airport officials lack professional training and attitudes. Entry and exit regulations at the airport change frequently and without warning. Office space is at a premium and costly, telecommunications are not reliable and experience with western business practices is rare.

Standards and Testing Requirements: Azerbaijan produces oil field equipment, machine tools and other manufactured goods according to the GOST standards used throughout the former Soviet Union, which are not up to U.S. or European industry standards. There are a few Western companies here with joint ventures which have brought or are bringing products and facilities up to American or European standards. It is assumed that with the recent signing of the oil contract, foreign companies and banks will be more likely to move forward on planned projects.

Trademarks and Logos: There is a small but growing market in Azerbaijan for pirated videos, sound recordings, and computer software, with no government effort to stop it. A privately-owned television channel's programming consists almost entirely of pirated American films and television mini-series, which have been dubbed into Russian and marketed throughout the former Soviet Union. There is no evidence, however, that Azerbaijan produces such pirated works.

Investment Barriers: According to the Foreign Investment Law of 1992, the government's Council of Ministers must pre-approve all foreign investments. Mineral exploration and extraction rights granted through concessionary agreements with the approval of the Council of Ministers usually require parliamentary approval as well. There are restrictions on the number of foreign personnel that an enterprise may hire. At present, both Azeris and foreigners may lease land but not own it outright. The exception is the .05 percent of land owned by private farmers.

To normalize its trade and investment relations with Azerbaijan, the United States has proposed a network of four bilateral economic agreements. A bilateral trade agreement, which would provide reciprocal most-favored nation status, was signed in April 1993 but has yet to be ratified by the Azerbaijani parliament. An Overseas Private Investment Corporation (OPIC) incentive agreement, which would allow OPIC to offer political risk insurance and other programs to U.S. investors in Azerbaijan, was concluded in 1992, but it also has yet to be ratified by Azerbaijan. The United States has proposed a bilateral investment protection treaty, which would establish an open investment legal regime for investments between the two countries. The Azerbaijani government has not yet accepted the U.S. offer to negotiate this treaty.

6. Export Subsidies Policies

The government continues to subsidize production at state enterprises to maintain production levels and employment (although most factories work below capacity). There is, however, no direct government support for exports to countries outside the former Soviet Union.

7. Protection of U.S. Intellectual Property

Azerbaijan has yet to adopt adequate laws to protect intellectual property. The Committee on Science and Technology of the presidential apparatus drafted patent and trademark laws, but the parliament has not passed them into law. A presidential decree on patents provides some protection. There is no copyright law. Azerbaijan has not adhered to any of the international conventions that protect intellectual property. Trademarks may be registered with the Ministry of Foreign Economic Relations, but there is widespread unauthorized use of pirated films.

The lack of intellectual property protection is one of the factors inhibiting the development of U.S. trade and investment, though its impact is difficult to assess given the low levels of trade and investment to date. The trade agreement of April 1993 contains commitments on protection of intellectual property. This agreement has not been ratified by the Azerbaijani parliament.

8. Worker Rights

a. The Right of Association.-Azerbaijani labor unions continue to be highly dependent upon the government, but are free from federations, and participate in international bodies. Azerbaijan is a member of the ILO (International Labor Organization). There is a legal right to strike, and workers do from time to time strike at certain factories.

b. The Right to Organize and Bargain Collectively.-Collective bargaining remains at a rudimentary level. Wages are decreed by relevant government ministries for organizations within the government budget. There are no export-processing zones. c. Prohibition of Forced or Compulsory Labor.-Forced or compulsory labor is prohibited by law and is not known to be practiced.

d. Minimum Age for Employment of Children.-The minimum employment age is 16, though children of 14 are allowed to work during vacations with the consent of

their parents and certification of a physician. Children of 15 may work if the work place's labor union does not object.

e. Acceptable Conditions of Work.-A nationwide minimum wage is set by presidential decree, and was raised numerous times in the past year to offset inflation. Unemployment benefits (5,000 rubles or about $4 per month) were granted to 21,567 people between September 1992 and August 1993, although state factories and enterprises temporarily laid off many more employees. The legal work week is 41 hours. Health and safety standards exist but are not enforced.

f. Rights in Sectors with U.S. Investment.—In the petroleum sector, the only sector with significant U.S. investment, worker rights do not generally differ from those in other sectors of the economy, with one important exception. In the work places in which U.S. petroleum companies have invested, the health and safety standards have dramatically improved.

Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993

Average exchange rate through September 1, taking into account the August 20 denomination. Exchange rate on December I was 9,100 Belarusian rubles$1.00.

Belarus formally declared independence on July 27, 1991. With Russia and Ukraine, Belarus was a founding member of the Commonwealth of Independent States (CIS) in December 1991. In March 1994, the parliament passed Belarus' first post-Soviet constitution, building the framework for a government with a strong executive branch. In July 1994, Alexander Lukashenko was elected president of Belarus. Economic policy is directed by the president's administration through the Cabinet of Ministers, led by Prime Minister Chigir.

Belarus has declared its intention to create a "socially-oriented market economy," but the pace of reform in Belarus has been slow. The delay in implementing a comprehensive program of economic reforms has been blamed on the government's fear of possible social unrest caused by decreased living standards and unemployment. In October, the parliament approved the president's "plan of urgent measures" for the Belarusian economy. Like the plan for 1993 and prior years, October's plan calls for increased reliance on market mechanisms, but maintains central control over key market sectors, including agriculture. The plan has produced some encouraging results thus far, including removal of energy subsidies to state-owned enterprises, and cutting off electricity and gas supplies to enterprises which have not paid their share of Belarus' arrears to Russia for energy, which now total over $450 million. The Government of Belarus recently came to agreement with the IMF on a standby arrangement, to be financed with a second Structural Transformation Facility (STF) loan and an upper credit tranche. Prior actions for this program included significant food price liberalization. Unfortunately, the government delayed the price liberalization and damaged the credibility of its new reform drive. A pledging session for the program did not yield sufficient donor country support and IMF Board consideration of the program was delayed from the end of December into January 1995 while the IMF tries to adjust the program and seek additional donor support to close the balance of payments gap.

Belarus has a diversified economy, which during the Soviet-era gave Belarus one of the highest standards of living in the former Soviet Union. Belarus can meet most of its own basic food needs, with the exception of feed grains, sugar and vegetable oil. The agricultural sector accounts for an estimated 26 percent of net material product (NMP) and relies heavily on livestock, which contributes about 60 percent of the sector's NMP. The industrial sector is biased toward heavy industry, with concentration in machine building, electronics, chemicals, defense-related production, and construction materials. Virtually all enterprises are state-owned.

The industrial sector continues to experience major supply, demand, and price shocks as it relies on other CIS countries to supply about 70 percent of its raw materials and to absorb more than 40 percent of Belarus' output. As prices for raw materials approach world market levels, thus causing demand to slacken, Belarus' industrial production continues to fall. Despite past reform efforts, the military complex is in need of vast restructuring which will require investment as well as changes in operations and ownership.

The economy is energy-intensive due to traditionally low energy prices. More than 90 percent of primary energy consumption is met by imports. Belarus' arrears for energy supplies from Russia, its primary supplier, now exceed $450 million. Belarus also faces a number of environmental problems related to the Chernobyl accident and its heavy industrial base. The Government of Belarus claims that over 20 percent of its budget goes to Chernobyl-related activities. Agricultural activity is still restricted in many areas damaged by Chernobyl.

Fiscal and Monetary Policies: The Government of Belarus allowed itself a budget deficit of no more than six percent of government expenditures. The Central Bank is authorized by law to issue credits up to four percent of gross domestic product. The minimum wage was raised three times in the first three quarters of 1994. Since all other government wages, pensions and taxes are pegged to the minimum wage, slight changes have far-reaching impact.

The National Bank of Belarus (NBB) is a weak financial institution hampered by a lack of technical and financial expertise, as well as by political interference. However, National Bank Chairman Bogdankevich, though not immune to political influence, is considered to be a positive voice for reform in Belarus. The main instruments of monetary control in Belarus are the volume and cost of NBB lending to banks, reserve requirements, and restrictions on interest rates. Establishing monetary control is hindered by the practice of monetizing the fiscal deficit and the past practice of cancelling outright the outstanding debts to state enterprises. The refinance rate of the NBB serves as an indirect subsidy to state enterprises, as the rate is lower than commercial credit or the inflation rate.

Minimal regulation of the banking industry in this credit-starved republic has led to a small bank boom. Forty-four commercial banks currently exist in Belarus, one with as many as 20 branch offices. New regulations have been introduced that are intended to institute new minimum reserve requirements and encourage saving. Although the National Bank no longer cancels outright loans to state enterprises, it still monetizes the government deficit, thwarting efforts at monetary control.

Belarus joined the International Monetary Fund (IMF), World Bank and the European Bank for Reconstruction and Development (EBRD) in 1992. In late 1994, Belarus reached agreement with the IMF on a program of market reforms, making the country eligible for a stabilization loan of $100 million, as well as a stand-by credit of $180 million. The agreement calls for a strict timetable for moving toward a market economy. The U.S. government and the EBRD have capitalized investment funds at nearly $200 million targeted at small and medium-sized businesses. Belarus was granted GATT observer status in 1992.

2. Exchange Rate Policy

In October of 1992, Belarus created the "Belarusian rubel" to supplement increasingly scarce cash Soviet rubles in circulation. When Russia withdrew Soviet rubles in July 1993, the "rubel" became the de facto national currency. After continued attempts at forming a monetary union with Russia failed to produce acceptable terms, Belarus gave up on the effort and declared the rubel the national currency. All government obligations must now, by law, be paid in the national currency. Belarus has announced that, beginning January 1, 1995, all retail trade must be conducted in Belarusian rubels. Licenses for continued trade in hard currency are to be strictly controlled.

In August, after losing over 90 percent of its value against the Russian ruble in the two years since its introduction, the Government of Belarus revalued the rubel to one-tenth of its former value, reducing all denominations of bank notes, non-cash deposits and prices by one zero. However, in the four months following this "currency reform," inflation remains high and the rubel has again lost over two-thirds of its value.

3. Structural Policies

The government has stated that it is anxious to attract foreign investment and has introduced a series of reforms to improve the investment climate. The Supreme Soviet has passed legislation regulating bankruptcy, leasing, and enterprises, but implementation remains problematic.

The process of privatization continues to move slowly forward in Belarus. The Minister of Privatization claims that of all state-owned enterprises eligible for privatization, ten percent are now in private hands. A presidential decree on privatization is expected to be issued by the end of 1994.

4. Significant Barriers to U.S. Exports

The tax code for foreign-owned businesses has not changed significantly in the last three years. Despite more than twenty separate taxes on foreign-owned businesses, the Government of Belarus has instituted legislation to attract foreign investment. Joint ventures with more than 30 percent foreign ownership are entitled to export products without a license and pay no tax on profits for three years after the company earns its first profits, if products are manufactured by joint ventures in Belarus. If the company sells foods or services of third parties-so-called "middleman activity”—the tax holiday on profits does not apply. Hard currency earnings from the export of a 30 percent foreign-owned joint venture can be disposed of by the enterprise after payment of appropriate taxes.

These taxes include: a) individual income tax; b) value-added tax (20 percent); c) excise tax, if the company produces specified goods, e.g. cigarettes and alcohol; d) real estate and land taxes; e) tax on the use of natural resources depending on the volume of natural resources extracted and on polluting substances emitted or disposed of into the environment; and f) fuel tax.

Belarusian law forbids 100 percent ownership by foreigners of property in Belarus. To attract some foreign investors, however, Belarus allows foreigners to obtain property in Belarus under a 99-year lease. The government has also indicated that the president might make special exception to allow foreigners 100 percent ownership.

To date, there is no law on currency regulation in Belarus, although a new law on the use of hard currency is due to go into force in January 1995. Belarus is still operating under a decree issued by the Supreme Soviet at the end of 1992 entitled "Temporary Rules for Hard Currency Regulation and the Conducting of Operations with Hard Currency on the Territory of the Republic of Belarus." Under this decree, hard currency earnings from the export of products made by an enterprise with at least 30 percent foreign investment remain at the disposal of the enterprise. All other enterprises must sell 20 percent of their hard currency earnings to the Government of Belarus and pay a 10 percent hard currency revenue tax.

The United States is working on several levels to increase trade and investment in Belarus. In the spring of 1993, the U.S.-Belarus trade agreement, providing reciprocal most-favored-nation status, went into force. President Clinton signed the Bilateral Investment Treaty during his visit to Belarus in January 1994. This treaty, when ratified by the United States (Belarus has already ratified it), will provide a legal framework to stimulate investment. A bilateral tax treaty intended to provide relief to businesses from double taxation is also being developed. An Overseas Private Investment Corporation (OPIC) incentive agreement, which allows OPIC to offer political risk insurance and other programs to U.S. investors in Belarus, has also been concluded and is in force. The US. Export-Import Bank also has active programs in Belarus. Once ratified, the U.S.-Belarus bilateral investment treaty will provide substantial assurances to Ú.S. investments.

5. Export Subsidies Policies

One of the legacies of a centrally-planned economy is government subsidization of state-owned enterprises. In Belarus these subsidies are aimed at maintaining production and employment rather than being specifically targeted at supporting exports.

6. Protection of U.S. Intellectual Property

After the breakup of the Soviet Union, Belarus acceded to the World Intellectual Property Organization (WIPO). Piracy of printed material, video and sound recordings, while prohibited by law, continues. The U.S.-Belarus trade agreement includes some provisions on the protection of intellectual property.

7. Worker Rights

The independent trade union movement is developing very slowly. The largest trade union in Belarus, the Federation of Trade Unions of Belarus, consisting of five million members, is not considered an independent organization because it still follows government directives. However, as Belarus progresses toward a market economy, unions are becoming more vocal in demanding social protections formally provided under the Soviet system.

a. The Right of Association.-The new Belarusian constitution, passed in March 1994, allows the formation of independent trade unions. However, workers are often automatically inducted into the government-affiliated Federation of Trade Unions. The Federation's active role in controlling social programs, such as pension funds, will impede the growth of truly independent trade unions.

b. The Right to Organize and Bargain Collectively.-The Belarusian constitution provides the right to organize and bargain collectively, and bars discrimination against trade union organizers. In practice, however, there have been reported cases of dismissals and threats of loss of employment against independent trade union members.

c. Prohibition of Forced or Compulsory Labor.-The Belarusian constitution explicitly prohibits forced or compulsory labor. Belarus has ratified one of the International Labour Organization's forced labor conventions. However, penal production of manufactured goods exists.

d. Minimum Age for Employment of Children.-Existing law establishes 16 to be the minimum age for employment. Exceptions are allowed in cases where a family's primary wage earner is incapacitated.