The way I see it, your whole process can be boiled down to this:

    <label for="country">** Select Country: </label>
    <?php
    $countries = file('countries.txt', FILE_IGNORE_NEW_LINES | FILE_SKIP_EMPTY_LINES);
    if (!$countries) {
        echo '<input type="text" name="country" id="country" maxlength="40" size="40">';
    } else {
        array_unshift($countries, '');
        printf(
            '<select name="country" id="country"><option>' . "\n\t%s</option>\n</select>",
            implode("</option>\n\t<option>", $countries)
        );
    }

Advise:

1. Trimming your data should be done at write time (once), so that you never again need to trim your data ever again.
2. `file()` will split your file's data line-by-line -- you can use flags to prevent newlines and empty lines (but those empty lines shouldn't be in your file to begin with).
3. Move all styling to an external style sheet or at the very least out of your html markup -- it just makes your code harder to read with inline styling.
4. Typically, `<label>` tags include a `for` attribute to connect with a field's `id` attribute.  This is your choice to make.
5. Don't repeat the same label.  More generally, don't repeat yourself.
6. I recommend not declaring single-use variables.  If you are concatenating just to print anyhow, then just print as you go.
7. I think you will have a very hard time finding `goto` in any modern professional applications.  I recommend that you skip learning about this technique because when used, it gives a code an outdated smell.  Other similar opinions: [What is so bad with goto when it's used for these obvious and relevant cases?](https://softwareengineering.stackexchange.com/a/329339), [Is GOTO in PHP evil?](https://stackoverflow.com/a/1900049/2943403), [Is GOTO a good practice?](https://stackoverflow.com/q/7557372/2943403)
8. `maxlength="40" size="40"` is of no use in a `<select>` -- just omit these attributes.
9. There is no benefit in repeating an `<option>`'s text value as its `value` attribute -- just omit that markup bloat.
10. Because you just need to feed your country names to option tags, you can just `implode()` instead of using a `foreach()`.  It's up to you if you prefer this technique.
11. I am using `array_unshift()` to prepend an empty value to the array, this will provide the first empty `<option>`.
12. Try to avoid relying on `<br>` for creating vertical space within your HTML document.  Using fewer and better chosen html elements to craft your document will make it cleaner and easier to manage through styling.