
41
28
4
-72
59
898
286
20
2,416
1,585
29
2
16,813
209
2,135
361
300
39
2,135
361
300
39
23,380
6,749
2,996
461
23,380
6,749
2,996
461
22,547
6,290
2,699
553
22,547
2,835
2,835
33,587
33,587
32,089
32,089
123
158
22
61
123
158
22
61
1,421
467
319
614
1,421
467
319
614
1,496
352
278
635
1,496
352
278
635
363
363
2,821
2,821
2,761
2,761
2
92
62
-92
605
574
-1,264
557
1,165
4,131
73,101
16,998
56,103
25
8
38
239
226
300
15
1,712
29
123
82
13
83
28
4
102
63
...........
(
)
324
43
174
4
525
64
..
530
3,570
357
6,654
5,296
26
8
38
Science and Technology:
National Oceanic and Atmospheric Administration
Patent and Trademark Office
National Institute of Standards and Technology
Other
Total-Science and Technology
Other
Propnetary receipts from the public .
Intrabudgetary transactions
Offsetting govemmental receipts
137
-13
7
11
)
3
137
-13
7
8
143
4
139
1,946
..
-1
-4
84
4
r')
r')
(
.......................
..
(
)
214
9
8
205
2,795
287
878
8
480
460
3,729
331
7,461
499
214
29
-1,210
358
16,077
176
6,290
2,699
553
1,028
524
-1,028
-150
76,841
17,823
59,018
224
226
300
153
312
292
18
135
312
292
1,483
44
219
71
21
1,462
31
1,699
29
123
51
39
219
32
43
1,902
1,816
60
1,756
84
-104
( )
91
104
106
91
-106
r')
(',
184
2,481
31
1,264
33
-150
.......................
of Commerce:
Development Administration
the Census
of Industry and Commerce
Total-Department of Commerce
Gross IAPplicabiel
Outlays
Receipts
OutlaY'
28
39
8
554
2
Food and Nutrition Service:
Food stamp program
State child nutrition programs
Women, infants and children programs
Other
Gross lAppucablel Outlays
Receipts
Outlays
639
430
393
435
459
627
155
...... , .....
Outlays
Prior Fiscal Year to Da.
64
46
30
45
40
89
556
Total-Farmers Home Administration ..
Foreign aSSistance programs ....
Rural Development Administration:
Rural development insurance fund
Rural water and waste disposal grants
Other
Rural Electrification Administration
Federal Crop Insurance Corporation
Commodity Credit Corporation:
Price support and related programs
National Wool Act Program
64
46
30
45
40
91
I
Current Fiscal Year to Date
162
..
2,633
r .)
2,664
44
(")
-
-
Table 5. Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross !APPliC8ble! Outlays
Receipts
Outlays
Gross !APPlicablel Outla
Outlays
Receipts
ys
Gross jAPPlicable! 0 tI s
Outlays
Receipts
u ay
Classification
Department of Defense-Military:
Military personnel:
Department of the Anmy
Department of the Navy
Department of the Air Force
2,355
2,221
1,546
2,355
2,221
1,546
24,631
24,047
16,496
24,631
24,047
16,496
26,059
25,043
18,506
26,059
25,043
18,506
Total-Military personnel
6,123
6,123
65,174
65,174
69,608
69,608
operation and maintenance:
Department of the Anmy
Department of the Navy
Department of the Air Force .
Defense agencies
1,701
2,223
1,921
1,538
1,701
2,223
1,921
1,538
18,690
20,571
21,832
17,727
18,690
20,571
21,832
17,727
21,361
23,797
22,659
17,262
21,361
23,797
22,659
17,262
7,383
7,383
78,821
78,821
85,079
85,079
668
2,317
1,567
291
668
2,317
1,567
291
7,510
23,867
20,757
3,719
7,510
23,867
20,757
3,719
10,336
27,690
23,083
3,345
10,336
27,690
23,083
3,345
4,842
4,842
55,853
55,853
64,454
64,454
501
693
973
769
501
693
973
769
5,165
7,183
11,427
7,648
5,165
7,183
11,427
7,648
5,666
8,254
11,433
8,529
5,666
8,254
11,433
8,529
2,936
2,936
31,424
31,424
33,882
33,882
122
60
135
238
122
60
135
238
853
535
1,063
1,964
853
535
1,063
1,964
958
832
1,067
1,441
958
832
1,067
1,441
555
555
4,415
4,415
4,297
4,297
93
65
83
16
93
65
83
14
1,156
725
980
111
1,156
725
980
81
1,229
800
861
76
1,229
800
861
53
-23
35
45
308
45
308
37
-13
511
41
3,526
-236
3,526
-241
-4,122
-161
..)
(
Total-Operation and maintenance
Procurement:
Department of the Anmy
Department of the Navy
Department of the Air Force
Defense agencies
Total-Procurement
Research, development, test, and evaluation:
Department of the Anmy
Department of the Navy
Department of the Air Force
Defense agencies
...........
Total-Research, development, test and evaluation
Military construction:
...........
Department of the Anmy
Department of the Navy
Department of the Air Force
.............
Defense agencies ......
Total-Military construction
Family housing:
Department of the Anmy ...
Department of the Navy
Department of the Air Force
Defense agencies
Revolving and management funds:
.................
Department of the Anmy .. , ..
..... , .......
Department of the Navy
Department of the Air Force ......
Defense agencies:
Defense business operations fund
Other
Trust funds:
.............. ...........
Department of the Anmy
..................
Department of the Navy
Department of the Air Force ...
Defense agencies
Proprietary receipts from the public:
Department of the Anmy
Department of the Navy
...........
Department of the Air Force
Defense agencies .
.............
Intrabudgetary transactions:
Department of the Anmy
Department of the Navy
...........
Department of the Air Force ..
Defense agencies
Offsetting governmental receipts:
Department of the Anmy
Defense agencies .............
Total-Department of Defense-Military
.............
2
-23
35
511
41
..
..
(
..
(
)
(
)
3
3
-1
..
(
( )
-12
)
-12
-14
-118
12
26
5
..
)
(
17
1
145
134
57
379
276
-134
-57
-379
-276
127
427
130
-95
127
427
130
-95
..
6
(
22,595
-88
9
22,683
243,074
)
15
6
33
6
145
14
118
-12
-26
-43
-33
5
14
-43
-33
5
14
..
30
)
908
..)
(
41
27
87
)
242,166
37
-13
4
..
(
)
255,821
-4,122
-165
..
(
)
19
22
22
5
87
274
151
325
85
-274
-151
-325
-85
64
515
104
-1,045
..-6
(
24
64
515
104
-1,045
21
27
-21
-27
951
254,870
Table 5.
Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
--
Classification
This Month
Current Fiscal Year to Date
Gross !APPlicable! Outlays
Outlays
Receipts
Gross lAPPlicab,e! Outlays
Receipts
Outlays
Department of Defense-Civil
Corps of Engineers
Construction. general
Operation and maintenance. general
Other
Proprietary receipts from the public
122
138
119
Total-Corps of Engineers
379
Military retirement
Payment to mJiitary retirement fund
Retired pay
Military retirement fund
Intra budgetary transactions
Education benefits
Other
Proprietary receipts from the public
...................
Department of Education:
Office of Elementary and Secondary Education:
Compensatory education for the disadvantaged
Impact aid
School improvement programs
Indian education
Other
Total-Office of Elementary and Secondary
Education
165
165
3,159
3,219
11,908
11,908
24,456
-11,908
131
74
4
10
24,456
-11,908
131
70
-10
12,273
( )
23,560
-12,273
138
63
179
27,806
26,980
6,238
431
1,897
96
15
14
14
365
3,324
180
896
1.346
978
-180
180
3,040
12,273
(")
23,560
-12,273
..
1
-2
10
-1
15
2,629
27,985
472
8
117
6
2
472
8
117
6
2
6,365
746
1,331
72
10
6,365
746
1,331
10
6,238
431
1,897
96
15
605
605
8,525
8,525
8,678
8.678
-2
10
Total-Department of Defense-Civil
I
Gross !APPlicable!
Outlays i
Outlays
Receipts
,
896
1,346
978
879
1,042
1,403
2,256
-
879
1,042
1,403
-165
122
138
119
-14
2,256
Prior Fiscal Year to Dale
2,644
(00)
72
138
4
8
60
-8
192
26,789
Office of Bilingual Education and Minority Languages
AffairS
Office of Special Education and Rehabilitative Services:
Special education
Rehabilitation services and disability research
Special Institutions for persons with disabilities
Office of Vocational and Adult Education
23
23
207
207
108
108
246
208
12
161
246
208
12
161
2,765
2.080
122
1,239
2.765
2,080
122
1,239
2.368
1.831
143
1,043
2.368
1,831
143
1,043
Office of Postsecondary Education:
College housing loans
Student financial assistance
Federal family education loans
Higher education
Howard UniverSity
Other
-2
615
277
118
24
12
2
-4
615
277
118
24
12
-4
6,344
-1,568
708
197
97
41
-45
6,344
-1,568
708
197
97
18
6,998
4,630
923
246
16
58
-40
6,998
4,630
923
246
16
1,044
2
1,042
5,775
41
5,734
12,832
58
12,774
390
352
127
390
352
-127
374
297
3
41
37
-3
59
374
297
-59
5
2,371
21,454
169
21,285
27,674
117
27,556
948
948
10,776
10,776
9.918
9,918
98
265
18
30
50
17
98
265
18
30
50
17
1,155
2,790
297
374
522
255
1,155
2,790
297
374
522
255
1,301
2,633
1,017
372
465
399
1,301
2,633
1,017
372
465
399
Total-Office of Postsecondary Education
Office of Educational Research and Improvement
Departmental management
Proprietary receipts from the public .
Total-Department of Education
........................
Department of Energy:
Atom,c energy defense activities
Energy programs
General SCience and research activities
Energy supply. Rand D activities
Uranium supply and enrichment activities
Fossil energy research and development
Energy ccnservation
Strategic petroleum reserve
Clean coal technology
Nuclear waste disposal fund
Other
Total-Energy programs
Power Marketing Administration
Departmental administration
Proprietary receipts from the public
Int'abudgetary transactions
Offsetting govemmental receipts
Total-Department of Energy ............................
41
37
2,376
32
93
(00)
32
93
264
855
2
264
853
237
142
2
237
140
604
rO)
604
6,510
2
6,509
6,565
2
6,563
167
35
91
1,589
408
1,438
1,273
119
151
408
-1,623
-319
-119
1,965
351
10
76
35
-168
-29
-10
78
691
351
-2,041
-298
-78
269
1,455
18,964
3,182
15,782
18,502
3,394
15,101
168
-29
1,724
10
1,623
-319
2,041
-298
-
Table 5.
Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross !APPlicablel Outlays
Outlays
Receipts
Gross !APPlicable! 0 tI
Outlays
Receipts
u ays
Gross !APPlicablel Outla s
Outlays
Receipts
y
Classification
Department of Health and Human Services, except Social
Security:
Public Health Service
Food and Drug Administration
Health Resources and Services Administration
Indian Health Services
Centers for Disease Control and Prevention
NallOnal Institutes of Health
Substance Abuse and Mental Health Services
Administration
Agency for Health Care Policy and Research
Assistant secretary for health
Total-Public Health Service
Health Care Financing AdmlnlstrallOn:
Grants to States for Medicaid
Payments to health care trust funds
Federal hospital Insurance trust fund:
Benefit payments
Administrative expenses
Interest on normalized tax transfers
Total-FHI trust fund
Federal supplementary medical Insurance trust fund:
Benefit payments
Administrative expenses
Total-FSMI trust fund
Other
Total-Health Care Financing Administration
Social Security AdmlnistrallOnPayments to Social Security trust funds
Special benefits for disabled coal miners
Supplemental security Income program
Total-SOCial Security Administration
AdmlnistrallOn for Children and families:
Family support payments to States
Low income home energy assistance
Refugee and entrant assistance
Community Services Block Grant
Payments to States for afdc work programs
Interim assistance to States for legalization
Payments to States for child care assistance
Social services block grant
Children and families services programs
Payments to States for foster care and adoption
assistance
Other
Total-Administration for children and families
Administration on aging
Office of the Secretary
Proprietary receipts from the public
Intrabudgetary transactionsPayments for health insurance for the aged:
Federal hospital insurance trust fund
Federal supplementary medical insurance trust fund
Payments for tax and other creditsFederal hospital Insurance trust fund
Other
Total-Department of Health and Human Services,
except Social Security ................................
79
295
214
168
836
(" ")
79
295
214
168
836
733
2,393
1,650
1,424
9,429
232
3
20
2,225
95
173
1,845
18,122
7,138
3,054
7,138
3,054
8,821
116
4
677
2,173
1,538
1,248
8,730
730
2,393
1,650
1,424
9,429
681
2,173
1,538
1,248
8,730
2,225
95
173
2,482
59
178
18,118
17,090
74,881
37,082
74,881
37,082
68,705
40,987
68,705
40,987
8,821
116
92,644
1,121
92,644
1,121
83,031
781
83,031
781
8,937
8,937
93,765
93,765
83,812
83,812
4,998
154
4,998
154
52,626
1,560
52,626
1,560
47,919
1,709
47,919
1,709
5,153
5,153
54,186
54,186
49,628
49,628
232
3
20
1,846
(
.. )
..)
3
3
2,482
59
178
4
17,086
(
(
..)
5
5
95
95
24,281
24,281
259,918
259,918
243,226
243,226
10
62
2,162
10
62
2,162
5,676
708
22,304
5,676
708
22,304
6,167
739
20,740
6,167
739
20,740
2,234
2,234
28,688
28,688
27,646
27,646
1,626
63
21
42
88
9
89
242
322
1,626
63
21
42
88
9
89
242
322
15,476
2,048
333
403
769
640
730
2,504
3,489
15,476
2,048
333
403
769
640
730
2,504
3,489
14,533
1,043
313
364
670
136
363
2,595
3,361
14,533
1,043
313
364
670
136
363
2,595
3,361
304
304
..)
2,803
1
..)
2,365
(
2,803
1
2,365
(
(
(
2,806
2,806
29,196
29,196
25,745
25,745
109
'-53
109
-53
-1,622
801
282
801
282
-16,944
527
119
527
119
-14,610
-3,054
-35,383
-35,383
-40,505
-40,505
1,700
-1,700
-482
-482
282,978
273,366
..)
1,622
-3,054
28,169
1,622
11
26,547
16,944
299,926
16,948
.. )
14,610
14,614
258,752
Table 5. Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
-,
Classification
This Month
Current Flac81 Year to Date
Gross jAPplicable! Outlays
Outlays
Receipts
Grog IApplicable I OutleY.
OutIeys
Rec:elpts
I
l
Prior Fiscal Year to Olte
Gross fAPPIiC8b1e!
Outleys
Receipts
OutlaY'
-'
Department of Health and Human Services. Social
Security (off-budget):
Federal old-age and survivors Insurance trust lund:
Benefit payments
Administrative expenses and construction
Payment to railroad retirement account
Interest expense on Interiund borrOWings
Interest on normalized tax transfers
Total-FOASI trust fund
Federal disability Insurance trust fund:
Benefit payments
Administrative expenses and construction
Payment to railroad retirement account
Interest on normalized tax transfers
Total-FDI trust fund
Propnetary receipts from the public
Intrabudgetary transactions 2
Total-Department of Health and Human Services,
Social Security(off-budget) .. _...........................
Department of Housing and Urban Development:
HOUSing programs·
PubliC enterprise funds
Credit accounts.
Federal hOUSing administration fund
HOUSing for the elderly or handicapped fund
Other
Rent supplement payments
Homeownership assistance
Rental hOUSing aSSistance
Rental housing development grants
Low-rent public hOUSing
PubliC hOUSing grants
COllege housing grants
Lower Income housing assistance
Section 8 contract renewals
Other
Total-Housing programs
PubliC and Indian HOUSing programs:
Low-rent public hOUSing-Loans and other expenses
Payments tor operation of low-income housing
prOjects
Community Partnerships Against Crime
Other
Total-Public and Indian Housing programs
Government National Mortgage ASSOCiation
Management and liquidating functions fund
Guarantees of mortgage-baCked securities
Total-Government National Mortgage ASSOCiation
Community Planning and Development:
Community Development Grants
Home Investment partnerships program
Otner
Total-Community Planning and Development
Management and Administration
Other
Propnetary receipts from the publiC
Offsetting governmental receipts
Total-Department 01 Housing and Urban
Development .............................................
23,286
174
23.286
174
252.982
1,564
3.420
252.982
1,564
3.420
242.200
1.793
3,353
242,200
1.793
3,353
23.459
23.459
257.966
257.966
247.345
247,345
3,161
101
3,161
101
33.663
924
106
33.663
924
106
30.698
850
83
30,698
850
83
3,262
3.262
34.692
34.692
31,632
31,632
-11
-5.671
-6,181
r .)
-10
r .)
11
-10
-5.671
("")
(")
-6,181
26,712
(0 0)
26,711
286,988
11
286,977
272,796
(0 0)
272,795
19
15
4
149
126
24
75
64
11
1,148
-2
48
10
14
54
675
56
474
-59
48
10
14
54
6.029
641
33
40
414
83
103
616
5
664
3.032
18
9.691
3.130
65
6.552
780
303
51
87
607
13
686
2.308
18
9,950
2.274
23
5,495
601
26
311
1
856
314
8
6.063
682
414
83
103
616
5
664
3.032
18
9.691
3.130
65
1,058
179
302
51
87
607
13
686
2,308
18
9,950
2.274
23
2,061
24.713
6.797
17.917
23.727
6.160
17.568
3
2
299
201
98
181
35
146
233
11
233
11
r')
2.361
147
1
2.361
147
1
2.184
105
246
2.807
201
2.606
2.469
35
2.435
..
..
)
(
(
26
311
1
856
314
8
2,807
746
r .)
248
)
(
..
)
..
(
)
2.184
105
r .)
("')
(. 'J
26
103
-76
880
1
1.341
-1
-460
1.042
4
1,537
-494
26
103
-77
880
1.342
-462
1.042
1.541
-499
370
95
30
19
370
95
11
3.314
697
271
123
3.314
697
148
2.929
176
278
117
2,929
176
161
495
19
476
4.282
123
4.159
3.383
117
3.266
446
37
197
35
2
-197
483
31
416
5
446
37
-416
-5
35
2
3,613
1,066
12
2,547
33,168
8,884
24,282
31,136
-4
483
31
268
3
-268
8,123
23,013
-3
=-
-
Table 5.
Outlays Of tne U.S. liovernmeht, August 1994 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross lAPPlicabli Outla s
Outlays
Receipts
y
Gross IAPPlicablel Outla s
Outlays
Receipts
y
Classification
Department of the Interior:
Land and minerals management:
Bureau of Land Management.
Management of lands and resources
Other
Minerals Management Service
Office of Surface Mining Reclamation and
Enforcement
40
53
54
40
53
54
590
261
673
590
261
673
556
237
624
556
237
624
31
31
284
284
273
273
178
178
1,809
1,809
1,690
1,690
13
19
40
13
19
42
130
249
256
301
25
261
237
300
25
547
149
249
256
431
45
12
261
237
421
25
547
174
559
183
28
559
155
131
130
1,665
146
1,519
1,678
158
1,520
79
12
118
79
12
118
1,069
95
1,338
1,069
95
1,338
1,106
1,349
1,349
209
209
2,502
2,502
2,455
2,455
106
30
20
106
30
19
1 ,262
258
391
9
1,262
258
382
1,241
252
259
18
1,241
252
241
Total-Bureau of Indian Affairs
156
155
1,911
9
1,902
1,752
18
1,734
TerritOrial and International affairs
Departmental offices
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
9
10
9
10
-194
-3
244
120
244
120
-1,820
-227
230
110
Total-Land and minerals management
Water and sCience:
Bureau of Reclamation:
Construction program
Operation and maintenance
Other
Central utah prolect
Geological Survey
Bureau of Mines
r .)
45
14
Total-Water and science
Fish and wildlife and parks
United States Fish and Wildlife Service
National Biological Survey
National Park Service
Total-Fish and Wildlife and parks
Bureau of Indian Affairs:
Operation of Indian programs
Indian tribal funds
Other
Total-Department of the Interior
2
194
-3
.......................
Department of Justice:
Legal activities
Federal Bureau of Investigation
Drug Enforcement Administration
Immigration and Naturalization Service
Federal Prison System
Office of Justice Programs
Other
Intrabudgetary transactions
Offsetting governmental receipts
Total-Department of Justice
(")
...........................
Department of Labor:
Employment and Training Administration
Training and employment services
Community Service Employment for Older Americans
Federal unemployment benefits and allowances
State unemployment insurance and employment service
operations
Payments to the unemployment trust fund
Advances to the unemployment trust fund and other
funds
1,820
-227
(")
1,994
5,823
90
486
2,535
1,779
721
1,386
1,900
748
868
-198
-486
576
9,254
6,049
7,817
109
2,535
1,779
721
1,386
1,990
748
868
-198
544
2,279
1,899
701
1,376
2,076
779
553
-29
-544
653
9,089
9,830
3,961
350
142
3,961
350
142
3,847
355
129
3,847
355
129
240
240
11
7,532
11
7,532
2,577
2,577
3,660
3,660
495
8,025
11
2,279
1,899
701
1,376
2,185
779
553
-29
84
198
145
49
122
203
71
71
-2
-84
95
774
9,742
537
29
20
537
29
20
-1
--1
13
(")
1,975
196
869
1,818
-99
230
110
-1,818
-99
(")
(")
198
145
49
122
214
71
71
-2
1,106
(")
(")
690
121
Table 5.
Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
Classification
Department 01 Labor:-Conlinued
Unemployment trust fund
Federal-State unemployment Insurance
State unemployment benefits
State administrative expenses
Federal administrative expenses
Veterans employment and training
Repayment of advances from the general fund
Railroad unemployment Insurance
Other
Total-Unemployment trust fund
This Month
Current Fiscal Year to Date
Gross jAPPliC8blej Outlays
Outlays
Receipts
Gross lAPPliC8bl1 Outlays
Outlays
Receipts
Pension Benefit Guaranty Corporation
Employment Standards Administration'
Salanes and expenses
Special benefits
Black lung disability trust fund
Other
Occupational Safety and Health Administration
Bureau of Labor Statistics
Other
Propnetary receipts from the public
Intrabudgetary transactions
Total-Department 01 Labor
.............................
Department of State:
Administration of Foreign Affairs:
Salanes and expenses
AcqUiSItion and maintenance of buildings abroad
Payment to Foreign Service retirement and disability
fund
Foreign Service retirement and disability fund
Other
Total-AdministratIOn of Foreign Affairs
International organizations and Conferences
Migration and refugee assistance
International narcotics control
Other
Propnetary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
Gross /APPlicable/
Outlays
Receipts
0utIa
YS
1.863
300
11
16
1,863
300
11
16
25,389
2.853
161
171
25,389
2,853
161
171
33,388
3,132
197
158
33,388
5
2
5
2
61
19
61
19
65
20
65
20
2,196
2,196
28.654
28,654
36,959
36,959
12
12
86
86
69
69
2,792
2,792
36,010
36,010
52,563
52,563
72
~185
1,056
~455
753
29
153
49
9
31
32
61
220
485
552
116
272
268
444
220
485
552
116
272
268
444
205
547
561
111
256
248
416
Other
Total-Employment and Training Administration
Prior FisC81 Year to Olle
257
29
153
49
9
31
32
61
(' ')
(' ')
3
~63
~3,201
2,908
36,220
318
62
318
62
35
3
35
3
418
418
~63
3,165
(
257
..)
(
55
14
8
..
..
)
55
14
8
1,510
3,132
197
158
2,035
-1,282
205
547
561
111
256
248
416
~3
2
-2
~3,201
~12.009
34,707
43,651
1,857
522
1,857
522
1,976
432
1,976
432
125
374
77
125
374
77
273
380
91
273
380
91
2,955
2.955
3,153
3,153
1,183
658
112
60
1,183
658
112
60
-1
1,371
617
126
64
1,371
617
126
1,514
-12,009
2,037
41,614
(
..
)
( )
-321
..
)
5,010
..64
..)
~176
~176
~321
494
494
4,791
4,791
5,010
2,010
23
26
2,010
23
26
16,524
122
225
16,524
122
225
14,333
122
228
14,333
122
228
2.060
2,060
16,871
16,871
14,683
14,683
National Highway TraffiC Safety Administration
26
26
237
237
222
222
Federal Railroad Administration
Grants to NatIOnal Railroad Passenger Corporation
Other
34
33
491
346
19
491
327
465
341
13
327
34
33
837
19
818
806
13
792
Total-Department of State
..............................
Department of Transportation:
Federal Highway Administration
Highway trust fund:
Federal-aid highways
Other
Other programs
Total-Federal Highway Administration
Total-Federal Railroad Administration
(
)
(
14
(
465
Table 5" Outlays of the U"S" Government, August 1994 and Other Periods-Continued
[$ millions]
This Month
Classification
Gross IApplicable
Outlays
Receipts
Department of Transportation:-Continued
Federal Transit Administration:
Formula grants
Discretionary grants
Other
Total-Federal Transit Administration
Federal AViation Administration:
Operations
Airport and airway trust fund'
Grants-in-aid for airports
FaCilities and equipment
Research, engineering and development
Operations
Total-Airport and airway trust fund
I Outlays
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross lAPPlicablel Outla s
Outlays
Receipts
y
Gross IAPPlicablel Outla s
Outlays
Receipts
y
139
158
37
139
158
37
75
1,487
31,860
75
1,487
1,860
1,136
1,182
866
1.136
1.182
866
334
334
3,422
3,422
3,184
3.184
362
362
2,321
2,321
2,042
2,042
130
215
21
191
130
215
21
191
1,451
2,116
200
2,008
1,451
2,116
200
2,008
1,710
1,874
181
2,089
1,710
1,874
181
2,089
558
558
5,774
5,774
5,855
5,855
(" "j
(" "j
(" "j
(. 'j
-1
(. 'j
2
2
Total-Federal AViation Administration
920
(. "j
920
8,095
8,094
7,897
2
7,895
Coast Guard'
Operating expenses
AcquiSition, construction, and Improvements
Retired pay
Other
230
31
45
25
230
31
45
24
2,244
318
460
316
6
2,244
318
460
310
2,288
266
457
238
6
2,288
266
457
232
331
330
3,338
6
3,332
3,249
6
3,243
40
48
37
-1
797
359
330
7
9
1,389
333
714
11
12
23
-23
28
467
352
-9
19
-28
103
675
321
12
5
103
67
3,763
33,975
400
33,575
31,757
862
30,895
-90
67
-91
67
-1,205
229
12
-1,216
229
-1,239
248
11
-1.250
248
17
17
29
29
8
8
205
2,328
446
2
129
205
2,328
446
2
129
200
2,328
476
20
136
200
2,328
476
20
136
54
54
3,112
3,112
3,160
3,160
-114
-114
110
110
110
110
31
22
98
-8
-10
18
31
22
98
-8
-10
18
345
187
1,667
-28
43
252
345
187
1,667
-28
43
252
336
184
1,592
-27
-202
260
336
184
1,592
27
202
260
108
288
133
108
288
133
1,500
3,419
1,130
1,500
3,419
1,130
1,549
3,454
1,080
1,549
3,454
1,080
74
4
292
13
74
4
292
13
10,898
456
2,542
137
10,898
456
2,542
137
8,741
643
1,747
131
("j
8,741
643
1,747
131
913
913
20,081
20,081
17,345
("j
17.345
Other
Total-Coast Guard
Maritime Administration
Other
Proprietary receipts from the public
Intrabudgetary transactions
Offsetting governmental receipts
Total-Department of Transportation ...................
Department of the Treasury:
Departmental offices'
Exchange stabilization fund
Other
FinanCial Management Service:
Salaries and expenses
Payment to the Resolution Funding Corporation
Claims, ludgements, and relief acts
Net Interest paid to loan guarantee financing accounts
Other
Total-Financial Management Service
Federal FinanCing Bank
Bureau of Alcohol, Tobacco and Firearms:
Salaries and expenses
Internal revenue collections for Puerto Rico
United States Customs Service
Bureau of Engraving and Printing
United States Mint
Bureau of the PubliC Debt
Internal Revenue Service:
Processing tax returns and assistance
Tax law enforcement
Information systems
Payment where earned income credit exceeds liability
for tax
Health insurance supplement to earned income credit
Refunding internal revenue collections, interest
Other
Total-Internal Revenue Service
88
38
19
3,830
15
-5
Table 5. Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions)
This Month
Classification
Gross jAPPlicabii 0
Outlays
Receipts
UtIays
Department of the Treasury:-Continued
United States Secret Service
Comptroller of the Currency
Office of Thrift Supervlson
41
24
14
Interest on the public debt:
Public Issues (accrual baSIS)
Special Issues (cash baSIS)
Total-Interest on the pubhc debt
Department of Veterans Affairs:
Veterans Health Administration:
Medical care
Other
Veterans Benefits Administration:
Public enterprise funds:
Guaranty and Indemnity fund
Loan guaranty revolVing fund
Other
Compensation and pensions
Readjustment benefits
Post-Vietnam era veterans education account
Insurance funds:
National service life
United States government life
Veterans special life
Other
Construction
Departmental administration
Proprietary receipts from the public:
National service life
United States government life
Other
Intrabudgetary transactions
Total-Department of Veterans Affairs
Total-Environmental Protection Agency
189,093
86,370
19,686
278.403
278,403
275,463
275,463
3
-134
49
2,615
49
-2,615
51
'134
-601
-131
-10,580
769
-10,580
-769
-12,534
131
20,148
459
19,689
293,615
3,975
289,641
1,344
27
25
1,344
2
13,905
600
246
35
-42
7
1,510
69
4
1,357
510
305
15,806
1,045
73
104
2
8
2
1,134
18
119
4
1,700
20,370
92
27
645
884
19,686
90
-5
10
1,510
69
4
55
37
3
104
2
11
2
3
97
679
-12,534
--679
285,730
3,123
282,607
13,905
353
13,081
632
238
394
712
72
105
15,806
1,045
73
1,277
790
444
15,590
803
97
383
504
419
895
286
25
15,590
803
97
1,134
18
-55
4
1,028
18
115
7
10456
18,914
(" .)
645
884
645
437
200
174
20,170
1,485
18,685
575
886
(" .)
575
886
361
..
-361
)
(.')
741
-741
-28
2,825
32,490
-313
(" .)
(" .)
..
20
-20
1,201
-1,201
-29
-28
3,288
168
33,158
35,316
809
1,203
1,860
1,259
628
9
787
1,208
1,752
1,275
666
-181
-250
-9
193
5,248
5,508
362
33
-2
116
4
-89
3
83
119
-4
4
111
(" .)
3,120
36,375
96
86
151
130
51
-9
787
1,208
1,752
1,275
669
..)
..)
-250
(
10
503
5,441
400
19
-22
26
400
19
-22
26
-1
-89
3
83
119
424
423
116
(
513
16
3,217
3
181
1,028
18
-64
313
-29
13,081
179
(" .)
(" .)
465
-67
-3
51
-1,846
-27
)
393
194
1,846
)
9
................
417
162
..27
96
86
151
130
51
General Services Administration:
Real property activities
Personal property activities
Information Resources Management Service
Other
Proprietary receipts from the public
Total-General Services Administration
189,093
86,370
(
...............
OutlaY'
190,005
88,398
18,149
1,536
(
Environmental Protection Agency:
Program and research operations
Abatement, control, and compliance
Water Infrastructure financing
Hazardous substance superfund
Other
Proprietary receipts from the public
Intrabudgetary transactions
Offsetllng governmental receipts
Gross jApplicableJ
Outlays
Receipts
190,005
88,398
18,149
1,536
92
27
.................
Outlays
465
326
191
1,798
Total-Veterans Benefits Administration
jAPPIi~blej
Receipts
Prior Fiscal Year to Da..
455
-86
2
455
332
164
-601
.....................
Gross
Outlays
41
-97
-58
120
72
3
Other
Proprietary receipts from the public
Receipts from off· budget federal entities
Intrabudgetary transactions
Offsetting governmental receipts
Total-Department of the Treasury
Current Fiscal Year to Date
(
18
156
-250
509
809
1,203
1,860
1,259
610
-156
-250
9
-9
183
5,325
362
33
-2
116
9
-9
9
500
Table 5. Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross lAPPlicablel 0 tI
Outlays
Receipts
u ays
Gross IAPPlic.ablel Ouda s
Outlays
Receipts
y
Classification
National Aeronautics and Space Administration:
Research and development
Space flight. control. and data communications
Construction of facilities
Research and program management
Other
Total-National Aeronautics and Space
Administration ............................................
Office of Personnel Management:
Government payment for annuitants, employees health
and life insurance benefits
Payment to civil service retirement and disability fund .
Civil service retirement and disability fund
Employees health benefits fund
Employees life insurance fund
Retired employees health benefits fund . . . . . . . . . . . .
Other
Intrabudgetary transactions:
Civil service retirement and disability fund:
General fund contributions
Other.
Total-Office of Personnel Management
...............
Small Business Administration:
Public enterprise funds:
BUSiness loan fund
Disaster loan fund
Other
Other
Total-Small BUSiness Administration
..................
Other independent agencies:
Action
Board for International Broadcasting
Corporation for National and Community Service
Corporation for Public Broadcasting
District of Columbia:
Federal payment
Other
Equal Employment Opportunity Commission
Export-Import Bank of the United States
Federal Communications Commission
Federal Deposit Insurance Corporation:
Bank insurance fund
Savings association insurance fund
FSLlC resolution fund
. . . . . . . . . . . . ..
Affordable housing and bank enterprise
Federal Emergency Management Agency:
Public enterprise funds
Disaster relief
Emergency management planning and assistance
Other
Federal Trade Commission
Interstate Commerce Commission
Legal Services Corporation
National Archives and Records Administration
National Credit Union Administration:
Credit union share insurance fund
Central liquidity facility
Other
674
428
26
174
2
674
428
26
174
2
6,027
4,411
340
1,508
15
6,027
4,411
340
1,508
15
6,527
4,567
481
1,486
14
6,527
4,567
481
1,486
14
1,304
1,304
12,301
12,301
13,075
13,075
301
301
3,545
3,545
3,405
3,405
3,095
47
-174
33,250
-518
-1,132
5
33,250
14,150
1,253
7
141
141
31,966
13,410
1,204
8
101
-3
-31
-31
-39
-39
3,095
1,460
114
1
5
1,413
288
(' ')
-3
14,668
2,384
7
(")
14,054
2,277
8
31,966
-644
-1,072
(")
101
4,974
1,702
3,272
52,315
17,059
35,255
50,056
16,338
33,717
39
76
8
50
29
19
1
449
318
26
523
367
254
12
82
64
14
523
1,101
366
40
449
668
447
13
(")
9
57
7
50
(")
433
-81
27
449
172
50
123
1,317
633
683
1,956
1,129
827
16
35
11
154
183
39
275
154
183
39
275
189
215
189
215
319
319
698
-10
214
-872
99
698
3
199
1,270
119
16
35
11
(")
(")
21
70
15
107
5
20
-36
10
726
1
460
3,082
826
139
-2,355
-825
321
(")
-23
5
9
12
1
1,808
39
160
(")
2,024
36
698
-157
199
-754
83
12,347
1,389
2,761
-8,931
-1,367
-536
4
7,269
48
5,945
2
16,739
990
3,562
(")
3,415
22
2,224
4
-9,470
-942
2,384
2
-15
274
24
13
9
4
55
17
356
3,381
213
235
62
39
385
232
407
-50
3,381
213
235
62
39
385
232
662
2,053
237
278
77
38
348
221
303
359
2,053
237
278
77
38
348
221
4
5
-27
9
233
59
49
-268
(")
-34
58
38
19
84
33
365
84
46
(")
34
274
24
13
9
4
55
17
698
2
215
936
137
49
(")
17
(")
(")
(")
-11
(")
-346
(")
-14
Table 5. Outlays of the U.S. Government, August 1994 and Other Periods-Continued
[$ millions]
Classification
Other independent agencies:-Continued
NatlDnal EndDwment fDr the Arts
NatlDnal EndDwment for the Humanities
NatlDnal Labor RelatlDns BDard
NatlDnal SCience FDundatlDn
Nuclear RegulatDry CommlsSIDn
Panama Canal CommlsslDn
PDstal Service
Public enterprise funds (Off-budget)
Payment to the Postal Service fund
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross lAPPlic8bl1 Outla s
Receipts
y
Outlays
Gross IAPPlicable/
Outlays
Receipts
Outlay,
40
53
18
25
11
252
9
-4
161
163
155
2.375
496
486
53.895
129
43,434
130
22
389
22
389
-90
90
5
3
-90
90
5
3
-389
251
378
161
163
155
2.375
91
-31
157
152
153
2.206
448
478
-1.407
130
42.193
161
248
440
248
440
266
58
266
58
-995
995
66
19
9
-995
995
66
19
9
-979
979
65
5
5
-979
979
65
5
5
-389
251
378
-3.526
-208
2.699
4.360
-3.526
-208
2.699
4.360
-3.435
193
2.653
4.292
(. ')
(' ')
(' ')
(' ')
-3.435
193
2.653
4.292
4
Total-Railroad Retirement Board
659
659
4.107
4.107
4.106
4.106
Resolution Trust Corporation
Securities and Exchange Commission
SmithSOnian Institution
Tennessee Valley Authority
United States Information Agency
Other
911
17
44
755
122
230
1.479
16.827
71
353
8.807
1.030
2.343
13.804
1.356
3.023
71
353
1.178
1.030
987
11.329
118
352
7.721
973
1.198
30.465
189
-568
17
44
64
122
41
556
-19.136
118
352
1.965
973
642
8,944
10,565
-1,621
94,210
87,656
6,554
92,071
105,899
-13,828
..)
(' ')
(oo)
(")
("")
(H)
Railroad Retirement Soard:
Federal windfall subSidy
Federal payments to the railroad retirement aCCDunts
Rail Industry pension fund:
Advances from FOASDI fund
OASDI certifications
Administrative expenses
Interest on refunds of taxes
Other
Intrabudgetary transactions'
Payments from other funds to the railroad
retirement trust funds
Other
Supplemental annUIty pension fund
Railroad Social Security equivalent benefit account
Other
Total-Other independent agencies
....................
18
25
11
252
49
49
4.024
Undistributed offsetting receipts:
Other Interest
Employer share. employee retirement:
LegislatIVe Branch'
United States Tax Court:
Tax court ludges SUrviVorS annuity fund
The JudiCiary
JudiCial survivors annuity fund
Department of Defense-CIVil:
Military retirement fund
Department of Health and Human Services. except
SOCial Security:
Federal hospital Insurance trust fund'
Federal employer contnbutlons
postal Service employer contributions
Payments for military service credits
Department of Health and Human Services. Social
Security (Off-budget)
Federal old-age and survivors Insurance trust fund:
Federal employer contributions
Payments for military service credits
Federal disability Insurance trust fund:
Federal emplDyer contributions
Payments for military service credits
Department of State
Foreign Service retirement and disability fund
Office of Personnel Management·
C,v,l service retirement and dlsablhty fund
Independent agencies
Court of veterans appeals retirement fund
Total-Employer share. employee retirement
691
..
(
(
)
404
518
44.841
..
7.629
(
)
(. ")
(oo)
392
497
43.923
157
152
153
2.206
56
-19
-1.730
161
4
5.756
..
(
)
..
)
(H)
(
-1.072
-1.072
-11.752
-11.752
-12,055
-12.055
-167
-40
-3
-167
-40
-3
-1.678
-474
-80
-1.678
-474
-80
-1.674
-416
-81
-1,674
-416
-81
-476
-10
-476
-10
-5.007
-304
-5.007
-304
-4.995
-307
-4,995
-307
-51
-1
-51
-1
-538
-33
-538
-33
-534
-33
-534
-18
-18
-108
-108
-98
-98
-805
-805
-9.073
-9.073
-8.819
-8.819
2.643
-2.643
-29.050
(
18
.. )
..
(
)
-29.050
-33
..)
n
-29.011
-29.011
(
Table 5.
Outlays 01 the U.S. Government, August 1994 and Other Periods-Continued
[$ millions)
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicablel Outlays
Outlays
Receipts
Gross lAPPlicablel 0 I
Receipts
ut ays
Outlays
Gross IAPPlicablel Outla s
Outlays
Receipts
y
Classification
Undistributed offsetting receipts:-Continued
Interest received by trust funds'
The judiciary
Judicial survivors annuity fund
Department of Defense-CIvIl:
Corps of Engineers
Military retirement fund
EducallOn benefits fund
Soldiers' and airmen's home permanent fund
Other
Department of Health and Human Services, except
Social Security:
Federal hospital Insurance trust fund
Federal supplementary medical insurance trust fund
Department of Health and Human Services, Social
Security (off-budget)
Federal old-age and survivors Insurance trust fund
Federal disability Insurance trust fund
Department of Labor
Unemployment trust fund
Department of State
Foreign Service retirement and disability fund
Department of Transportation'
Highway trust fund
Airport and airway trust fund
011 spill liability trust fund
Department of Veterans Affairs:
National service life Insurance fund
United States government life Insurance Fund
EnVIronmental ProtecllOn Agency
National Aeronautics and Space Administration
Office of Personnel Management:
Civil service retirement and disability fund
Independent agenCies:
Railroad Retirement Board
Other
Other
Total-Interest received by trust funds
5
5
18
-18
-18
-18
6
165
7
6
-165
--7
(")
(")
(")
(")
-21
10,229
-48
-9
-1
-21
-10,229
-48
-9
-1
-23
-9,890
-57
-20
-23
-9,890
-57
-20
(")
(")
-8
27
-8
-27
-10,571
- 2,097
-10,571
-2,097
-10,568
-1,877
-10,568
-1,877
56
-14
-56
-14
-28,445
-680
-28,445
-680
-25,781
-959
-25,781
-959
18
-18
-2,490
-2,490
-2,535
-2,535
(")
(")
-570
-570
-546
-546
-18
5
-29
-18
-5
-29
-1,398
-828
-36
-1,398
-828
-36
-1,547
-1,033
-40
-1,547
-1,033
-40
-1,079
-10
-27
-1
-1.084
-11
-24
-1
-1,084
-11
-24
-1
1
-1
(")
(")
-25
-25
(")
(")
-1,079
-10
-27
-1
-40
-40
-26,114
-26,114
-25,127
-25,127
-114
4
-157
-114
-4
-157
-567
-16
-281
-567
-16
-281
-850
-13
-151
-850
-13
-151
-699
-85,534
-85,534
-82,154
-699
Rents and royalties on the outer continental shelf lands
Sale of major assets
408
-408
-3,749
Total-Undistributed offsetting receipts ............ , .. .
-3,341
408
Total outlays ................................. " ............. .
141,206
19,693
Total on-budget
111,077
15,798
Total off-budget
30,129
3,895
2,726
-2,726
-82,154
2,552
-2,552
-111,165
2,552
-113,717
121,513 1,510,781
182,222 1,328,559 1,487,496
197,951
1,289,545
95,279
1,215,367
137,370 1,077,997 1,205,116
154,028
1,051,088
26,233
295,414
-114,584
2,726 -117,310
44,852
250,563
282,380
43,923
238,457
-24,174
-207,268
-263,823
Total on-budget
-24,330
-261,048
-308,440
Total off-budget
+156
+53,780
+44,617
Total surplus (+) or deficit .............................. ..
MEMORANDUM
Receipts offset against outlays
[$ millions)
Current
Fiscal Year
to Date
Proprietary receipts
Receipts from off-budget federal entities
Intrabudgetary transactions
Governmental receipts
Total receipts offset against outlays
Comparable Period
Prior Fiscal Year
44,124
40,831
187,521
~
233,529
200,196
~
242,825
'The Postal ServIce accounting IS composed of thIrteen 28-day accountIng penods To
conform WIth the MTS calendar-month reporting basis used by all other Federal agencIes, the MTS
reflects USPS results through 8/19 and estimates for $671 mIllion through 8/31
No Transactions
(' ') Less than $500,000
Note. DetaIls may not add to totals due to roundIng
'Includes a prior period adlustment
'Includes FICA and SECA tax cred,ts, non-contnbutory mlhtary service credlls, special benefits
for the aged, and credit for unnegollated OASI benefit checks
'Outlays have been decreased In December 1993 by $547 mllhon to renect agency debt prevIously reported, by the Federal FinanCing Bank for the Federal "anslt Admlnlstlatlon, as outlays
'Includes $476 mllhon of unclassified August payroll charges
19
Table 6.
Means of Financing the Deficit or Disposition of Surplus by the U.S. Government, August 1994 and Other Periods
[$ millions]
~~~.-
"--
Assets and Liabilities
Directly Related to
Budget Off-budget Activity
Net Transactions
( -) denotes net reduction ot either
liability or asset accounts
Account Balances
Current Fiscal Year
Beginning of
Fiscal Year to Date
This Month
This Year
LIability accounts:
Borrowing from the publiC
Public debt securities. ISSUed under general FinancIng authoritIes'
Obligations of the UMed States. ISSUed by
United States Treasury
Federal FinanCing Bank
Total. public debt secUrities
338,626
4,396.489
15,000
4,621,362
15,000
55,630
280,502
338,626
4.411,489
4,636,362
4,676,991
15,000
4,691,991
-8
696
-33
-8,535
348
4,564
1,373
86,397
1,348
77,167
1,340
77,863
54,926
289,004
334.410
4,326,466
4,560,544
4,615,470
145
2,750
6.434
24,877
27,482
27,627
55,071
291,754
340,844
4,351,343
4,588,026
4,643,097
2,978
83,024
82.491
1,116,740
1,196,787
1,199,765
257
-11,736
-389
12.709
716
972
2,721
94.760
82.880
1,104.032
1.196.071
1,198,792
Deduct
Federal sec unties held as Investments of government accounts
(see Schedule 0)
Less discount on federal seCUrities held as investments of
government accounts
Net federal securities held as investments of government
accounts
Total borrowing from the publiC
Accrued Interest payable to the public
Allocations of special drawing rights
DepoSIt funds
Miscellaneous liability accounts (includes checks Outstanding etc.)
Tolal liability accounts ........... , ........................................
This Month
280,502
Agency secuntles. ISSUed under special financing authorities (see
Schedule B for other Agency borrowing, see Schedule C)
Total federal securities
I
This Year
55,630
Plus premium on publiC debt securities
Less discount on public debt securities
Total public debt securities net of Premium and
discount
I Prior Year
Close 01
This month
52,350
196.994
257.964
3,247,311
3,391.955
3,444,305
-17.413
22
3,212
-3,066
-9,906
144
1,569
-2.412
-9.356
-320
-206
-490
43,819
6.950
6,249
3.228
51,326
7.071
4,606
3.882
33,912
7,093
7,819
816
35,105
186,388
247,592
3,307,557
3,458,841
3,493,945
2,311
7,490
-11.295
-11,124
17,289
35.217
3,683
16,603
9.802
-22,419
-16.611
-1.384
-17,996
52,506
20.285
5,994
24,093
30,087
141
634
9.203
-8,018
9,696
-8,018
9,837
-8,018
141
634
-2,978
2,000
-978
1,185
1.678
1,819
118
-58
-2
777
-151
-3
12.063
-1.115
-10,025
-27
31,762
5.864
-25,514
-98
31.762
6.523
-25.607
-99
31,762
6,641
-25,665
Asset accounts (deduct)
Cash and monetary assets'
US Treasury operallng cash: '
Federal Reserve account
Tax and loan note accounts
Balance
SpeCial draWing rights:
Total holdings
SDR certificates ISSUed to Federal Reserve banks
Balance
Reserve position on the U.S quota in the IMF:
US subscription to International Monetary Fund:
Dlfect quota payments
Maintenance of value adjustments
Letter of credit issued to IMF
Dollar depoSits with the IMF .
Receivable/Payable (-) for intenm maintenance of value
ad,ustments
-101
-80
-566
1,451
90
-396
-476
-23
57
2,346
12,103
12.183
12,160
Loans to International Monetary Fund
Other cash and monetary assets
)
(")
1,684
1,929
852
22.414
22.659
24,343
Total cash and monetary assets
11,604
-19.798
-15.775
88.208
56.806
68,410
249
1.013
-1,358
-2.687
5.046
-2.785
-3.873
3.011
720
-6.320
6,862
-636
-8,758
10,895
-2,064
-9,006
11,908
-3,422
Balance
Net activity. guaranteed loan finanCing
Net activity. dlfect loan fInanCing
Miscellaneous asset accounts
Tolal asset accounts
.....................................................
....................................
Excess of liabilities (+) or assets (-)
)
..
(
11,010
-20,224
-15,917
88,114
56,880
67,890
+24,095
+206,612
+263,509
+3,219,443
+3,401,961
+3,426,056
80
655
314
576
655
+24,174
+207,268
+263,823
+3,402,537
+3,426,711
Transactions not applied to current year's surplus or defiCIt (see
Schedule a for Details)
Total budget and off-budget federal entities (financing of deficit (+)
or disposition of surplus (-») ............................................
..
(
'Malor sources of InformatIon used to determine Treasury 5 operating cash Income Indude the
Dally Balance Wires from Federal Reserve Banks reporting from the Bureau of PubliC Debt.
electronIC transfers through the Treasury FinanCial CommunIcation System and reconahng wIres
from Internal Revenue Centers Operating cash IS presented on a modifIed cash baSIS. de~s'ts
arE? reflected as recel'.... ed and Withdrawals are reflected as processed
+3,219,443
No Transactions
(0 0) Less than $500.000
Note: Details may not add to totals due to rounding
20
Table 6. Schedule A-Analysis of Change in Excess of Liabilities of the U.S. Government, August 1994 and
Other Periods
[$ millions)
Fiscal Year to Date
Classification
This Month
This Year
Excess of liabilities begmnmg of period.
Based on compOSition of Unified budget In preceding period
Adjustments dUring current fiscal year for changes In compoSition
of unified budget
ReclaSSification of the Disaster ASSistance Liquidating Account.
FEMA. to a budgetary status
ReVISions by federal agencies to the pnor budget results
ReclaSSification of Thnft Savings Plan Clearing Accounts to a
non-budgetary status
ReclaSSification of DepoSit In TranSit Differences (Suspense)
Clearing Accounts to a budgetary status
Excess of liabilities beginning of period (current basis)
I
Prior Year
3.402.310
3.218.965
2.964.066
-349
478
296
(")
(")
174
3,401,961
3,219.443
2,964,535
Budget surplus (-) or defiCit
Based on compOSition of unified budget In prior fiscal yr
Changes In composition of unified budget
24,174
207,268
263,823
Total surplus (-) or defiCit (Table 2)
24,174
207,268
263,823
Total-on-budget (Table 2)
24,330
261,048
308,440
Total-off-budget (Table 2)
-156
-53,780
-44,617
-80
-634
-314
-21
(")
Transactions not applied to current year's surplus or deficit:
Seigniorage
Increment on gold
Profit on sale of gold
Total-transactions not applied to current year's Surplus or
defiCit
Excess of liabilities close of period ................................. ..
-80
-655
-314
3,426,056
3,426,056
3,228,045
Table 6. Schedule 8-Securities Issued by Federal Agencies Under Special Financing Authorities, August 1994 and
Other Periods
[$ millions)
Net Transactions
(-) denotes net reduction of
liability accounts
Account Balances
Current Fiscal Year
Classification
Fiscal Year to Date
This Month
This Year
..
Agency securities, issued under special financing authOrities:
Obligations of the United States. Issued by:
Export-Import Bank of the United States
Federal DepoSit Insurance Corporation:
Bank Insurance fund
FSLlC resolution fund
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family hOUSing mortgages
Department of HOUSing and Urban Development:
Federal HOUSing Administration
Department of the Intenor:
Bureau of Land Management
Department of Transportation:
Federal TranSit Administration
Coast Guard:
Family hOUSing mortgages
Obligations not guaranteed by the United States, issued by:
Legislative Branch:
Architect of the Capitol
Department of Defense:
Homeowners assistance mortgages
Jndependent agencies:
Farm Credit System FinanCial ASSistance Corporation
National Archives and Records Administration
Tennessee Valley AuthOrity
I
Beginning of
Prior Year
This Year
..)
(
-145
-112
(
..)
r .)
694
'683
538
538
..)
7
6
6
-147
213
82
101
13
13
13
(
..)
r .)
r .)
176
189
191
1,261
300
25,091
1,261
299
25,217
27,482
27,627
(
19
I This Month
Close of
This month
'-547
14
13
-1
Total, agency securities .......................................... .
-·1
-2
125
3,542
5,876
1,261
302
21,675
145
2,750
6,434
24,877
No Transactions
(•• ) Less than $500,000
Note. Details may not add to totals due to rounding
'Includes notes canceled as of September 1991 for $92 million and $259 million for the Bank
Insurance Fund and the FSlIC Resolution Fund, respectively
'Represents agency debt preViously reported as outlays
'Represents the ISsuance of agency debt not preViously recorded
?1
Table 6.
Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
August 1994 and Other Periods
[$ millions)
-
--- -
Account Balances
Current Fiscal Year
Transactions
Classification
Beginning of
Fiscal Year to Date
This Month
I
This Year
Borrowing from the Treasury:
Funds Appropriated to the President
International Security Assistance
Guaranty reserve fund
Agency for International Development
International Debt Reduction
HouSing and other credit guaranty programs
Overseas Private Investment Corporation
Department of Agriculture
Foreign assistance programs
Commodity Credit Corporation
Farmers Home Administration
Agriculture credit Insurance fund
Self·help housing land development fund
Rural houSing Insurance fund
Rural Development Administration:
Rural development Insurance fund
Rural development loan fund
Federal Crop Insurance Corporation
Federal crop Insurance corporation fund
Rural Electrification Administration'
Rural communication development fund
Rural electrification and telephone revolVing fund
Rural Telephone Bank
Department of Commerce
Federal ship finanCing fund. NOAA
Department of Education
Guaranteed student loans
College houSing and academic faCIlities fund
College housing loans
Department of Energy:
Isotope production and distribution fund
Bonneville power administration fund
Department of Housing and Urban Development
Housing programs'
HouSing for the ederly and handicapped
Public and Indian housing:
Low-rent pubhc housing
Department of the Intenor
Bureau of Reclamation Loans
Bureau of Mines. Helium Fund
Bureau of Indian AffairS
RevolVing funds for loans
Department of Justice
Federal prison Industries. Incorporated
Department of State
Repatriation loans
Department of Transportation
Federal Railroad Administration
Railroad rehabilitation and Improvement financing funds
Settlements of railroad htlgatlon
Amtrak corndor Improvement loans
Regional rail reorganization program
Federal AViation Administration'
Aircraft purchase loan guarantee program
Department of the Treasury
Federal Financing Bank revolVing fund
Department of Veterans AffairS
Loan guaranty revolVing fund
Guaranty and Indemnity fund
Direct loan revolVing fund
Vocational rehabilitation revolVing fund
Environmental Protection Agency
Abatement control. and compliance loan program
Small BUSiness Administration:
BUSiness loan and reVOlVing fund
This Year
Prior Year
405
405
8
4
348
125
8
348
125
16
348
125
16
354
-8.632
100
5.149
193
24.745
547
16.052
547
16.113
-1.225
1
2,036
324
1
790
5.771
1
2,910
4,546
1
4,947
4,546
1
4,947
561
29
110
4
1,680
5
2,241
34
2,241
34
25
8,099
802
55
8,136
600
55
8,166
581
-32
2,058
154
460
2,058
459
460
2,058
505
460
266
4
470
13
2,332
13
2,597
13
2,597
-475
185
8,959
8,484
8,484
25
50
110
135
135
6
2
5
252
11
252
11
252
9
8
17
26
26
20
20
20
..
n
-113
30
-19
This Month
405
376
61
I
Close 01
This month
31
67
-221
113
194
40
-2
46
(
.. )
351
(00)
.. )
-1
8
8
(
..
(
-885
22
)
..)
(
(
16
-39
2
39
16
-39
)
(.0)
n
8
-39
2
39
..
(
)
2
39
-16,525
-35.806
114,329
98,689
97,804
1.158
612
7
-61
43
-1.730
860
83
1
2
2,018
695
8
2
2,018
695
8
2
10
8
12
22
22
2.464
205
3,203
5,667
5,667
Table 6. Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities
August 1994 and Other Periods-Continued
'
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
Beginning of
This Month
This Year -] Prior Year
Borrowing for the Treasury.-Conllnued
Other Independent agencies
Export·lmport Bank of the United States
Federal Emergency Management Agency
National Insurance development fund
Pennsylvania Avenue Development Corporation'
Land aqulsltlon and development fund
Railroad Retirement Board
Railroad retirement account
Social Security equivalent benefit account
Smithsonian Institution
John F Kennedy Center parking facilities
Tennessee Valley AuthOrity
Total agency borrowing from the Treasury
financed through public debt securities issued
236
..................
Borrowing from the Federal Financing Bank:
Funds Appropriated to the PreSident
Foreign military sales
Department of Agriculture
Rural Electrification Administration
Farmers Home Administration:
Agriculture credit Insurance fund
Rural housing Insurance fund
Rural development Insurance fund
Department of Defense
Department of the Navy
Defense agenCies
Department of Education
Student Loan Marketing Association
Department of Health and Human Services,
Except Social Security
Medical faCilities guarantee and loan fund
Department of Housing and Urban Development:
Low rent housing loans and other expenses
Community Development Grants
Department of Interior
Territorial and International affairs
Department of Transportation:
Federal Railroad Administration
Federal Transit Administration
Department of the Treasury:
FinanCial Management Service
General Services Administration:
Federal bUildings fund
Small Business Administration
Business loan and Investment fund
Independent agencies
Export·lmport Bank of the United States
Federal Deposit Insurance Corporation:
Bank Insurance fund
Pennsylvania Avenue Development Corporation
Postal Service
Resolution Trust Corporation
Tennessee Valley AuthOrity
Washington Metropolitan Transit AuthOrity
Total borrowing from the Federal Financing Bank
811
207
386
1,197
1,197
47
11
42
89
89
9
3
76
85
85
- 151
-212
2,128
2,690
2,128
2,303
2,128
2,539
20
150
20
150
20
150
-29,547
183,196
165,660
165,129
-34
- 243
-213
4,083
3,875
3,840
30
-251
-246
22,252
21,971
22,001
-255
-300
-2,725
-1,345
-3,950
-410
8,908
26,036
3,675
6,438
24,991
3,675
6,183
24,691
3,675
-49
-48
1,624
-96
1,624
-145
1,624
-145
-4,790
-30
4,790
-21
-39
85
63
63
-54
-19
-52
-41
1,801
131
1,747
114
1,747
112
-1
-28
23
22
22
-2
'547
-2
17
2118
15
665
15
665
-30
-95
30
18
311
720
1,436
1,729
1,747
-5
-86
-103
670
589
584
-1,411
-1,440
5,795
4,383
4,383
150
9,732
31,688
6,325
259
232
9,473
27,855
4,375
242
9,773
27,208
4,375
129,332
113,691
112,806
.. )
10
300
-646
92
42
-4,480
-1,950
-59
-885
-16,525
-10,160
66
278
-17,448
-2,106
-35,347
No Transactions
(' ') Less than $500,000
Note Details may not add to totals due to rounding
Note This table Includes lending by the Federal FinanCing Bank accomplished by the purchase
of agency financial assets. by the acquIsition of agency debt secUrities, and by direct loans on
behalf of an agency The Federal Financing Bank borrows from Treasury and Issues Its own
securities and In turn may loan these funds to agencies In lieu of agencies borrowing directly
through Treasury or Issuing their own securities
23
This Month
-18,067
(
'lncludes $118 million and $665 million which represent repayments of borrowings and new
borrowings respectively, from the Federal Financing Bank
21ncludes prior period adjustments to reflect the reclaSSification of agency borrowing
I
-530
-2
................
This Year
Close of
This month
Table 6.
Schedule D-Investments of Federal Government Accounts in Federal Securities, August 1994 and
Other Periods
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
This Year
Federal funds:
Department of Agriculture
Department of Commerce
Department of Defense-MIlitary·
Defense cooperation account
Department of Energy
Department of HOUSing and Urban Development:
HOUSing programs·
Federal hOUSing admintstration fund:
Public debt secunties
Government National Mortgage Association:
Management and liqUidating functions fund:
Public debt securities
Agency secunties
Guarantees of mortgage-backed securities:
Publtc debt securities
Agency securities
Other
Department of the Interior:
Publtc debt securities
Department of Labor
Department of Transportation
Department of the Treasury
Department of Veterans Affairs:
Canteen service revolving fund
Veterans reopened insurance fund
Servicemen's group life insurance fund
Independent agencies:
Export-Import Bank of the United States
Federal Deposit Insurance Corporation:
Bank Insurance fund
Savings aSSOCiation Insurance fund
FSLlC resolution fund
Public debt secunties
Federal Emergency Management Agency:
National flood Insurance fund
National Credit Union Administration
Postal Service
Tennessee Valley AuthOrity
Other
Other
Total public debt securities
Total agency securities
Total Federal funds
.............................................
Beginning of
Fiscal Year to Date
This Month
1
This Year
Prior Year
..)
(
Close 01
This month
1
This Month
-2
2
10
2
13
I")
2
2
-4
477
-2,023
466
9
4,081
5
4,556
5
4.557
..
478
-376
5.214
5.692
5.692
-9
-4
2
-40
9
20
16
16
467
3.221
1
191
3.605
1
134
3.688
1
193
-2
-1
(
)
12
59
2
503
-61
-103
33
84
5
-49
598
-11.704
86
1.715
420
900
98
2.337
2.508
16.590
881
5.773
3,074
4.802
962
7.538
3.107
4.886
967
7,488
-3
3
10
-108
-3
13
-44
38
518
150
41
531
42
41
528
42
78
234
353
76
232
310
2.430
830
9.078
1.372
-646
942
4.325
1.283
10,973
1,826
13,403
2.656
-321
1.001
-595
828
2,150
1.829
89
18
548
129
280
2.277
502
77
-64
-471
359
1.687
1,213
13
300
71
2.764
3.027
3.452
853
2.715
111
3.026
4.755
3.954
931
2.522
200
3.044
5.303
3.954
930
2.651
4.010
6.898
-4
5,344
-102
58.589
21
61.476
17
65,487
17
4,010
6,894
5,242
58,610
61,493
65,504
..3
..
)
)
r .)
)
4
27
4
5
27
5
27
33
279
19
7
212
5
239
200
246
284
83
..
(
-1
129
)
Trust funds:
Legislative Branch
library of Congress
United States Tax Court
Other
The JudiCiary:
JudiCial retirement funds
Department of Agnculture
Department of Commerce
Department of Defense-Military:
Voluntary separation Incentive fund
Other
Department of Defense-CIvil·
Military retirement fund
Other
..)
(
r .)
..
(
)
7
84
24
(
(
3
..
(
..
4
r .)
(
-17
r·)
-48
6
865
-8
844
151
814
157
797
157
-949
62
9,868
107
10.143
571
96.690
1.213
107.507
1.258
106.558
1.320
)
r .)
("I
Table 6. Scheoul9 0 Investments of Federal Government Accounts in Federal Securities, August 1994 and
Other Periods-Continued
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
Fiscal Year to Date
This Month
Beginning of
1
This Year
Prior Year
This Year
I This Month
Close of
This month
Trust Funds-Continued
Department of Health and Human Services. except SOCial Security:
Federal hospital Insurance trust fund:
Public debt seCUrities
Federal supplementary medical Insurance trust fund
Other
Department of Health and Human Services. Social Security:
Federal old-age and survivors Insurance trust fund:
Public debt seCUrities
Federal disability Insurance trust fund
Department of the Interior:
Public debt securities
Department of Justice
Department of Labor'
Unemployment trust fund
Other
Department of State
Foreign Service retirement and disability fund
Other
Department of Transportation:
Highway trust fund
Airport and airway trust fund
Other
Department of the Treasury
Department of Veterans Affairs'
General post fund, national homes
National service life insurance:
Public debt securities
United States government life Insurance Fund
Veterans special life insurance fund
Environmental Protection Agency
National Aeronautics and Space Administration
Office of Personnel Management:
Civil service retirement and disability fund:
Public debt securities
Employees health benefits fund
Employees life Insurance fund
Retired employees health benefits fund
Independent agencies:
Harry S. Truman memorial scholarship trust fund
Japan-United States Friendship Commission
Railroad Retirement Board
Other
-762
-1.247
8
3.035
-1.300
157
5.348
4.192
42
126.078
23.268
659
129.876
23.214
808
129.114
21.968
816
891
-669
56,193
-3,588
44,948
-2,530
355,510
10,237
410,812
7,319
411.702
6,649
15
50
52
-122
111
184
220
52
235
52
2,926
42
4,641
4
2,825
8
36,607
53
38,321
14
41,247
57
16
468
12
409
(")
6,662
38
7,113
50
7,129
50
-3,156
-394
72
2,183
-2,005
273
20
22,004
12,672
1.675
209
19,438
12,322
1,578
205
18,848
12,277
1,675
282
(")
5
39
38
38
418
-8
63
998
(")
251
-8
55
835
1
11,666
125
1 ,462
5,477
16
12,000
119
1,524
6,061
16
11,917
117
1,517
6,312
16
-1,835
-41
262
6,222
656
1,232
6,283
610
1,076
)
(")
(")
311,705
6,794
13,688
1
319,762
7,491
14,659
1
317,927
7,450
14,920
1
52
17
11,961
125
53
11,775
227
53
16
12,251
227
(")
-591
-44
97
77
-83
-2
-8
251
..
(
(")
(")
1
2
1
(")
(")
(")
476
290
102
483
20
(")
17
-1,033
76,130
77,249
1,058,131
1 ,135,293
1.134.261
Total trust funds .................................................
-1,033
76,130
77,249
1,058,131
1,135,293
1,134,261
Grand total ..................................................................
2,978
83,024
82,491
1,116,740
1,196,787
1,199,765
Total public debt securities
Note: Investments are In pu~ic debt securities unless otherwise noted
Note: Details may not add to totals due to rounding
No Transactions
(' .) Less than $500,000
25
Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1994
Table 7.
[$ millions)
Oct.
Classification
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Corn·
parable
Period
Prior
F.Y.
Receipts:
Individual Income taxes
Corporation Income taxes
Social Insurance taxes and
contributions
Employment taxes and
contnbutlons
Unemployment Insurance
Other retirement contributions
EXCise taxes
Eslate and gift taxes
Customs dulles
Miscellaneous receipts
Total-Receipts this year
...........
37,680
2,158
37,634
2,208
54,183
28,239
74,167
3,916
28,107
1,594
29,917
15,574
60,038
20,586
24,384
2,817
58,123
29,114
37,372
3,805
43,170
3,108
484,775
113,119
454,027
93,010
29,440
1,046
343
3,597
990
1,708
1,706
31,525
2,773
385
4,808
1,305
1,688
781
33,273
259
423
4,695
1,179
1,584
1,575
35,831
794
358
4,011
1,105
1,526
1,258
32,957
2,664
367
3,249
1,093
1,419
1,424
35,976
522
459
5,285
1,211
1,745
2,418
47,348
2,605
370
4,050
2,378
1,479
2,472
35,749
10,426
364
5.253
1,342
1,620
1,589
40,853
290
366
4,596
1,068
1,711
2,003
32,222
1,399
424
4,175
1,060
1,782
2,587
34,020
4,880
391
5,989
1,239
2,039
2,502
389,196
27,659
4,250
49,707
13,971
18,300
20,315
360,031
26,143
4,357
43,672
11,527
17,156
15,799
78,668
83,107 125,408 122,966
72,874
93,108 141,326
83,546 138,124
84,827
97,338
1,121,292
......
55,366 106,014
60,145
70,949
816,949
.. ...
32,110
24,681
26,389
304,343
......
70,642 128,570
110,630
86,737
1,025,72.'
(On-budget)
,
.......................
55,864
58,700
99,714
94,395
46,880
64,611 104,311
(Off-budget)
........................
22,804
24,407
25,694
28,571
25,995
28,497
7f>,1129
74,029 113.686
112,716
65,979
83.2118 JJe,017
55,()52
51,215
89,590
90,127
40,879
57,094
96,307
44,520
98,663
57,144
62,056
742,648
21,776
23.414
24,096
2],589
25,100
26,194
35,709
26./22
29,906
23,486
:!4. 681
283.074
378
158
20
206
219
18
204
190
16
212
179
20
202
177
14
198
386
14
164
182
25
188
224
16
191
159
14
222
307
20
185
288
38
2,350
2,470
213
2,208
2,417
182
3,302
397
366
129
347
92
541
406
258
186
42
6,066
7,105
557
133
351
348
242
17
388
156
176
5
325
-426
518
101
281
86
233
-305
506
-282
331
-149
3,908
-315
3,705
-46
900
3,993
264
2,263
4,886
277
2,614
3,794
282
974
3,815
244
1,369
3,373
245
1,130
4,264
261
1,342
3,873
231
702
4,206
173
26
4,138
201
91
4,220
249
185
3,946
205
11,597
44,506
2,633
16,733
42,285
2,481
6,634
6,413
5,131
5,357
7,049
5,132
8,626
6,953
5,746
2,944
8,668
4,043
5,835
6,156
5,600
5,959
8,169
6,361
8,098
7,089
4,493
3,150
6,354
4,545
6,076
7,890
5,461
6,371
6,697
4,499
6,123
7,383
4,842
65,174
78,821
55,853
69,608
85,079
64,454
2,987
404
226
2,875
388
208
2,949
390
241
2,678
415
273
2,252
344
265
3,292
372
303
2,691
188
326
3,090
465
263
3,159
465
294
2,516
428
287
2,936
555
256
31,424
4,415
2,943
33,882
4,297
2,943
1,568
-217
816
-28
275
572
-892
-12
542
-52
-1,153
69
876
-209
569
93
37
-189
435
-153
565
23
3,638
-101
-4,263
-1,130
23,147
21,796
25,752
18,117
20,943
23,372
23,552
18,530
23,195
21,080
22,683
242,166
254,870
2.550
1,805
1,710
2,515
3,356
1,723
2,550
2,535
1,492
2,509
1,102
1,269
2,459
1,202
1,221
2,471
1,004
1,561
2,513
2,068
1,263
2,507
2,243
1,158
2,542
2,144
1,568
2,562
1,454
1,362
2,629
2,371
1,455
27,806
21,285
15,782
26,789
27,556
15,107
1,467
1,700
1,633
1,178
1,694
1,954
1,462
1,630
1,919
1,636
1,845
18,118
17.086
7,394
7,432
6,626
8,006
7,088
9,319
6,097
7,193
6,202
8,196
7,220
10,069
6,475
8,224
6,982
8,339
7,456
9,374
6,204
8,676
7,138
8,937
74,881
93,765
68,705
4,650
3.783
2,970
4,838
3,801
2,061
5,846
3,782
3,892
4,170
2,968
1.760
4,213
2,926
2,087
5,293
3,605
2,110
4,533
3,572
5,625
4,623
3,001
298
5,416
3,565
2,015
5,452
3,029
3,637
5,153
3,054
2,234
54,186
37,087
28,688
49,628
41,082
27,646
2,797
-5,060
2,723
-5.060
2,828
-5,094
2,771
-4,429
2,864
-4,525
2,359
-5,109
2,910
-5,059
2,622
-4,501
2,208
-5,043
2,309
-4,443
2,806
-4,620
29,196
-52,943
25,745
-54,951
22,546
2.992
-977
22.554
2,998
-7
22,927
2,991
-\7
23.097
3,054
-1,559
23,250
3,077
-10
23,297
3,212
-13
23,398
3,231
-1,558
23,252
3,275
-9
26,765
3,323
-8
23,420
3,278
-1,514
23,459
3,262
-10
257,966
34,692
-5,682
247,3.\5
31,632
-1).18 1
2.645
2.415
2.309
1.564
1.886
2.278
2,246
2,048
2,125
2,219
2.547
24,282
23,013
rtl{a/~R('(('lr{\
rJrlor rcar
((}/I hlld~('[)
rOil
hlld~('/)
37,015
28,179
,
Outlays
Legislative Branch
The JudiCiary
Executive Office of the PreSident
Funds Appropnated to the President'
Intemational Security Assistance
International Development
ASSistance
Other
Deparlment of Agriculture'
Foreign aSSistance, special exporl
programs and Commodity Credit
Corporation
Other
Deparlment of Commerce
Deparlment of Defense:
Military
Military personnel
Operation and mamtenance
Procurement
Research, development, test, and
evaluation
Military construction
Family hOUSing
ReVOlving and management
funds
Other
Total Military
C,v,l
Deparlment of Education
Deparlment of Energy
Deparlment of Health and Human
Services, excepl Social Security
PubliC Health Service
Health Care FinanCing Admlnrstration'
Grants to States for Medicaid
Federal hospital Ins trust fund
Federal supp med Ins trust
fund
Other
SOCial Secunty Admlnrstratlon
Administration for children and
families
Other
Deparlment of Health and Human
Services, SOCial Secunty
Federal old-age and survivors Ins
trust fund
Federal disability Ins trust fund
Other
Department of HOUSing and Urban
Development
26
83,812
Table 7. Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1994-Continued
[$ millions]
Classification
Oct.
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Comparable
Period
Prior
F.Y.
Outlays-Continued
Department of the Interior
Department of Justice
Department of Labor:
Unemployment trust fund
Other.
Department of State
Department of Transportation
Highway trust fund
Other
Department of the Treasury:
Interest on the public debt
Other
Department of Veterans Affairs:
Compensation and pensions
National service life
United States government life
Other
Environmental Protection Agency
General Services Administration
National Aeronautics and Space
Administration
Office of Personnel Management
Small BUSiness Administration
Independent agencies:
Fed. Deposit Ins. Corp ..
Bank insurance fund
Savings association insurance
fund
FSLlC resolution fund
Postal Service:
Public enterprise funds (offbudget)
Payment to the Postal Service
fund
Resolution Trust Corporation
Tennessee Valley Authority
Other independent agencies
Undistributed offsetting receipts:
Employer share, employee
retirement
Interest received by trust funds
Rents and royalties on outer
continental shelf lands
Other
527
749
600
905
507
773
675
822
499
734
631
1.023
489
802
448
836
634
790
546
881
495
774
6,049
9,089
5,823
9,254
2.710
652
843
2.762
61
586
3,146
673
478
3,044
463
407
3080
444
360
3.183
26
417
2,369
881
251
2,128
551
320
2,064
729
338
1,973
860
294
2.196
712
494
28,654
6,053
4.791
36,959
4,654
5,010
1,774
1.377
1,601
1,651
1.516
1.560
1.244
1.373
1,271
1,541
1,135
1,791
1,203
1,459
1,434
1,472
1,755
1,432
1,681
1,544
2.033
1,730
16,646
16.929
14,455
16,441
17,638
-102
22.260
75
52.712
983
17,899
590
16,208
4,931
18,122
2,844
18,328
1,207
23,943
666
53,306
-181
18,301
222
19,686
4
278,403
11,238
275,463
7,144
1,400
66
2
1,338
430
239
1,406
57
1
1,705
506
-489
2,748
75
2
1.613
458
384
61
68
1
2,001
456
658
1,434
57
1
1,618
430
344
1,463
122
2
1,179
543
231
2.787
72
2
1,045
440
-549
97
74
2
1,472
439
417
1,458
77
2
1,464
520
475
1,441
76
2
1,549
523
-704
1,510
77
2
1.530
503
423
15,806
821
18
16,514
5,248
111
15,590
667
18
16,215
5,325
500
1,079
3,335
14
1,214
2,879
146
1,191
3079
49
1,015
3,249
-7
1,029
3,098
27
1,275
3,207
64
986
3,413
52
1,110
3,012
70
1,105
3,361
68
994
3,349
78
1,304
3,272
123
12,301
35,255
683
13,075
33,717
827
52
-182
1,322
452
--3,558
-379
-145
382
30
-237
-2,355
-8,931
-9,470
-5
4
8
8
-140
25
-93
-492
-253
-7
-15
-2
-552
-16
207
-3
-14
-5
-4
-825
321
-1,367
'-536
-942
2,384
-509
-237
146
194
184
-746
- 1,049
60
-122
543
129
-1,407
-1,730
61
7
106
1,705
-1,169
168
2,048
2,471
101
1,109
23
--74
212
1,283
-678
32
1,780
-439
-18
1,973
23
783
101
1,489
1,777
213
1,474
1,233
78
-1,569
23
-319
122
1,558
-568
64
1,614
130
3,023
1,178
14,464
161
--19,136
1,965
12,941
-2,449 -2,592
-5,173 -36,027
-2,601
-122
-2,592
-458
-2,733
-130
-2,585
-726
-2,557 -2,559
-5,467 -36,407
-3,167
35
--2,643
-699
-29,050
-85,534
-29,011
-82,154
-145
-313
-223
266
-136
-9
-408
-2,726
-2,552
(oo)
(oo)
(oo)
(oo)
n
-2,572
-359
-21
n
-461
(' .)
(oo)
-475
(" ')
-268
n
(oo)
Totals this year:
Total outlays
(On-budget)
(Off-budget)
.........................
... . . . . . . . . . . . . . . . . . . . . .
........................
Total-surplus (+) or deficit (-)
.....
(On-budget) ........ , ...... , ........
(Off-budget) ............... ' ........
Total borrowing from the public
....
TOlal-otillays pnor year
124,090 121,488 133,114 107,718 114,440 125,423 123,872 115,602 123,275 118,025 121,513
100,567
23,523
96,724 121,431
83,526
88,523 100,259 100,625
89,731
11,683
24,192
25,917
23,247
25,871
24,764
-45,422 -38,381
4,255
1~5.6;>O
33,018 -24,330
-261,048
-180
+1:;6
+53,780
-3,245
52,350
196,994
+4,379
13,449
-6,933
31,633
8~.899
114.477
153.430
IIn.57~
1l4.9].1
(Offbudget)
]11141
]3.919
30061
:'.0]5
(Off-budge!)
+77
107.355 1.1].633
25,164
-r,5
]0,<)1i]
+5.~()]
-.1{)5 - 11.96.1 +:!4.r,14
+3,686 -34,365
-2,152
+3,333 +13,768
+2,308 +17,002
26,511 -21,801
27,649
1~7.;>63
2,098
84. 949
f.()51.088
~3.
:'4.80 7
]3/\,457
+ 7,817 - 36. %3 + II.()99 -39.57 7 -:!3.Ii71\
- :,r,3,/i]}
-4,11 /3 -NOV9 - ]:!,893
- 308,440
103.477
]4,]37
:!],44/\
24395
13. 994
t.l44
No transactions
(' .) Less than $500,000
Note Details may not add to totals due to rounding
27
257,964
9r,,]43
83.~/O
. 48.ii4] -4.1.931
......
......
1.]89,545
101. 75]
}4, 757
......
......
......
......
1]0,]07 f(W81.1
I ]4.~O() 107,605 117.471
89. 7:'0 103.0]5
-415,79] - 3],7]r, -31()47 + ~9.817 -48.491\ -43. 974
-41i.727 - .I:!]] I
24,861
250,563
103. 7150
(On-budget)
15,108
1,328,559
1,077,997
-207,268
(On-budget)
TOlal-surplus (+) or deficil (-) prwr
year
95,279
26,233
-357 +14,012
71,028
93,164
-7,705 +15,248 -41,566 -32,315 +17,454 -32,057 +14,850 -33,198 -24,174
-44,704 -38,024 -21,717 +10,869 -41,644 -35,648
-719
108,166
- 5.44.1 -31i.r,90
+ 1.9.17 + 13.]01
+1 7 ]7
+ 1.1.91:>
964
-4:8
-180
+44,617
Table 8.
Trust Fund Impact on Budget Results and Investment Holdings as of August 31, 1994
[$ millions]
This Month
Fiscal Year to Date
Securities held as Investments
Current Fiscal Year
Classification
Beginning of
Receipts
Outlays
Excess
Receipts
Outlays
Excess
This Year
Trust receipts. outlays. and Investments
held:
Airport
Black lung dlsabdlty
Federal disability Insurance
Federal employees life and health
Federal employees retirement
Federal hospital Insurance
Federal Old-age and survivors insurance
Federal supplementary medical insurance
Highways
Military advances
Railroad retirement
Military retirement
Unemployment
Veterans life insurance
All other trust
1.261
7.544
24.386
4.544
1.599
1.145
909
1.237
4.960
28
637
558
49
3.262
-74
3.131
8.937
23,459
5.153
2.219
1.029
634
2.256
2.196
114
192
-75
-1
-642
74
-1.870
-1.392
926
-609
-619
116
275
-1.019
2.764
-86
445
Total trust fund receipts and outlays
and investments held from Table 60 ..........................................
Less: Interfund transactions
51,402
6.866
53,115
6.866
Trust fund receipts and outlays on the basis
of Tables 4 & 5
44.536
Total Federal fund receipts and outlays
Less: Interfund transactions
Federal fund receipts and outlays on the
baSIS of Table 4 & 5
Less: offsetting proprietary receipts
Net budget receipts & outlays
...............
483
48
2.621
5,473
550
31.010
40.340
96.730
314.021
52.928
16.896
12.112
7.764
33.889
33.291
1,404
4.903
5.774
552
34.692
-1.301
33.636
93.765
257.966
54.186
20.069
12.062
7.149
24,456
28.654
1.097
3.376
-301
-2
-3.682
1.301
6.704
2.966
56.055
-1.258
-3.173
50
615
9.432
4.637
307
1.527
-1,713
651,312
176.962
576.133
176.962
75,178
46.249
-1.713
474.349
399.171
75.178
55,629
20
78,090
20
-22,461
677,102
453
959,548
453
-282,446
55.609
78.070
-22.461
676.649
959.095
-282.446
2.806
2.806
29.707
29.707
97,338
121,513
-24,174
No transaetlOlls.
Note' Interfund receipts and outlays are transactions between Federal funds and trust funds
such as Federal payments and contributions. and interest and profits on investments in Federal
secunttes. They have no net effect on overall budget receipts and outlays since the receipts side of
such transactions is offset against bugdet outlays. In this table, Interfund receipts are shown as an
adjustment to arrive at total receipts and outlays of trust funds respectively.
1,121,292 1,328,559
I This Month
12.672
12.322
12.277
10.237
20.484
318.583
126.078
355.510
23.268
22.004
7.319
22.151
327.119
129.876
410.812
23.214
19.438
6.649
22.372
325.307
129.114
411.702
21.968
18.848
11.961
96.690
36.607
13.253
10.784
11.775
107.507
38.321
13.643
11.798
12.251
106.558
41.247
13.551
12.417
1,058,131
1,135,293
1,134,261
-207,268
Note: Details may not add to totals due to rounding.
28
Close of
This Month
Table 9. Summary of "ecelpts by Source, and Outlays by Function of the U.S. Government, August 1994
and Other Periods
[$ millions]
Classification
This Month
Fiscal Year
To Dale
Comparable Period
Prior Fiscal Year
43.170
3.108
484.775
113.119
454.027
93,010
34,020
4,880
391
5,989
1,239
2,039
2,502
389,196
27,659
4.250
49,707
13,971
18,300
20,315
360.031
26,143
4.357
43,672
11,527
17,156
15,799
97,338
1,121,292
1,025,722
23,711
990
1,654
390
1,745
382
-3,026
3,719
1,138
4.342
9,426
12.540
16.848
26.722
3.130
1.204
1,325
18,322
-3,051
253,793
14,926
15,830
4,411
18,745
14,896
-7,569
33,252
10,408
39,642
97,389
131,715
196,872
292,653
33,381
13,922
10,055
186,013
-31,775
265,701
15,619
15,667
4,721
18,201
20,057
-25,964
31,472
9,225
44,396
90,169
119,478
192,367
278,962
32,705
13,585
11,329
183,418
-31,563
121,513
1,328,559
1,289,545
RECEIPTS
Individual Income taxes
Corporation Income taxes
Social Insurance taxes and contributions:
Employment taxes and contributions
Unemployment Insurance
Other retirement contributions
Excise taxes
Estate and gift taxes
Customs
Miscellaneous
Tolal ........................................................ .
NET OUTLAYS
National defense
Intemational affairs
General SCience, space, and technology
Energy
Natural resources and environment
Agnculture
Commerce and housing credit
Transportation
Community and Regional Development
Education, training, employment and social services
Health
Medicare
Income security
SOCial Security
Veterans benefits and services
Administration of lustlce
General government
Interest
Undistributed offsetting receipts
Total., ... , .................................................. .
Note Details may not add to totals due to rounding
29
Explanatory Notes
the employee and credits for whatever purpose the money was withheld
Outlays are stated net of offsetting collections (including receipts of
revolving and management funds) and of refunds. Interest on the public
debt (public issues) is recognized on the accrual basis. Federal credit
programs subject to the Federal Credit Reform Act of 1990 use the cash
basis of accounting and are divided into two components. The portion of
the credit activities that involve a cost to the Government (mainly
subsidies) IS included within the budget program accounts. The remaining
portion of the credit activities are in non-budget financing accounts.
Outlays of off-budget Federal entities are excluded by law from budget
totals. However, they are shown separately and combined with the onbudget outlays to display total Federal outlays.
1. Flow of Data Into Monthly Treasury Statement
The Monthly Treasury Statement (MTS) is assembled from data in the
central accounting system. The major sources of data include monthly
accounting reports by Federal entitles and disbursing officers. and daily
reports from the Federal Reserve banks. These reports detail accounting
transactions affecting receipts and outlays of the Federal Government
and off-budget Federal entities, and their related effect on the assets and
liabilities of the U.S. Government. Information is presented in the MTS on
a modified cash basis
2. Notes on Receipts
Receipts Included in the report are classified into the following major
categories: (1) budget receipts and (2) offsetting collections (also called
applicable receipts). Budget receipts are collections from the public that
result from the exercise of the Government's sovereign or governmental
powers, excluding receipts offset against outlays. These collections, also
called governmental receipts, consist mainly of tax receipts (including
social insurance taxes), receipts from court fines, certain licenses, and
deposits of earnings by the Federal Reserve System. RefundS of receipts
are treated as deductions from gross receipts.
Offsetting collections are from other Government accounts or the
public that are of a business-type or market-oriented nature. They are
classified into two major categories: (1) offsetting collections credited to
appropriations or fund accounts, and (2) offsetting receipts (i.e., amounts
deposited in receipt accounts). Collections credited to appropriation or
fund accounts normally can be used without appropriation action by
Congress. These occur in two instances: (1) when authorized by law,
amounts collected for materials or services are treated as reimbursements to appropriations and (2) in the three types of revolving funds
(public enterprise, intragovemmental, and trust); collections are netted
against spending, and outlays are reported as the net amount.
Offsetting receipts in receipt accounts cannot be used without being
appropriated. They are subdivided into two categories: (1) proprietary
receipts-these collections are from the public and they are offset against
outlays by agency and by function, and (2) intragovernmental fundsthese are payments into receipt accounts from Governmental appropriation or funds accounts. They finance operations within and between
Government agencies and are credited with collections from other
Government accounts. The transactions may be intrabudgetary when the
payment and receipt both occur within the budget or from receipts from
off-budget Federal entities in those cases where payment is made by a
Federal entity whose budget authority and outlays are excluded from the
budget totals.
Intrabudgetary transactions are subdivided into three categories:
(1) interfund transactions, where the payments are from one fund group
(either Federal funds or trust funds) to a receipt account in the other fund
group; (2) Federal intrafund transactions, where the payments and
receipts both occur within the Federal fund group; and (3) trust intrafund
transactions, where the payments and receipts both occur within the trust
fund group.
Offsetting receipts are generally deducted from budget authority and
outlays by function, by subfunction, or by agency. There are four types of
receipts, however, that are deducted from budget totals as undistributed
offsetting receipts. They are: (1) agencies' payments (including payments
by off-budget Federal entities) as employers into employees retirement
funds. (2) interest received by trust funds, (3) rents and royalties on the
Outer Continental Shelf lands, and (4) other interest (i.e., interest collected
on Outer Continental Shelf money in deposit funds when such money is
transferred Into the budget).
4. Processing
The data on payments and collections are reported by account symbol
into the central accounting system. In turn, the data are extracted from
this system for use in the preparation of the MTS.
There are two major checks which are conducted to assure the
consistency of the data reported:
1. Verification of payment data. The monthly payment activity reported by
Federal entities on their Statements of Transactions is compared to the
payment activity of Federal entities as reported by disbursing officers.
2. Verification of collection data. Reported collections appearing on
Statements of Transactions are compared to deposits as reported by
Federal Reserve banks.
5. Other Sources of Information About Federal Government
Financial Activities
• A Glossary of Terms Used in the Federal Budget Process, March
1981 (Available from the U.S. General Accounting Office, Gaithersburg,
Md. 20760). This glossary provides a basic reference document of
standardized definitions of terms used by the Federal Govemment in the
budgetmaking process.
• Daily Treasury Statement (Available from GPO, Washington, D.C.
20402, on a subscription basis only). The Daily Treasury Statement is
published each working day of the Federal Government and provides data
on the cash and debt operations of the Treasury.
• Monthly Statement of the PubliC Debt of the United States
(Available from GPO, Washington, D.C. 20402 on a subscription basis
only). This publication provides detailed information concerning the public
debt.
• Treasury Bulletin (Available from GPO, Washington, D.C. 20402, by
subscription or Single copy). Quarterly. Contains a mix of narrative, tables,
and charts on Treasury issues, Federal financial operations, international
statistics, and special reports.
• Budget of the United States Government, Fiscal Year 19 _
(Available from GPO, Washington, D.C. 20402). This publication is a
single volume which provides budget information and contains:
-Appendix, The Budget of the United States Government, FY 19_
-The United States Budget in Brief, FY 19 _
-Special Analyses
-Historical Tables
-Management of the United States Government
-Major Policy Initiatives
3. Notes on Outlays
Outlays are generally accounted for on the basis of checks issued,
electronic funds transferred, or cash payments made. Certain outlays do
not require issuance of cash or checks. An example is charges made
against appropriations for that part of employees' salaries withheld for
taxes or savings bond allotments - these are counted as payments to
• United States Government Annual Report and Appendix (Available
from Financial Management Service, U.S. Department of the Treasury.
Washington, D.C. 20227). This annual report represents budgetary
results at the summary level. The appendix presents the individual receipt
and appropriation accounts at the detail level.
30
Scheduled Release
The release date for the September 1994 Statement
is subject to completion of year-end reporting requirements.
For sale by the Superintendent of Documents, U.S. Government Printing
Office, Washington, D.C. 20402 (202) 512·1800. The SubScription price IS
$35.00 per year (domestic), $43.75 per year (foreign)
No Single copies are sOld.
The Monthly Treasury Statement is now available on the Department of Commerce's Economic Bulletin Board.
For Information call (202)482-2939.
DEPARTMENT
OF
THE
TREASURY
TREASURY (.)'NE;;W S
17 H q
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .•
3! L ,i ; { 2 .
WASHINGT6l'tD:C~
@o220. (202) 622-2960
:
FOR 1M MEOlATE RELEASE
September 23, 1994
MEDIA ADVISORY
Treasury Secretary Lloyd Bentsen will speak about the upcoming Clinton-Yeltsin
Summit to the Nitze School of Advanced International Studies (S.A.I.S.) at Johns
Hopkins University and the U.S.-Russia Business Council on Monday, September 26.
He'll speak beginning at 12 noon in the Kenney Auditorium at 1740
Massachusetts Ave., N.W.
Contacts:
Treasury -- Scott Dykema (202) 622-2960
S.A.I.S. -- Lucy Howton (202) 663-5626
-30-
LB-ll07
DEPARTMENT
OFFICE OF PUBUC AFFAIRS .:f5g0-;I)ENNSnVAN
OF
THE
TREASURY
,A,VENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as prepared for delivery
September 23, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
CDFI BILL SIGNING CEREMONY
This is more than just another bill signing ceremony. This morning we're making
good on another commitment to Americans.
Today, we are giving new life to areas of our cities that need hope. We're giving
new life to rural areas that have suffered just as much as our inner cities. And we're
giving new hope to Americans who have dreams -- dreams of owning their own business,
dreams of decent housing, dreams of making a better life for their families.
Some legislation takes us years and years. And we sometimes have political
disagreements that slow things down. Working together -- in a bipartisan manner -- we
were able to see this one passed in about a year -- first in the House with 410 votes, and
then on a voice vote in the Senate.
This achievement took a commitment to change. And it took a willingness to act.
I think back two years ago. We were in the midst of a campaign -- a campaign to
change America. Slowly and steadily we are seeing that happen.
It is happening because this president, this administration, has a commitment to
people and a commitment to delivering on the promise to restore our economy. This
was one of the President's pledges, and he's made good on it.
This bill doesn't exist in a vacuum. It's part of a broader agenda that includes
interstate banking, which can reduce expenses for financial institutions and give
customers more convenience. It goes hand-in-hand with the program we accomplished
last year of restoring the availability of credit to our smaller and medium-sized
businesses.
(MORE)
LB-l108
2
We didn't confine the CDFI bill just to lifting up our distressed communities. We
took the opportunity to protect homeowners from exorbitant fees and sharp practices.
We're improving the detection of money laundering. We're reducing the regulatory and
paperwork burden on our financial institutions, and streamlining regulatory requirements.
And, we're helping our small businesses and those who help provide our businesses with
commercial real estate by removing the barriers to backing securities with small business
or commercial real estate loans.
That's a lot in one package.
That's not all. Soon federal bank regulators will take the next step in revitalizing
inner cities and rural communities with a revised Community Reinvestment Act proposal.
I want to take just a few minutes this morning to talk about what the CDFI
legislation will do, and what it's impact will be.
These Community Development Financial Institutions are some of the most
efficient and effective deals going. We put up a little money, they leverage it with other
funds from the private sector, and then they lend the money out in their communities.
We're also working with traditional financial institutions by providing incentives to
extend credit to these communities.
All of this money goes to rehabilitate homes, or to start small businesses which
generate payrolls in the community. And as each institution builds its portfolio, the idea
is to see that they become self-sust:lining.
We're setting up :1 CDFI fund to oper:lte the program. We're on track now to
put in $500 million over four years. Imagine what that can do for an inner city, or a
rural area that has lost a large employer, where no one wants to do business.
All in all, the seed money we're talking about today could mean $4.8 billion or
more in new credit for the Americans who need it most. These communities need our
help. We promised it to them, and we're making good on that commitment today.
I want now to introduce two people you'll he:lr from before the President -people who are out on the line every day working to make community development a
reality: First, David Lollis of App:lIBank in Berea, Kentucky. He's had a long career in
nonprofit housing and community development. And second, the Reverend Philip
Lawson, a founder and director of the Community Bank of the Bay in Oakland. This
bank will be making loans to small businesses, and for housing in the East Bay area.
Thank you very much.
-30-
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 23, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
I wanted to come over this afternoon with Frank Newman, our undersecretary for
domestic finance and soon to be my deputy, to go over some of the fine points of the
Community Development Financial Institutions Act the president just signed.
Frank can get into detail with you, but there are a few points I want to make first.
With about $500 million over the next four years, we're going to leverage
at least $4.8 billion in credit for some of our most distressed communities.
The success stories of some of these community lending institutions are
phenomenal, the sorts of things people have been able to do -- for themselves and for
their communities. Start businesses, create jobs, upgrade housing, improve their lives.
We just heard from some of the people who have made these sorts of operations
succeed.
In the past two years we've had a very full agenda on the financial front. This is
part of that. We've now done interstate banking, we made credit more available last
year, particularly to small businesses, we made the last payment on cleaning up the S&L
problem, our rulemaking authority for the government securities market was renewed,
and we've been reducing the regulatory and paperwork burden for our lenders.
We have a bit of that last item -- a reduced regulatory and paperwork burden -in this bill, along with some important protections for homeowners from sharp operators.
There's a provision on removing barriers to packaging small business or commercial real
estate loans for sale to investors backing securities. And there's a provision to improve
our ability to go after crooks who launder money.
This is an impressive piece of legislation, and we've had an excellent record over
the past two years. I've been at this a while, and it's rare to have something as
complicated as CDFI go through so quickly and come out in such strong shape. We had
bipartisan support, and we also had going for us a president who wants to deliver on his
promises.
-30LB-l109
DEPARTMENT
OF
THE
.'''~''.
TREASURY
TREASURY:~ ~ )tNB W
~/7X<)
S
••••••••••••••••••
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• -WASHINGTON, D,C,. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
September 26, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
THE PAUL H. NITZE SCHOOL OF ADVANCED INTERNATIONAL STUDIES
THE JOHNS HOPKINS UNIVERSITY
WASHINGTON D.C.
Usually when I speak to students it's at commencements, on the last day of
school, at the end of their academic careers, and they already know what they want to
do. So I don't have much of an influence.
Today is different, I hope. They booked me to speak to you at the beginning of
the academic calendar.
I'll be talking about Russia. When President Yeltsin meets with President Clinton
tomorrow, it will be to renew a partnership that is paying off for both Russia and the
United States.
Russia's economic reforms are working, and western support is helping. Russia's
market economy is taking hold, and the West is bringing Russia into the markets and
institutions of the world economy.
But the real test of that payoff is right in this room. It's what will happen when
you graduate and when students five or 10 years from now graduate.
You see, when this school was founded in the 1940s, its purpose was to train top
diplomats. That's what we needed at the time. I know the founders -- Paul Nitze. And
I knew Christian Herter. I served in Congress with him.
Now, they tell me that 40 percent of you will go into the private sector. I'm here
to recruit. Not to recruit you for government work, although we can always use some
good ones. But to recruit you into the private sector -- to do business with Russia,
because that's how we'll know if the reforms really work.
LB-1110
2
There are some business people here today, too, and I want you students to make
sure to get acquainted with them. They can use you.
My message today on Russia is this: the reform process must continue. I think it
must continue with bolder Russian economic reform, and bolder activation of available
western support.
Let me start by taking you back to the first meeting between the two Presidents.
It was in Vancouver in April 1993, and the outlook for Russia's economic reforms was
pretty bleak. The radical reformers had pointed the way with an ambitious reform
agenda, but the reforms were not taking hold.
Inflation was out of control. It had averaged 25 percent per month for half a
year, wages averaged $35 per month, and industry remained firmly in state hands. The
energy sector, so critical to the country's prospects, was crippled -- with falling production
and one in seven wells shut in.
The government reformers were stalemated by the powerful Soviet-holdover
Parliament. Russian skepticism about economic prospects was clear from the wave of
billions of dollars of capital flight to the West.
And Western investors were visiting but not investing.
That's where we were 17 months ago.
I was at that summit. In fact, it was the first time a President had asked his
Treasury Secretary to participate. In Vancouver, economic reform issues were at the top
of the agenda. President Yeltsin assured us that Russia would press on with reform. He
asked for financial support for his reforms and open markets for Russian goods.
President Clinton pledged to lead a G-7 effort to support Russia and stressed that
the U.S. would stick with Russia as it progressed.
President Clinton asked Congress for $4.5 billion to help the Russian government
with technical assistance and to help the people take on the transformation. He also led
the G-7 effort to raise $43 billion in multilateral financial support for the reforms.
He emphasized that our support would be measured with the pace of Russia's
reforms. That was key, because it meant that our money would go only to support
reform. It also meant that we were committed to help the reformers each step of the
way.
3
Before President Clinton came into office, the U.S. and G-7 spent too much
energy collecting old loans that had been made to the Soviet Union. When it came to
new loans, the conditions on Western loans were set tough enough to keep support just
out of the reformers' grasp. We've put that vicious cycle to an end.
When the two Presidents meet again this week, we'll see that the process begun in
Vancouver has worked.
President Yeltsin has pushed ahead with reform. And that hasn't been easy.
There was the Parliamentary crisis last October, new elections in December, and a
change of government in January. I want to talk about some of those problems in a
minute, but look at the numbers. Russia's reforms are working.
Look at the budget deficit. It's been reduced by about 10 percent of GDP. Now,
Russia's deficit is less than a number of European countries -- including, Italy, Belgium,
and Greece.
Look at inflation. In 1993, it was over 20 percent per month. It has been brought
down to about 5 percent per month. This has stemmed capital flight, allowed interest
rates to come down, and now there is a growing sense that normalcy in the business
environment is setting in.
Look at real interest rates. They've been positive this year. Anyone who brought
their money home from Switzerland on January 1 would have earned 25 percent more
after correcting for inflation in a Russian bank so far this year. In other words, anyone
who chose capital flight and gambled against Boris Yeltsin is down 25 percent.
And contrary to popular reports, real incomes have been rising and the
percentage of people living below the poverty line is decreasing. Since the Vancouver
Summit, real incomes are up by about 30 percent. It used to be that two-thirds of their
personal income was from wages. Now just half is from wages -- the other half coming
from people running their own businesses and from investments.
Look at privatization rates. Over 80,000 small businesses and 14,000 large
enterprises have been turned over to private owners. About 50 percent of GDP is
produced in private firms.
Now I see Western investors putting money in Russia on an unprecedented scale.
Financial investment is going into privatized Russian enterprises.
Credit Suisse First Boston says they've placed over $1 billion in Russian equities.
U.S. companies are also making direct investments. A $9 billion Texaco oil investment
deal is near completion.
4
Just getting wells back into operation results in a tremendous payoff. You can
get hard currency -- and fast. If you put $1 into repairing a well, you get back 80 cents
in the first year. The eventual payoff is 4 to 1 -- $4 for every $1 you put in.
So Russia's reforms are showing results, and President Clinton's policy is helping.
It's been effective.
But I said it hasn't always gone smoothly. It never does. I think back to January,
when Russia's government changed, and there was talk of an end to market romanticism.
Both in Russia and here in the United States, there was talk about slowing reforms,
looking for a different approach.
President Clinton went to Moscow to urge President Yeltsin to stick to the proven
path of creating a private, market economy. And he promised that he would call on the
G-7, the IMF and the World Bank to stand by Russia, engage at the highest levels, and
support the continuation of reforms.
In the end, that's what happened. Russia renewed its reform effort, renewed
negotiations with the IMF and World Bank, and won $3 billion in new loans from these
institutions.
Then in July, in Naples, President Clinton launched an effort to have the IMF
make new, larger provisions for Russia and the other economies in transition. That is
being done. And it means we'll be ready to help Russia take its next big step toward
reform this fall.
Russia has to take that step. Russia's progress has been better than most people
expected, but the danger now is that complacency could lead to a severe setback.
It's still tough to do business in Russia, with so much bureaucracy in government
and so much old thinking in enterprises. The process of reform from the ground up is
under way, but reform must be kept on track to provide time for the Soviet legacy to
fade away.
Privatization has been sweeping, but getting Russian companies off the dole and
on to restructuring is a harder task. You know human nature -- Russian managers still
try to privatize their profits and socialize their losses.
There are other problems, like the tax and legal environment. It still makes
businessmen miserable. That's both Russian and western businessmen. You've heard
this one before -- successful projects get taxed to death, sometimes with profits taxed at
more than 100 percent.
5
There's crime. We've all read about the rampant crime. Russians are shocked at
what's happening. Crime poses a threat to the emerging market economy and even to
the legitimacy of the state. At Treasury, the Secret Service, Customs, and IRS are all
working with our Russian counterparts to fight organized crime, to fight drug smuggling,
and to fight financial fraud.
There are lobbyists -- that's another problem. The anti-inflation effort has
pinched agriculture and industry, and those lobbies are fighting back. In recent weeks,
concessions to these lobbies have weakened Russia's financial position and led to a ruble
selloff in the foreign exchange market. If Russia doesn't withstand these pressures
forcefully, much of the gains of the last two years could be lost.
So you have taxes, crime, the economy, lobbyists -- it sounds to me like our two
Presidents have an awful lot in common. They'll have many stories to swap at this
summit.
But the present situation in Russia worries me. I can't tell you how this will tum
out. But I do know that to avoid slipping backward, Russia must take a bold step
forward.
A breakthrough is within reach, if Russia acts now. I think if they act boldly, it
will help in three ways. It will help stabilize their economy. It will help create modem
institutions that work. And it will help bring Russia into the world economy.
Let me take them, one at a time.
First, a stable economy. Russia needs a bold stabilization effort aimed at
reducing inflation quickly.
If Russia adopts a tough budget cutting program, we could help them stem their
money printing by delivering the $8 to $10 billion in enhanced support from the
International Financial Institutions that we pledged at the Naples Summit.
And if Russia backs up that program by pegging the ruble in their foreign
exchange market, we would help bolster market confidence by delivering an effective
$6 billion currency stabilization fund.
Let me be clear. Our support policy has been successful, because our lending is
conditional. For Russia to get all this money I've mentioned, it needs a bold economic
reform program.
6
These kind of efforts would spark Russian economic recovery. With even lower
inflation, lower interest rates, and a stable exchange rate, many of the newly privatized
enterprises that now face financial problems would have the prospect of secure jobs for
workers and profits for owners.
I think Russian capital flight would come home and fund badly needed investment
in new and existing business ventures. And I think Western investor confidence would
tum the comer and many stalled projects would take off.
Two, creating modem institutions that work.
Another reason that Russia needs to win the inflation battle is that successes
would strengthen the political constituency for reform in Russia and make possible
greater progress in institutional and structural change.
But Russia must finish the privatization job, and not get stuck half-way. This
means selling more companies, and getting on with the privatization of land.
The West can help Russia press on with institutional reform. We are proposing to
the Russians a comprehensive technical assistance effort in the area of tax reform.
A stable, modem tax system is a prerequisite for the development of trade and
investment.
Three, bringing Russia into the world economy.
Trade and investment offers Russia a great chance for prosperity, but it also
offers the world economy an engine of growth that could last a generation. For no one
can doubt Russia's great potential: a vast nation, spanning 11 time zones, rich in natural
resources; and rich, too, in human resources.
Russia needs to press on with integration into the world economy, by ratifying its
Bilateral Investment Treaty with the U.S., and committing itself to join the World Trade
Organization.
We have been and we'll continue to promote trade and investment.
The Export-Import Bank has supported $900 million in U.S. exports to Russia.
OPIC has made $800 million in loan and guarantee commitments to support U.S.
investment in Russia. And our G-7 initiative to support Russian privatization is leading
to the creation of 10 regional venture funds that will make equity investments in Russian
companies.
7
The U.S.-sponsored Fund for Large Enterprises in Russia, headed by former
Treasury Secretary Blumenthal, signed its first investment deal last week. It's investing
$13.5 million in a Russian joint venture that will produce oil well rigs equipped with U.S.
diesel engines. That'll help Russia and create jobs in the U.S. at the same time.
In the long run, our relationship with Russia must be based on trade and
investment, not aid. The businessmen in this room know that our private sector can do
more to help Russia modernize than our government.
A key aim of the summit is to promote the expansion of private sector trade and
investment. Some big deals are moving to completion, and you'll see that come out of
the summit.
We aim to work with Russia to improve the climate for trade and investment so
our private sector will become much more active.
I want to end where I started today. And that's one more recruitment pitch.
Russia and the other countries in the region offer a great frontier of opportunities. Not
just economic, but cultural and intellectual.
You're very lucky. If I were your age -- I'd be exploring that frontier, having
some adventures, making some new friends, and finding some business partners.
So go to Russia. Go explore the possibilities. And after you make a fortune, you
might want to consider a job in public service. Washington will always need the
wonderful diplomats that this institution produces.
-30-
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 26, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $11,728 million of 13-week bills to be issued
September 29, 1994 and to mature December 29, 1994 were
accepted today (CUSIP: 912794P65).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.77%
4.79%
4.79%
Investment
Rate
4.90%
4.92%
4.92%
Price
98.794
98.789
98.789
Tenders at the high discount rate were allotted 38%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$46,343,451
Acce:gted
$11,728,044
$40,238,398
1 1 299 1 018
$41,537,416
$5,622,991
1 1 299 1 018
$6,922,009
3,196,335
3,196,335
1 1 609 1 700
$46,343,451
1 1 609,700
$11,728,044
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-l111
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 26, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $11,629 million of 26-week bills to be issued
September 29, 1994 and to mature March 30, 1995 were
accepted today (CUSIP: 912794R30).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.20%
5.22%
5.22%
Investment
Rate
5.41%
5.44%
5.44%
Price
97.371
97.361
97.361
$10,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 29%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED ( in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-U12
Received
$44,512,944
Acce:gted
$11,628,764
$38,656,888
1,333,356
$39,990,244
$5,772,708
1,333,356
$7,106,064
3,150,000
3,150,000
1,372,700
$44,512,944
1,372,700
$11,628,764
DEPARTMENT
TREASURY
OF
THE
TREASURY
fl) NEW S
Contact:
FOR IMMEDIATE RELEASE
September 26, 1994
Jon Murchinson
(202) 622-2960
PRESIDENT TO SIGN INTERSTATE BANKING BILL AT TREASURY
President Clinton, joined by Treasury Secretary Lloyd Bentsen, will sign the Interstate
Banking and Branching Efficiency Act of 1994 into law at the Treasury Department this
Thursday.
The signing ceremony will be at 2 p.m. Thursday, Septemher 29 in the Cash Room at
Treasury, 1500 Pennsylvania Avenue NW. Chase Manhattan Baflk N.A. Chairman and CEO
Thomas G. LaBrecque and Norwest Corporation President and CEO Richard Kovacevich
will also make remarks.
"This legislation represents a major step forward for the American hanking system
that has been sought by both parties for years," Secretary Bentsen said.
"Interstate banking
and branching will be beneficial to banks and their customers as well as the nation's
economy as a whole."
Interstate banking will remove geographic restrictions and make it more convenient
for Americans to do their banking across state lines. The hill will also allow banks to reduce
expenses by structuring themselves more efficiently.
Cameras should be in place by 1 :30 p. m. Media without Treasury. White House,
State, Defense or Congressional credentials wishing to attend should contact the Office of
Public Affairs at (202) 622-2960, with the following information: name. social security
number and date of birth, by 6 p.m.Wednesday, Septemher 28. This information may be
faxed to (202) 622-1999.
-30-
LB-1113
DEPARTMENT
OF
THE
TREASURY
TREASURY {~~i
. ~<. ~(£t · ·N·:,';E W
................
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. II
~
S
..............
_ _• .
~~178 9~~~
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as prepared for delivery
September 27, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
HISPANIC HERITAGE WEEK
If I didn't know coming in that this was the Hispanic Heritage event, I guess I
could have figured it out on my own. There are signs in all the elevators telling me that
over in the cafeteria they're serving "Baked fish Veracruz, Sonorese Corn Soup, Chicken
Mesquite Burritos, Cheese Enchilladas, Spanish Rice, Black Beans, and Salsa and com
chips."
I may place a carry out order tomorrow. Can't have too much of a good thing.
There's more to Hispanic Heritage than great food, and I want to talk briefly
about it. That's not the only thing on my mind. I want to cover a few more topics today
also.
I know so many of you in the room. We've worked together on the issues for
many years, individually, through the caucus.
You know I grew up on the border, spoke Spanish as a child -- I can still get by.
I remember back then, I wasn't bilingual like we are today. I just knew how to talk to
my friends.
Things have changed so much, and so much for the better over the years. When I
first came to Congress, there was just one Hispanic member of the United States
Congress. Today, there are 18, and two more delegates. That's real progress.
LB-11l4
(MORE)
2
Increasingly, Hispanic Americans are assuming influential positions, in
government and in industry. And one of the most meaningful ways to celebrate Hispanic
heritage is not only to point out the contributions of the past, but to look at the
participation in the present.
This administration has made a determined effort to make sure the American
government looks just like America. There's Secretary Pena, and Secretary Cisneros.
Here at the Treasury Department we have Ed Knight, who will soon be the first
Hispanic General Counsel at the Department. And of course, George Munoz, our
assistant secretary for management and the first Hispanic CFO Treasury has ever had.
He's also been elected to the highest position on the government-wide Chief Financial
Officers Council. There's Marina Weiss who's done such a job for me on health care.
And Clara Apodoca, the former first lady of New Mexico; Fe Morales Marks here, and
Jose Padilla over at Customs. And I can't forget Annabella Mejia -- my secretary, she
runs my life.
You know, I looked into how this lunch was organized and realized just how much
Hispanics are running the Treasury. I'm told there was some concern at a planning
meeting about how to pull this off. But when someone asked about finding a room, Ida
Hernandez said she'd take care of it because she was in charge of booking our big
rooms. Then, they had to figure out how to pay for this event, so Alex Rodriguez said
he'd take care of it. And then they figured if they needed anything else, they'd just get
George, because he's in charge of it all.
Now, I'm sitting up in my office on the third floor wondering what's left for me to
run in this department. At least they left me a little room on the program today.
It's like that throughout the government. And well it should be.
Hispanics are the second largest minority group in the country. The size of the
population will double by the year 2020, and triple by 2050. There are about 22 million
people of Hispanic origin in the United States. That's one heck of a market. And think
of the economic power that 80 million people can have.
Not everything is perfect, however. It's a mixed picture.
Hispanic unemployment remains far too high. Hispanics receive the lowest
weekly wages of any major group in the labor force -- nearly 40 percent less than the
national average. On the other hand, the percentage of Hispanic families with incomes
of $50,000 in 1990 was 3 percent higher than it was in 1992. But Hispanic families are
more likely than families in the rest of the population to live in poverty.
There's a great deal of progress that must still be made.
3
One of the points I want to make today is how this administration has committed
itself to making life better -- yes, for Hispanics, but not only for Hispanics, for all
Americans.
Just last Friday I attended a ceremony in which President Clinton signed the
Community Development Financial Institutions act. Those are the organizations that get
out into the neigborhoods, and our rural areas, and make the loans that help
entreprenuers start their businesses, help people own their own homes, improve their
communities. The seed money we're putting into that can turn into a boost of
approximately $5 billion to our communities. Chairman Gonzalez was very much
involved in that one, and I appreciate his contribution.
We have a solid record of accomplishment -- for every American. We put
through the Earned Income Tax Credit, which eventually will make a significant
difference for 15 million Americans. There's no reason a family where the parents work
should be below the poverty line, and this will help in that regard.
We're making neighborhoods safer with the extra police and and the assault
weapons ban in the crime bill. And we're creating Economic Empowerment Zones and
Enterprise Communities.
There's one other item in particular of a direct and immediate economic benefit I
want to mention -- the North American Free Trade Agreement. It's already making a
difference on both sides of the Rio Grande.
That wasn't an easy one to get. But I think it has turned out exceptionally well.
Look at what's happening now.
The Commerce Department says that in the first six months of the year, Mexico's
exports to the United States have gone up by about 22 percent. And our exports to
Mexico are up 17 percent, and we're still running a surplus. Those figures tell us we've
done enough business to create 100,000 new jobs in the United States. And here's the
part I like. For two of those first six months, Mexico replaced Japan as our secondbiggest customer.
And four days from now I'll be writing a check for more than $50 million as our
initial contribution to the North American Development Bank. My counterpart in
Mexico, Pedro Aspe, and I are looking for a manager and deputy manager for the Bank,
and I hope it can be up and running quickly. That aspect of NAFTA is going to help
immensely in the immediate border area, and beyond, particularly insofar as the
environment is concerned. It's going to make a real difference in the quality of life
down there. I want to point out that Congressman Esteban Torres helped out
tremendously on this one and I appreciate it.
4
I was down in Mexico earlier in the month and met with President-elect Zedillo.
For those of you who haven't met Dr. Zedillo, I want you to know that he's committed
to meeting the challenges that face Mexico. We had a very good meeting, and I'm quite
impressed. He has a recognition of the need to put people first, just as we do in this
administration.
NAFfA is an important part of our economic program, and so is increasing trade
everywhere -- globally through the Uruguay Round, and within our own hemisphere. So
many of our jobs now are dependent on trade.
Look at Latin America and the Carribean. Our exports to the region are up by
half again as much as our trade with the rest of the world. These are some of the
world's fastest growing economies. The value of what's being traded on the seven largest
stock markets in the region is a dozen times higher today than it was a decade ago.
Investment is pouring in from around the world. Net foreign direct investment has
nearly doubled in five years. And very importantly, inflation is not a problem. We're
not seeing prices go up 100 percent a year.
All of this is because we've seen economic and political reform taking hold. We
have a climate that is conducive to trade. There are stable, democratic governments,
with open societies and open markets.
I meet with the finance ministers from these nations and they all tell me they
want to trade with us.
That's one of the issues we'll be talking about in Miami at the Summit of the
Americas in December.
There are three themes we want to go over -- making democracy work, making it
prosper, and making it endure.
Let me deal largely with the second point, prosperity. We're beginning to see
democracy work in the region, and the trick to making it endure is seeing to it that
there's plenty of prosperity to go around.
I want us to have a discussion about how to integrate the hemisphere -- and the
way you do that is with freer trade and with investment flows. One of the important
aspects of that is infrastructure -- because a sound infrastructure is the underpinning of
a sound economy. That's one of the biggest items we have on the agenda in Asia and
the Pacific. There's $1 trillion in work to be done out there, and I suspect if you added
up all the requirements in Latin America it would start running into what nowadays is
considered real money.
5
We're also going to talk about the truly universal need to lift people up out of
poverty. I mentioned what we're doing here, and the lessons about producing healthier
and more educated citizens can apply in Latin America as well.
Whether we're Hispanic or not, we all have a tremendous stake in how Latin
America develops.
I leave Thursday night for Madrid and the World Bank and IMF meetings and a
few others. But I want you to know that I don't go into a totally global mode for all of
these meetings. If I run into one of my counterparts from Latin America, our
hemisphere's issues will be on my mind. The dialogue will take place anywhere we can
sit down and talk things over.
Let me come back around to where I began, talking about Hispanics as part of
the American mosaic.
Every group in our country -- even us Danes -- has a proud heritage, a history we
can take pride in.
Hispanics have made unique contributions to every aspect of our society and our
culture.
My family came to the United States seeking a better life. What I am after now,
and what this adminsitration is after now, is to build an economy that offers all
Americans, hypenated or not, the opportuntity to prosper and leave that legacy of
prosperity to the next generation.
Thank you very much.
-30-
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt I ~ '.:W.asJV~~wn; D~C 20239
<
"
FOR IMMEDIATE RELEASE
September 27, 1994
-
-
i (,'
.
coN!l1AQ'I'.:, p:ffic~.( 9-f Financing
V\,..,-
v 2CU-219-3350
RESULTS OF TREASURY'S AUCTION OF,12-YEAR NOTES
,
"
Tenders for $17,267 million of 2-year notes, Series AL-1996,
to be issued September 30, 1994 and to mature September 30, 1996
were accepted today (CUSIP: 912827R38).
The interest rate on the notes will be 6 1/2%. All
competitive tenders at yields lower than 6.55% were accepted in
full.
Tenders at 6.55% were allotted 14%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 6.55%, with an equivalent price of 99.908. The median yield
was 6.50%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.45%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$44,032,876
Accepted
$17,267,136
The $17,267 million of accepted tenders includes $1,660
million of noncompetitive tenders and $15,607 million of
competitive tenders from the public.
In addition, $1,130 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.
LB-1l15
tenders was awarded at the
as agents for foreign and
An additional $1,125 million
high yield from Federal
in exchange for maturing
DEPARTMENT
OF
THE
TREASURY
TREASURYfU) N~Ei_W S
17Xq~"""""""""""""""""""".
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622.2960
FOR RELEASE AT 2:30 P.M.
September 27, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,800 million, to be issued October 6,
1994.
This offering will result in a paydown for the Treasury of
about $325 million, as the maturing weekly bills are outstanding
in the amount of $25,125 million.
Federal Reserve Banks hold $6,502 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,123 million as agents for
foreign-and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C.
This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB -
1116
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED OCTOBER 6, 1994
September 27, 1994
Offering Amount .
$12,400 million
$12,400 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 P7 3
October 3, 1994
October 6, 1994
January 5, 1995
July 7, 1994
$12,315 million
$10,000
$ 1,000
182-day bill
912794 R4 8
October 3, 1994
October 6, 1994
April 6, 1995
April 7, 1994
$16,623 million
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
TREASURY:!.'~fl.l)' N,E~W S
•............... ...............
<~~/~~.>
I?H'l .......
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON,D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
September 27, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
ON COMMERCE DEPARTMENT'S ESTABUSHMENT
OF A MULTILATERAL DEVELOPMENT BANK COUNSELING CENTER
American companies are doing well in winning contracts with the Multilateral
Development Banks, and after today I look forward to their being able to do even better.
I congratulate the Commerce Department for opening up a Multilateral
Development Bank Counseling Center. There are many business opportunities for both
large and small U.S. companies, but they need to be aware of what's out there. The new
Center will provide one-stop shopping, so in one place companies can receive
information on business opportunities at all the banks.
Last year, American companies were awarded a record $2.7 billion in contracts on
loan projects funded though the banks.
-30-
LB-1117
DEPARTMENT
OF
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OFFICE OF PUBLIC AFFAIRS • 1500p,ENNSYLYANtAAVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
EMBARGOED, RELEASE TO BE SET AT BRIEFING
September 28, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
WORLD BANK/IMF, SAUDI ARABIA TRIP PRESS BRIEFING
What I'd like to do is give you a quick rundown of what we'll be doing in Madrid
and later on next week, and then I can take a few questions. It will be an exceptionally
busy week for everyone.
First, let me put the meetings in context for you. We're at the point where we can
help set the tone and direction for the IMF and World Bank for the coming years. We
have an opportunity to continue the process of putting the world economy on a path of
sustained growth, to further help fully integrate the new democracies and transitioning
economies of Eastern Europe and the Former Soviet Union into the world economy and
the international institutions, and to encourage sustainable development. In each of
these areas, the United States is playing a leading role.
Last year we started looking for a way to see that new IMF members became full
beneficiaries of the institution. There hasn't been a new allocation of Special Drawing
Rights since the 1978-1980 series, and there are nearly 40 new members that have none.
I'm very hopeful we can reach a conclusion on this issue at the annual meeting.
In addition, I hope we'll also agree on a way to increase substantially access to
existing IMF lending programs. The transforming economies need greater access, and
that can make a big difference as they make the difficult reforms. When support is
measured with the pace of reform, support must keep up with the pace of reform.
We'll also be taking a look at the role of the IMF and the World Bank in their
second 50 years, talking about expanding and deepening the sorts of changes being made
at these institutions. They can be an important force in our goal of sustaining the
recovery that is taking place and in achieving sustainable development and spreading
prosperi ty.
(MORE)
LB-11l8
2
A great deal has been done at the World Bank, in particular, in the past two
years, some important policy and admistrative and budget changes. Much of that has
come because of the urging of the United States. V.ie need to see this progress
continued. We need to see a greater emphasis on people, on supporting the private
sector, not replacing it, and on encouraging development from the bottom up.
Our discussions will be with an eye on our G-7 meeting next year in Halifax,
where we'll talk about the future roles of the Bank and the IMF, and whether any other
institutions might be needed to help reach our goals.
Around the annual meeting we have a number of other things going on.
First out of the gate, we have a G-7 meeting on Saturday. If you look at what's
happened to our economy and the global economy since this administration took office,
you see the growth lines that were flat or going down have turned up. Things are
dramatically different than when I went to my first G-7 in Febuary of last year. Our
growth is leading the world. The momentum is building in Europe and Japan.
Our strategy of deficit reduction here, interest rate cuts in Europe, and fiscal
stimulus in Japan is clearly working. There are some charts in your materials illustrating
that. Our deficit is coming down rapidly, interest rates in Europe have come down, and
with some quiet diplomacy and sustained, firm contact, the Japanese are taking some
constructive steps. They're cutting taxes to put more money in the hands of consumers,
and delaying a consumption tax for three years.
As for the G-7 in working on the global economy, our job now is to consolidate
the gains we have made and look at how to expand and sustain the recovery.
We'll also be talking informally outside the G-7 setting about some related issues,
such as some of the agenda we have in the Asia-Pacific Economic Cooperation forum.
One of those issues, which also applies everywhere else, is access to capital.
I have 10 or more bilaterals or other meetings. I'm not sure if they've left me
time to even catch my breath. And I'm going to speak to a group of Spanish
businessmen and members of the financial community.
After the annual meeting, I will go briefly to leddah for a meeting with King
Fahd and with my counterpart, Finance Minister Abulkhail. I \-Vant to tell them that
we're pleased at the approach being taken with the Saudi economy, privatizing, and
holding down government expenditures just as we are here.
-30-
G-7 Growth Recovers
% change in GOP over previous year (wtd. avgs.)
3.5
I
i
2.8
3
.- 3
2.5
2.5
2
2
1.5
1.5
1
1
0.5
0.5
o
3.5
r
1991
1992
Source: IMF
Treasury/lMI/G7GROWTH/M.Ot.radOlSky/9/27/94
1993
1994e
1995e
0
u.s. Now Has Smallest Budget Deficit Among G-7
1994
(deficit as % of GDP)
12
I
I
12
9.6
10
10
.........................
8
~
8
6
6
4
4
2
... ~ 2
o
o
u.s.
Germany
Japan
Source: IMF
Treasury/lMIIFISCALJM.Otraciovsky19/Zl/94
Italy
France
Canada
U.K.
Germany Cuts Short-term I nterest Rates
Percent
91
19
8
8
7
7
6
5
Short-term Inter-bank Rates
6
5
1
4Jan:
;'~93~--~~~L--L~~~~~~~--~-L--L--L--L--L~--~~--~
4
Jan 94
Oct 93
Jul93
Apr 94
Apr 93
Jul94
Japan Provides Substantial Fiscal Stimulus
(Structural Government Balances
as % of Potential GOP)
3
--------------------------------------------------------1
~i
2.2
2
1
o
(°1 6)
I
(1)
1991
1992
M. Otradovsky/l MI/9/22/94IJGVTBLNC
1993
1994e
1995e
u.s. Exports are Expanding as Recovery Expands
(Growth in U.S. Exports and Global GOP)
20
6
5
15
Foreign GDP (Right Scale)
___ I 4
~"I
10 I
,,
------------------,
,,
2
,.
5
3
~"
Merchandise Export Volumes (Left Scale)
1
o
I
I
1991
I
1992
Source: JP Morgan. 1994 and 1995 are forecasts.
1993
1994
'0
1995
DEPARTMENT
OF
THE
TREASURY
NEWS
~J78£9~. . . . . . . . . . . . . . . . . ..
....................
OFFICE OF PUBUC AFFAIRS • 1500 PEN NSYLVAN lA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
Contact:
FOR IMMEDIATE RELEASE
September 28, 1994
Jon Murchinson
(202) 622-2960
MEDIA ADVISORY
The Cash Room event at which President Clinton, jofned by Treasury Secretary Lloyd
Bentsen, will sign the Interstate Banking and Branching Efficiency Act of 1994 and into law
and make remarks on GATT will be open to pooled media coverage.
The signing ceremony will be at 2 p.m. Thursday, September 29 in the Cash Room at
Treasury, 1500 Pennsylvania Avenue NW. Chase Manhattan Bank N.A. Chairman and CEO
Thomas G. LaBrecque and N orwest Corporation President and CEO Richard Kovacevich
will also make remarks.
For pool information, contact Jason Lobo in the White House Media Affairs Office at
(202) 456-5657.
-30-
LB-1119
UBLIC DEBT NEWS
Dl'partmt'nto"'t~c. T~e~s':lry •. ~ureau of the Public Debt • Washington, DC 20239
I . : _. \.' ~' ; ;
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or'
:
'I,
FOR IMMEDIATE REL~AS~. l'
September ~:J:B f ·.iJ.:944 v w' U { i
CONTACT: Office of Financing
202-219-3350
I
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $11,009 million of 5-year notes, Series S-1999,
to be issued September 30, 1994 and to mature September 30, 1999
were accepted today (CUSIP: 912827R46).
The interest rate on the notes will be 7 1/8%. All
competitive tenders at yields lower than 7.18% were accepted in
full.
Tenders at 7.18% were allotted 90%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 7.18%, with an equivalent price of 99.772. The median yield
was 7.17%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 7.00%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$36,220,437
Accepted
$11,009,392
The $11,009 million of accepted tenders includes $906
million of noncompetitive tenders and $10,103 million of
competitive tenders from the public.
In addition, $680 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $1,079 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
LB-1l20
D EPA R T M E 'N T
0 F
THE
T REA SUR Y
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSvtvANlA AVENUE. N.W .• WASHINGTON. D.C.. 20220. (202) 622·2960
TRANSCRIPT OF BRIEFING
BY TREASURY SECRETARY LLOYD BENTSEN
AND
BACKGROUND BRIEFING BY A SENIOR TREASURY OFFICIAL
ON
IMF/WORLD BANK ANNUAL MEETINGS IN MADRID
AND
TRIP TO JEDDAH. SAUDI ARABIA
SEPTEMBER 28. 1994
TREASURY DEPARTMENT
WASHINGTON D.C.
LB-1121
Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Transcript
Number of Pages Removed: 11
Author(s):
Title:
Date:
Remarks of Treasury Secretary Lloyd Bentsen, World Bank/IMF, Saudi Arabia Trip Press
Briefing
1994-09-28
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
DEPARTMENT
OF
THE
TREASURY
TREASURY
(~))
NEW
S
..............\~~~~~~..............-
.
17K'l .......
OFFICE OF PUBUCHF~~~·l~02 P),Ij:Nt:?:'LYANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622.2960
For Release Upon Delivery
Expected at 10:00a.tn.
September 29, 1994
STATEMENT OF MAURICE B. FOLEY
DEPUTY TAX LEGISLATIVE COUNSEL (TAX LEGISLATION)
BEFORE THE
SUBCOMMITTEE ON SELECT REVENUE MEASURES
COMMITTEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES
Mr. Chairman and distinguished Members of the Subcommittee:
I am pleased to have this opportunity to present the views
of the Treasury Department with respect to the targeted jobs tax
credit (TJTC). The TJTC is a tax credit for employers which was
enacted to promote private-sector hiring of workers with special
barriers to employment.
The TJTC is jointly administered by the Treasury Department
through the Internal Revenue Service (IRS) and the Department of
Labor through its Employment Service. The IRS is responsible for
tax-related aspects of the program and the Employment Service,
through the network of State Employment Security Agencies, is
responsible for defining and documenting worker eligibility.
I.
Background
The TJTC was enacted by the Revenue Act of 1978 as a
SUbstitute for what had been a broad-based new jobs tax credit.
Congress concluded that the unemployment rate had declined
sufficiently so that it was appropriate to focus employment
incentives on individuals with high unemployment rates and other
groups with special employment needs.
The credit initially was scheduled to expire on December 31,
1981 and applied to wages earned in the first and second years of
employment. The first-year credit was equal to 50 percent of the
first $6,000 earned by a TJTC-hire and the second-year credit was
25 percent of the first $6,000 earned.
The TJTC has been extended on a short-term basis numerous
times over the years. Revisions also have been made by a number
LB - 1122
of tax laws to adjust the amount of the credit, close loopholes,
and alter the targeted groups of individuals covered by the
credit.
The TJTC was amended and extended for one year through
December 31, 1982 by the Economic Recovery Tax Act of 1981. This
Act eliminated retroactive certification of employees already on
the payroll and also required that one targeted group -cooperative education students -- be economically disadvantaged
in order to be covered by the credit. without this constraint,
employers were able to receive subsidies for hiring individuals
they likely would have hired in the absence of the credit. Other
changes made by the 1981 Act included increasing the number of
targeted groups and modifying certain restrictions on eligibility
within existing categories.
The TJTC was extended for two more years through December
31, 1984 by the Tax Equity and Fiscal Responsibility Act of 1982.
This Act extended the credit to employers hiring economically
disadvantaged 16 and 17 year-olds for summer employment. The
1982 Act also deleted one of the targeted groups -- former public
service employment participants under the Comprehensive
Employment and Training Act.
The Deficit Reduction Act of 1984 extended the TJTC for
another year through December 31, 1985, after which it expired.
It was extended retroactively for three more years through
December 31, 1988 by the Tax Reform Act of 1986. The 1986 Act
reduced the amount of the credit to 40 percent of the first
$6,000 earned and eliminated the second-year credit. Employees
also were required to work for a minimum of 90 days or 120 hours
to be covered by the credit (14 days or 20 hours for summer
youths). A minimum employment period was imposed to limit the
"churning" of employees by some employers. "Churning" involves
maximizing the amount of credit by rapidly turning over workforce
to hire additional targeted members.
The Omnibus Budget Reconciliation Act of 1987 eliminated the
credit for wages paid to individuals who perform duties similar
to those of workers who are participating in or are affected by a
strike or lockout. The Technical Corrections and Miscellaneous
Revenue Act of 1988 extended the credit for an additional year
through December 31, 1989; reduced the summer youth credit from
85 percent to 40 percent of the first $3,000 earned; and
eliminated 23 and 24 year-olds from the targeted group of
economically disadvantaged youths.
The TJTC was extended for nine more months through September
30, 1990 by the Omnibus Budget Reconciliation Act of 1989. This
Act also reduced the burden placed on local Employment Service
offices of verifying worker eligibility. The 1989 Act required
employers requesting certification of a job applicant for which
- 2 -
th7r7 ~a~ not been a written preliminary determination of
el1g1b111ty (a voucher) to specify at least one, but not more
than two, targeted groups to which the individual might belong.
The employer also had to certify that it had made a good faith
effor~ to deter~ine the individual's eligibility.
The prior
pract1c 7 ~f.a~k1ng local Empl~yment Service offices to verify
TJTC-e11g1b111ty of all new h1res burdened these offices without
creating new jobs. The employer firms already had decided to
hire the individuals, although the individuals had not yet been
put on the payroll.
The Omnibus Budget Reconciliation Act of 1990 retroactively
extended the TJTC for 15 months through December 31, 1991. The
conference agreement also clarified the definition of one of the
targeted groups. This group -- "ex-convicts" -- was defined to
include persons who are placed on probation by State courts
without a finding of guilty. The TJTC was further extended for
six months through June 30, 1992 by the Tax Extension Act of
1991.
Most recently, the credit was extended retroactively
months by the Omnibus Budget Reconciliation Act of 1993.
1993 Act extended the TJTC to cover individuals who begin
for an employer after June 30, 1992 and before January 1,
II.
for 30
The
work
1995.
Current Law
Under current law, a TJTC is available to employers for up
to 40 percent of the first $6,000 of wages paid to a certified
worker in the first year of employment. This translates into a
potential credit of $2,400 per targeted worker. The worker must
be employed for at least 90 days or work at least 120 hours.
(The credit for summer youth is 40 percent of the first $3,000 of
wages, or $1,200, and these individuals must work for 14 days or
20 hours.)
The employer's deduction for wages is reduced by the
amount of the TJTC.
certified workers must be economically disadvantaged or
disabled individuals in one of nine targeted groups. These
groups are (1) youth 18-22 years old; (2) summer youth age 16-17;
(3) cooperative-education students age 16-19; (4) ex-offenders;
(5) Vietnam-era veterans; (6) vocational rehabilitation
referrals; and individuals receiving (7) general assistance, (8)
Supplemental Security Income, or (9) Aid to Families with
Dependent Children.
For purposes of the TJTC, a worker is economically
disadvantaged if the worker's family income is 70 percent or less
of the "lower living standard income level". This level is
revised periodically to account for changes in the Consumer Price
Index and varies by geographic and urban area.
-
3 -
To claim the credit for an employee, an employer must
receive a written certification that the employee is a targeted
group member. Certifications for employees are generally
provided by state Employment Security Agencies. The employer
must have received or filed a written request for a certification
on or before the date a targeted member begins work. If the
employer has received a written preliminary determination that
the employee is a member of a targeted group, the employer may
file a written certification request within five calendar days
after the targeted member begins work.
III.
Criticisms of the TJTC and Options for Reform
While the goals of the TJTC are laudable, the TJTC has been
subject to criticism. The most recent example of criticism of
the program is an August 1994 report by the Labor Department's
Office of Inspector General. Although the report notes that the
TJTC provides some benefits, the report concludes that the TJTC
is not cost effective and recommends that the Secretary of Labor
discourage further extensions of the credit.
To help crystallize discussions on the TJTC, I would like to
highlight three of the credit's main problems and offer very
general options and principles for addressing those concerns.
These problems are that the credit (i) provides a windfall to
employers, (ii) may encourage the churning of employees, and
(iii) promotes only limited training of employees for advanced
career positions.
A.
Employer windfall
Perhaps the most significant problem with the TJTC is that
it often provides a "windfall" to employers. The credit provides
a windfall to the extent it confers a benefit on employers (the
TJTC) for doing what they would have done (hire targeted
individuals) without that benefit.
The most direct way to reduce the windfall is to require
certification of eligibility before the hiring decision is made.
In this way, the TJTC can serve as an incentive in the hiring
decision. We are not unmindful that pre-hiring certification may
be perceived as conferring a stigma on job applicants. However,
the TJTC was designed to overcome any negative employer
perception (stigma) about the likely productivity of targeted
workers by rewarding employers for hiring them. In order for the
program to work at maximum effectiveness, employers need to be
aware that they are hiring targeted workers at the time the
hiring decision is made. A pre-certification system would ensure
that the credit was limited to employers that knowingly hired
targeted workers.
- 4 -
One drawback of a pre-certification system is that it would
plac 7 ~ la:ger burden on the Employment Agencies that perform the
cert1f1cat7o~s.
As part of our review, we plan to look at ways
of s~ream11n7ng t~e work of these agencies and the level of
fund1ng requ1red 1n order for them to perform their roles at an
acceptable level.
Treasury would be very wary of endorsing any "selfcertification" system under which individuals or their employers
would certify targeted status with reduced oversight by
government agencies. We would be concerned that such an "honor
system" is too susceptible to fraud. Under the current regime,
the principal checks against fraud are that Employment Agencies
make the certifications and their actions are subject to audit by
the Department of Labor. We believe these checks are important
to curbing potential abuse and should not be replaced by more lax
measures.
B.
Churning of employees
Another serious criticism of the TJTC is that it may
encourage the "churning" or "turnover" of employees to maximize
the amount of the credit. A related problem is that short-term
positions subsidized by the credit are less likely to promote job
skills that are beneficial to more advanced job positions.
We have explored two broad approaches to the churning
problem. Under one approach, churning would be curbed by
increasing the number of hours an employee must work with an
employer before his or her wages could be taken into account in
computing the credit. The current minimum employment period,
which is the lesser of 90 days or 120 hours, translates into as
little as three weeks of full-time work.
The other approach would limit churning by "backloading" the
credit. Under current law, the credit is 40 percent of the first
$6,000 in wages paid to a targeted individu~l.
Under the
backloading approach, the credit rate applY1ng to wages above
some threshold would be higher than the credit rate applying to
the initial wages. This shifts the incen~ive of , employers in the
direction of paying higher wages and keep1ng the1r employees on
the job longer.
One possible downside of these reform proposal~ may be to
reduce the initial hiring incentive for some econom1cally
disadvantaged individuals compared to the inc 7ntive t~at exists
under the current credit. We also need to we1gh any 1ncreased
administrative burden resulting from a more complex credit.
- 5 -
C.
Training of employees
To the extent the TJTC influences hiring and retention
decisions, it helps hard-to-employ individuals develop basic job
skills. These include such fundamental skills as showing up for
work on time, taking directions from managers, asking questions
when instructions are not clear, and successfully completing
assigned tasks. Nevertheless, the low-wage jobs traditionally
subsidized by the credit typically do not offer more extensive
training that could directly serve as a springboard to more
advanced job positions.
To bolster the TJTC's impact on training, the Department of
Labor has suggested that the credit might be expanded to apply to
individuals participating in approved "school-to-work" programs.
Although it is appropriate that a broad range of options be
considered, attempts to redesign the TJTC to encourage training
present special challenges. Any broad training initiative in the
TJTC should attempt to ensure that the credit's special emphasis
on hiring economically disadvantaged individuals is retained. A
broad-based training option also could lose significant revenue
because of the size of the potentially eligible population.
Before extending the TJTC to school-to-work participants, it
also would be necessary to understand the relationships of this
possible category to existing categories and the precise criteria
used in establishing eligibility. We would also need to evaluate
whether redesigning the TJTC to include a new training component
is allocating government resources to programs that work the
best.
IV.
Administration's position
The employment of economically disadvantaged and disabled
workers is one of the Administration's most pressing concerns.
However, the revenue cost from a one-year extension of the credit
in its current form is approximately $336 million over 5 years,
while a permanent extension of the current law credit would lose
approximately $1.428 billion over 5 years. Because we are very
concerned about the efficient use of government revenues and the
need to find revenue offsets, we believe that the problems
undermining the credit's effectiveness must be addressed before
pursuing an extension of the credit.
The Inspector General's report raises significant concerns
regarding the effectiveness of the credit. As a result of the
problems identified in the report and earlier studies, we are
engaged in a policy review of the credit to determine whether
legislative and regulatory modifications of the credit may
improve its effectiveness.
- 6 -
Over the next several months we plan to continue our work
with the Labor Department. We also want to work with this
committee to develop proposals that will address, in a cost
effective manner, the employment problems of economically
disadvantaged and disabled workers.
We plan to complete our analysis of this issue prior to
submission of the Administration's budget proposal for Fiscal
Year 1996. If we decide to support extension of the credit, our
recommendations will be reflected in that document.
This concludes my prepared remarks. I would be pleased to
respond to any questions you may have at this time.
- 7 -
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~
Q:
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of August 1994.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $112.8 billion on August 31, 1994,
posting a decrease of $885.0 million from the level on
July 31, 1994. This net change was the result of a decrease in
holdings of agency debt of $346.4 million, in holdings of agency
assets of $555.0 million, and an increase in holdings of agencyguaranteed loans of $16.5 million. FFB made 21 disbursements
during the month of August, and refinanced seven REA-guaranteed
loans.
FFB also received 15 prepayments in August.
Attached to this release are tables presenting FFB August
loan activity and FFB holdings as of August 31, 1994.
LB-Il23
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N
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N
o
September 29, 1994
0
III
'<t
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tt
FEDERAL FINANCING BANK
AUGUST 1994 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
$300,000,000.00
11/15/94
4.637% S/A
$181,333.86
$215,334.05
$335,674.90
$7,410.70
$1,241,015.00
$6,033,876.00
$6,561,133.95
$10,289,963.00
$2,427,857.00
$5,076,356.65
$263,602.00
$793,013.00
$311,761.12
9/1/95
12/11/95
12/11/95
1/3/95
11/2/26
6/30/95
11/2/26
12/11/95
11/2/26
1/3/95
9/1/95
9/5/23
12/11/95
5.589%
5.787%
5.787%
4.937%
7.542%
5.641%
7.697%
5.912%
7.567%
5.084%
5.781%
7.698%
5.924%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
$2,300,000.00
$800,000.00
$2,798,000.00
$1,846,000.00
$15,291,000.00
$4,500,000.00
$1,459,444.55
$4,909,996.84
$1,345,000.00
$1,247,070.41
$482,924.58
$483,709.98
$483,843.43
$483,795.59
9/30/96
12/31/14
1/3/22
1/3/23
12/31/24
1/2/18
1/2/18
12/31/18
12/31/26
1/3/95
1/3/95
1/3/95
1/3/95
1/3/95
6.344%
7.581%
7.586%
7.584%
7.576%
7.510%
7.425%
7.438%
7.538%
4.879%
4.879%
4.879%
4.879%
4.879%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
INTEREST
RATE
AGENCY DEBT
U.S. Postal Service
8/4
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Atlanta CDC Office Bldg.
Foley Services Contract
Fole~ Services Contract
Miaml Law Enforcement
ICTC Building
HCFA Headquarters
ICTC Building
Foley S9ua~e Courthouse
ICTC BUlldlng
Memphis IRS Service Cent.
Atlanta CDC Office Bldg.
Oakland Office Building
Foley Services Contract
8/2
8/2
8/2
8/2
8/5
8/15
8/16
8/18
8/18
8/19
8/24
8/24
8/30
RURAL ELECTRIFICATION ADMINISTRATION
Glades Elec. Coop. #380
Guam Telephone Auth. #371
Alabama Electric #339
Alabama Electric #386
Alabama Electric #393
ALLTEL Florida, Inc. #340
+Central Iowa Power #914
+Central Iowa Power #914
Central Power Elec. #395
+Sho-Me Power #913
+Sho-Me Power #913
+Sho-Me Power #913
+Sho-Me Power #913
+Sho-Me Power #913
t
S/A is a semi-annual rate:
306C refinancing
8/9
8/12
8/15
8/15
8/15
8/31
8/31
8/31
8/31
8/31
8/31
8/31
8/31
8/31
Qtr.
1S
a Quarterly rate.
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Department of Transportation
Export-Import Bank
Resolution Trust Corporation
Tennessee Valley Authority
U.S. Postal Service
sub-total*
August 31. 1994
$
664.7
4,383.4
27,208.2
4,375.0
9,773.1
46,404.4
July 31, 1994
$
664.7
4,383.4
27,854.6
4,375.0
9,473.1
46,750.8
Net Change
FY '94 Net Change
8/1194-8/31/94
10/1/93-8/31/94
$
0.0
0.0
-646.4
0.0
300.0
-346.4
$
664.7
-1,411.2
-4,479.5
-1,950.0
41. 6
-7,134.4
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Electrification Admin.-CBO
Small Business Administration
sub-total*
6,183.0
3,675.0
24,691.0
25.3
35.8
4,598.9
1.1
39,210.0
6,438.0
3,675.0
24,991.0
25.3
35.8
4,598.9
1.1
39,765.1
-255.0
0.0
-300.0
0.0
0.0
0.0
0.0
-555.0
-2,725.0
0.0
-1,345.0
-5.6
-15.6
0.0
-1. 8
-4,092.9
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DEd.-Student Loan Marketing Assn.
DEPCO-Rhode Island
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Electrification Administration
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
DOT-WMATA
sub-total*
3,840.2
0.0
0.0
112.3
1,7<16.5
1,989.2
21. 9
1,479.6
17,402.0
57.2
525.8
14.8
0.0
27,189.4
3,874.5
0.0
0.0
114.3
1,746.5
1,960.8
21.9
1,479.6
17,371.9
58.2
529.9
15.2
-34.4
0.0
0.0
-2.1
0.0
28.4
0.0
0.0
30.1
-1. 0
-4.1
-0.4
0.0
~
-243.2
-4,790.0
-30.4
-19.1
-54.5
403.5
-0.9
-48.7
-251. 3
-33.2
-50.6
-2.2
-177.0
-5,297.6
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
$112,803.8
27,172.9
16.5
-===z::_a __ =
$113,688.8
$
========
========
-885.0
$-16,524.9
DEPARTMENT
OF
THE
TREASUR¥~•...."'E'
TREASURY
NEW S
-~--------.\~~~~\~~-~;----------178~
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
September 29, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
SIGNING OF THE RIEGLE-NEAL INTERSTATE
BANKING AND BRANCHING EFFICIENCY ACT
WASHINGTON, D.C.
Mr. President, I want you to know that this room was built 125 years ago, but
never before has a President honored us and held a signing ceremony here -- until today.
Thank you, Mr. President.
It's a proud day at Treasury, and we invited a lot of guests to help us celebrate.
Help me recognize two very special ones: Don Riegle and Stephen Neal -- two
retiring members, with their names on this bill. I always measure a career in public
service by whether you make a difference. In a decade or two, you'll see such a
difference in the banks of this country because of laws like this one, that my friend from
Michigan will think the banks of 1994 were Model Ts.
Passing this one has been a team effort -- with a very large team. There's no way
we could have done it without all the congressmen here today. We also have 80 bankers
from across the country. And I want to acknowledge Frank Newman, who was
confirmed as my Deputy by the Senate last night. Frank, along with many Treasury
staff, worked their hearts out for this day.
But no team succeeds without a leader. Four other Treasury Secretaries and two
other Presidents tried to get a bill like this through, and they couldn't do it. That speaks
volumes about this President.
The remarkable thing is, this isn't the only banking bill. Six days ago, the
President signed the community development financial institutions law. Mr. President,
with your leadership, we're passing bipartisan bills and we're making the banking
industry more sound and more efficient. As a former banker myself, I can tell you what
I think every banker in this room would say with pride -- that a strong banking system
means a strong economy for this nation.
LB-1l24
2
You know, Mr. President, this room used to be a bank: -- the American people's
bank. That's how it was used from just after the Civil War until 1976. Look up at that
chandelier. It weighs 1,500 pounds. Look at the walls. Seven different types of marble.
The reason it's so lavish was to impress Americans about the government's financial
strength.
What a setting to talk about the financial strength of our banks. They're healthy.
And with this bill, we're getting out of the way and letting them compete. We're putting
an end to outdated geographic restrictions.
I think back to the recession in Texas, and to the bank failures there. When the
economy went into the tank, banks had nowhere to go. They couldn't branch out, or
expand, or cross state lines. The only place to go was under, and that's what many did.
This bill is a winner, and everyone knows it. It hasn't been easy getting here,
although you wouldn't know it from the votes. It passed almost unanimously.
This bill's a winner for the consumer. Mr. President, if you'd ask the presidents
of all the banks here: Who comes first? They all have the same answer you do -people come first, customers come first.
Sixty-eight million Americans, over one-fourth of the population of this country,
live near state lines. It doesn't make any sense to live in New Jersey, but not to be able
to deposit a check at the bank's branch in New York where you work. That will change.
The bill is a winner for the banks. Ask the bankers: "Does it make sense to have
duplicate subsidiaries, duplicate boards, duplicate audits, and duplicate paperwork for
every state they operate in?" That's one of the least efficient, costliest systems I've ever
seen, and this bill changes that.
By the way, that will help small banks as well as the big ones. I know that Doyle
Mitchell of Industrial Bank of Washington just acquired some branches in Maryland, and
he tells us this bill would help him keep his overhead costs down.
And the bill is a winner for the economy. It'll promote the safety and soundness
of the banking system by allowing banks to geographically diversify. So if there are
regional recessions, like the one we had in Texas, banks will be better able to ride out
the downturns and continue making loans to their customers.
Now, it's one thing for me to brag how well this will work. I think it's better if a
couple of bankers let us really know. So, I'd like to introduce Thomas Labrecque,
Chairman and Chief Executive Officer of Chase Manhattan, to be followed by Richard
Kovacevich, President and Chief Executive Officer of NOf\'::;st in Minneapolis.
-30-
DEPARTMENT
•
OF
THE
TREASURY
(~. ~'+'}~
. . . . . . . . . . . . . . . . . . .\.·~~~'tOI/••
J 7 H <)-001IIII
TREASURY
NEW S
f . . . . . . . . . . . . . . . . . .. .
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON; D.C .• '20220. (202) 622·2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
September 30, 1994
REMARKS ON VIDEO-TAPE OF TREASURY SECRETARY LLOYD BENTSEN
AMERICAN INSTITUTE FOR ENVIRONMENTAL EDUCATION
SAN ANTONIO, TEXAS
They asked me to be with you in person, and usually when I receive an invitation
and they tell me it's in Texas I want to know how fast I can get on a plane!
I couldn't make it this time because right now I'm in Madrid. It's a little ironic
what I'm doing in Spain. We're celebrating the 50th anniversary of the World Bank.
Fifty years ago, the Allies came together and formed a bank to stabilize the global
economy and to rebuild war-torn Europe. Europe wouldn't be what it is today, if we
hadn't done what we did.
Fifty years later, another bank is being established -- the North American
Development Bank (NADBank).
The world is different. Our problems are different now. But the way you solve
problems is the same.
What do you do? You bring the partners together. You talk about it -- hard talk
sometimes. And you work out a plan.
I'm proud to say our plan is now action.
As of October 1st, both the United States and Mexico are providing more than
$50 million each to start up the NADBank. Together, we're working on selecting a
manager and a deputy manager. And then the staff will be chosen next.
NADBank will need some time to mature. But it has a great purpose: to clean
up the border.
LB-1l25
I was born and reared on the border. The border was never a barrier for much of
anything. Ideas, people, commerce -- it would all pass through. But so would diseases,
hazardous materials, and polluted water and air.
For the first time, NAFfA has focused attention on these problems -- and
together, we want to solve them. From what they tell me, those of you who are
attending the conference represent just the people who can move this partnership
forward.
It's a diverse gathering. You're from both sides of the border. You're from both
business and government. George Munoz from Treasury is representing me.
Listen to the speakers. But, do me a favor, and do something more. Establish
contacts among yourselves that will help contribute to environmental improvements.
That's how this partnership will work.
-30-
PUBLICi .DEBT NEWS
Department of the Treasy~~'j JB)..ln:;a~ ~ftreiPublic Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
September 30, 191)4
CONTACT:
Peter Hollenbach
(202) 219-3302
Or
L Richard Keyser
(202) 755-7510
TREASURY AUTHORiZES HUD CALL OF
FHA INSURANCE FUND DEBENTURES
The Departments of Treasury and Housing and Urban Development announced today the call of
aU Federal Housing Administration (FHA) insurance fund debentures, outstanding as of September
30, 1994, with imerest rates of 7.5 percent or higher. Debentures that have been registered on the
books of the Federal Reserve Bank of Philadelphia as of September 30, 1994, are considered,
"outstanding." The date of the call for the redemption of approximately $30 million in debentures
is January 1, 1995, with the semi-annual interest due January 1, paid along with the debenture
principal.
Debenture owners of record as of September 30, 1994, will be noti.fied hy mail of the call and given
instructions for suhmission Those owners who cannot locate the dehentures should contact the
Federal Reserve Bank of Philadelphia (215) 574·MR4 for assistance.
No transfers or denominational eXchanges in debentures covered by this call will be made on or
after October 1, 1994, nor will any spt:cial redemption purchases be processed This does not affect
the right of the holder to sell or assign the dehentures.
The Federal Reserve Bank of Philadelphia has been designated to process the redemptions and to
pay finaJ interest on the called debentures. To ensure timely payment of principaJ and interest on
the debentures, they should he received by Decemher 1. 1994, at:
The Federal Reserve Bank of Philadelphia
Securities Division
P.O. Box 90
Philadelphia, PA 19105-0090
000
(LB-1l26)
PA--158
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
Contact: Scott Dykema
(202) 622-2960
FOR IMMEDIATE RELEASE
September 30, 1994
NORTH AMERICAN DEVEWPMENT BANK GETS START UP MONEY
The North American Development Bank (NADBank), recently created by the
United States and Mexico to clean up the border area, will receive its first funding
Saturday, October 1.
Both nations each contributed an initial $56.25 million in paid-in capital and
another $318.75 million in callable capital to the NADBank. Once fully funded in three
years, the bank will have a total of $3 billion in capital.
"NADBank will need some time to mature. But it has a great purpose: to clean
up the border," said Treasury Secretary Lloyd Bentsen. "I was born and reared on the
border. The border was never a barrier for much of anything. Ideas, people, commerce
-- it would all pass through. But so would diseases, hazardous materials, and polluted
water and air," Bentsen said.
The new development bank was created to support many of the goals of the
North American Free Trade Agreement. NADBank eventually will provide about $2
billion to $3 billion in financing over the next 10 years for environmental projects as
well as community adjustment and investment programs.
The bank, located in San Antonio, Texas, plans to open its doors early next year.
U.S. and Mexican officials are now working together on selecting a manager and deputy
manager for the bank. Lending is expected to start in 1995.
-30-
LB-1127
@FedFRASER