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AGREEMENT

in the form of an Exchange of Letters between the European Economic Community and the United States of America

A. Letter from the United States

Sir,

I hereby enclose the text of the Agreement between the United States and the European Community which was reached ad referendum on 10 August 1986. I believe this text includes all the necessary technical elements meeting the needs of both sides. I can confirm the acceptance of the Agreement by the United States Government, subject to the enactment of necessary legislation to implement the United States tariff concessions set out in Annex B. My Government further understands that, except as provided in footnote 3 of the Agreement, the implementation of Parts A and B of the Annex will take place simultaneously upon enactment of this necessary implementing authority.

I would be grateful if you could confirm the acceptance of the Agreement by the European Community. This would then conclude the Agreement between the United States and the European Community, as set out in the enclosed text and subject to the above understandings.

For the Government

of the United States of America

B. Letter from the Community

Brussels,

Sir,

I acknowledge receipt of your letter accepting the Agreement between the United States and the European Community which we reached on 10 August 1986 of which the text is as follows:

'I hereby enclose the text of the Agreement between the United States and the European Community which was reached ad referendum on 10 August 1986. I believe this text includes all the necessary technical elements meeting the needs of both sides. I can confirm the acceptance of the Agreement by the United States Government, subject to the enactment of necessary legislation to implement the United States tariff concessions set out in Annex B. My Government further understands that, except as provided in Footnote 3 of the Agreement, the implementation of Parts A and B of the Annex will take place simultaneously upon enactment of this necessary implementing authority.

I would be grateful if you could confirm the acceptance of the Agreement by the European Community. This would then conclude the Agreement between the United States and the European Community, as set out in the enclosed text and subject to the above understandings.'.

I have the honour to confirm acceptance of the Agreement by the Community. This therefore concludes the Agreement between the United States and the European Community in accordance with the terms of your letter and attached text, and on the understandings contained therein.

Please accept, Sir, the assurance of my highest consideration.

On behalf

of the Council of the European Communities

AGREEMENT

THE UNITED STATES AND THE EUROPEAN COMMUNITY,

CONSCIOUS of the important role which continued improvements in their bilateral trading relations play in the effective working of the open multilateral trading system;

and DETERMINED to settle in a mutually satisfactory way the long-standing dispute over the effects of the European Community's preferential agreements in the Mediterranean region (referred to as 'the Agreements') (1), as they pertain to access to the Community market for citrus (2),

AGREE ON THE FOLLOWING ARRANGEMENT:

A. The United States recognizes that the Agreements provide important opportunities for economic development and political stability in the Mediterranean region.

Consequently, the United States expresses its support for the Agreements, and agrees not to challenge them (including further preferences the European Community is prepared to grant to these countries under the additional protocols to these Agreements now under negotiation) as inconsistent with Article XXIV of the GATT.

B. The United States agrees not to present additional claims in relation to Mediterranean preferences on citrus taking into account future preferential treatment on these products provided for through the additional protocols now under negotiation.

Subject to the completion of internal legal procedures by both parties (3):

- the European Community will put into effect and bind in the GATT the import measures as provided for in Part A of the Annex;

- the United States will put into effect and bind in the GATT the import measures as provided for in Part B of the Annex.

C. On completion of internal procedures by both parties, the United States will eliminate the increase in the rates of duty on Community pasta imposed since 1 November 1985, and the Community will eliminate the increase in the rates of duty on United States lemons and walnuts applied since 4 November 1985.

D. Both parties agree to proceed in good faith in seeking a prompt solution to their dispute over pasta refunds. Should a mutually satisfactory solution to the dispute not be found prior to the later of (1) United States congressional approval of the duty reductions delineated in Part B of the Annex, or (2) 1 July 1987, then either party may, at its discretion, choose not to put into effect and/or not to bind in the GATT the import measures in the Annex, as would otherwise be required by paragraph B. If the discretion not to bind in the GATT were exercised, and should the import measures in the Annex not be implemented or maintained or should new restrictions be introduced on pasta from the European Community then the other party would have the right to pursue re-negotiation of this agreement, or to terminate it.

During the interim, the United States Government will refrain from initiating unilateral action against pasta from the European Community and will not pursue the GATT panel case on this product.

E. The United States and the European Community agree that the Arrangement as specified above resolves definitively the dispute on citrus. On the entry into effect of this Agreement, they will both inform the GATT Council that they have resolved the citrus dispute in a mutually satisfactory way.

(1) Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, Syrie, Tunisia, Turkey, Yugoslavia.

(2) For the purposes of this understanding citrus means the following products: fresh sweet oranges, fresh lemons, fresh grapefruit, fresh tangerines, orange juice, lemon juice, grapefruit juice, grapefruit segments, dry pectin.

(3) Without prejudice to paragraph (D), as soon as the United States Government increases the Community quota for cheese falling under TSUS Item 950.10 by 1 572 metric tonnes and increases the quota for the Community (reserved Portugal) under TSUS Item 950.10 D by 353 metric tonnes, the Community will provisionally apply the autonomous trade measures laid down in the Annex for sweet oranges, minneolas and frozen concentrated orange juice. These new quotas for European Community cheese and for United States frozen concentrated orange juice will be applied pro rata on a calendar year basis.

ANNEX

IMPORT MEASURES REFERRED TO IN PARAGRAPH B

PART A - EUROPEAN COMMUNITY

1.2 // // // Tariff Item // Article // // // ex 08.02 A I // Sweet oranges, high quality: // // The duty will be reduced to 10 % ad valorem for an aggregate quantity of 20 000 metric tonnes entered during the months of February, March and April, inclusive. // ex 08.02 B II // Grapefruit hybrids known as 'Minneolas': // // The duty will be reduced to 2 % ad valorem for an aggregate quantity of 15 000 metric tonnes entered during the months of February, March and April, inclusive. // 08.02 C // Lemons: // // The duty will be reduced to 6 % ad valorem for an aggregate quantity of 10 000 metric tonnes entered during the period 15 January to 14 June, inclusive. // 08.02 D // Grapefruit: // // The duty will be reduced to 1,5 % ad valorem during the months of November to April, inclusive. // 08.05 A II // Almonds, other than bitter almonds: // // The duty will be reduced to 2 % ad valorem for an aggregate quantity of 45 000 metric tonnes entered in any calendar year. // ex 20.06 A I // Groundnuts, roasted, in immediate packings of a net capacity of more than 1 kg: // // The duty will be reduced to 12 % ad valorem. // ex 20.06 A II // Groundnuts, roasted, in immediate packings of a net capacity of 1 kg or less: // // The duty will be reduced to 14 % ad valorem. // ex 20.07 B II a) 1 // Frozen concentrated orange juice, without added sugar, having a degree of concentration of up to 50 degrees Brix, in containers of 2 litres or less, not containing blood orange concentrate: // // The duty will be reduced to 13 % ad valorem for an aggregate quantity of 1 500 metric tonnes, entered in any calendar year. // //

PART B - UNITED STATES

1.2 // // // Tariff Item // Article // // // // // 112.40 // Anchovies, prepared or preserved in any manner, in oil, in airtight containers: // // The duty will be reduced to 3 % ad valorem for an aggregate quantity of 3 000 metric tonnes entered in any calendar year. // 117.55 pt. // Romano made from cow's milk, Reggiano, Parmesano, Provolone, and Provelette cheeses provided for in TSUS Item 950.10: // // The quota for the European Economic Community will be increased by 1 572 metric tonnes entered in any calendar year. // 117.65 // Cheese made from sheep's milk, in original loaves and suitable for grating: // // The duty will be reduced to free. // 117.67 // Pecorino cheese made from sheep's milk, in original loaves, not suitable for grating: // // The duty will be reduced to free. // 117.8855 pt. // Cheeses, provided for in TSUS Item 950.10D: // // The quota for the European Economic Community will be increased by the amount of cheese transferred because of the accession of Portugal, including 353 metric tonnes to be reserved for Portugal entered in any calendar year. // // // Tariff Item // Article // // // // 147.29 pt. // Satsumas, packed in airtight containers: // // The duty will be reduced to free for an aggregate quantity of 40 000 metric tonnes entered in any calendar year. // 148.4440 pt. // Olives, in brine, not ripe and not pitted or stuffed, green in colour, in containers holding three gallons or more each to be used for re-packing or sale as green olives: // // The duty will be reduced to 10 cents per gallon for an aggregate quantity of 4 400 metric tonnes entered in any calendar year. // 148.48 pt. // Olives, in brine, ripe, but not pitted or stuffed, green in colour, in containers holding five gallons or less each: // // The duty will be reduced to 15 cents per gallon for an aggregate quantity of 730 metric tonnes entered in any calendar year. // 148.5065 // Olives, in brine, stuffed, placed packed, in containers each holding not more than 0,3 gallon: // // The duty will be reduced to 15 cents per gallon for an aggregate quantity of 2 700 metric tonnes entered in any calendar year. // 148.52 // Olives, dried, not ripe: // // The duty will be reduced to 2,5 cents per pound. // 148.56.00 pt. // Olives, prepared or preserved other than in brine or dried, green in colour, in containers holding five gallons or less each: // // The duty will be reduced to 2,5 cents per pound for an aggregate quantity of 550 metric tonnes entered in any calendar year. // 161.06 // Capers, in immediate containers holding more than 7,5 pounds: // // The duty will be reduced to 8 % ad valorem. // 161.08 // Capers, other: // // The duty will be reduced to 8 % ad valorem. // 161.71 // Paprika, ground or not round: // // The duty will be reduced to 1,35 cents per pound. // 167.15 // Cider, fermented, whether still or sparkling: // // The duty will be reduced to 1,5 cents per gallon. // 176.29 // Olive oil, weighing with the immediate container under 40 pounds: // // The duty will be reduced to 2,28 cents per pound on contents and container. // 176.30 // Olive oil, weighing with the immediate container 40 pounds or over: // // The duty will be reduced to 1,56 cents per pound. // //

Side Letter I: from the Community to the United States

Sir,

The reference to 'future preferential treatment' in paragraph (B) of the European Community/United States arrangement includes treatment through tariffs or tariff quotas. In addition, for the 1990 marketing year and for each subsequent year, the Commission will decide whether the entry price for certain products should be differentiated in order to maintain the traditional trade patterns as among the various Mediterranean exporting countries. Any such differentiation would be carried out within quantified limits and would not be operated so as to impair access under the European Communities/United States arrangement.

Side Letter II: from the United States to the Community

Sir,

I am pleased we have at long last reached an agreement which resolves the citrus dispute. I appreciate your great personal efforts and those of your team. We can take pride that our solution will liberalize trade on both sides.

I understand that there has been some concern within the Community that the United States has additional claims with respect to other products beyond the citrus issue that may be brought forward now that we have resolved citrus. I am certainly not aware of any such claims at this time. Given that, over the long history of your agreements, the citrus industry is the only United States industry that has put forward claims based on the effects of European Community preferences for these Mediterranean countries, I have no expectation that we will be encountering new complaints in the foreseeable future.

As you noted during our discussions, it is clear that, except as otherwise provided in our arrangement, both parties reserve their rights. If disputes should arise in the future, either from our concerns or yours, we should first seek solutions through timely consultations.

Side Letter III: from the Community to the United States

Sir,

With reference to paragraph (D) of the European Community/United States Agreement on Citrus/Pasta, this is to inform you that, should the United States Government be unable to fulfill the undertakings in the final sentence of the paragraph, or the United States Government actually apply new trade restrictions on European Community pasta exports, then the Commission would introduce the necessary Community procedures to terminate the Agreement.