share and bank account information for criminal tax purposes. No deduction is available for attending a convention in a country found by the Secretary of the Treasury to discriminate in its tax laws against conventions held in the United States. The provision applies to conventions beginning after June 30, 1983, if an exchange of information agreement is in effect.

The Secretary of the Treasury was required to report within 90 days after enactment of the CBERA on the level at which Caribbean Basin tax havens are being used to evade or avoid Federal taxes and the effect on Federal revenues of such use, any information on the relationship of such use to drug trafficking and other criminal activities, and on current anti-tax haven enforcement activities of the Department of the Treasury.

Under section 936 of the Internal Revenue Code, qualified investment income earned in U.S. possessions is exempt from U.S. tax. Most of the tax benefits claimed under this provision are claimed by corporations in Puerto Rico. Prior to the Tax Reform Act of 1986 (1986 Act), this investment income, commonly referred to as "qualified possessions source investment income" or QPSII, had to be derived from sources inside Puerto Rico. Section 936(d)(4), added to the Code in the 1986 Act, amended the definition of QPSII to allow for investments outside of Puerto Rico. Under section 936(d)(4), interest income will qualify as QPSII if derived from loans by qualified financial institutions (including the Puerto Rican Government Development Bank) for the acquisition of active business assets and for the construction of development projects located in eligible Caribbean Basin countries. Section 227 of CBI II requires the government of Puerto Rico to take such steps as may be necessary to ensure that at least $100,000,000 of new investments which qualify under section 936(d)(4) in eligible Caribbean Basin countries shall be made each calendar year. Refinancings of existing investments shall not constitute "new investments" for this purpose.

Tourism promotion and scholarship assistance

Section 233 of CBI II required the Commissioner of Customs to carry out preclearance operations during fiscal years 1991 and 1992 at a U.S. Customs Service facility in a Caribbean Basin country which the Commissioner considers appropriate for testing the extent to which the availability of preclearance operations can assist in the development of tourism in the region. The Commissioner of Customs and Commissioner of the Immigration and Naturalization Service were to first determine the viability of establishing such operations in either Aruba or Jamaica; the pilot program is restricted to countries that did not already have preclearance operations. The Commissioner of Customs was required to submit a report to the Congress as soon as practicable after September 30, 1992, regarding the program, including the efficacy of extending preclearance operations to other Caribbean countries.

Section 231 of CBI II requires the Administrator of the Agency for International Development (AID) to establish and administer a program of scholarship assistance, in cooperation with State governments, universities, community colleges, and businesses, to enable students (particularly the economically and socially disad vantaged) from CBI beneficiary countries that also receive U.S. for

eign assistance to study in the United States. The Administrator may make grants to States (including the District of Columbia, Puerto Rico, and U.S. possessions and territories) to provide scholarship assistance for undergraduate degree programs and for training programs of at least 1 year in study areas related to the critical development needs of the students' respective countries. The Federal share for each year for which a State receives payment will be not less than 50 percent, funded from amounts otherwise made available for Latin American and Caribbean regional programs under the economic support fund of the Foreign Assistance Act of 1961. To the maximum extent practicable, each participating State shall enlist private sector assistance to meet the non-Federal share of payments.

Andean Initiative

ANDEAN TRADE PREFERENCE ACT

The Andean Trade Preference Act (ATPA), commonly referred to as the Andean Initiative, was enacted on December 4, 1991 as Title II of Public Law 102-182, to authorize preferential trade benefits for the Andean nations similar to those benefits to beneficiary countries under the Caribbean Basin Initiative (CBI) program. On July 23, 1990, President Bush announced that he would seek Congressional approval of a special preferential tariff program for four Andean countries-Bolivia, Ecuador, Colombia, and Peru-to fulfill a commitment made at the February 1990 Cartagena Drug Summit to expand economic incentives to encourage these countries to move out of the production, processing, and shipment of illegal drugs into legitimate products. Increased access to the U.S. market through tariff preferences was part of a package of measures that included expanded agricultural development assistance, additional product coverage under the Generalized System of Preferences program, and negotiation of long-term trade and investment liberalization building on the "Enterprise for the Americas Initiative” announced by the President on June 27, 1990.

On October 5, 1990, President Bush transmitted to Congress proposed implementing legislation. H.R. 661, the "Andean Trade Preference Act of 1991", was introduced on January 28, 1991 reflecting the Administration's proposal. The bill as reported to the House on November 19 was amended during consideration by the Committee on Ways and Means to conform the country designation criteria, rule-of-origin requirements, and the import relief and emergency relief criteria to the conditions and procedures for granting dutyfree treatment under the CBI program. Certain preferential trade benefits, as well as the tax benefits under the CBI program, were maintained for the Caribbean Basin countries and not extended to the Andean countries by the legislation. The authority for the Andean Initiative was also limited to a ten-year period, to terminate as of December 4, 2001. H.R. 661 as amended was incorporated in a House amendment to a Senate amendment to H.R. 1724, passed by both Houses in a conference report on November 26, 1991.

On July 2, 1992, President Bush signed proclamations designating Bolivia and Colombia as ATPA beneficiary countries. Imports of eligible articles from these two countries not otherwise already receiving most-favored-nation or GSP duty-free treatment totalled about $172.2 million in 1990, nearly all from Colombia.

Beneficiary countries

The ATPA authorizes the President to proclaim duty-free treatment on all eligible articles from Bolivia, Ecuador, Colombia, and Peru as potential beneficiary countries. Designation of beneficiary status is subject to seven conditions identical to the mandatory criteria for designation under the CBI program and subject to the same authority to waive in the U.S. national economic or security interest. A country is prohibited from designation under these conditions if it is a communist country, has nationalized or expropriated U.S. property without compensation or submission to arbitration, fails to recognize arbitral awards in favor of U.S. citizens, affords preferential tariff treatment to products of other developed countries having or likely to have a significant adverse effect on U.S. commerce, broadcasts U.S. copyrighted material without the owner's consent, has not signed an extradition agreement with the United States, or has or is not taking steps to afford internationally-recognized worker rights. In addition, the President must take into account 12 discretionary factors prior to designating any of the four countries, similar to factors under the CBI plus whether the country has met narcotics cooperation certification criteria required to be eligible for U.S. foreign aid.

Before designating any country, the President must notify the Congress of his intention to make the designation and the considerations entering into the decision. The President may withdraw or suspend beneficiary country status or duty-free treatment on any article if he determines subsequently that the country should be barred from designation as a result of changed circumstances. Eligible articles

Duty-free treatment is granted under the ATPA to any otherwise eligible article which is the growth, product, or manufacture of a designated beneficiary country if (1) that article is imported directly from a beneficiary country into the U.S. customs territory; and (2) the sum of the cost or value of materials produced in one or more Andean beneficiary countries or one or more CBI beneficiary countries, plus the direct costs of processing operations performed in one or more Andean or CBI beneficiary countries is not less than 35 percent of the appraised value of the article. Puerto Rico and the Virgin Islands are also considered beneficiary countries for this purpose. Up to 15 percent of the value attributable to the cost or value of materials produced in the United States may be applied toward the 35 percent minimum local content requirement. These rules and requirements to preclude transshipment or pass-through operations are identical to CBI provisions, except that content from CBI beneficiary countries may also be counted toward the minimum 35 percent local content requirement for determining the product of an Andean country.

A statutory list of products that are ineligible for duty-free treatment under the ATPA is also identical to the product exclusion list under the CBI except that rum is also excluded from ATPA eligibility in order to preserve benefits for Caribbean, Virgin Islands, and Puerto Rican producers. Unlike under the CBI, duty-free treatment does not apply to imports of these articles assembled or processed wholly from U.S. components or materials.

In addition to rum, ATPA duty-free treatment does not apply to textiles and apparel articles subject to textile agreements; footwear not designated eligible for GSP duty-free treatment; canned tuna; petroleum or petroleum products; certain watches and watch parts; certain leather products; and sugar, syrups, and molasses subject to over-quota rates of duty. As under the CBI and GSP programs, duty-free treatment applies only to imports of sugar entering within the tariff-quota level; over-quota sugar imports remain subject to a high tariff. As under the CBI, duty rate reductions of 20 percent, not to exceed 2.5 percent ad valorem, implemented in 5 equal annual stages beginning January 1, 1992, apply to imports of Andean leather-related products (handbags, luggage, flat goods, work gloves, and leather wearing apparel).

Import safeguard provisions

Authorities under the ATPA to grant import relief measures and emergency action on agricultural perishables are identical to provisions under the CBI program. The President may suspend duty-free treatment and proclaim a duty rate on any eligible article under the import relief provisions of the Trade Act of 1974 or the national security provisions of the Trade Expansion Act of 1962. The U.S. International Trade Commission (ITC) must state in its report to the President on any import relief investigation involving an eligible article under the ATPA whether and to what extent its injury findings and remedy recommendations apply to imports of the article from beneficiary countries.

Under an emergency relief procedure for agricultural perishables, petitions may be filed with the Secretary of Agriculture at the same time as a petition for import relief is filed with the ITC. Within 14 days, the Secretary advises the President whether he has reason to believe that a perishable product from a beneficiary country is being imported in such increased quantities as to be a substantial cause of serious injury or threat thereof to the domestic industry and that emergency action is warranted, or publishes notice and advises the petitioner of a determination not to recommend emergency action. Within 7 days after receiving a recommendation, the President must proclaim the withdrawal of duty-free treatment or publish notice of his determination not to take emergency action.

No proclamation under the ATPA shall affect fees imposed pursuant to section 22 of the Agricultural Adjustment Act of 1933. Other provisions

The ATPA increased the duty-free tourist allowance for U.S. residents returning from Andean beneficiary countries from $400 to $600 and one additional liter of alcoholic beverages may enter duty-free if produced in an Andean beneficiary country.

The President must submit a triennial report to the Congress on the operation of the program. The ITC must report annually to the Congress on the economic impact of the ATPA on U.S. industries and consumers and on the effectiveness of duty-free treatment in promoting drug-related crop eradication and crop substitution efforts of beneficiary countries. The Secretary of Labor must also report annually on the impact of the ATPA on U.S. labor.

Historical background

Customs Valuation

In order to assess applicable duty rates under the Harmonized Tariff Schedule of the United States (HTS) and to collect appropriate import statistics, the dutiable value of all imported merchandise must be determined. The process by which Customs determines the dutiable value of imported merchandise is referred to as "appraisement" or "valuation.

Merchandise exported to the United States on or after July 1, 1980, is subject to appraisement under a uniform system of valuation established by title II of the Trade Agreements Act of 1979. Title II, which implements the Customs Valuation Agreement (entitled the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade) negotiated as one of the Tokyo Round of multilateral trade negotiations (MTN) agreements, was put into effect by Presidential Proclamation 4768 of June 28, 1980.24

Title II revised section 402 of the Tariff Act of 1930 25 and repealed the American Selling Price (ASP) method of valuation. However, under section 204(c) of the Trade Agreements Act of 1979, the ASP method of valuation would continue to apply to certain rubber footwear exported to the United States before July 1, 1981. Title II also repealed the alternative valuation system under section 402a of the Tariff Act of 1930.26

Prior to the Trade Agreements Act, the U.S. valuation system was complicated by the fact that two separate valuation standards existed side-by-side-commonly referred to as the "old law" and the "new law." Section 402a of the Tariff Act of 1930 was called the "old law" because it was enacted as part of the original Tariff Act of 1930. It provided for the following order of progression in appraising merchandise: (1) foreign value or export value, whichever is higher; (2) United States value; (3) cost of production.

It also provided for the application of the ASP basis of appraisement for certain designated articles such as benzenoid chemicals and certain footwear. The ASP method was based on the value of a domestically produced product rather than the imported product in order to provide greater protection to the U.S. industry from foreign competition.

During the early 1950's the Department of the Treasury proposed the elimination of the Foreign Value basis of appraisement, which as its name implies is based on the value of merchandise

24 45 Fed. Reg. 45135 (1980).

25 19 U.S.C. 1401a.

26 19 U.S.C. 1402.