Major Trade Policy Issues

While major progress was made last year on Trade Promotion Authority and other trade provisions, ECAT is hopeful that even greater progress can be made on the U.S. trade agenda in 2002. In 2001, ECAT worked hard for and was particularly pleased by the passage of H.R. 3005, the Bipartisan Trade Promotion Authority Act by the House of Representatives, although by a very close margin (215-to-214), and its favorable consideration on a strongly bipartisan basis by the Senate Finance Committee soon thereafter. ECAT also supported Congress' approval of the U.S.-Vietnam Bilateral Commercial Agreement, which opened the door to the application of normal trade relations tariffs to imports from Vietnam effective in September 2001. ECAT also supported the implementation of the U.S.-Jordan Free Trade Agreement, enacted on September 28, 2001, in a manner that promotes trade and investment liberalization.

In 2002, ECAT will actively continue its efforts to rebuild a bipartisan consensus for trade and, in particular, to support the bipartisan passage of Trade Promotion Authority. This is particularly important given the significant opportunities that new global, regional and bilateral negotiations present to the United States (as discussed in depth in Section 3) and in the face of continued public skepticism about the value of trade policy, the slowdown in the U.S. economy, and continued efforts by U.S. trading partners to negotiate agreements that exclude the United States and undermine U.S. trade policy goals.

Renewal of Trade Promotion Authority (so-called fast-track or trade-negotiating authority legislation) that expired in 1994 will be a critical part of this effort. In particular, ECAT is working towards Senate passage of H.R. 3005 on a bipartisan basis and its enactment later this year, as called for by President Bush in his State of the Union address.

ECAT will also remain heavily involved in the debate on the review and modernization of the Trade Adjustment Assistance programs, which may be considered in the Senate as part of the floor consideration of Trade Promotion Authority. ECAT will also work to support a multi-year renewal of the Generalized System of Preferences program, which expired on September 30, 2001, and the renewal and expansion of the Andean Trade Preference program, which expired on December 4, 2001.

ECAT will also continue its efforts to oppose attempts to limit trade for protectionist ends, as it has done with respect to steel trade. Discussed below in particular are ECAT's efforts in leading a coalition of major U.S. companies in opposition to the imposition of protectionist tariffs and quotas on steel imports.

The relationship between trade and other policy issues, including labor, environment, food policy, and health policy, will also be considered again this year as discussed below.

As well, efforts will be renewed in 2002 to ensure that the U.S. Customs Service has the necessary funding to modernize its outdated computer system and its overall operations.

Major new trade negotiations, investment, unilateral sanctions, export financing, export control policy, and the taxation of foreign source income will also be on the trade agenda and are discussed in Sections 3, 4, 7, 8, 9 and 12 respectively of this report.

Building a Consensus on Trade and Investment Liberalization

The post-World War II consensus on the value of liberalizing trade and investment policies as a critical part of maintaining economic growth and a high standard of living in the United States has been shaken in recent years. Congress' failure to renew trade-negotiating authority legislation since its expiration over six years ago and protests against globalization in Seattle, Washington, D.C., and elsewhere are symptoms of an underlying uncertainty among the American public and many in Congress over the value of trade and investment liberalization for the United States.

From an historical view, most striking is the failure to renew trade-negotiating authority legislation that had previously been provided to all presidents, Republican and Democratic, from 1975 onward. Indeed, the forerunner to the modern fast-track procedures contained in the Trade Act of 1974 was tariff proclamation authority which had been granted to all presidents, almost continuously since the Reciprocal Trade Agreements Act of 1934; even that is no longer provided to the President except for some limited leftover authority from the Uruguay Round Agreements Act.

In 2001, substantial progress was made in rebuilding the consensus through the development of H.R. 3005, the Bipartisan Trade Promotion Authority Act on a bipartisan basis as discussed below. The House passed this important legislation and the Senate Finance Committee reported it favorably. Congress' passage of several major pieces of trade legislation, including approval of the U.S.-Vietnam Bilateral Commercial Agreement and the U.S.-Jordan Free Trade Agreement Implementation Act on a bipartisan basis, is also to be applauded.

Despite these successes, there remain deep divides on the role, objectives, and value of U.S. trade policy as most evident from the narrow (215-to-214) margin of approval of Trade Promotion Authority in the House. These divides not only hamper Congress' ability to pass Trade Promotion Authority, they limit the United States' ability to play a leadership role in new World Trade Organization (WTO) negotiations, negotiations for a Free Trade Area of the Americas (FTAA), and elsewhere. Our farmers, manufacturers, and service providers should not be left behind, particularly as our trading partners continue to move forward with their own trade and investment pacts.

It is critical, therefore, that the United States rebuild a national and bipartisan consensus on the value of trade and investment liberalization as the foundation for the enactment of Trade Promotion Authority in 2002 and renewed U.S. leadership on trade and investment liberalization worldwide. We must effectively demonstrate that expansionary trade and investment policies are essential to U.S. economic growth, including the growth of the new economy, and the high U.S. standard of living.

ECAT is working with the Administration, Congress and others in the private sector to help rebuild this consensus. An important part of this endeavor will involve the release later this year of ECAT's new study on the importance of trade and investment liberalization in generating prosperity in the United States in the 1990s, as discussed in more depth in Section 1.

ECAT POSITION: ECAT supports efforts by the Administration, Congress, and the private sector to rebuild the consensus on the importance of trade and investment liberalization.

Congressional Consideration of Trade Promotion Authority

History of Trade-Negotiating Authority Legislation

Trade-negotiating authority legislation (so-called "fast track" or Trade Promotion Authority (TPA)) defines the framework for Administration-Congressional consultation and implementation of trade agreements and assumed its modern form in the Trade Act of 1974. These procedures were developed following President Johnson's failure to win Congressional approval of the GATT Kennedy Round agreements (which dealt with non-tariff (as well as tariff) measures and needed to be implemented by U.S. statute). Congress' rejection of these agreements poisoned the atmosphere for future trade negotiations domestically and internationally. In particular, U.S. trading partners believed that the United States was incapable of implementing its international trade commitments. In order to assure U.S. trading partners that new GATT agreements could not be similarly rejected, trade-negotiating procedures were developed in the Trade Act of 1974, essentially as a compromise between Congressional and Administration prerogatives.

Trade-negotiating authority legislation was legislatively extended three times with strong bipartisan support and remained in force almost continuously between January 3, 1975 and the end of the Uruguay Round negotiations on April 15, 1994. Throughout this period, this legislation remained essentially the same. Trade-negotiating authority legislation limited Congress' legislative procedures for considering trade agreements in three primary ways in return for extensive consultations by the Administration prior to and during the negotiation of bilateral and multilateral trade agreements. First, the procedures guaranteed an up-or-down vote within a time certain. Second, the procedures limited the length of the debate. Third, the procedures prevented consideration of any amendments to the implementing legislation once it had been introduced (to avoid the need to renegotiate an agreement if Congress were permitted to amend the implementing legislation). In return, a trade agreement and its implementing legislation were only granted these special procedures as long as the President consulted with Congress before and during the negotiation of the agreement and on the drafting of the implementing legislation.

Trade-negotiating authority procedures have been used by Congress to consider five different trade agreements, all of which were approved and implemented: the GATT Tokyo Round Agreements (implemented by the Trade Act of 1979), the U.S.-Israel Free Trade Agreement (1985), the U.S.-Canada Free Trade Agreement (1989), the North American Free Trade Agreement (NAFTA) (1993), and the Uruguay Round Agreements (1994).

The consensus on renewal of trade-negotiating authority legislation faltered, however, in the mid-1990s, particularly following the negotiation of the NAFTA labor and environmental side agreements. Chief among the contentious issues (which continues to impede its renewal) is the extent to which, if any, labor and environmental provisions can or should be included in trade agreements (either as side agreements as they were with the NAFTA or as integral to the agreement, such as the U.S.-Jordan FTA). Proposals to renew trade-negotiating authority legislation failed in Congress in 1995, 1997 and 1998 (when the House, on September 25, 1998, formally rejected trade-negotiating authority legislation for the first time by a vote of 180-to-243).

Importance of Trade Promotion Authority

The Constitution grants the President authority to conduct foreign policy negotiations, including negotiations related to international trade agreements, yet directly provides Congress the authority "to regulate Commerce with foreign nations." TPA is not necessary to permit the President to conduct actual trade negotiations. Renewal of this type of legislation is, however, viewed as critical for at least three reasons: (1) to enhance U.S. leadership on trade and the President's ability to conclude negotiations with foreign trading partners; (2) to facilitate Congress' consideration and implementation of such agreements; and (3) to provide for greater Administration-Congressional consultations on issues where both the President and the Congress have overlapping constitutional prerogatives.

TPA is critical for the United States to regain its leadership role in international trade negotiations. Following their experience in the Kennedy Round negotiations and the adoption of the trade-negotiating authority procedures in 1975, U.S. trading partners have generally supported, indeed sought, assurances that the President would have such authority to implement future trade agreements. Although only technically necessary to facilitate implementation of a final agreement by Congress, these procedures have taken on a much greater role in the eyes of U.S. trading partners, many of which have refused to take U.S. negotiators seriously (particularly in the context of multilateral negotiations) since this authority expired. Others have used the expiration of this legislation as an excuse to stall negotiations and not make important concessions. Timely renewal of such authority is critical in order to give U.S. negotiators the clout necessary to extract concessions and successfully conclude negotiations. Lack of this authority represents a serious impediment to the United States' ability to lead on trade issues, particularly with respect to both the FTAA and WTO negotiations. Our farmers, manufacturers, and service providers, should not be left behind, particularly as our trading partners continue to move forward with their own trade pacts.

Equally important is the role that TPA plays in facilitating Congress' implementation of trade agreements, particularly in the U.S. Senate where filibusters and amendments are part of the normal order of business. With Congress' assent, trade-negotiating authority legislation has limited certain Congressional prerogatives to expedite congressional consideration and implementation of trade agreements and to preserve the integrity of the trade agreements and prevent their renegotiation.

Trade promotion authority procedures also require the Administration to consult extensively with Congress and seek Congressional input on the conduct of trade negotiations. Indeed, it was the primary mechanism for the executive and legislative branches to come together to reach agreement on U.S. trade policy objectives and trade pacts and facilitates both the Administration's and Congress' ability to fulfill their constitutional roles.

During the House debate on TPA in 2001, ECAT outlined the following Top Ten Reasons to Support H.R. 3005, the Bipartisan Trade Promotion Authority Act:

1. To produce strong trade agreements that open and expand markets for U.S. goods and services. The passage of H.R. 3005 will send a strong signal to the rest of the world that the President and Congress are prepared to work together to reaffirm U.S. leadership on trade. As a result, it represents a prime force to propel forward the launch and acceleration of new and existing trade negotiations throughout the world. Without Trade Promotion Authority, most of our trading partners simply do not take us seriously in any but bilateral negotiations, and perhaps not even then.

2. To create new opportunities for U.S. companies, workers and their families and to support economic growth and high living standards in the United States. H.R. 3005 establishes the right framework for the negotiation and approval of liberalized trade and investment agreements that will open foreign markets to U.S. agricultural and manufactured exports, trade in services, and U.S. investment. These agreements will create new opportunities for all Americans. Consider that according to U.S. government statistics, just the NAFTA and the WTO combined provide an annual income gain of $1,260 to $2,040 for the average American family of four.

3. To establish effective Congressional oversight over trade negotiations. H.R. 3005 incorporates concrete provisions to improve Congressional oversight of trade negotiations, including the creation of a Congressional Oversight Group, comprised of members from all relevant committees, who will be briefed regularly, have access to negotiating documents and become accredited members of the U.S. delegation to ongoing trade negotiations. H.R. 3005 also provides Congress with the ability to limit the application of Trade Promotion Authority procedures as a result of an Administration's failure to consult. At the end of every negotiation, the full Congress retains the most important protection against an agreement that is not in our country's interest - the ability to approve or disapprove that final agreement.

4. To empower U.S. negotiators with the authority and flexibility to negotiate the best agreements possible. While laying out strong negotiating objectives and Congressional consultation provisions, H.R. 3005 does not mandate particular outcomes or tie our negotiators' hands. As a result, U.S. negotiators have the flexibility to negotiate complex trade agreements and the authority to bring back agreements that must be accepted or rejected in a timely manner and without amendment. This balance strengthens the U.S. negotiating position and the ability of U.S. negotiators to conclude the best possible agreements.

5. To ensure that U.S. companies are not put at a competitive disadvantage in overseas markets. H.R. 3005 recognizes the importance of seeking strong investor protections to promote U.S. foreign investment, which has increased U.S. productivity, U.S. exports, U.S. wages and U.S. competitiveness. H.R. 3005 instructs U.S. negotiators to seek strong investor protections that are modeled after and consistent with the protections already accorded to all investors under U.S. domestic law and that have been included in the 45 U.S. Bilateral Investment Treaties and virtually all of the investment treaties of the European states. This legislation also includes several specific provisions to improve the operation of the investor-to-state dispute settlement mechanism by increasing transparency, weeding out frivolous claims and expediting decisions.

6. To expand trade and investment and, thereby, foster economic growth and reduce poverty worldwide. As the World Bank and others have documented, it is precisely through increased trade and economic growth that developing countries are better able and increasingly motivated by a growing middle class to improve their own standards of living. Since World War II, the liberalization of trade has produced a six-fold growth in the world economy and a tripling of per capita income and enabled hundreds of millions of families to escape from poverty and enjoy higher living standards. According to the World Bank, developing countries that participate actively in trade grow faster and reduce poverty faster than countries that isolate themselves. In the 1990s, per capita incomes grew 5.1 percent in developing countries with high trade and investment flows, while more isolated countries saw incomes decline by 1.1 percent.

7. To gain the support of other countries to increase public access to and involvement in trade policy decisions worldwide. H.R. 3005 includes strong provisions to open the doors of the WTO and other international trade institutions. It seeks to increase transparency of dispute settlement cases, including investor-state arbitration proceedings, as well as the regulatory decisions of foreign governments. Opening these doors and these proceedings is critical to ensure that U.S. citizens and companies are able to understand and participate meaningfully in important trade policy decisions. These provisions also represent an important step in fostering increased transparency and the rule of law in all countries throughout the world.

8. To promote trade, investment and economic growth, as well as other concrete measures, that will improve labor standards worldwide. In addition to promoting economic growth and the higher standards associated with such growth, H.R. 3005 includes several important provisions to promote worker rights worldwide. In particular, it instructs negotiators to promote worker rights consistent with core labor standards and to seek commitments that countries enforce their own labor laws. H.R. 3005 also includes much-needed provisions to provide technical assistance to, and increase capacity-building in, developing countries to improve their labor standards. It also requires the Administration to promote greater cooperation between the WTO and the ILO and requires the Administration to review the impact of future trade agreements on U.S. employment. While H.R. 3005 does not contain a separate provision, U.S. law already establishes an ongoing requirement for the Administration to seek a working group on trade and labor at the WTO.

9. To promote trade, investment and economic growth, as well as other effective measures, that will improve environmental standards worldwide. In addition to promoting economic growth and the higher standards associated with such growth, H.R. 3005 instructs negotiators to seek to protect and preserve the environment, to include commitments that countries enforce their own environmental laws, to eliminate government practices that unduly threaten sustainable development, and to seek barrier-free access for U.S. environmental technologies. H.R. 3005 also requires the Administration to conduct environmental reviews of future trade agreements and develop much-needed initiatives to provide technical assistance to, and increase capacity-building in, developing countries to improve their environmental protection standards.

10. To work with other countries to establish appropriate and transparent mechanisms for the enforcement of U.S. trade agreements. H.R. 3005 instructs U.S. negotiators to establish and improve mechanisms for the resolution of disputes in a manner that encourages compliance with the underlying trade agreement, promotes the effectiveness of enforcement and makes available equivalent procedures and remedies for all issues that arise under a trade agreement.

Consideration of Trade Promotion Authority in 2001

The Bush Administration, Congress and the private sector were heavily focused on TPA throughout 2001. On May 11, 2001, the Bush Administration released its 2001 International Trade Agenda, which called for the passage of TPA, among other trade policy priorities.

Throughout 2001, there were several TPA bills introduced in Congress, including H.R. 2149, by Ways and Means Trade Subcommittee Chairman Crane and others, S. 1104 by Senators Murkowski (R-AL) and Graham (D-FL), S. 935 and S. 943-44 by Finance Committee Chairman Baucus (D-MT), S. 136-138 and S. 140 by Senator Gramm (R-TX), S. 599 by Senator Roberts (R-KS), S. 333 by Senator Lugar (R-IN) and the House companion, H.R. 627 by Representative Boehner (R-OH), and H.R. 1446 by Representative English (R-PA).

During the spring and summer, Ways and Means Chairman Thomas (R-CA) and Representatives Cal Dooley (D-CA), William Jefferson (D-GA) and John Tanner (D-TN) negotiated legislation trying to reach a compromise on issues that had divided Republicans and Democrats since the early 1990s, including labor and environment. On October 3, 2001, Ways and Means Committee Chairman Bill Thomas, Trade Subcommittee Chairman Phil Crane (R-IL), Rules Committee Chairman David Dreier (R-CA) and Representatives Cal Dooley, William Jefferson, John Tanner, and Jim Moran (D-VA) introduced H.R. 3005, the Trade Promotion Authority Act of 2001. This legislation maintains and improves upon the defining features of the original trade-negotiating authority legislation - laying out negotiating objectives and authorizing expedited House and Senate consideration of legislation implementing trade agreements where the President has maintained close consultations with Congress. As in the original legislation, Congress retains the ability to vote down any implementing legislation for a trade agreement it does not want to approve. The main provisions of this legislation are as follows:

• Duration: Provides TPA authority for agreements entered into before June 1, 2005, with potential 2-year extension. TPA procedures are extended if President requests extension and neither House adopts an extension disapproval resolution (considered under expedited procedures) prior to June 30, 2005.

• Negotiating Objectives: Provides negotiating objectives to seek trade and investment liberalization. Objectives cover: trade barriers and distortions, trade in services, foreign investment, intellectual property, transparency, improvement of WTO and multilateral agreements, regulatory practices, electronic commerce, reciprocal trade in agriculture, labor and environment, dispute settlement and enforcement, and WTO extended negotiations. A more extended discussion of the labor, environment and investment provisions follows.

• Promotion of Other Priorities: Directs the President to pursue additional priorities in the areas of labor, environment, and trade remedy laws.

• Congressional Consultations: Provides extensive provisions for Congressional consultations in addition to that provided for in prior trade-negotiating authority legislation. Establishes a permanent Congressional Oversight Group (COG) to be comprised of chairmen and ranking members and 3 additional members of Ways and Means and Finance Committees and chairman and ranking member or their designees of other House and Senate Committees that would have jurisdiction over laws affected by a trade agreement. Each COG member shall be accredited by USTR as an official advisor to the U.S. delegation in any trade agreement negotiation. The COG shall consult and provide advice to USTR regarding the formulation of specific objectives, negotiating strategies and positions, the development of the applicable trade agreement, and compliance with and enforcement of the negotiated commitments. TPA procedures are not applicable if both Houses separately agree to procedural disapproval resolutions (under expedited floor procedures) for lack of notice or consultations within 60 days of each other.

• Progress towards Negotiating Objectives: Provides that no trade agreement may qualify for expedited procedures unless its "makes progress" in meeting the applicable negotiating objectives and the President fulfills the consultations requirements. President is also required to report to Congress on how the final agreement makes progress towards the bill's objectives.

• Implementing Legislation: Authorizes expedited procedures as contained in the original trade-negotiating authority legislation for implementing bills that contain provisions "necessary or appropriate" to implement the underlying trade agreement.

On October 4, 2001, Representatives Levin (D-MI), Rangel (D-NY) and Matsui (D-CA) introduced H.R. 3019, the Comprehensive Trade Negotiating Authority Act of 2001, which represented the culmination of several months of negotiation among Democratic House members led by Representative Levin. This legislation also included the primary features from the original trade-negotiating authority legislation. The main provisions are as follows:

• Duration: Provides TPA authority for agreements entered into within 5 years after the date of this legislation, with a possible 2-year extension. Extension procedures are the same as in H.R. 3005.

• Negotiating Objectives: Establishes separate negotiating objectives for WTO negotiations and for bilateral/regional negotiations on similar topics as H.R. 3005. Specific differences with respect to labor, environment and investment negotiating objectives are discussed below.

• Congressional Consultations: Enhances role of Congressional Trade Advisors and sets forth procedures for periodic votes on the continuation of TPA. TPA procedures will not be applicable if both Houses of Congress agree to disapproval resolutions (under expedited committee and floor procedures) within (1) 90 days of President's notice that he intends to initiate a negotiation with two or more countries; or (2) 120 days of each other for any reason.

• Progress towards Negotiating Objectives: At least 90 calendar days before entering into a trade agreement, the President must certify to Congress that the trade agreement "substantially achieves the principal negotiating objectives" and other objectives developed. Unless a majority of the Congressional trade advisors vote to concur in the President's certification that the agreement "substantially achieves the principal negotiating objectives" and other negotiating objectives not later than 30 days after the President submits his certification, TPA procedures are not applicable. The failure of the Congressional trade advisors to vote within that period shall be considered to be concurrence in the President's certification.

• Implementing Legislation: Authorizes expedited procedures as contained in the original trade-negotiating authority legislation for implementing bills that contain provisions "necessary or appropriate" to implement the underlying trade agreement.

The Ways and Means Committee marked up H.R. 3005 on October 9, 2001, and approved the legislation by a vote of 26-to-13, with all Republicans and two Democrats (H.R. 3005 cosponsors Representatives Jefferson and Tanner) supporting the legislation. The Committee approved one amendment by Representative Cardin (D-MD) adding a principal negotiating objective on anticorruption rules and a technical substitute amendment by Chairman Thomas making technical and conforming changes to related laws. Two additional amendments were rejected:

• The Committee rejected, by a vote of 26-to-12, the Rangel-Levin-Matsui substitute amendment, H.R. 3019, the Comprehensive Trade Negotiating Authority Act.

• The Committee also rejected, by voice vote, an amendment by Representatives Doggett (D-TX) and McDermott (D-WA) that sought to (1) limit substantially the investment protections in future agreements; and (2) create a point of order mechanism during floor consideration of a trade agreement to prevent the application of TPA if certain provisions are not included in a final agreement.

On December 5, 2001, the House Rules Committee approved a manager's amendment to H.R. 3005 that made a number of changes, including adding provisions to:

• Increase consultations and require the implementation of certain import sensitive agriculture tariff concessions through an implementing bill, not a Presidential proclamation.

• Direct negotiators to seek an appellate mechanism to review investment disputes and to increase transparency in investor-to-state dispute settlement cases.

• Direct the Administration to seek to establish a consultative mechanism to examine the trade consequences of unanticipated currency movements.

• Provide for the identification of and consultations with Ways and Means for textile products facing tariff disparities (higher foreign tariffs than U.S. tariffs) and an assessment of whether negotiations will address the disparities.

• Establish a negotiating objective that the Administration strive to ensure that parties to trade agreements do not weaken or reduce their current health, worker, safety, or environmental standards.

• Provide that any Member may introduce a procedural disapproval resolution (rather than only the Chairman or Ranking Member of the Finance or Ways and Means Committees).

• Require the Administration to meet with the Congressional Oversight Group before the initiation of the negotiation, and at any other time that the group may request.

• Clarify that no retaliation can be authorized based on the exercise of a country's reasonable discretion in applying labor, health, safety and environmental laws.

• Express that it is the Sense of Congress to ensure adequate staffing in the Committees of primary jurisdiction over trade.

On December 6, 2001, the House debated H.R. 3005. Representative Rangel offered a motion to recommit and substitute the Levin bill, H.R. 3019. The House rejected the motion by a vote of 162-to-267. The House then voted on H.R. 3005, which it narrowly approved by a vote of 215-to-214.

Following its approval, Finance Committee Chairman Baucus modified H.R. 3005 in the following ways:

• Investor-State Disputes. Directs negotiators to ensure that U.S. investors in the United States are not accorded lesser rights than foreign investors in the United States; to seek to establish standards for "fair and equitable treatment" consistent with U.S. legal principles and practice; to seek mechanisms to deter and eliminate frivolous claims; to seek to enhance opportunities for public input into the formulation of government positions in investor-state dispute settlement; and to seek an appellate mechanism to review all possible decisions.

• Trade Laws. Adds a negotiating objective to address underlying causes of unfair trade and requires the President to notify the Finance and Ways and Means Committees if an agreement will change U.S. trade remedy laws. The chairmen and ranking members must issue a report within 60 days stating whether the proposed changes are consistent with the negotiating objective of not weakening U.S. trade laws. The President must also report to Congress on how such changes meet Congressional objectives.

• Dispute Settlement: Adds a negotiating objective to improve WTO dispute settlement and requires the Secretary of Commerce to issue a report by December 31, 2002 stating a strategy for addressing identified problems with dispute settlement and trade remedy cases.

• Labor. Requires that the President submit to Congress a labor rights report on the country with which the United States is negotiating.

• Foreign Sales Corporations. Adds a negotiating objective to seek a revision of WTO rules on the treatment of border adjustments for internal taxes to redress the disadvantage to countries relying primarily on direct taxes for revenue rather than indirect taxes.

Prior to the markup, Chairman Baucus also accepted a number of amendments, which have been incorporated into H.R. 3005, including:

• An amendment by Senator Snowe (R-ME) to require the International Trade Commission to study the economic impact of agreements adopted or negotiated under trade-negotiating authority legislation.

• A Senator Snowe amendment to add an overall negotiating objective to ensure that small businesses are afforded equal access to foreign markets.

• A Senator Snowe amendment to designate the current Assistant USTR (AUSTR) for Industry and Telecommunications as the AUSTR for Industry, Telecommunications and Small Business.

• A Senator Snowe amendment to require USTR to identify a small business advocate within the WTO.

• A Senator Snowe amendment requiring the Administration to consult with House Committee on Resources and the Senate Committee on Commerce, Science and Transportation on negotiations and agreements affecting the fishing trade.

• An amendment by Senator Conrad (D-ND) modifying the negotiating objective on agriculture export subsidies to seek to "eliminate all export subsidies on agricultural commodities while maintaining bona fide food aid and preserving United States agricultural market development and export credit programs that allow the United States to compete with other foreign export promotion efforts."

• A Senator Conrad amendment on products currently subject to a tariff rate quota and to require USTR to provide an analysis of export subsidy issues with respect to import sensitive products.

• An amendment by Senator Graham (D-FL) adding an additional negotiating objective regarding agriculture.

The Finance Committee favorably approved the modified H.R. 3005 on December 12, 2001. In a continuation of the markup on December 18th, the Finance Committee rejected by voice vote the following three amendments:

• An amendment by Senator Kerry (D-MA) amendment to restrict investment protections in future trade agreements;

• Senator Conrad's amendment to require special consultations 10 days before the initialing of a trade agreement; and

• Senator Conrad's amendment to add a negotiating objective on correcting errors in trade agreements.

Following completion of the markup, the modified H.R. 3005 was ordered favorably reported. Floor debate on H.R. 3005 has yet to be scheduled.

Main Areas of Debate

The primary issues of debate as TPA was considered in 2001 centered on four issues: labor, environment, investment and Congressional consultations.

Labor and Environment

While the link between trade and investment and labor and environmental issues pervades the trade debate in the United States, much of that debate is focused on the narrow issue of how labor and environmental provisions should be treated in TPA. Some members of Congress and labor and environmental groups insist that any trade agreements subject to these trade promotion authority procedures should include labor and environmental provisions, and a subset of those have called for mandating the use of sanctions for a country's failure to comply with labor and environmental provisions. Other members and groups in the private business sector have sought to exclude non-trade related labor and environmental issues from trade agreements or at least prevent the use of trade sanctions.

H.R. 3005 includes extensive labor and environment negotiating objectives, much broader than contained in prior grants of this authority and seeks to balance these issues in a trade-liberalizing manner that promotes high labor and environmental standards. (Notably, prior enactments of this authority never included any negotiating objective on environmental issues and dealt only broadly with labor issues.) In particular, H.R. 3005 includes the following provisions:

Overall negotiating objectives to:
• promote increased standards on worker and child labor rights consistent with core labor standards.

• strive to ensure that parties to trade agreements do not weaken or reduce their current health, worker, safety, or environmental standards.

• provide that trade and environment goals are mutually supportive and to seek to protect and preserve the environment and enhance the international means of doing so, while optimizing the use of the world's resources.

  Principal negotiating objectives to:

• ensure that parties to any trade agreement do not fail to enforce effectively their labor or environmental laws in a manner affecting trade, recognizing a government retains certain discretion.

• eliminate government practices or policies that unduly threaten sustainable development.

• seek market access for U.S. environmental technologies, goods, and services.

• strengthen the capacity of U.S. trading partners to promote respect for core labor standards and environmental protection.

  Requires the Administration to:

• promote greater cooperation between the WTO and ILO (Uruguay Round Act provides ongoing requirement for the Administration to seek a working group on trade and labor at the WTO).

• develop initiatives to strengthen the capacity of U.S. trading partners to promote respect for core labor standards.

• consult with parties seeking agreements with the United States and provide technical labor assistance to those countries.

• review the impact of future trade agreements on U.S. employment, modeled after Executive Order 13141.

• report on child labor laws for each country with which the President seeks a negotiation.

• promote consideration of Multilateral Environmental Agreements (MEAs) and consult with parties on the consistency of MEAs with trade provisions and the GATT.

• conduct environmental reviews of future trade and investment agreements, consistent with Executive Order 13141 and its relevant guidelines.

• develop initiatives to strengthen the capacity of U.S. trading partners to develop and implement standards for environment and human health based on sound science.

In addition, H.R. 3005 includes an enforcement negotiating objective directing U.S. negotiators to seek to treat all principal negotiating objectives equally, and would give the flexibility to determine the mechanism that will most effectively encourage compliance.

H.R. 3005 represents an appropriate balance between those who seek enforceable labor and environmental provisions in trade agreements and the fact the many countries - particularly those countries whose labor and environmental standards are in most need of improvement - reject the inclusion of such provisions in trade agreements. These provisions provide strong negotiating objectives without mandates, but also recognize that one of the most effective ways to improve standards is to provide support for trade, investment and capacity-building. As the World Bank and others have documented, it is precisely through increased trade and economic growth that developing countries are better able and increasingly motivated by a growing middle class to improve labor and environmental standards. Mandating the inclusion of labor and environmental provisions - over which there remains much disagreement in the developing world - is likely to impede, rather than promote, the very trade liberalization and economic growth that support the adoption of higher labor and environmental standards.

As this issue is considered during the Senate debate and in future negotiations, it is important to recognize, however, that trade linkages with labor and/or the environment should, for the most part, be positive and non-punitive. Much important work has been done, for instance, in a positive manner by the International Labor Organization and various environmental entities. Sanctions are too often ineffective and counterproductive. Consider:

• The practical - most countries that have labor and environmental problems that we want to address will simply not accept trade sanctions as part of a trade agreement. For many of these countries, which are also reluctant to open their economies, it is viewed as another reason to avoid new negotiations.

• The impact - trade sanctions target export industries, which oftentimes have the highest labor and environmental standards as a result of the involvement of U.S. companies. Trade sanctions would undermine precisely those industries and the examples they set.

• The result - such sanctions are largely counterproductive. By impeding economic growth and trade liberalization, sanctions limit the ability and motivation of countries to raise such standards.

These issues are discussed in more depth below in the broader review of labor and environmental trade issues.

Investment

As discussed in more depth in Section 4, foreign investment by U.S. companies plays a vital role in promoting the health and dynamism of the U.S. economy and generally complements companies' activities in the United States. Strong investment protections are critical to supporting foreign investment and have been part of the negotiating objectives under trade-negotiating authority legislation since 1984.

For those reasons, H.R. 3005 promotes strong investment protections consistent with U.S. law and practice. In particular, H.R. 3005 directs negotiators to seek strong investment protections in international trade agreements that will ensure that U.S. investors abroad have the same basic protections provided to all investors (foreign and domestic) in the United States. The primary protections - of fair and equitable treatment, full protection and security, and compensation for expropriation contained in NAFTA Chapter 11 and U.S. Bilateral Investment Treaties - are modeled after and consistent with U.S. law. Like H.R 3019, H.R. 3005 recognizes the need for investor-state dispute settlement procedures. Such provisions are needed because many developing countries lack transparent, fair, and independent judicial systems that are necessary to ensure adequate protection for investment.

Foreign investment and, in particular, the investment protections contained in our international investment treaties and Chapter 11 of the North American Free Trade Agreement have come under increasing criticism in recent years. Unlike in past debates on trade-negotiating authority legislation, investment became one of the main areas of debate during consideration of H.R. 3005.

Recognizing some legitimate concerns have been raised, the authors of H.R. 3005 direct U.S. negotiators to make significant reforms in the U.S. negotiating position on investment to:

• Ensure the fullest measure of transparency in the investor-state dispute settlement mechanism, including all proceedings, submissions, decisions and hearings and providing a mechanism for the acceptance of amicus curiae submissions;

• Establish a filter mechanism to eliminate frivolous claims; and

• Establish an appellate or similar review mechanism.

H.R. 3005 also requires that the protections for compensation for expropriation and fair and equitable treatment be consistent with U.S. law and practice. These common-sense reforms and clarifications fully address the primary concerns that have been raised about the investor-state arbitration panels.

Further modification of the investment protections - e.g., to limit compensation for expropriation or exempt certain laws from the basic due process-type protections - will result in a competitive disadvantage for U.S. companies and their workers since these protections are already provided to our competitors in foreign markets and to foreign (and domestic) investors in the United States. Weakening investment protections will also result in less investment in developing countries that are most in need of such investment. In its 2001 report on FDI in Least Developed Countries at a Glance, the United Nations Conference on Trade and Development emphasized that increased foreign direct investment is of "particular importance" to achieve sustainable poverty-reducing growth and development in the poorest countries. Foreign investment in developing countries also fosters the rule of law, transparency, respect for private property and a market-based free enterprise system. ECAT, therefore, strongly opposes the following types of modifications to the U.S. negotiating position on investment that have been proposed during the House and Senate debate of TPA:

• Creating an Exception for Measures Intended to Protect the Environment, Consumers and Public Health Is Not Necessary and Will Be Counterproductive. Legitimate environmental, health, safety, consumer and employment opportunity laws have not been and cannot be undermined by the investment protections in NAFTA Chapter 11 or our BITS since these investment rules do not prohibit bona fide, nondiscriminatory application of legitimate regulation. In a like manner, the United States does not maintain exceptions for its own Environmental Protection Agency or Food and Drug Administration regulations from the basic protections of the Administrative Procedure Act against arbitrary and capricious actions. Establishing special exceptions for certain laws or actions from the basic investment protections is unnecessary and will likely lead to mischief, as some foreign governments will take advantage of this "safe harbor" to shield unfair and arbitrary actions.

• Limiting Protections for Foreign Investors in the United States is Unnecessary. H.R. 3005 instructs negotiators to seek to establish standards for expropriation and "fair and equitable treatment" consistent with U.S. legal principles and practice. Further clarification or limitations are unnecessary. NAFTA Chapter 11 and the 45 BITS were modeled after U.S. law, including the Takings and Due Process Clauses of the Constitution. These agreements require governments to accord to foreign investors treatment in accordance with (no less favorable than) international law, including fair and equitable treatment and full protection and security. These core protections do not accord greater substantive rights to foreign investors. Foreign investors in the United States already have the right to challenge U.S. laws that potentially affect their investments in U.S. courts under U.S. law.

• Limiting the Expropriation Provision Would Provide U.S. Investors Abroad with Lower Protections than Foreign Investors Already Have in the United States. H.R. 3005 instructs U.S. negotiators to seek to establish expropriation standards "consistent with United States legal principles and practice." To limit compensation for expropriation beyond that general principle would provide U.S. investors abroad with lower protections than already accorded to foreign investors under U.S. law. The Supreme Court has found that compensation is required for direct (physical) and indirect (so-called regulatory) takings based on a set of factors since 1922. Suggestions that investment protections in trade and investment agreements should be limited to physical takings or to takings that deprive an owner of all economically beneficial use of one's property represent substantially lower protection than already accorded to U.S. and foreign investors by the U.S. Supreme Court under U.S. law. The only impact of such limitations will be to limit the protections for U.S. investors abroad, placing them at a competitive disadvantage.

• Requiring Host Country Approval of Claims Will Unnecessarily Politicize and Delay Proceedings. Investors must already wait six months before they file a claim, during which time they routinely contact both their home and the foreign government to resolve a claim. Proposals to require host-country approval of claims would add an unnecessary hurdle that will allow political, not legal, considerations to determine whether U.S. investors abroad can seek adequate remedies. In addition, the U.S. government may be placed in an awkward diplomatic situation by having to approve, explicitly or implicitly, claims that U.S. investors intend to file against foreign governments. Foreign investors in the United States will not be constrained since they can use U.S. courts to pursue remedies under the same substantive standards. If this proposal is motivated by a desire to reduce frivolous claims, H.R. 3005 already addresses that issue.

Investment issues, including a review of recent Chapter 11 cases, are also discussed in Section 4.

Congressional Consultations and Mandated Outcomes

The fourth major area of debate is the proper role of Congress in consulting with the Administration and in approving the final trade agreement and implementing legislation. H.R. 3005 substantially enhances the consultation mechanisms contained in prior legislation. Most prominently, it requires the establishment of a permanent Congressional Oversight Group (COG) with which the Administration must consult regularly and at specified intervals. The COG is to be comprised of Members of the Senate Finance and House Ways and Means Committees, along with Members from other relevant committees; COG members will become accredited members of negotiating delegations. It also requires USTR to establish procedures and mechanisms for timely and comprehensive consultations. As well, H.R. 3005 includes special consultation requirements with respect to agriculture, textiles and trade remedy provisions.

H.R. 3005 provides that no trade agreement may qualify for expedited procedures unless its "makes progress" in meeting the applicable negotiating objectives and the President fulfills the consultation requirements. The President is also required to report to Congress on how the final agreement makes progress towards the bill's objectives. H.R. 3005, while seeking the fulfillment of Congress' negotiating objectives, does not mandate that all or particular negotiating objectives be met. (In contrast, H.R. 3019 requires the President to certify prior to the end of the negotiations - oftentimes when negotiations are most critical - that the agreement "substantially achieves the principal negotiating objectives" and other objectives developed. Unless a majority of the Congressional trade advisors vote to concur in the President's certification (also prior to the end of the negotiations), TPA procedures are not applicable.)

As explained in a July 12, 2001 letter to the President and House and Senate leaders developed by ECAT and signed by each of the major trade associations, mandating outcomes is counterproductive:

"Since its original enactment as part of the Trade Act of 1974 until its expiration in April 1994, trade negotiating authority has laid out general and specific negotiating objectives for multilateral and bilateral negotiations and included numerous procedures to promote consultations and collaboration between the executive and legislative branches. During its almost 20-year history, however, such authority has never once mandated any particular outcome from the negotiations. That is, the application of trade promotion authority has never been made contingent on either the inclusion or the exclusion of any particular provisions in a final trade agreement. Rather, trade promotion authority has consistently provided U.S. negotiators with the flexibility to negotiate the best agreements possible in consultation with Congress.

To change course and mandate or proscribe any particular outcome would tie the hands of U.S. negotiators and would undermine our ability to even launch negotiations as other governments may well adopt a similar approach, trying to rule out or rule in certain issues before the negotiations even begin. It would, we believe, be an even greater barrier to forward momentum on trade liberalization than no trade promotion authority at all since some countries would likely flatly refuse to even negotiate with the United States depending upon what was mandated. Starting down this road would also greatly complicate Congress' consideration of trade promotion authority, as a myriad of different interests would likely seek to mandate the inclusion or exclusion of particular provisions.

It is vital, therefore, that the final trade promotion authority, like H.R. 3005, maintain the traditional negotiating flexibility contained in all prior grants of this authority, without mandating or proscribing particular outcomes."

H.R. 3005 also provides a mechanism for Congress to disapprove the application of expedited procedures for lack of consultations. In particular, any member of Congress may introduce a resolution of disapproval for lack of consultations. If this resolution, which is to be considered under expedited floor procedures, is approved by both the House and Senate within 60 days of each other, then expedited procedures are not applicable. (Under prior law, this resolution could only be introduced by the Chairman or Ranking Member of the Senate Finance or House Ways and Means Committee.) Additional votes are not necessary and will likely undermine, not enhance, opportunities for effective Congressional oversight. Requiring a vote before negotiations even begin is simply unnecessary and duplicative of the approval to TPA. Requiring additional votes during the negotiations will polarize relations between the Administration and Congress and is likely to limit, not enhance, the free-flow of information between the Administration and Congress; instead of consulting or enlisting Congress' help in concluding the best possible agreement, the Administration will spend its time "selling" an unfinished agreement. As well, since many of the toughest issues are dealt with at the end of a negotiation, early votes are likely to be based on a premature understanding of what the final agreement may provide. Additional votes will also essentially nullify the relevance of the initial grant of TPA, thereby undermining the ability of U.S. negotiators to extract the best concessions from foreign negotiators.

Efforts to Renew Trade Promotion Authority in 2002

In 2002, efforts will continue to consider H.R. 3005 on the Senate floor, after which the modified legislation will need to be approved by the House or differences resolved in a House-Senate conference. ECAT will continue its efforts to promote the passage of a TPA that provides strong trade and investment liberalizing negotiating objectives and gives flexibility to U.S. negotiators to conclude the best possible deals.

ECAT POSITION: ECAT believes that Congress' passage of broad, multi-year trade promotion authority is critical this year to create the necessary infrastructure to achieve further liberalization of international trade and investment. If we are to achieve future economic growth and a higher standard of living through expanding trade and investment; bilateral, regional, and multilateral trade agreements must remain focused on the liberalization of trade and investment. ECAT strongly supports the passage of H.R. 3005, the Bipartisan Trade Promotion Authority Act, which establishes the necessary framework in a manner that provides appropriate direction and flexibility to U.S. negotiators, while preserving Congressional oversight. ECAT strongly opposes efforts to modify H.R. 3005 in a manner that would mandate or proscribe particular negotiating objectives as a prerequisite to the application of expedited Congressional procedures, or that would weaken trade or investment negotiating objectives or undermine the flexibility of U.S. negotiators.

Comprehensive Review and Reform of Trade Adjustment Assistance and Worker Retraining Programs

The original Trade Adjustment Assistance (TAA) programs for workers and for firms were enacted as part of the Trade Expansion Act of 1962. These programs were premised on the recognition that while trade liberalization supports economic growth and prosperity for the United States as a whole, certain workers and companies may be adversely affected by the adjustment to trade liberalization. The TAA for Workers and the TAA for Firms programs enacted in 1962 were last modified in the Trade Act of 1974. The third TAA program, NAFTA-TAA for Workers, was enacted as part of the NAFTA Implementation Act in 1993 and is focused on workers adversely impacted by trade with Canada and/or Mexico. Both the general TAA and the NAFTA-TAA programs provide direct assistance and training to workers who are laid off in trade-impacted industries. Approximately 163,000 workers per year use the programs, which cost $457 million annually. The main beneficiaries are apparel/textile, oil and gas, electronics, and the metal/machinery industries. The NAFTA Implementation Act also established a fourth program, the Community Adjustment and Investment Program (CAIP), to provide funds for community adjustment and investment.

The U.S. economy has changed considerably since the enactment of the original TAA programs, with industrial shifts and technological advancements occurring at an increasingly rapid pace. ECAT believes it is imperative that expanded efforts be undertaken to educate and empower the U.S. workforce by providing the necessary tools, opportunities, and assistance to facilitate worker transition and ensure the health and success of the U.S. economy.

Review of the Operation of the TAA Programs

While there is no lack of support for the objective of these programs, support for the extension of the TAA programs has declined in recent years as complaints have grown over the effectiveness and proper role of these programs. Seeking to review the operation of these programs, former Senate Finance Committee Chairman Roth (R-DE) and former Senator Moynihan (D-NY) requested the General Accounting Office (GAO) to perform a comprehensive review of the three primary TAA programs and the CAIP in 2000.

The GAO's initial reports confirm some of the concerns over the TAA programs that have been raised in recent years. In its October 2000 report, Trade Adjustment Assistance: Trends, Outcomes, and Management Issues in Dislocated Worker Programs, the GAO found that 75 percent of TAA beneficiaries in FY 1999 were able to find follow-up employment, but only 56 percent of those workers earned 80 percent or more of their prior wage. While training improved wage and employment outcomes for workers, training rates have declined substantially in the 1990s (from 31 percent of eligible workers in FY 1995 to 18 percent in FY 1999). Some states have suspended training and established waiting lists because of Labor Department funding delays. Differing eligibility rules between the general TAA for Workers and the NAFTA-TAA programs also impede the provision of assistance, as do time limits on training.

GAO's review of the TAA for Firms program and the CAIP illustrated even greater concerns. In its December 2000 report, Trade Adjustment Assistance: Impact of Federal Assistance to Firms is Unclear, the GAO was unable to determine the impact of these programs since there is no formal monitoring and tracking of program results, as well as limited funding. In its September 2000 report on the CAIP, Trade Adjustment Assistance: Opportunities to Improve the Community Adjustment and Investment Program, the GAO found significant managerial deficiencies and inefficiencies that delayed implementation of the program for over three years and continue to delay approval of loans and grants. Eligibility procedures are complex and appear to undercount dislocated workers. Furthermore, notification and outreach to communities designated as eligible are very limited, further undermining the ability of this program to address the adjustment needs of communities and workers. Since 1997, the CAIP provided $257 million in loan guarantees, loans and grants to 83 of the 228 eligible communities. Like the TAA for Firms program, GAO found that the CAIP lacks any monitoring system and, therefore, was unable to determine whether distributed grants and loans have been effective.

Members of the Finance and Ways and Means Committee and other Members of Congress have expressed interest in continuing these review efforts. In addition to the GAO review, the Trade and Development Act required two reports on TAA programs. Section 401 required the Comptroller General to submit to Congress a report on the efficiency and effectiveness of Federal and State coordination of employment and retraining activities, including the TAA programs, with a particular focus on the capacity of these programs for addressing the loss of employment due to foreign trade. Section 408 of the Trade and Development Act required the Secretary of Labor, in consultation with the Secretaries of Agriculture and Commerce, to report to the Ways and Means and Finance Committees on recommendations to improve the operation of the TAA programs for U.S. agricultural commodity producers.

Prospects for Renewal and Reform of the TAA Programs

In the House, Representative Nancy Johnson (R-CT) introduced H.R. 3008 to reauthorize the TAA programs through September 30, 2003. This legislation was approved by the Ways and Means Committee on October 5, 2001. H.R. 3008 was amended prior to passage by increasing the income allowance period to cover the entire two-year period for which training is authorized and to provide an additional $2 million for workers separated from their job as a result of the September 11, 2001 events. The House approved the final legislation by a vote of 420-to-3 on December 6, 2001.

In the Senate, Senator Bingaman (D-NM), Finance Committee Chairman Baucus and Majority Leader Daschle (D-SD) introduced S. 1209, the Trade Adjustment Assistance for Workers, Farmers, Communities, and Firms Act, on July 19, 2001. As of February 2002, this legislation has 45 cosponsors. A modified version of this legislation was approved by the Finance Committee on December 4, 2001 and is awaiting consideration on the Senate floor. (Senator Breaux' amendment on sugar and sugar-containing products is discussed separately below.) This legislation proposes substantial changes in the TAA programs, including:

General Provisions:

• Coordination of TAA with Other Programs: Calls for improvement in the coordination of assistance with state implementation of the Workforce Investment Act of 1998.

• Evaluation of Effectiveness: Requires efforts to improve the evaluation of the effectiveness/usefulness of the assistance provided through better data collection, annual Labor Department reports to the Senate Finance and House Ways and Means Committees, and state reports to Department of Labor.

• Labor Department Study for Section 201 Safeguard Cases: Secretary of Labor is required to study the number of workers who have been or are likely to be certified in the domestic industry and the extent to which existing programs can be used to facilitate their adjustment. This report must be sent to the President within 15 days after the International Trade Commission (ITC) submits its report to the President on its section 201 determination and any recommendations for relief. A similar provision is provided for agricultural 201 actions.

TAA for Workers and NAFTA-TAA Programs

• Merges the general TAA for Workers and NAFTA-TAA programs.

• Reauthorizes through September 30, 2006.

• Modifies eligibility requirements to address the following issues:

• Shifts in Production: Expands eligibility from workers affected by shifts in production to Canada and Mexico to workers affected by shifts in production to any country.

• Secondary Workers: Expands eligibility to adversely affected secondary workers where (1) a significant proportion of workers have been separated; (2) the firm supplies or is a downstream producer (i.e., performing additional, value-added production processes to articles) to a firm that is eligible for TAA; and (3) the loss of business with that firm contributed importantly to the worker's separation. Special provisions are provided for oil and natural gas products and taconite. In addition, this provision includes a pilot project for truckers. (Note that the Omnibus Trade and Competitiveness Act amended the general TAA program for workers to make secondary workers providing "essential" goods or services to affected firms eligible for assistance upon the imposition of an import fee to fund TAA - which fee was never imposed, and these benefits were not generally provided. The NAFTA-TAA program makes certain secondary workers eligible). Initial estimates indicate that this provision would cost upwards of $400,000.

• Waiver of Training Requirement: Provides that the Labor Secretary may waive the mandatory training requirement (which is a prerequisite to payments under the TAA program) in certain defined circumstances (e.g., the worker will shortly be recalled by his original firm, the worker already has marketable skills, the worker is within two years of meeting retirement entitlement, the worker's health prevents him from participating in training; training is not available, etc.).

• Expansion of Benefits: In addition to wage insurance and the tax credit for COBRA payments discussed below, this bill would:

• Increase income maintenance payments to certified workers from 52 to 78 weeks;

• Increase substantially funds for training;

• Increase assistance for job relocation; and

• Provide greater assistance to link TAA beneficiaries to other benefits, such as child care and health care.

• Wage Insurance: Requires states to establish a wage insurance program - paid for out of the funds provided to the state for trade adjustment assistance - that provides workers (at least 50 years old working at least 30 hours a week) a wage subsidy for up to two years equal to:

• 50 percent of the difference between the wages received from reemployment and the wages received at the time of separation for workers earning less than $40,000 at the time of reemployment.

• 25 percent of the difference between the reemployment wages and the wages at the time of separation for workers earning between $40,000-$50,000 at the time of reemployment.

• Workers earning more than $50,000 at the time of reemployment are not eligible for wage insurance.

• Total wage insurance per worker is capped at $10,000 over the two-year period.

• Studies of Assistance Available to Economically-Distressed Workers:

• GAO shall prepare a report for the Senate Finance and House Ways and Means Committees within one year describing all Federal programs designed to assist workers facing job loss and economic distress and the eligibility requirements of these programs.

• States may prepare similar reports of state assistance programs (and the Labor Secretary may provide grants up to $100,000 to states to conduct such studies).

• Tax Credit for COBRA Continuation: Provides a 50 percent refundable tax credit for payment of COBRA premiums (to extend health insurance after separation).

Trade Adjustment Assistance for Firms:

• Reauthorizes program through September 30, 2006.

• Expands eligibility criteria to allow firms affected by shifts in production to countries in addition to Canada or Mexico to claim benefits.

Community Adjustment Assistance Program:

Establishes an Office of Community Economic Adjustment at the Commerce Department to coordinate Federal responses to address economic dislocation in eligible communities. Office would be directed to establish an inter-agency group to help coordinate Federal assistance to workers and communities.

Communities shall be certified as eligible for program benefits depending upon number of job losses and percent of workforce that is unemployed.

Assistance may include:

• grants (up to a total of $100,000) for developing strategic plans for community economic adjustment and diversification;

• grants to carry out specific projects included in the strategic plan;

• loans; and

• technical assistance.

(This program would be supplemental to Community Adjustment and Investment Program (CAIP) established under the NAFTA Implementation Act and the U.S.-Mexico Agreement Establishing the North American Development Bank. The CAIP provides federal loan guarantees, loans and grants to eligible communities, through a lending partnership with the Department of Agriculture and the Small Business Administration. This program has been heavily criticized by the General Accounting Office for its lack of effectiveness and lack of management. This program is funded by 10 percent of the paid-in-capital to the North American Development Bank).

Agriculture Trade Adjustment Assistance

• Incorporates Conrad (D-ND)-Grassley (R-IA) provisions from 106th Congress to establish a program through September 30, 2006 to provide cash payments to farmers (without training requirement, but training is available) as a result of declines in commodity prices. Does not base eligibility on job loss.

• Total per producer payments are capped at $10,000 annually. Total payments under this program are capped at $90 million annually.

• Adds TAA for fisherman provisions.

The Congressional Budget Office estimates that S. 1209 would increase TAA costs by $8.6 billion over 10 years to $12.4 billion. (In FY 2001, the TAA programs cost $457 million). Most of the cost increase is the result of the provisions to expand TAA to include secondary workers, such as those who supply parts to a company that closes, and to the provision of new health insurance benefits to those eligible for assistance.

Several Senate Finance Republicans, including Ranking Member Grassley (R-IA) and Minority Leader Lott (R-MS) voiced concerns over several of these provisions in the Finance Committee Report. In particular, Senate Republicans raised concerns over the expansive definition of secondary workers covered under the bill, arguing that many of these workers are already covered by the Workforce Investment Act of 1998, and that the inclusion of such workers will be costly and difficult to administer. Senate Republicans also raised concerns over the inclusion of COBRA health insurance benefits for workers eligible for TAA as a permanent federal entitlement program. They also raised other concerns, including the expansion of training waiver requirements and the consolidation of eligibility requirements.

Floor action on S. 1209 has not been scheduled. It is expected, however, to be raised, possibly as an amendment when TPA is considered on the Senate floor.

On February 4, 2002, Representatives Bentsen (D-TX) and Eshoo (D-CA) and other House members introduced H.R. 3670, the Trade Adjustment Assistance (TAA) for Workers, Farmers, Communities and Firms Act, which is identical to the bill reported by the Finance Committee, modeled after S. 1209.

The President's FY 2003 budget indicates that "legislation will be proposed at a later date to extend and improve" the trade adjustment assistance programs.

Private Sector Retraining Efforts

Many companies, including ECAT members, have developed their own worker retraining programs to help address the concerns about dislocations caused by technological developments, trade, and other forces. These companies have focused on continued education and intensive retraining through the use of community colleges, the Internet, and other education resources. These programs, in conjunction with government efforts, represent an important facet of worker readjustment efforts.

ECAT POSITION: ECAT recognizes that while expanding U.S. international trade and investment raises the U.S. standard of living overall, dislocations occur and must be addressed through public and private worker retraining and assistance programs. ECAT supports comprehensive efforts to review and modernize the TAA programs in a manner that addresses positively the needs and concerns of today's workers.

Renewal and Expansion of the Andean Trade Preference Act

The Andean Trade Preference Act (ATPA) was enacted on December 4, 1991 for 10 years, and has now expired. This program was intended to fulfill former President George Bush's commitment at the Cartagena Drug Summit of February 1990 to expand economic and trade incentives for four Andean countries - Bolivia, Ecuador, Colombia, and Peru - and to encourage the production of legitimate products by these countries in order to help them move out of the drug trade. As enacted, this program authorizes the President to extend duty-free and reduced-duty benefits to products from the Andean countries similar to the benefits granted under the Caribbean Basin Initiative program, provided that the countries are found to satisfy the program's eligibility requirements. In practice, the ATPA provides duty-free treatment for all products eligible under the GSP program, as well as an additional 1,700 tariff categories that are not eligible for duty-free treatment under GSP. For example, flowers, the principal import under the ATPA program, are not eligible for duty-free treatment under GSP. The ATPA excludes, however, sensitive items, such as canned tuna, petroleum products, textiles and apparel, footwear, watches, and rum. The ATPA also permits the suspension of these benefits under an import safeguard provision and an emergency relief provision for perishable agricultural products.

Since the Initiative was enacted, U.S. trade with the Andean Pact countries has almost doubled, from $21 billion in 1991 to $40.7 billion in 2000, but declined to $35.5 billion in 2001.

In its September 2000 annual report on the operation of the ATPA, Andean Trade Preference Act: Impact on U.S. Industries and Consumers and on Drug Crop Eradication and Crop Substitution (Inv. No. 332-353), the U.S. International Trade Commission (ITC) found that the ATPA has helped Andean countries increase exports of several nontraditional products (e.g., cut flowers, pigments and articles of precious metal) to the United States, which has substantially boosted the standard of living in rural areas. The ITC report also found that the ATPA continues to have a positive effect on drug-crop eradication and crop substitution in the Andean region.

Following enactment of the Trade and Development Act in 2000, the Clinton Administration and now the Bush Administration and several Members of Congress, led by Senator Bob Graham (D-FL), sought to extend at least some of the preferences granted by that legislation to the Caribbean Basin countries to Colombia and the other Andean countries. In particular, concerns were raised that the duty-free treatment accorded to certain apparel products by the CBI provisions of the Trade and Development Act would divert economic activity from the Andean countries and undermine their efforts to combat the production, processing, and shipment of illegal drugs. Trade data in 2001 show significant decreases in apparel imports from the region.

On March 13, 2001, Senator Bob Graham introduced S. 525, the Andean Trade Preference Expansion Act, to reauthorize and expand the ATPA to provide duty-free access for Andean apparel articles made from U.S. yarn and fabric and certain knit-to-shape apparel items and apparel made from certain fabric not widely available through September 30, 2005 (or until a Free Trade Area of the Americas enters into force).

In the House, Ways and Means Trade Subcommittee Chairman Crane introduced H.R. 3009, the Andean Trade Preference and Drug Eradication Act, on October 3, 2001. The Ways and Means Committee marked up the legislation and ordered it reported with an amendment on October 5, 2001. The House considered and passed this legislation on November 16, 2001 by voice vote. As passed by the House, H.R. 3009 extends the ATPA through December 31, 2006 and expands it to authorize the President to proclaim duty-free treatment for any of the following articles which were previously excluded from duty-free treatment under the ATPA, if the President determines that the article is not import-sensitive in the context of imports from beneficiary countries: (1) petroleum and petroleum products, (2) footwear, (3) certain watches and watch parts, and (4) certain leather products. Imports of tuna, prepared or preserved in any manner, in airtight containers would receive immediate duty-free treatment. Imports of rum, textiles, and sugar subject to over-quota tariffs would continue to be exempt from duty-free treatment.

With respect to apparel, duty-free and quota-free treatment would be accorded to: (1) apparel articles assembled or knit-to-shape and assembled in one or more beneficiary countries from yarns, fabrics, or components, including knit-to-shape components, wholly produced in the United States or in one or more beneficiary countries (imports of apparel made from regional fabric and regional yarn would be capped at 3 percent of U.S. imports growing to 6 percent of U.S. imports in 2006), and (2) apparel articles that are both cut (or knit-to-shape) and sewn or otherwise assembled in one or more beneficiary countries, from fabrics or yarn not produced in the United States, to the extent that apparel articles of such fabrics or yarn would be eligible for preferential treatment, without regard to the source of the fabrics or yarn, under Annex 401 of the NAFTA (short supply provisions).

In determining whether to grant the new benefits, the President would be able to take into account new conditions such as: (1) whether a country has demonstrated a commitment to undertake its WTO obligations and participate in negotiations toward the completion of the Free Trade Area of the Americas, (2) the extent to which the country provides internationally recognized workers rights, and (3) whether the country has implemented its commitments to eliminate the worst forms of child labor. (H.R. 3009 would also make several technical changes to the Caribbean Basin Trade Partnership Act and the African Growth and Opportunity Act.)

On November 29, 2001, the Senate Finance Committee marked up and amended H.R. 3009 and amended by substituting the Graham bill for the House bill and by capping duty-free access for canned tuna from Andean countries to 20 percent of U.S. production annually. This legislation has yet to be considered on the Senate floor. In early February, Senator Graham called for a 90-day extension of the original program.

The Bush Administration's FY 2003 Budget includes a four-year extension and expansion of the ATPA to December 31, 2005. On February 14, 2002, President Bush deferred duties on imports from Andean countries for 90 days to give Congress time to extend the ATPA.

ECAT POSITION: ECAT supports the multi-year renewal and expansion of the ATPA program in a manner that fosters greater trade and investment between the United States and the Andean countries and to support greater economic growth and opportunities for the Andean countries.

Renewal of the Generalized System of Preferences Program

The Generalized System of Preferences (GSP) program was established in U.S. law by the Trade Act of 1974 for a period of 10 years to provide greater market access to developing countries to help them diversify their economies and reduce their dependence on foreign aid. Instituted on January 1, 1976, the GSP program provides duty-free access entry for more than 4,650 non-import sensitive products from approximately 140 designated beneficiary countries and territories that meet certain eligibility requirements.

GSP was renewed for eight and one-half years by the Trade and Tariff Act of 1984. Starting in 1993, however, GSP has only been renewed for short periods of time. It expired on September 30, 2001. The limited extensions of GSP, resulting in large part because of Budget Act requirements that revenue losses (e.g., tariff suspensions) must be offset with revenue increases, undermine reliance on the program because foreign manufacturers in developing countries and U.S. importers cannot be assured that the benefits will continue beyond one- or two-year extensions.

The Trade and Development Act of 2000 made several significant modifications to the GSP program. Most substantially, it added provisions authorizing duty-free treatment for imports from eligible sub-Saharan African (SSA) countries for articles (except textiles and some apparel goods) that are currently ineligible for such treatment under the GSP, including certain footwear, luggage, and other import-sensitive items. It extended GSP benefits for the eligible SSA countries through September 30, 2008 and eliminated for these countries the so-called "competitive need" restrictions under the GSP program that limit the quantity of imports that can receive GSP benefits. A full description of the benefits under this program is provided in Section 9. As well, the Trade and Development Act added new eligibility requirements for all GSP beneficiaries, requiring USTR to consider whether a country has "implemented its commitments to eliminate the worst forms of child labor."

On October 5, 2001, the Ways and Means Committee marked up H.R. 3010, introduced by Ways and Means Trade Subcommittee Chairman Crane, to renew the GSP program through December 31, 2002. H.R. 3010 also includes a retroactive provision that would provide duty-free treatment for items imported after its expiration that would have qualified for GSP coverage if GSP had not expired. This legislation has not yet been enacted.

The Bush Administration's FY 2003 Budget includes a two-year extension of the GSP program, which expired after September 30, 2001.

ECAT POSITION: ECAT supports the multi-year renewal of the GSP program to support greater economic growth and opportunities for developing countries.

Addressing Concerns about Trade and Investment Liberalization

As the Bush Administration and Congress work to develop a consensus on U.S. trade and investment objectives, there will continue to be much pressure to address labor, environmental, food safety, health, and other issues through trade agreements and trade sanctions. Without question, there are serious labor, environmental, food safety, and health issues that should be addressed. Before rushing to adopt solutions that may not be effective, however, it is critical that policymakers first work to define the United States' objectives and then determine how they can best be achieved.

Labor and Environment Issues

The relationship between trade liberalization and labor is a complex one that goes far beyond the narrow debate about whether labor standards should be enforceable through trade sanctions. What is oftentimes lost in the discussion is the positive role that trade plays in raising living standards and, therefore, labor and environmental standards worldwide. As the World Bank and others have documented, it is precisely through increased trade and economic growth that developing countries are better able and increasingly motivated by a growing middle class to improve labor and environmental standards. Since World War II, the liberalization of trade has produced a six-fold growth in the world economy and a tripling of per capita income and enabled hundreds of millions of families to escape from poverty and enjoy higher living standards.

A recent study by Dartmouth University economists Eric Edmonds and Nina Pavnick, "Does Globalization Increased Child Labor," documents this conclusion with regard to labor standards. This study found that the removal of some of Vietnam's trade barriers - export quotas on rice - decreased child labor because parents were able to earn more money from their rice crops. As efforts continue to link trade and labor issues, it is critical that the positive relationship between trade liberalization and labor standards be recognized and incorporated into this policy debate. Proposals that would impede trade liberalization and economic growth must, therefore, be seriously questioned.

For the most part, labor and environmental issues may be better addressed directly through separate agendas in organizations with technical expertise, rather than as add-ons to the trade agenda. Efforts in the International Labor Organization, the Commission for Environmental Cooperation, the North American Development Bank and other organizations, for example, can be intensified. And, in those cases where complementarity between U.S. trade and U.S. labor and/or U.S. environmental objectives exists, efforts should be made to address these objectives jointly and in a cooperative manner. We review below the major trade-related labor and environmental efforts, with the exception of NAFTA-related issues, which are addressed in Section 10.

Labor Issues

WTO Activities

At the Fourth Ministerial Conference in Doha, Qatar, in November 2001, the WTO agreed to the following statement on labor issues:

"We reaffirm our declaration made at the Singapore Ministerial Conference regarding internationally recognized core labour standards. We take note of work under way in the International Labour Organization (ILO) on the social dimension of globalization."

Efforts by the European Union (EU) and the United States to promote a more activist WTO role, either through the formation of a WTO Forum on labor or to "support" the work of the ILO were rejected overwhelmingly by the developing countries on the grounds that linking labor issues to trade agreements could lead to disguised restrictions on trade and that the ILO is the appropriate forum to deal with labor issues.

Nevertheless, the United States remains obligated by section 131 of the Uruguay Round Agreements Act to propose the creation of a WTO working group on trade and worker rights.

International Labor Organization Activities

Over the past several years, there has been substantial progress in developing a greater consensus on labor standards in the International Labor Organization (ILO). Since 1998, the ILO began a major push for country ratifications of the core conventions. The eight core conventions are:

No. 29, Forced Labor, 1930;
No. 87, Freedom of Association and Protection of the Right to Organize, 1948;
No. 98, Right to Organize and Collective Bargaining, 1949;
No. 100, Equal Remuneration, 1951;
No. 105, Abolition of Forced Labor, 1957
No. 111, Discrimination (Employment and Occupation), 1958
No. 138, Minimum Age Convention, 1973; and
No. 182, Worst Forms of Child Labor (1999).

In 1998, the ILO also adopted the Declaration on Fundamental Rights and Principles at Work to promote the observance of basic labor rights with a follow-up mechanism to promote countries' compliance with these labor principles. In 1999, the ILO published "Your Voice at Work," the first report following up on that Declaration, which focused on ILO members' observance of two conventions: ILO Conventions No. 87 (Freedom of Association and Protection of the Right to Organize) and No. 98 (The Right to Organize and Collective Bargaining). In 2000, the ILO published a report entitled "Freedom of Association and the Effective Recognition of the Rights to Collective Bargaining." In 2001, the ILO published "The Elimination of All Forms of Compulsory Labour" with respect to ILO Conventions Nos. 29 and 105.

In 1999, the ILO adopted a new convention, No. 182, banning the worst forms of child labor. The United States became the second country to ratify this convention, which had 115 ratifications by February 2002. Congress also directed the Department of Labor to prepare a report on international child labor, including the feasibility of efforts to reduce by 50 percent the number of children engaged in the worst forms of child labor.

The United States has ratified only Convention No. 105 on forced labor and No. 182 on the worst forms of child labor; it has agreed to observe all of the core principles as part of the 1998 Declaration.

The United States remains a significant donor to the ILO's International Programme to Eliminate Child Labor (IPEC) (established in 1992), which seeks to take children out of unhealthy work environments and place them in schools. Under the IPEC program, thousands of children are being given educational opportunities and phased out of garment factories in Bangladesh, the soccer ball industry in Pakistan, and fireworks production in Guatemala. Between fiscal years 1995 and 2001, Congress appropriated over $150 million to the Department of Labor for international child labor activities and funding of the IPEC. In FY 2001, the United States began efforts to promote a new education initiative to improve access to quality education in areas with a high incidence of child labor.

Perhaps most significantly, in November 2000, the ILO Governing Body, for the first time ever, allowed measures to go forward to compel a country, the Government of Myanmar (Burma), to eliminate forced labor. As a result of an inquiry initiated under Article 33 of the ILO Constitution, the ILO has been reviewing whether Myanmar is complying with its obligations under the Forced Labor Convention, 1930 (No. 29) that Myanmar ratified in 1955. An ILO technical cooperation mission in October 2000 found that despite prior recommendations, Myanmar continued to violate the Convention through the "pervasive use of forced labor imposed by the authorities and the military." As a result, the Governing Body permitted implementation of an ILO Conference resolution requiring an ongoing review of Myanmar's activities and recommending that Member Countries review their relations with Myanmar and "take appropriate measures to ensure that such relations do not perpetuate or extend the system of forced or compulsory labor in that country." The ILO also recommended a review of whether the ILO, United Nations or United Nations Economic and Social Council should cease any activities in Myanmar. Article 33 which establishes a process for reviewing countries' compliance with ratified conventions had been used little prior to this point and had never resulted in recommendations for action as was issued with respect to Myanmar.

The ILO also remains involved in reviewing Cambodia's labor practices as part of the U.S.-Cambodian textile agreement discussed below.

Section 307 of the Tariff Act of 1930

The United States has stepped up U.S. Customs Service enforcement of section 307 of the Tariff Act of 1930, which bans the importation of goods, made from forced or indentured labor. On June 12, 1999, then President Clinton issued Executive Order 13126 ("Prohibition of Acquisition of Products Produced by Forced or Indentured Child Labor") to prevent federal agencies from buying products that have been made with forced or indentured child labor. Under procurement regulations implementing the Executive Order, federal contractors who supply products on a list published by the Department of Labor must certify that they have made a good faith effort to determine whether forced or indentured child labor was used to produce the items. On January 18, 2001, the Department of Labor in consultation and cooperation with the Department of the Treasury and the Department of State, developed the list of products, identified by country of origin, which they believe might have been made with forced or indentured child labor. The list will be updated periodically.

The Trade and Development Act of 2000 also modified section 307, in a provision authored by Senator Harkin (D-IA), clarifying that forced or indentured labor includes forced or indentured child labor.

Generalized System of Preferences and Other Preference Programs

The Trade and Development Act of 2000, enacted on May 18, 2000, added a new eligibility requirement to the Generalized System of Preferences (GSP) program (and, as a result, to the sub-Saharan African (SSA) program) and to the expanded Caribbean Basin Initiative (CBI) program that focuses on whether a country has "implemented its commitments to eliminate the worst forms of child labor." This statute also added a general eligibility provision on worker rights to the expanded CBI program. In determining country eligibility under both the new SSA and CBI programs, USTR considered these factors as required and was able to seek greater labor rights protections in several countries.

USTR also continues to enforce the worker rights provision of the GSP statute. On July 3, 2000, the President suspended Belarus' GSP benefits based on a finding by an interagency committee, chaired by USTR, that Belarus has not taken sufficient steps to conform to internationally recognized worker rights and continued to suppress trade union rights and harass union leaders. At the same time, USTR announced the termination of the GSP investigation concerning the provision of core worker rights in Thailand, following Thailand's enactment of the State Enterprises Labor Relations Act (SELRA) in February 2000. In 2001, Guatemala made substantial modifications to it labor law, in part to avoid suspension from GSP benefits.

U.S.-Cambodia Bilateral Textile Agreement

The United States and Cambodia signed a three-year bilateral textile agreement on January 21, 1999 that established base quota levels for Cambodian textile and apparel products. For the first time ever, the agreement allowed for an annual quota increase, up to 14 percent in the base quota levels (on top of the traditional six percent annual growth rate), pending an annual U.S. determination on whether worker rights in Cambodian textile and apparel factories "substantially comply" with Cambodian labor laws and internationally-recognized core labor standards.

In December 2001, the United States and Cambodia agreed to extend the agreement by three years (until December 31, 2004) in a memorandum of understanding that opens most textile trade between the two countries. The Memorandum of Understanding increases Cambodia's quota for textile imports by nine percent, in addition to a six-percent increase that is normal for most textile import quotas - a total increase of 15 percent. The nine-percent increase for 2002 reflects Cambodia's progress towards ensuring that working conditions in its garment sector are in "substantial compliance" with internationally-recognized labor standards and provisions of Cambodia's labor law.

Cambodia will be eligible for additional quota increases if it substantially complies with internationally-recognized core labor standards in its garment industry. The potential quota reward for full compliance was increased from 14 to 18 percent. The United States and Cambodia will conduct two rounds of labor consultations in 2002.

In the agreement's first annual review in December 1999, the United States found that Cambodia was "not in substantial compliance." The United States agreed, however, to award Cambodia with a five-percent increase in its base quota levels contingent upon the establishment of an industry-monitoring program to be administered by the ILO that would be funded by the United States, the Cambodian Government and the Cambodian Garment Manufacturers Association. Cambodia fulfilled that mandate and was awarded the five percent increase in May 2000. At that time, the United States laid out five additional areas where progress was needed, and in September 2000, the United States acknowledged gains in four of the five areas and awarded Cambodia an additional four- percent increase in its 2000 quota levels, equaling a total increase of nine percent out of a possible 14 percent in 2000.

In January 2001, after the second annual review by the United States, Cambodia was awarded a nine-percent (out of a possible 14 percent and on top of the traditional six percent annual growth rate) increase in its 2001 quota levels. This increase was based on an assessment that while Cambodia was making progress on many labor issues, it was falling short on internationally-recognized standards.

While textile and apparel trade between the United States and Cambodia has increased substantially since this agreement was signed, several suggestions have been made with regard to its improvement. In particular, it would be useful and effective to develop a clearer and more concrete definition of what "substantial compliance" means (e.g., should factories that do not ship to the United States be included) and better implementation of the quota bonus (to ensure that those factories in compliance receive the benefit and those that are not in compliance do not). Additionally, greater transparency is required, and Cambodia should be given the possibility of asking for a review of an initial finding of noncompliance.

U.S.-Jordan Free Trade Agreement

Signed on October 24, 2000, the U.S.-Jordan FTA contains, for the first time ever in a trade agreement, enforceable labor and environmental provisions. Both the labor and environmental provisions include hortatory language recognizing the importance of maintaining high labor and environmental standards. More significantly, both provisions include an enforceable commitment that the parties "shall not fail to effectively enforce its [labor and environmental] laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties." Additional language is included explaining that a Party remains in compliance with these provisions if a course of action or inaction reflects the "reasonable exercise" of its investigatory, prosecutorial, or regulatory discretion. It appears that these provisions permit the imposition of trade sanctions more readily and on a broader range of issues than the NAFTA side agreements (which authorize the imposition of monetary fines before sanctions can be imposed and limit, particularly in the labor side agreement, the issues for which sanctions can be imposed). It remains unclear what problems the provisions in the Jordan Agreement are seeking to address since the Clinton Administration had argued that Jordan maintains high labor and environmental standards.

On July 23, 2001, the Governments of the United States and Jordan exchanged letters clarifying that they would try to work out differences under the agreement without resort to formal dispute settlement procedures and, in any event, would not try to block trade through the use of trade sanctions.

On July 24, 2001, Ways and Means Chairman Thomas introduced H.R. 2603, the United States-Jordan Implementation Act. The Ways and Means Committee marked up this legislation and ordered it favorably reported on July 26th. On July 31st, the full House approved this legislation by voice vote.

In the Senate, the Finance Committee approved the Senate companion bill, S. 643, introduced by Finance Committee Chairman Baucus on March 28, 2001. The full Senate passed H.R. 2603 on September 24, 2001 by unanimous consent.

Environment Issues

WTO Activities

The multilateral trading system recognizes the importance of environmental protection as reflected in the WTO Preamble which makes the promotion of sustainable development a key objective and in the numerous exceptions provided to WTO obligations allowing for the enforcement of environmental, health, and safety measures. In 1994, WTO member states agreed to establish the Committee on Trade and the Environment (CTE) to try to address many of the environment-trade issues that have arisen. In March 1999, the WTO held a high-level symposium to discuss such issues further. In November 1999, the WTO announced that it had entered into a cooperative agreement with the United Nations Environment Program (UNEP) to help build awareness of the important link between trade, environment, and sustainable development in developing countries.

At the 2001 Doha Ministerial, WTO members agreed to new negotiations on environmental issues as part of the Doha Development Agenda. In particular, the Doha Declaration provides for new negotiations on:

"(i) the relationship between existing WTO rules and specific trade obligations set out in multilateral environmental agreements (MEAs). The negotiations shall be limited in scope to the applicability of such existing WTO rules as among parties to the MEA in question. The negotiations shall not prejudice the WTO rights of any Member that is not a party to the MEA in question;

(ii) procedures for regular information exchange between MEA Secretariats and the relevant WTO committees, and the criteria for the granting of observer status; and

(iii) the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services."

In addition, the Declaration directed the Committee on Trade and Environment to focus particular attention on the following issues, with an instruction to identify whether there needs to be any clarification of WTO rules or new negotiations at the Fifth Ministerial Conference:

(i) the effect of environmental measures on market access, especially in relation to developing countries, in particular the least-developed among them, and those situations in which the elimination or reduction of trade restrictions and distortions would benefit trade, the environment and development;

(ii) the relevant provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights; and

(iii) labeling requirements for environmental purposes.

The Declaration also recognized the importance of technical assistance and capacity-building and encourages information sharing with respect to environmental reviews at the national level.

The WTO dispute-settlement process also has maintained a core respect for environmental protection and conservation. WTO challenges to U.S. environmental policies have been rare, arising to date in only two out of a total of 96 dispute settlement cases involving the United States. In each of these cases, the final WTO dispute settlement panel or Appellate Body report did not question the soundness of the U.S. laws being challenged or the right of the United States to enforce those laws.

In the first WTO case involving a U.S. environmental law, a WTO panel found that a part of the regulations implementing the Clean Air Act pertaining to foreign refineries was applied in a discriminatory manner. In response, the Environmental Protection Agency eliminated the discriminatory aspect of its regulations without undermining the enforcement of the Clean Air Act. Similarly, in the second case involving a U.S. environmental law, a WTO panel found that the application of U.S. law requiring turtle-excluder devices on nets used by shrimping boats to Asian countries was discriminatory, but the panel did not question the validity of the law itself as an appropriate exception to WTO rules under Article XX of the 1994 GATT. The United States responded to this decision by expanding technical assistance to other countries to encourage compliance with the law and increased efforts to resolve the issue through a multilateral agreement. In October 2000, Malaysia challenged the United States' implementation of this matter, which the WTO Dispute Settlement Body referred to the original panel. In October 2001, the Appellate Body found that the United States' implementation of this law was fully consistent with WTO rules and complied with the earlier Appellate Body recommendations.

In a third important environmental case at the WTO, not involving the United States, a WTO panel upheld France's ban on imports of asbestos as justified under GATT Article XX as necessary to protect human health or the environment. Canada appealed this decision to the Appellate Body, which upheld the panel's finding in March 2001.

The United States is also promoting trade and environmental protection in mutually supportive ways by promoting trade liberalization objectives that will contribute to a cleaner environment. For example, in the ATL negotiations, the United States is seeking an agreement to eliminate barriers to trade in environmental goods, end tariffs on energy equipment and scientific instruments, and eliminate fishery subsidies. These measures would both facilitate environmental protection abroad and create new U.S. export opportunities.

Environmental Reviews of Trade Agreements

Following up on the 1999 Executive Order 13141 directing USTR to conduct environmental reviews of certain trade agreements, USTR and the Council on Environmental Quality issued Guidelines for the Implementation of Executive Order 13141 in December 2000. These guidelines are intended to identify "reasonably foreseeable impacts of trade agreements (both positive and negative)," as well as the "complementarities between trade and environmental objectives."

U.S.-Jordan Free Trade Agreement

As described above under labor issues, the U.S.-Jordan FTA contains, for the first time ever in a trade agreement, enforceable environmental provisions.

Food Trade Issues

Unsubstantiated concerns about the safety of Genetically Modified Organisms and hormone-fed beef and implementation of the Biosafety Protocol will remain major issues this year. In addition, efforts are likely to continue to seek to restrict imports of sugar-containing products into the United States.

Biotechnology and Genetically-Modified Organisms

Fueled by food-safety scares over "mad cow" disease and other cases involving contamination of animal feed, public opposition to genetically-modified organisms (GMOs) is widespread in Europe and has extended to Asian countries and the United States. At the same time, the need for and use of GMO crops is spreading worldwide. Genetically-engineered crops have higher yields and reduce farmers' dependence on dangerous pesticides. By increasing productivity, bioengineered crops have the potential to ensure food security and to reduce hunger worldwide. Crops have also been developed that reduce demands on scare water resources, that provide additional nutritional benefits (i.e., golden rice which added beta-carotene to rice), and that can lower labor demand.

Despite these benefits, some groups have argued that GMOs present potential ecological hazards, citing studies that suggest that genetically-engineered crops may harm monarch butterflies and other beneficial insects. Subsequent studies have shown, however, that the effect of GMOs on monarch butterflies is no different than non-GMO agricultural practices.

Since 1998, producers have sought approvals on at least 14 varieties of GMOs, but the European Commission has effectively maintained a moratorium and has not granted any approvals since 1998. In February 2001, the European Parliament and Council of Ministers approved Directive 90/220 to regulate the introduction and licensing of GMO foods. This legislation required an independent scientific assessment of possible risks, surveillance after the crops are released, and labeling. While it was hoped that this legislation would result in the approval of GMO crops, six countries - France, Austria, Italy, Denmark, Luxembourg and Greece - announced even before the vote that they would not approve any GMO products until additional regulations are in place on traceability of GMO products, labeling and environmental liability.

In July 25, 2001, the EU Commission issued directive 2001/18 on pre-marketing approvals of GMOs and their release into the environment, which sets up traceability and labeling requirements for food and feed. The directive will go into effect on Oct. 17, 2002, after EU member states implement it into their laws. The traceability and labeling requirements are still awaiting approval, however, by the Parliament and the Council; the traceability regulation may be approved this year and the labeling regulation may be approved in 2003. Based on reports from the EU, it appears that the moratorium on GMO approval will remain in place until these regulations are approved and implemented. The United States is considering whether to bring a WTO action against the EU for its failure to lift this moratorium.

While the United States pushed for significant changes to the directive before its issuance, the changes made by the EU are insufficient and the final directive poses serious problems for U.S. agriculture producers and farmers. In particular, the food labeling requirements are onerous and a serious trade barrier. While the regulation does not appear to require precise traceability for raw materials for food, feed and processing, it is unclear how this proposal will be implemented. As well, these proposals are of questionable compatibility with the WTO Agreements on Technical Barriers to Trade, Sanitary and Phytosanitary Measures and the underlying GATT agreement.

Beyond the EU, Australia, New Zealand, Japan, and Korea have passed mandatory GMO labeling laws over the opposition of the United States, which has urged countries not to enact labeling laws on the grounds that they could be applied inconsistently and create major new trade barriers. The United States has argued that GMO labeling issues should be dealt with under the WTO Agreement on SPS Measures, which permits SPS restrictions be placed on imports only when enough scientific evidence exists to justify the restrictions. The EU and certain developing countries argue in response that the SPS Agreement allows the use of the so-called "precautionary principle," permitting restriction of genetically-modified foods in certain circumstances, based on environmental or health concerns, even if the science behind the concerns remained uncertain.

The United States is also concerned about recent Chinese regulations - to take effect on March 20, 2002 - on the approval and labeling of GMOs. The United States is in consultations with China to ensure that these regulations that do not disrupt trade in GMOs, particularly soybeans and corn, which represent the predominate U.S. exports of GMOs to China. In particular, the United States is concerned that the regulations are unclear, may be onerous, and do not provide adequate time to get exports inspected, approved and labeled.

Biosafety Protocol

In January 2000, the Cartagena Protocol on Biosafety was negotiated under the framework of the 1992 United Nations Convention on Biological Diversity (CBD), to which the United States is not a party. This represents the first international agreement regulating trade in GMOs. The Protocol was signed in May 2000 and will only go into effect after 50 countries have ratified it. Because the United States has not ratified the CBD, the United States only had "observer" status at the negotiations and worked through the so-called "Miami group" of agricultural allies (e.g., Canada, Australia, and Argentina). The United States must adhere to trade rules imposed by countries signing the Protocol, but as a non-CBD ratifier, does not have to implement the Protocol.

The Protocol requires exporters to obtain advance approval from the importing country, in the form of advance informed agreements (AIA), for initial shipments of GMOs intended for release into the environment (i.e., seeds, microbes, or fish to be put in a river) and requires the labeling of GMOs that are intended for use as food or animal feed, or for processing. The agreement does not apply to agricultural commodities to be used for food, feed, or processing. It requires that risk assessments of GMOs be carried out in a scientifically-sound manner. The protocol notes that "trade and environment agreements should be mutually supportive with a view to achieving sustainable development." It also contains a savings clause to preserve countries' existing rights and obligations under other international agreements such as the WTO; in other words, the Protocol is not to be interpreted as changing any rights. The Protocol will be reviewed five years after its entry into force, and at least every five years thereafter.

EU Beef-Hormone Case

In July 1999, the United States imposed 100 percent retaliatory tariffs on roughly $117 million worth of U.S. imports from the EU in response to the EU's failure to comply with a WTO dispute panel ruling requiring the removal of its ban on imports of hormone-fed beef from the United States. The WTO panel ruled that the EU has failed to demonstrate that U.S. hormone-fed beef causes health risks. Congressional frustration over the EU's refusal to lift its ban on hormone-fed beef prompted the introduction and passage (as part of the Trade and Development Act of 2000) of the carousel retaliation provision requiring the periodic modification of the products targeted for retaliation in both the beef and bananas case. This provision is discussed in more detail in Section 5.

In 2000, U.S. and EU negotiators discussed proposals for resolving this dispute by expanding the quota for U.S. hormone-free beef. Negotiators were unable to reach an agreement that would substantially compensate U.S. beef producers.

Imports of Sugar and Sugar-Containing Products

Efforts are likely to continue this year to restrict the importation of sugar and sugar-containing products into the United States. During the Finance Committee markup of S. 1209, the Trade Adjustment Assistance for Workers, Farmers, Fishermen, Communities, and Firms Act of 2002, Senator Breaux (D-LA) proposed an amendment requiring the Secretary of Agriculture to identify imports of articles that are circumventing tariff-rate quotas on sugars, syrups or sugar-containing products and the President to reclassify any such imports identified by the Agriculture Secretary within tariff-rate quotas. This amendment was adopted by voice vote.

This provision is unnecessary. U.S. law already provides mechanisms for the Customs Service (with review by U.S. courts) to determine whether products are misclassified and circumventing tariff-rate quotas. In fact, this precise issue was dealt with in the recent Heartland case, where the Federal Circuit agreed with the Customs Service that certain imports of sugar-containing products were misclassified and should properly be classified within a quota. This provision also gives unprecedented power to the Secretary of Agriculture over a Customs classification issue and, as a result, undermines the Secretary of Treasury's authority to administer U.S. tariff laws.

If this provision is enacted and products are reclassified or added to the tariff-rate quota, the United States will likely be in violation of its commitments under the NAFTA and the WTO and undoubtedly face dispute settlement challenges. U.S. exporters will consequently face retaliation for the failure of the United States to honor its trade commitments. As significantly, adding products to the sugar tariff-rate quotas will increase substantially the cost to consumers of all sugar-containing products, which include everything from candy to snack foods to tomato sauces to cereals to infant formula.

ECAT's Food Chain Coalition Proposal

One of the ways ECAT is supporting efforts to address the human side of trade liberalization is through its Food Chain Coalition proposal that was presented to WTO member countries during the Seattle WTO ministerial. The Food Chain Coalition is intended to (1) provide a framework for trade liberalization in terms of meeting human needs; and (2) create greater leverage in pursuing market access and other trade liberalization goals by creating a cross-sectoral alliance of interests organized around eliminating barriers to food trade.

Removal of barriers to food trade provides one of the clearest examples of the importance of trade liberalization in meeting basic human needs. Population increases, rising standards of living, and growing urbanization around the world are producing dramatic increases in the demand for food. This rising demand for food presents tremendous global market opportunities in the broad array of sectors involved in producing and handling food on its journey from the farm to the table. In addition to farmers, seed companies, agro-chemical firms, grain handlers and processors, manufacturers of farm machinery, food manufacturers, retailers, financial services companies, insurers, and transportation firms benefit directly from a global increase in food demand. Indirectly, all businesses gain because meeting food demand at lower costs allows a greater amount of discretionary income to be spent on other goods and services.

The Food Chain proposal can provide a new approach to gaining enhanced leverage in negotiations on agriculture, services, and other areas by using the elimination of barriers at all levels of the food chain as an organizing principle. Based on this principle, the Coalition seeks to create cross-sectoral alliances in support of common negotiating priorities such as tariff liberalization, elimination of restrictions on investment and distribution, customs facilitation, and prohibitions on the use of unilateral food sanctions. Placing these issues in the context of the food chain can also create the means to avoid existing roadblocks between developed and developing member countries, as well as between the United States and the EU, particularly as WTO efforts continue on the built-in negotiations on agriculture and services.

ECAT's Food Chain proposal is not intended as a substitute for discrete negotiating groups on agriculture, services, and other areas. Instead, it is intended as a way to enhance the chances for overall liberalization by establishing the elimination of barriers to food trade, at all levels from production to distribution, as an overall negotiating objective and calling for the adoption of a review mechanism to monitor achievement of this objective.

Health Policy and Intellectual Property Rights Protection

There have been increasing attempts in recent years to weaken the application of U.S. and multilateral intellectual property rights provisions with respect to certain pharmaceutical products, particularly those used in the treatment of HIV-AIDS. In particular, some developing countries, private organizations and charities, and some Members of Congress have sharply criticized attempts by the United States to promote intellectual property rights protection involving pharmaceuticals used in the treatment of HIV-AIDS, arguing that health policy concerns justify the weakening of intellectual property rights protections.

There is no question that the HIV-AIDS crisis has reached monumental proportions in sub-Saharan Africa and that the virus continues to spread in other regions. Over 34 million people living in sub-Saharan Africa have contracted HIV-AIDS and, of these, over 12 million people have died. HIV-AIDS-related deaths in sub-Saharan Africa represent 83 percent of worldwide HIV-AIDS-related deaths.

As with each of the issues discussed above, efforts must continue to identify the sources of and best solutions for addressing this crisis. It is important to understand, therefore, that drug prices are not the single or perhaps even most important issue in handling this crisis. Many reports have documented that problems of infrastructure (including the lack of medical health professionals and clinics), along with other social and governmental barriers, represent substantial problems in treating and preventing HIV-AIDS in developing countries.

In an effort to address concerns over the price of HIV-AIDS-related pharmaceuticals being sold in developing countries, several major U.S. and European pharmaceutical companies, particularly those that make anti-retroviral drugs, have developed initiatives to donate or provide at very low prices such products to developing countries. These companies are also involved in other efforts to support infrastructure development and treatment and prevention efforts in these countries.

In 1999, the U.S. Senate included a provision authored by Senator Feinstein (D-CA) in the Trade and Development Act that would have prohibited USTR from seeking intellectual property protection for HIV-AIDS drugs or medical technologies that is greater than the level of protection required under the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). On December 1, 1999, the Clinton Administration announced that the USTR would work cooperatively with the Department of Health and Human Services to address health-related intellectual property matters to ensure that the application of U.S. intellectual property rights protections remain sufficiently flexible to respond to public health crises. Given the adoption of this flexible policy and the promise of an Executive Order formalizing it, as well as the controversial nature of the Feinstein amendment, this provision was dropped in conference.

In May 2000, the Clinton Administration issued Executive Order No. 13155 providing that the United States "shall not seek, through negotiation or otherwise, the revocation or revision of any intellectual property law or policy of a beneficiary sub-Saharan African country, as determined by the President, that regulates HIV/AIDS pharmaceuticals or medical technologies" if the law or policy of the country promotes access to HIV/AIDS pharmaceuticals and provides adequate and effective intellectual property protection consistent with the TRIPs agreement. If found to be applicable, this provision appears to allow both compulsory licensing (where non-patent holders are licensed to manufacture a patented pharmaceutical) and parallel imports (where the country permits imports from manufacturers other than the original patent-holder). While technically applicable only to sub-Saharan African countries, the Clinton Administration indicated that they would consider requests for similar treatment from other countries on a case-by-case basis. Thailand requested and was granted such an arrangement. In February 2001, Bush Administration officials indicated that they were prepared to maintain the Executive Order.

At the WTO Ministerial in Doha in November 2001, WTO countries agreed on a Declaration on the Trips Agreement and Public Health. In particular, the declaration reaffirmed countries' commitment to implement the TRIPS Agreement, while emphasizing that interpretations of TRIPS should be supportive of measures meant to protect public health. In particular, the declaration states that:

"We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all."

The declaration also clarifies that countries have the right to use compulsory licensing and to define what is a national health emergency. As well, the declaration instructs the TRIPS Council to examine