e. Acceptable Conditions of Work.-Minimum work and safety standards are established by law and buttressed and extended in collective labor contracts. The Basic Law of 1923 provides for a maximum workweek of 48 hours - no more than 6 days per week and 8 hours per day. The 8-hour day may be exceeded for some special categories. Most collective labor agreements provide for a 36- to 38-hour week. Overtime may not exceed 2 hours per day or an average of 12 hours per week. There is no minimum wage set under Italian law; basic wages and salaries are set forth in collective bargaining agreements. National collective bargaining agreements contain minimum standards to which individual employment agreements must conform. In the absence of agreement between the parties, the courts may step in to determine fair wages on the basis of practice in related activities or related collective bargaining agreements.

Basic health and safety standards and guidelines for compensation for on-the-job injury are set forth in an extensive body of law and regulations. In most cases these standards are exceeded in collective bargaining agreements. A legislative decree was approved by the government in September 1994 incorporating into Italian law eight EU directives on health and safety, which had not yet been applied in Italy. Among other things, the decree stipulates employers' obligations in matters of workplace adjustments for disabled employees, establishes safety rules in workplaces and guidelines in the use of computers. Enforcement of health and safety regulations is entrusted to labor inspectors, who are employees of local health units and have the same status as judicial police officers. Inspectors make periodic visits to companies to ensure observance of safety regulations. Violators may be fined or even imprisoned. Trade unions also play an important role in reporting safety violations to inspectors. In 1993 the number of work-related deaths in industry decreased by more than 450 compared to 1993 (1,277 compared to 1,729 the year before). In agriculture there were 306 deaths, (131 less than in 1993). These declines were due to the effects of the recession (reduction in working hours and employment) as much as to improved safety measures and the problem of an inadequate number of inspectors continues. Due to high unemployment, there is also pressure on workers to accept unsafe conditions as a necessary evil if they need jobs. There are many substandard workplaces in Italy, especially in the south. A special body which was expected to be set up to monitor industrial accidents is not yet operating. However, appropriate legislation was revised in 1994 providing guidelines in case of dangerous production processes.

f. Rights in Sectors with U.S. Investment.-Conditions do not differ from those in other sectors of the economy.

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

1 Source: Kazakhstan State Committee for Statistics (GOSKOMSTAT), unless otherwise indicated. Actual when available, otherwise estimates. Due to limited amount of 1992 information available (exchange rate), figures are in millions of rubles. 1993 and 1994 figures are converted from tenge at the official exchange rates as indicated above.

2 First six months of 1994 only, unless otherwise indicated.

Source: International Monetary Fund (IMF) and GOSKOMSTAT. 1994 money supply is for nine months. *Average weighted interest rate for six-month National Bank of Kazakhstan credits. Figures represent rates for December 1993 and June 1994.

In percent to corresponding period of previous year. 1994 agricultural wholesale inflation for first three months only.

•December of previous year-100.

Source: U.S. Agency for International Development (U.S. AID) and U.S. interagency estimates. 1994 figure represents all U.S. government and private aid as of June 30, 1994. October 1994 estimate from the Ministry of Finance,

1. General Policy Framework

Kazakhstan continues to suffer through a severe economic crisis. Momentum for economic reform, however, is accelerating. Throughout 1993 and the first half of 1994, industrial output declined, gross domestic product (GDP) dropped, agricultural production decreased, and inflation increased rapidly. Cost of living increases outpaced the salary rise of the average Kazakhstani worker during 1993 and the first half of 1994. In addition, the government's financial crisis has resulted in cutbacks to many public and social services. To stabilize and reverse the economic situation, the government has taken a number of steps, including tightening monetary and fiscal policy after an inflationary surge in early 1994.

On October 11, 1994, President Nazarbayev accepted the resignation of the entire Kazakhstan Cabinet of Ministers. Many of the older and more conservative ministers were replaced by younger, reform-minded individuals. In general, the government shake-up is viewed as a positive step towards accelerating the pace and scope of economic reform in Kazakhstan. This action was preceded by the July 15 issuance of a third (and largely inconsequential) anti-crisis program by the government in the last two years, and by public statements by Nazarbayev advocating the acceleration of market and government reform and public acceptance of economic "shock therapy." It remains to be seen whether, especially in the absence of further political reform, the new government can implement economic reform quickly enough to meet public expectations.

Fiscal Policy: The 1994 budget deficit was approximately 4.6 percent of GDP in 1994. The 1994 deficit was funded primarily by foreign loans and National Bank of Kazakhstan (NBK) credit resources. The proposed 1995 budget, released on September 2, 1994, projects the deficit to be approximately 19.3 percent of GDP. Only 12 percent of the projected 1995 budget deficit is planned to be financed through foreign loans and NBK credit resources. The remaining 88 percent currently remains "without definite resources." The International Monetary Fund (IMF) is reportedly targeting the 1995 budget deficit at 3.5 percent of GDP.

The 1995 budget proposes a nominal 296.6 percent increase in spending over 1994; revenues are projected to increase nominally by 89.2 percent during 1995. New legislation addressing tax reform and relief are also planned. If approved, this new legislation would streamline the current tax system and reduce overall tax

rates.

Monetary Policy: During the first five months of 1994, the money supply increased 270 percent; inflation increased during the same period by 370 percent. The NBK has attempted to reduce inflation by regulating the distribution of direct government credits, beginning in May 1994. To date, the NBK efforts appear to have been successful. Monthly inflation rates in August and September were 13.3 percent and 9.7, respectively. The inflation index for the first nine months of 1994 is 832 percent (December 1993 = 100).

The sale of three-month and six-month government bonds began on January 12, 1994. As of October 31, 1994, over 45 auctions have been held by the NBK.

2. Exchange Rate Policy

When introduced in November 1993, the Kazakhstan national currency, the tenge, was not initially traded and its exchange rate against the dollar was artificially maintained by the government. However, upon advice from U.S. officials and international observers, the government permitted the tenge to be freely traded.

On September 17 the governments of Kazakhstan and Kyrgyzstan lifted restrictions on bilateral currency transactions. The agreement permits both currencies, the tenge and the som, to be used as legal tender in investments (securities) in either country and in interbank and trading transactions.

Currently, the government of Kazakhstan does not appear to enforce any major foreign exchange controls, except that enterprises earning foreign exchange are required to sell 50 percent of the total earnings on the local market.

3. Structural Policies

Pricing Policies: Although the government continues to exert price controls and provide subsidies for certain consumer commodities, there appears to be little, if any, impact on U.S. exports to Kazakhstan. In general, consumer goods prices are determined by market sources.

Tax Policies: According to the proposed 1995 budget, government revenues will be derived primarily from corporate income taxes, a value-added tax (VAT), and export duties. At the end of 1993 the government announced a series of tax increases and

enforcement upgrades with apparently little visible success in either. In February 1994 a tax decree raised individual rates to 60 percent. However, this was later lowered to 40 percent. The July 15 anti-crisis program calls for the overhaul and simplification of the current tax system, reduction of overall rates, and improved revenue collection. The government has indicated that the maximum tax rate for individuals and "legal entities" will not exceed 40 percent and 35-40 percent, respectively.

On October 23, 1993 Kazakhstan signed a double taxation treaty with the United States. To date, the treaty remains unratified by either the Kazakhstan Supreme Soviet or the U.S. Senate. However, the Kazakhstan government has indicated that it will submit the treaty for parliamentary approval before the end of 1994.

Regulatory Policies: Government regulation policies are extensive and complex. Implementation of these regulations remains capricious (often varying between ministries) and a major source of corruption. U.S. and western business representatives often complain about the lack of standard licensing procedures.

4. Debt Management Policies

Kazakhstan has accepted liability for all Former Soviet Union (FSU) debt. Accordingly, Kazakhstan was assigned a 3.86 percent share of the FSU's total debt, or approximately $2.5 billion. While acknowledging its formal obligations, Kazakhstan negotiated a "zero option" agreement with the Russian Federation. Under this agreement, Russia accepted full responsibility for FSU debt, in return for all foreign assets of the FSU. Kazakhstan has initially agreed, but since the agreement must be accepted by all successor states, it has not yet entered into force.

To date, Kazakhstan has not paid-off its 1992, 1993, and 1994 debt obligations. Kazakhstan has paid short-term obligations, but commercial creditors have experienced some repayment delays. Currently, Kazakhstan has incurred over $1.5 billion in external debt, primarily to the Russian Federation for gas and fuel payment arrears. In the future, the $115 million Russian lease payment for Baykonur Cosmodrome is to be applied directly to Kazakhstan's debt to Russia. It appears this arrangement will continue in 1995. Barter also appears to be growing as an alternative to hard currency payments.

Excluding the United States, Kazakhstan has received credits from a number of countries including Germany, Austria, France, Japan, Hungary, and Turkey. The U.S. Export-Import Bank (EXIMBANK), the Overseas Private Investment Corporation (OPIC), the Central Asian Enterprise Fund (CAEF), and the Defense Enterprise Fund have indicated their willingness to provide funding for U.S.-Kazakhstan commercial projects. Funding for defense conversion projects is provided separately under the Nunn-Lugar legislation. In addition, international financial organizations such as the International Monetary Fund (IMF), World Bank, and the European Bank for Reconstruction and Development (EBRD) have also indicated a willingness to support commercial projects in Kazakhstan.

5. Significant Barriers to U.S. Exports

There appear to be no significant legal barriers to U.S. merchandise exports to Kazakhstan. The government appears to have adopted a strategy of relatively low import barriers to encourage international exports to Kazakhstan. U.S. exports to Kazakhstan are limited more by the logistical capabilities of private firms to service the Kazakhstan market and the unavailability of credit.

Structural barriers include a weak system of commercial law, including the absence of effective bankruptcy procedures, a shortage of domestic capital to pay for U.S. goods, the lack of an effective judicial process for breach-of-contract resolution, and huge government bureaucracy.

Import Licenses: As of October 1994, U.S. companies were not required to obtain import licenses. Despite indications in late 1993 that the government would limit imports and introduce an import licensing system, no such action has yet occurred. In addition, the government has also proposed restrictions on the import of non-essential goods by means of protective tariffs, duties, and quotas, beginning January 1994. To date, only duties for alcoholic beverages and cigarettes have been increased under this policy.

Service Barriers: Certain restrictions on the import of services exist. In April 1993 the government banned foreign insurance companies from providing foreign investment insurance. Excluding the single western reinsurance firm designated by the government, no U.S. or western firms are permitted to offer foreign investment insurance services in Kazakhstan. A number of U.S. firms offering accounting and legal services, however, are currently operating in Kazakhstan, and U.S. and foreign airlines are welcome.

Standards, Testing, Labelling, and Certification: Government observance of old Soviet standards, testing, labeling and certification requirements are extensive in some areas, non-existent in others. Such requirements constitute a barrier when these requirements differ significantly from U.S. and western standards.

Investment Barriers: One of the most significant investment barriers to U.S. firms in Kazakhstan is the severe lack of domestic capital to service loans and to meet equity percentages in joint ventures. In addition, U.S. firms cannot currently purchase land in Kazakhstan since this sector has not yet been privatized. U.S. firms, however, can obtain lease rights for 99 years through a domestic partner. Further, government and local authorities have, at times, insisted that US. firms support and invest in social programs for local communities.

Finally, phased privatization of state industries may initially limit the foreign investment "share" in such industries. However, complete privatization, should it occur, will have no such barriers.

Government Procurement Practices: Government procurement practices are not limited by formal "Buy Kazakhstan" regulations. Western goods, particularly U.S. goods, are favored by the Kazakhstani consumer.

Customs Procedures: Currently, Kazakhstan has a customs agreement with Russia, amounting to a de facto customs union. Kazakhstan still uses customs procedures from the old Soviet Union, which can be cumbersome and frustrating. Most imported goods transit through other newly independent states, unless they arrive by air or via China. Foreign firms can import items for their own use duty free.

6. Export Subsidies Policy

Rather than providing export subsidies to domestic enterprises, the government currently levies an export tax. The precise amount of the export tax varies according to the product and can range up to 30 percent. Kazakhstan has protested antidumping restrictions on its exports (mostly metals) imposed by the United States and the European Union (EU). In 1992, the U.S. Department of Commerce reached a consent decree with Kazakhstan limiting uranium exports and imposing a 104 percent antidumping duty on ferrosilicon. In 1994, the uranium agreement was modified to permit some sales of uranium into the U.S. market. The Commerce Department investigated Kazakhstani exports of titanium sponge and found no direct impact on the U.S. market. Virtually all of Kazakhstan's exports went to Russia.

In 1993, the government moved to further increase controls on exports. Beginning January 1, 1994 domestic enterprises are not permitted to export goods directly and are required to channel exports of 18 critical products through approximately 10 state trading organizations controlled by the government. The critical products include oil and gas, coal and coke, ore and concentrates, ferrous and non-ferrous metals, alumina, precious metals and stones, organic and non-organic chemical products, radioactive chemical elements, grain, cotton, and caviar. These goods are also subject to an export quota. The regulations include a 100 percent surrender requirement for export proceeds, although this may be reduced to 50 percent. 7. Protection of U.S. Intellectual Property

In principle, Kazakhstan's civil code protects U.S. intellectual property. However, the absence of criminal sanctions and lax enforcement have meant that U.S. and western intellectual property rights are often unprotected. In 1992 Kazakhstan acceded to the Geneva Convention on the Protection of Intellectual Property and joined the World Intellectual Property Organization. In addition, the U.S.Kazakhstan Bilateral Trade Agreement, which came into force on January 12, 1994, requires Kazakhstan to protect U.S. intellectual property.

Patents and Trademarks: Current patent legislation guarantees the right of inventors to the "name" of their product, but financial rights of patent holders do not appear to be protected. A national patent department which registers and regulates patents and trademarks was established in 1992. In addition, old Soviet patents are apparently being converted to Kazakhstani patents.

The registration or trademarks began in July 1992. Trademark violation is a crime and courts are empowered to arbitrate trademark infringement cases. However, enforcement appears to be rare and arbitrary.

Copyrights: In 1992 Kazakhstan established a national copyright agency with jurisdiction over copyrights in the arts, music, science, and software. In late 1993 the government submitted to the Supreme Soviet a draft copyright law. To date, the copyright law has not been passed. If passed, legal sanctions against copyright violators could be implemented and Kazakhstan would accede to the Berne Convention. New Technologies: Pirated U.S. and western movies routinely appear on every television station in Kazakhstan, but are not apparently mass produced in Kazakhstan. Sales of pirated counterfeit goods including video and audio recordings