Emergency Committee For American Trade - Publications

SECTION 3: MAJOR TRADE POLICY ISSUES

Two very positive developments marked U.S. trade policy in 2003 – the use of trade promotion authority procedures for the first time since 1994 and the President’s lifting of section 201 steel tariffs that were found to violate U.S. commitments under the World Trade Organizations:

With Congressional approval of the U.S.-Chile and U.S.-Singapore Free Trade Agreements (FTAs) in July 2003, the United States resumed its leadership in developing and implementing comprehensive and high-standard trade agreements through the expanded consultation and expedited Congressional approval procedures included in the Trade Act of 2002. The standards developed in the Chile and Singapore FTAs have been mirrored and improved upon in several of the recently concluded FTAs that are discussed in more depth in section 2.
In December 2003, the President terminated high tariffs on imports of steel that had been imposed pursuant to section 201 of the Trade Act of 1974, as amended, and found to violate U.S. commitments in the World Trade Organization (WTO). By lifting these tariffs, the President put the United States back into compliance with its commitments under the World Trade Organization (WTO) and avoided the imposition of billions of dollars of retaliatory tariffs.

In addition to the U.S. negotiating agenda discussed in detail in sections 2 (trade agreements), 4 (investment agreements) and 12 (tax treaties), the U.S. Congress is also considering a number of other trade and investment policies, including legislation extending and expanding trade preferences to Africa and/or Haiti, restrictions and penalties on global outsourcing and international tax legislation designed to bring the United States into compliance with its WTO obligations (discussed in section 12).

At the same time, efforts to advance a U.S. trade policy that supports U.S. commercial, economic and broader national interests faced significant challenges in several areas, including with respect to:

Addressing concerns about global sourcing, labor and environment, food trade and health policy
Developing balanced trade remedy rules; and
Modernization of customs rules and operations.

Except where otherwise indicated, each of these issues is discussed below.

Building a Consensus on Trade and Investment Liberalization

In 2002 and 2003, Congress took important steps in building a consensus on trade and investment liberalization policies with the passage of the Trade Act of 2002 and approval of the U.S.-Chile and U.S.-Singapore FTAs by significant bipartisan majorities. Nevertheless, there remain deep divides on the role, objectives and value of U.S. trade policy.

ECAT believes it is critical for the United States to rebuild a national and bipartisan consensus on the value of trade and investment liberalization – a consensus that existed for decades following World War II. 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 involved the release last year of ECAT’s 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 Approval of the U.S.-Chile and U.S.-Singapore FTAs

In July 2003, Congress approved, by strongly bipartisan majorities, both the U.S.-Chile and U.S.-Singapore Free Trade Agreements (FTAs) – the first two agreements to be considered under the recently renewed Trade Promotion Authority (TPA) procedures.

U.S.-Chile Free Trade Agreement

After years of discussion, the United States and Chile began FTA negotiations on December 6, 2000. Following the enactment of the TPA Act as part of the Trade Act of 2002 (discussed in section 2), a comprehensive and high-standard FTA was concluded on December 11, 2002. The U.S.-Chile FTA was approved by the House, by a vote of 270- to-175 on July 24, 2003, and by the Senate, by a vote of 65-to-32 on July 31st. The FTA entered into force on January 1, 2004.

Bilateral trade between the United States and Chile has more than doubled from nearly $3 billion in 1990 to $6.4 billion in 2003. Chile is the United States’ 37th largest trading partner. The United States is Chile’s largest trading partner, although its share of Chile’s market has declined by one-third since 1997, as Chile has implemented preferential FTAs with Canada, Mexico and Central America, and other preferential market access agreements with Bolivia, Venezuela, Colombia, Ecuador and Peru. Chile is also an associate member of MERCOSUR (South American Common Market).

Major Provisions

Among the principal provisions of the U.S.-Chile FTA are the following:

Non-agricultural market access: Tariffs were eliminated as of January 1, 2004 for more than 85 percent of two-way trade in consumer and industrial goods, with most remaining tariffs eliminated in four years and all tariffs eliminated within 12 years. Key U.S. export sectors that will benefit include agricultural and construction equipment, automobiles and automobile parts, computers and information technology products, medical products, and paper products. The United States and Chile also agreed to establish a forum to address technical obstacles to trade.
Agricultural market access: Within four years of implementation, tariffs will be eliminated on more than three-quarters of U.S. agricultural exports to Chile, with all tariffs phased out over 12 years. Key U.S. agricultural export sectors that will benefit include beef, durum wheat, feed grains, pork, potatoes, soybeans and processed foods (e.g., distilled spirits, pasta, and breakfast cereal). The United States and Chile also agreed to establish a bilateral process to address sanitary and phytosanitary and related issues.
Rules of origin: The FTA incorporates relatively flexible rules of origin to promote trade, except with respect to the textile and apparel sector (where a NAFTA-like, yarn-forward rule is employed).
Services: The FTA commits Chile to increased access for U.S. banks and financial services, insurance, telecommunications, securities, express delivery and professional services. Commitments also include strong transparency and consultation requirements to ensure the fair and impartial regulation of services.
Intellectual property rights: The FTA commits Chile to strong protections for intellectual property rights, with patent and trade secret protections stronger than prior agreements, as described in more detail in section 11.
Investment: The FTA includes many of the same protections included in U.S. Bilateral Investment Treaties to promote a secure and predictable legal framework for U.S. investors. The United States made some changes to the investment framework, as discussed in section 4, that should not be repeated in future agreements.
Government procurement: The FTA includes important new anti-corruption and transparency rules for government contracting.
Transparency: The FTA includes state-of-the-art transparency standards, including in such important areas as customs and regulatory rulemaking.
Labor and environment: The United States and Chile commit to enforce effectively their domestic labor and environmental laws. They also agreed to set up a Council of Labor Affairs and a Council of Environmental Affairs. The countries also agreed to cooperative projects to protect wildlife, improve resource management, reduce the use of dangerous chemicals and environmental hazards from mining, and promote internationally recognized labor principles through a Labor Cooperation Mechanism.
Dispute settlement: Obligations in commercial, labor and environment areas are enforceable through a strong and innovative dispute settlement system allowing for monetary fines and other penalties for the failure to meet commitments.

ECAT POSITION: ECAT strongly supported the negotiation and Congress’ approval of the comprehensive and high-standard U.S.-Chile FTA. ECAT supports continued work by the Administration to ensure full enforcement of this agreement

U.S.-Singapore Free Trade Agreement

On November 16, 2000, the United States and Singapore agreed to launch FTA negotiations. Negotiations were completed in January 2003. The U.S.-Singapore FTA was approved by the House by a vote of 272-to-155 on July 24, 2003 and by the Senate, by a vote of 66-to-32 on July 31st. The FTA entered into force on January 1, 2004.

Singapore is the United States’ 14th largest trading partner. Bilateral trade between the United States and Singapore has increased in the past decade, from $17.8 billion in 1990 to $19.2 billion in 2003. Singapore is a member of APEC and ASEAN and has FTAs with Japan and New Zealand. Singapore has completed FTAs with Australia and the four-member European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland); it is also in FTA negotiations with Canada that have not yet been completed.

Singapore maintains no tariffs on goods. Thus, the primary focus of U.S. negotiators was on opening up Singapore’s services market and seeking the elimination of non-tariff barriers to trade and investment.

Major Provisions

Among the primary provisions of the U.S.-Singapore FTA are the following:

Services: The FTA commits both parties to provide fair and non-discriminatory treatment on cross-border services and the right to establish a local services presence. Services commitments cover a wide range of sectors, including financial, computer and information technology, telecommunications, direct selling, audiovisual, construction, express delivery, distribution (including wholesaling and retailing), environmental and energy. With regard to banks, the agreement includes the core obligations and requires that the ban on new licenses for full-service banks be lifted within 18 months and within three years for wholesale banks. U.S. insurance firms will also have full rights to establish subsidiaries, branches and joint ventures, and Singapore agreed to end its prohibition on the cross-border supply of insurance services. The FTA also includes important commitments on telecommunications, including reasonable and non-discriminatory access to the telecom network, reasonable and transparent rights of interconnection, and non-discriminatory leasing ability. The FTA applies the non-discrimination principle to products delivered electronically, prohibits tariffs on digital products delivered electronically, and makes binding the voluntary e-commerce commitments made in the WTO. Commitments also include strong transparency and consultation requirements to ensure the fair and impartial regulation of services.
Intellectual property rights: The FTA commits Chile to strong protections for intellectual property rights, with patent and trade secret protections stronger than prior agreements. It also includes very strong enforcement provisions, including criminal penalties for pirated products and both statutory and actual damages for violations.
Competition policy: The FTA commits Singapore to enact legislation regulating anti-competitive business conduct and create a competition commission by 2005. Singapore has also undertaken commitments to ensure commercial enterprises in which the government has effective influence will operate on the basis of commercial considerations.
Investment: The FTA includes many of the same protections included in U.S. Bilateral Investment Treaties to promote a secure and predictable legal framework for U.S. investors. The United States made some changes to the investment framework, as discussed in section 4, that should not be repeated in future agreements.
Government procurement: The FTA includes important new anti-corruption and transparency rules for government contracting.
Tariffs: The United States agreed to eliminate tariffs on most goods immediately, with remaining tariffs to be phased out over three to 10 years. The United States agreed to eliminate its 50-percent ad valorem tax on shipbuilding repairs that take place outside of the United States. Singapore guaranteed that U.S. products would continue to enter duty-free.
Rules of origin: The FTA incorporates relatively flexible rules of origin to promote trade, except with respect to the textile and apparel sector (where a NAFTA-like, yarn-forward rule is employed).
Customs procedures: The FTA requires transparency and efficiency in customs administration, with commitments to publish laws and regulations on the Internet. The parties also included provisions to combat transshipment.
Transparency: The FTA includes state-of-the-art transparency standards, including in such important areas as customs and regulatory rulemaking.
Labor and environment: The United States and Chile commit to enforce effectively their domestic labor and environmental laws. The parties reaffirmed their commitment to International Labor Organization principles and that it is inappropriate to weaken or reduce labor or environmental protections to encourage trade or investment. The parties also agreed to ensure that their environmental laws provide for high levels of environmental protection.
Dispute settlement: Obligations in commercial, labor and environment areas are enforceable through a strong and innovative dispute settlement system allowing for monetary fines and other penalties for the failure to meet commitments.

ECAT POSITION: ECAT strongly supported the negotiation and Congress’ approval of the comprehensive and high-standard U.S.-Singapore FTA. ECAT supports continued work by the Administration to ensure full enforcement of this agreement

Termination of Section 201 Steel Tariffs

In December 2004, less than two years after their imposition in March 2002 pursuant to section 201 of the Trade Act of 1974, President Bush terminated the temporary safeguard tariffs imposed on U.S. imports of steel, thereby eliminating a major competitive disadvantage faced by U.S. manufacturers, as well as avoiding billions of dollars in retaliatory tariffs threatened by the European Union and others.

Background

In March 2002, the Administration announced that it would impose import tariffs on imports from steel pursuant to section 201 of the Trade Act of 1974, as amended, following a decision by the U.S. International Trade Commission (ITC) that such imports were materially injuring the domestic steel industry. The Administration imposed:

A 30-percent tariff on imports of plate, hot-rolled, cold-rolled and corrosion-resistant sheet products, tin mill products, and hot-rolled and cold-finished bar.
A 15-percent tariff on imports of rebar, certain welded tubular products, stainless steel bar, and stainless steel wire.
A 13-percent tariff on imports of carbon and alloy fittings and flanges.
An 8-percent tariff on imports of stainless steel wire.
A tariff rate quota (TRQ) on imports of slab, with an in-quota quantity of 5.4 million short tons and an out-of-quota tariff of 30 percent.

The President excluded both Canada and Mexico and developing countries with only small exports (such as Argentina, India, South Africa and Thailand) from these measures. The President also imposed an import licensing system to monitor imports of steel and indicated that additional safeguard measures would be imposed if there were a surge in imports. The Administration also considered numerous exclusion requests, some of which were granted.

On March 21, 2003, the Administration announced a limited number of additional product exclusions. It also announced the automatic reduction of the safeguard tariffs for year two to 24 percent for flat-rolled products, tin mill products, and hot-rolled and cold-finished bar; to 12 percent for rebar, welded pipe and tube, stainless steel bar and rod; to 10 percent for carbon/alloy flanges; and to 7 percent for stainless steel wire. The Administration also announced the automatic adjustment to the tariff rate quota for slab to 5.9 million short tons in-quota, with an out-of-quota tariff rate of 24 percent.

Economic Effects of Section 201 Tariffs

For U.S. manufacturers, the section 201 steel tariffs represented a significant and harmful tax at a time when American manufacturing has faced intense competitive pressures. Shortly following the imposition of the section 201 steel tariffs in March 2002:

The prices of key steel products immediately skyrocketed, in many cases by 45 percent or more.
Several U.S. steel producers insisted on hefty price increases, abrogated written contracts, and put even loyal, long-term, high-volume U.S. customers on “allocation.”
Supplies of many key grade and gauge combinations became difficult to obtain.
Small and family-owned steel-fabricating businesses (who typically rely on the spot market and lack long-term supply contracts) were hit the hardest, forcing many to lay off employees or close shop.

While these effects moderated in late 2002 and 2003 in large part due to a slowed economy, steel prices for many of the key steel input products remained higher and delivery lead times for many steel products remained longer than they were before the imposition of safeguard tariffs. These effects undermined the competitiveness of steel-using American manufacturers, who lost significant business opportunities to competitors in Europe, Japan, Brazil and elsewhere. The price effects were difficult for many steel-using companies to handle, given their own inability to raise prices of their final products given the prolonged slowdown in the U.S. and the global economies. To remain competitive, American steel-consuming manufacturers were forced to cut costs elsewhere – laying off U.S. workers, seeking cost reductions from other U.S. suppliers and, when there was absolutely no other choice, moving U.S. production and U.S. sourcing offshore where steel was more readily available and more competitively priced.

WTO Challenge

Immediately following the decision to impose tariffs, the EU requested WTO consultations on the imposition of safeguards under section 201 and separately under the Agreement on Safeguards, indicating that it would seek $2.5 billion in compensation. Japan, South Korea, Australia, New Zealand, China and Norway also requested WTO consultations on the President’s decision.

In June 2002, the EU notified the WTO Council for Trade in Goods that it had issued Council Regulation (EC) No. 1031/2002 (13 June 2002), which would impose over $600 million in additional taxes on billions of dollar of U.S. exports as soon as five days after the WTO Appellate Body’s decision. Products targeted included such important U.S. exports as citrus, apples, and other fruits and vegetables; household appliances; photocopiers and printing machinery; suits, t-shirts and other apparel items; and boats, vehicles and certain machinery. Similar notifications were filed by Japan, China, Norway, and Switzerland.

In July 2003, the WTO panel established to consider these claims found that the safeguard action was inconsistent with the United States’ WTO obligations in several respects:

The ITC failed to explain how there was an increase in imports of steel;
The ITC improperly excluded Canada and Mexico from the remedy, while at the same time including their imports in the injury analysis;
The ITC failed to explain adequately the causal link between the imports and the injury; and
The ITC failed to explain how any surge was the result of “unforeseen circumstances.”

On November 11, 2003, the WTO Appellate Body largely affirmed the Panel’s decision and found that the section 201 steel tariffs were imposed in violation of U.S. commitments under the WTO. Following that decision, the EU, Japan and other countries prepared to impose billions of dollars in retaliatory tariffs on a broad range of U.S. exports. Such tariffs would have represented a double whammy for many U.S. steel-consuming companies, who have already been injured by the steel tariffs themselves and would have faced massive tariffs on their exports to the EU and perhaps elsewhere.

International Trade Commission Investigations

On September 19, 2003, the U.S. International Trade Commission (ITC) released Steel: Monitoring Developments in the Domestic Industry and Steel-Consuming Industries: Competitive Conditions with Respect to Steel Safeguard Measures which examined, respectively, restructuring by the domestic steel industry in light of the imposition of the steel 201 tariffs and the effect of those tariffs on U.S. steel-consuming industries. The ITC’s Monitoring report, required by the statute because of the length of time that the initial tariffs were imposed, found that the domestic steel industry had undergone fundamental restructuring. The companion section 332 report, resulting from a request by the House Committee on Ways and Means and the efforts of Congressman Knollenberg (R-MI), also documents the section 201 tariffs had very real and negative effects on steel consumers.

As ECAT has explained, much of the domestic steel industry’s restructuring process was driven by the bankruptcy of many integrated steel companies. As a result, the industry has shed much of the pension and healthcare costs that have prevented market forces from modernizing the industry during the past decade. As a result of these findings, ECAT argued that the continuation of the steel tariffs would only expand counter-productive economic incentives to bring back inefficient, obsolete capacity and thus undermine, not advance, the restructuring process.

Following the release of the mid-term report, the President had legal authority to terminate the tariffs under Section 204 of the Trade Act of 1974.

Administration Decision to Lift Section 201 Steel Tariffs

On December 4, 2003, the President announced his decision to remove the steel safeguard tariffs, based on the significant improvements in the U.S. steel industry, since the tariffs were imposed and other changed circumstances. The President’s decision emphasized the consolidation that has taken place in the domestic steel industry, new labor agreements that increase flexibility, boost productivity and reflect reduced retiree commitments as a result of the bankruptcy process, and the expanded opportunities provided by the improving economy.

At the same time, the President committed to maintain a steel import-licensing system that would provide an early warning regarding any surges in U.S. imports of steel, vigorously enforce U.S. trade remedy laws, and continue work through international negotiations to reduce steel subsidies.

ECAT POSITION: ECAT strongly welcomed the President’s decision to lift the section 201 steel import tariffs as the right decision at the right time. This decision exhibited U.S. leadership and was welcome news for U.S. steel-consuming manufacturers and their employees.

2003-2004 Legislative Trade Policy Proposals

Several legislative trade policy proposals that seek greater trade and investment liberalization arose in 2003-2004 that may be actively considered by the U.S. Congress before the end of the year.

Proposals to modify the U.S. trade remedy laws and to reform trade adjustment assistance are discussed later in this chapter. Proposals related to WTO dispute settlement are discussed at the end of section 6. Legislative proposals to reform the United States’ international tax regime and bring the United States into conformity with the WTO Foreign Sales Corporation and Extraterritorial Income Act cases is discussed in section 12.

Legislation to Expand and Extend the African Growth and Opportunity Act

Several proposals have been made to expand and/or extend the African Growth and Opportunity Act (AGOA), that was enacted as part of the Trade and Development Act of 2000 (and discussed in further detail in section 10), including

H.R. 4103, the AGOA Acceleration Act, introduced on April 1, 2004 by Ways and Means Chairman Bill Thomas (R-CA), Ranking Member Charles Rangel (D-NY) and other members of Congress. Key provisions include:
- Extends program from 2008 until 2015.
- Extends third-country fabric provision from September 2004 until 2007, with a phased decline of benefits in the final year.
- Modifies the AGOA rule of origin for textiles and apparel to allow limited non-AGOA collars and cuffs.
- Expands folklore definition for printed fabric.
- Provides assistance to develop sustainable infrastructure and increase trade-capacity, including through the promotion of eco-tourism.
- Assigns additional personnel to the region to provide technical agricultural assistance.
- Facilitates customs coordination at ports and airports.
S. 1900, United States-Africa Partnership Act of 2003, introduced by Senate Foreign Relations Committee Chairman Lugar on November 30, 2003. Key provisions include:
- Extends program from 2008 until 2015.
- Expands qualifying textile and apparel definition to allow certain articles to contain third country fabric.
- Expands through FY 2008 of the current special rule for lesser-developed sub-Saharan African countries.
- Amends AGOA to revise requirements for textile and apparel products from SSA countries receiving duty-free and other preferential import treatment. Expansion of folklore definition for printed fabric.
- Amends AGOA to include provisions to promote sub-Saharan African agricultural trade, including through the assignment of additional personnel to provide technical agricultural assistance.
- Limits President’s authority to terminate the designation of qualified sub-Saharan African countries.
- Promotes negotiation of bilateral tax treaty with appropriate sub-Saharan African countries.
- Provides assistance to encourage investment in energy, agriculture, and telecommunications infrastructure.
- Facilitates customs coordination at ports and airports.
H.R. 3572, AGOA III, introduced by Representative McDermott (D-WA) on November 21, 2003:
- Extends of program from 2008 until 2020.
- Amends AGOA to provide that the President may not terminate the designation of a sub-Saharan African country if Congress has prohibited such a change.
- Expands qualifying textile and apparel definition to allow certain articles to contain third country fabric.
- Expands through FY 2008 the current special rule for lesser-developed sub-Saharan African countries.
- Amends AGOA to revise requirements for textile and apparel products from SSA countries receiving duty-free and other preferential import treatment. Expansion of folklore definition for printed fabric.
- Amends AGOA to include provisions to promote sub-Saharan African agricultural trade, including through the assignment of additional personnel to provide technical agricultural assistance.
- Limits President’s authority to terminate the designation of qualified sub-Saharan African countries.
- Promotes negotiation of bilateral tax and investment treaties with appropriate sub-Saharan African countries.
- Facilitates customs coordination at ports and airports.
- Provides for assistance to encourage investment in energy, agriculture, and telecommunications infrastructure.
- Amends current law to extend duty-free treatment to agricultural products from sub-Saharan African countries that would otherwise be excluded for exceeding a tariff-rate quota.
- Amends AGOA to direct the Agriculture Secretary to develop a comprehensive plan for public policies and incentives for the private sector to promote agricultural exports from the region and authorizes grants from the United States Agency for International Development.
- Assigns additional personnel to the region to provide technical agricultural assistance
- Authorizes the United States Agency for International Development (USAID) to provide grants to governmental and nongovernmental entities located in eligible SSA countries that can provide assistance, consultation, and equipment to agribusinesses located in those countries in order to enable agricultural products to meet U.S. import requirements.
- Promotes OPIC and EXIM funding.
- Directs the Secretary of the Treasury to seek negotiations with those SSA countries, which the Secretary determines will benefit most from an income tax treaty with the United States to avoid double taxation.
- Amends the Internal Revenue Code to allow a taxpayer a deduction from income for cash contributions to the Global Fund to Fight HIV/AIDs, Tuberculosis and Malaria.
- Directs the Administration to negotiate appropriate bilateral tax and bilateral investment agreements in the region.

ECAT supports an extension of expiring provisions of the AGOA and an expansion of its benefits. This program has spurred economic opportunities and greater exports for developing countries in sub-Saharan Africa. The proposals to expand AGOA will provide important new opportunities for U.S. companies and the peoples of sub-Saharan Africa.

Legislation Expanding Trade Preferences for Haiti

In order to promote stability in Haiti and to counterbalance the negative economic effects that political upheaval is having on Haiti, several proposals are currently being made to provide greater commercial opportunities to Haiti. There are two primary proposals to promote these objectives, both named the Haiti Economic Recovery Opportunity (HERO) Act.

In 2003, S. 489 was introduced in the Senate by Senators DeWine (R-OH) Graham (D-FL), Lugar (R-IN), Durbin (D-IL), Chafee (R-RI) and Nelson (D-FL), and H.R. 1031 was introduced in the House by Representative Shaw (R-FL), Conyers (D-MI), Crane (R-IL) and Rangel (D-NY) and others. This legislation would amend the Caribbean Basin Economic Recovery Act to provide duty-free treatment to certain articles from Haiti, including articles wholly assembled or knit-to-shape in Haiti using inputs from Haiti, the United States, an FTA partner with the United States or a beneficiary country, or where certain fabric or yarns are not commercially available in the United States. To qualify for these benefits, the President would have to review and certify that Haiti is meeting certain eligibility requirements.
In 2003, the original cosponsors of S. 489, joined by Senators Voinovich (R-OH) and Sununu (R-NH), introduced S. 2261 to expand the benefits that would be provided to Haiti to make them more effective at achieving their objectives. In particular, this legislation would accord duty-free treatment for seven years to certain products of Haiti if the President certifies that Haiti has met the eligibility criteria. Apparel that would receive such treatment includes articles that are wholly assembled or knit-to-shape in Haiti from any combination of fabrics, fabric components, components knit-to-shape and yarns without regard to the country of origin of the fabrics, components, or yarns.

From a commercial perspective, it is extremely important that the benefits provided to Haiti at this critical time provide effective commercial benefits and do not unduly restrict commercial activities from resuming fully in Haiti. To that end, providing the flexibility contained in S. 2261 is very important. While this flexibility is important, it is also critical that provisions are included to ensure greater predictability of benefits for those producers have a long-term and productive relationship in Haiti. Therefore, ECAT strongly supports including a “qualified industrial producer” (QIP) provision, based on relevant criteria, that would permit duty-free entry for all qualifying imports from QIPs in Haiti. As well, ECAT strongly supports incorporating for Haiti the single transformation rules adopted in the U.S.-Central American and Dominican Republic FTA.

ECAT POSITION: ECAT strongly welcomes legislation to expand trade and investment opportunities for U.S. farmers, manufacturers, service providers and their workers throughout the world. In particular, ECAT supports efforts to expand and extend the African Growth and Opportunity Act and to expand and extend preferential treatment for Haiti.

Addressing Concerns about Trade and Investment Liberalization

Global Outsourcing

Global outsourcing has become an increasingly controversial issue in the political debate involving trade and investment liberalization. Critics argue that global outsourcing – the subcontracting or movement of business functions to offshore suppliers – has and will continue to cost significant jobs in the United States. Proposals have been made at the federal and state level to deny tax benefits or government contracts to companies that engage in outsourcing.

The upsurge in criticism ignores several fundamental facts, including that:

Global outsourcing supports the growth of the U.S. economy, the competitiveness of U.S. companies and high living standards for Americans. Study-after-study has demonstrated that global activity by U.S. companies is not a zero-sum game that, as critics claim, results in losses for the U.S. economy or U.S. workers. Rather, the global activities of U.S. companies promote growth and opportunities at home:

Contributions of Global Engagement to the U.S. Economy and U.S. Workers
For the last 20 years, American companies with global operations:

Accounted for over half of all U.S. research and development, capital investments and exports;
Purchased more than 90 percent of their supplies (or intermediate inputs) from U.S.-based, not foreign suppliers, thereby supporting American producers and American jobs; and
Paid higher wages to American workers than companies with purely domestic operations.

Source: Global Investments, American Returns (1998) and 1999 Update, by Dr. Matthew Slaughter, published by the Emergency Committee for American Trade

Global activities of U.S. companies are also a primary driving force in the competitiveness and innovation of America’s information and communications technology sector, as documented in ECAT’s Mainstay IV: Technology, Trade and Investment: The Public Opinion Disconnect (2002). In short, American companies are stronger today and more competitive, supporting a high level of employment here at home, because of their global activities. Without such activity, the United States would likely have many fewer good, high-paying jobs than it does today.

Insourcing and investment by foreign companies in the United States has a greater positive impact than the worst-case scenarios of outsourcing: Outsourcing criticism has largely ignored the impact of so-called insourcing, where foreign-owned companies invest and subcontract activities in the United States. Based on the most recent data from the Bureau of Economic Analysis, majority-owned U.S. affiliates of foreign companies with operations in the United States employed 5.4 million U.S. workers in 2002, accounting for 5 percent of total U.S. employment in private industries. The Organization for International Investment reports that 6.4 million U.S. workers are employed by U.S. subsidiaries of foreign companies. Of course, you can’t have insourcing and seek to block outsourcing at the same time. Other countries’ willingness to allow their companies to invest here in the United States simply will not continue if the legislative and other proposals being considered are adopted. In short, seeking to end outsourcing represents a very real threat to the 6.4 million U.S. workers who are employed by foreign companies.
Outsourcing will have at most a small impact on U.S. jobs: Predictions of the severity of outsourcing ignore that fact that approximately 90 percent of U.S. jobs require goods and services to be provided locally. Efforts to connect outsourcing with the decline in manufacturing jobs in recent years have failed. In fact, most of the jobs lost in the U.S. economy in recent years have more to do with technological innovation than outsourcing or other trade- or investment-related developments. Even the most dire projections of lost jobs are actually negligible compared to the overall economy and the 130 million existing jobs. The Forrester prediction of 3.3 million jobs lost over 15 years, for example, equals less than 1 percent of employed Americans. Obviously, the impact on these workers is very real and must be addressed – but through adjustment assistance, training and education.
Legislative proposals that seek to limit outsourcing through the denial of tax benefits, government contracts and other provisions would undermine, rather than support, U.S. competitiveness and job growth. These proposals will make it more difficult for U.S. companies to compete in the global economy and will result in a loss of opportunities not only for U.S. companies in a wide range of sectors, but for U.S. workers as well.
Legislation that will help educate America’s youth and help train and retrain its workers and provide adjustment assistance will do more to create the labor force that the United States needs to compete globally. While the United States cannot stop the global forces of innovation and the development of new technologies, it can do a better job of preparing U.S. workers to participate productively in the global economy. This requires full educational opportunities and preparation from early childhood onward through post-graduate work and into the workplace. There are roles for Federal, state and local government, institutions of learning, and the private sector in educating U.S. workers for success.

ECAT Studies

Over 30 years ago, the Emergency Committee for American Trade (ECAT) recognized the need to encourage greater awareness of the importance of the global activities of U.S. companies to the U.S. economy. At the time, American companies with global operations were under attack. Critics charged that U.S. foreign direct investment exported American jobs and promoted increased imports from foreign affiliates. Some political leaders advocated changing U.S. trade and tax laws to keep capital and production in the United States.

Starting in 1972, ECAT commissioned its first major study on the role of global activity on the domestic economy: The Multinational Corporation: American Mainstay in the World Economy. The report demonstrated that overseas investments by American companies contributed to increased U.S. exports and increased investments at home and became the first study in ECAT’s Mainstay series. In 1993, ECAT published its second Mainstay study: Mainstay II: A New Account of the Critical Role of U.S. Multinational Companies in the U.S. Economy. By using more extensive data coving the entire U.S. manufacturing sector during the decade of the 1980s, Mainstay II explored the effect of American companies operating overseas on the U.S. economy. The report concluded that to remain competitive and to participate successfully in global trade and investment, American companies must have a “global reach.”

More recently, ECAT has published two major studies as part of its Mainstay series that directly relate to much of the current debate about the domestic impact of the global activities of U.S. companies: Mainstay III: Global Investments, American Returns (1998 and 1999 Update) and Mainstay IV: Technology, Trade and Investment: The Public Opinion Disconnect (2003). These studies are summarized in section 4.

ECAT will actively continue its work to ensure that the public debate on these issues focuses on the facts of global sourcing and produces policies that will promote economic opportunities for Americans, not destroy them.

ECAT Position: As found in study-after-study, ECAT strongly supports the global engagement of U.S. companies as a critical component to promoting economic growth and high living standards at home. Legislative proposals at the state or Federal level to restrict global engagement will undermine the strength of U.S. companies and the U.S. economy to producer better high paying jobs in the United States. Legislation that will help educate America’s youth and help train and retrain its workers and provide adjustment assistance will do more to create the labor force that the United States needs to compete globally.

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, increased economic growth and a growing middle class enable and increasingly motivate developing countries 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 study by Dartmouth College economists Eric Edmonds and Nina Pavnick, “Does Globalization Increase Child Labor,” also 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 and environmental issues, it is critical that the positive relationship between trade liberalization and labor and environmental 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 the U.S.-Chile and U.S.-Singapore Free Trade Agreements (FTAs) that are discussed in section 3 and NAFTA-related issues that are addressed in section 10.

Labor Issues

Trade Promotion Authority and Free Trade Agreements

As discussed in section 2, the Bipartisan Trade Promotion Authority Act (TPA Act), enacted as part of the Trade Act of 2002, includes wide-ranging negotiating objectives. With respect to labor issues, the TPA Act includes the most extensive labor negotiating objectives ever included in a trade-negotiating authority law. The principal provisions include:

Overall negotiating objectives to:
- foster economic growth, raise living standards, and promote full employment in the United States and to enhance the global economy;
- promote respect for worker rights and the rights of children consistent with core labor standards of the International Labor Organization (as defined in section 2113(2)) and an understanding of the relationship between trade and worker rights; and
- seek provisions in trade agreements under which parties to those agreements strive to ensure that they do not weaken or reduce the protections afforded in domestic environmental and labor laws as an encouragement for trade.
Principal negotiating objectives to:
- ensure that parties to any trade agreement do not fail to enforce effectively their labor laws through a sustained or recurring course of action or inaction, in a manner affecting trade;
- strengthen the capacity of United States trading partners to promote respect for core labor standards (as defined in section 2113(2));
- ensure that the labor, health, or safety policies and practices of the parties to trade agreements with the United States do not arbitrarily or unjustifiably discriminate against United States exports or serve as disguised barriers to trade;
- prevent distortions in the conduct of international trade caused by the use of the worst forms of child labor, in whole or in part, in the production of goods for export in international commerce; and
- redress unfair and illegitimate competition based upon the use of the worst forms of child labor, in whole or in part, in the production of goods for export in international commerce.
Requirements for 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).
- seek to establish consultative mechanisms among parties to trade agreements to strengthen the capacity of United States trading partners to promote respect for core labor standards;.
- have the Secretary of Labor consult with any country seeking a trade agreement with the United States concerning that country's labor laws and provide technical assistance to that country if needed;
- submit to the Ways and Means and Finance Committees a meaningful labor rights report of the country, or countries, with respect to which the President is negotiating;
- review the impact of future trade agreements on U.S. employment, modeled after Executive Order 13141; and
- report on child labor laws for each country with which the President seeks a negotiation.

In addition, TPA 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.

Provisions reflecting the TPA objectives were included in the U.S.-Chile and U.S.-Singapore FTAs discussed above and the U.S.-Central American and Dominican Republic FTA and the U.S.-Australia and Morocco FTAs as well. These provisions build upon the provisions of the U.S.-Jordan FTA, that, for the first time ever, included enforceable labor and environmental provisions (also related to the enforcement of each country’s domestic labor and environmental laws) in the text of the FTA. USTR also issued a capacity building grant of $6.75 million to the Foundation for Peace and Democracy to help promote working conditions in Central America.

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. The United States provided $45 million to the IPEC annually in 2001, 2002 and 2003.

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. The United States committed $30 million in FY 2003 pursuant to this program.

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 is updated periodically.

Generalized System of Preferences and Other Preference Programs

U.S. trade preference programs, including the Generalized System of Preferences (GSP), the African Growth and Opportunity Act (AGOA) and the Caribbean Basin Trade Partnership Act all include eligibility requirements that consider whether a country has taken steps or is working towards respect for core labor principles. 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 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 SSA and CBI programs, USTR considered these factors as required and was able to seek greater labor rights protections in several countries. The Administration reviews annually petitions from interested parties as to whether a GSP beneficiary is not meeting its eligibility requirements, including with respect to labor rights.

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.

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.

Environmental Issues

Trade Promotion Authority and Free Trade Agreements

As discussed in section 2, the Bipartisan Trade Promotion Authority Act (TPA Act), enacted as part of the Trade Act of 2002, includes wide-ranging negotiating objectives. With respect to environmental issues, the TPA Act includes – for the first time ever in a trade-negotiating authority law – provisions related to trade and the environment. The principal provisions include:

Overall negotiating objectives to:
- ensure that trade and environmental policies 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; and
- seek provisions in trade agreements under which parties to those agreements strive to ensure that they do not weaken or reduce the protections afforded in domestic environmental laws as an encouragement for trade.
Principal negotiating objectives to:
- ensure that a party to a trade agreement with the United States does not fail to effectively enforce its environmental laws, through a sustained or recurring course of action or inaction, in a manner affecting trade;
- strengthen the capacity of United States trading partners to protect the environment through the promotion of sustainable development;
- reduce or eliminate government practices or policies that unduly threaten sustainable development;
- seek market access, through the elimination of tariffs and nontariff barriers, for United States environmental technologies, goods, and services; and
- ensure that environmental, health, or safety policies and practices of the parties to trade agreements with the United States do not arbitrarily or unjustifiably discriminate against United States exports or serve as disguised barriers to trade.
Requirements for the Administration to:
- seek to establish consultative mechanisms among parties to trade agreements to strengthen the capacity of United States trading partners to develop and implement standards for the protection of the environment and human health based on sound science
- conduct environmental reviews of future trade and investment agreements, consistent with Executive Order 13141; and
- continue to promote consideration of multilateral environmental agreements and consult with parties to such agreements regarding the consistency of any such agreement that includes trade measures with existing environmental exceptions under Article XX of the GATT 1994.

In addition, the TPA Act 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.

As discussed above with respect to labor, environmental provisions meeting these objectives were included in the U.S.-Chile and U.S.-Singapore FTAs discussed above and the U.S.-Central American and Dominican Republic FTA and the U.S.-Australia and U.S.-Morocco FTAs as discussed in section 2. The Central American and Dominican Republic FTA also includes a citizen complaint procedure, allowing non-governmental organizations to raise complaints that a country is not enforcing its environmental laws. USTR also issued a capacity building grant of $500,000 to the U.S. Humane Society in October 2003 to promote environmentally sustainable and humane agriculture and the protection of wildlife and habitat in Central America.

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:

(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:

(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. WTO work on these issues is discussed in more depth in sections 2 and 6.

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, the United States is seeking an agreement to eliminate barriers to trade in environmental goods in the Doha Development Agenda, 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.”

Foreign Assistance

The United States continues to be the largest donor to the Global Environment Facility that helps developing countries mitigate environmental problems with a potential global impact. In FY 2005, the budget proposes $13.2 million to clear past arrears and $107.5 million for the third installment of the U.S. pledge of $500 million.

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.

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, has extended to Asian and African countries and to a much more limited extent in 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 pesticides. By increasing productivity, bioengineered crops have the potential to ensure food security and to reduce hunger worldwide. Biotech crops have also been developed that reduce demands on scarce water resources, that provide additional nutritional benefits (i.e., golden rice which adds 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 that of non-GMO agricultural practices.

Since 1998, producers have sought EU 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. The EU is currently debating whether to approve two GMO varieties of corn (BT11 and Nk603) and is expected to reach a decision by May 2004.

On May 13, 2003, the United States filed a WTO consultation request with respect to the EU's moratorium on all new biotech approvals, and the bans that six EU member states (Austria, France, Germany, Greece, Italy and Luxembourg) have in place on certain biotech products previously approved by the EU. A panel was established on August 29, 2003. On April 8, 2004, the Panel rejected EU claims that the United States had failed to adequately state its claim against the EU.

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. In November 2002, EU agriculture ministers reached a compromise on tolerance levels, allowing up to 0.9 percent of a product to be derived from approved genetically modified crops without facing mandatory labeling requirements. 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. The United States is currently evaluating these measures.

Beyond the EU, 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. Zambia and other Southern African countries have also refused U.S. food aid because it may contain GM products. The United States has argued that GMO labeling issues should be dealt with under the WTO Agreement on SPS Measures, which permits SPS restrictions to 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 GMO regulations introduced by the Ministry of Agriculture and State Administration for Quality Supervision, Inspection and Quarantine concerning the requirement for obtaining permanent safety certificates for GMO products such as soybeans, corn and canola under China’s biotechnology regulations and the more recent requirement to obtain import permits for these commodity shipments into China. While industry is currently operating under temporary or “interim” safety certificates and applying for necessary import permits on the basis of these certificates, the approval process for import permits is slow and permanent safety certificates have yet to be issued by the Chinese government. In addition, the United States is also concerned about recent Chinese testing of GMO products before their approval. The United States is in consultations with China to ensure that these regulations do not disrupt trade in GMOs, particularly soybeans, which represent the predominate U.S. exports of GMO crops to China.

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.

The exact impact of the Protocol upon international trade is unknown and will depend upon how the Protocol is interpreted and implemented by each ratifying country. While rules must adequately address the preservation of global biodiversity, we must also ensure we do not impose unnecessary costs or barriers in order to preserve a low-cost bulk handling system to transport the world’s commodities.

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.

Since the imposition of rebalancing tariffs, U.S. and EU negotiators have discussed various proposals for resolving this dispute by expanding the quota for U.S. hormone-free beef. Negotiators have been unable to reach an agreement that would substantially compensate U.S. beef producers. The EU indicated in 2003 that it was preparing to make the ban on the hormone oestradiol permanent.

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 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 entities other than those authorized by 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 the issue of compulsory licensing in countries with insufficient pharmaceutical manufacturing capabilities and to report to the General Council at the end of 2002. Efforts to reach consensus language on the scope of permissible compulsory licensing by that deadline resulted in deadlock, as developing countries sought an open-ended definition of diseases that could give rise to compulsory licensing and the United States sought to use a more limited definition -- HIV/AIDS, malaria or tuberculosis or other infectious epidemics of comparable scale and gravity.

In late December 2002, the United States indicated that it would unilaterally impose a moratorium on proceeding with WTO dispute settlement in certain cases involving compulsory licensing. USTR Ambassador Zoellick wrote to the WTO on December 27, 2002, to express the United States’ interest in reaching a workable solution. He also identified the key elements of the United States’ unilateral moratorium for countries exporting to eligible importing economies. The letter defined eligible importing economies as those economies, other than those classified by the World Bank as “High Income Economies,” that: “(1) are facing a grave public health crisis associated with HIV/AIDS, malaria or tuberculosis or other infectious epidemics of comparable scale and gravity, including those that may arise in the future; (2) have no or insufficient production capacities in the pharmaceutical sector; and (3) have so notified the TRIPS Council.” The moratorium will also include measures to guard against product diversion.

In the lead-up to the Fifth Ministerial of the WTO in Cancun, the United States proposed to focus not on the diseases involved, but on which countries could take advantage of these provisions to focus the provision on humanitarian purposes (and not create a commercial export industry) and to limit the risk of diversion to other markets. The United States also proposed a review mechanism to monitor actual implementation. Agreement was not reached prior to or during the Cancun Ministerial.

In late 2003 and early 2004, the United States again worked for incorporation of its proposals in the amendment to the actual TRIPs Agreement being proposed. As of late April 2004, no consensus was reached among WTO members and it is not clear whether such a consensus can be reached prior to the June deadline for incorporating a public health amendment in the TRIPs Agreement.

ECAT strongly supports efforts to promote effective solutions to address the HIV-AIDS and other disease emergencies in Africa and elsewhere. ECAT is concerned, however, that too much emphasis is being placed on intellectual property rights protections and the perceived link to drug prices as the main problem, when it is precisely intellectual property rights protections that foster the development of the pharmaceuticals necessary to treat and, one day, cure and prevent these diseases. Increased efforts are needed to promote infrastructure development and other solutions that will help stem this crisis. In particular, U.S. and other developed nations must increase foreign assistance, including debt relief, to developing countries so that they can finance much needed improvements in public health, education, and other social programs. ECAT believes U.S. businesses receive insufficient recognition for their efforts in helping developing countries to tackle these issues. ECAT supports efforts as well that will ensure that modifications to intellectual property rights protection are only permitted for public health emergencies and do not result in diversion.

Transparency

The United States and the WTO have taken steps to allow greater participation of non-governmental organizations (NGOs) in trade policy discussions. The WTO has sponsored a series of NGO forums on labor and environment issues, as well as held a daylong seminar for NGOs in Seattle just prior to the opening of the WTO ministerial meeting.

As part of the “Civil Society” initiative, the United States proposed a number of changes to WTO procedures to create greater transparency, including earlier release of documents and decisions, improved consultative procedures, the opportunity to file amicus briefs in dispute settlement proceedings, and the opening of panel proceedings to the public. The United States has proposed similar transparency measures in the FTAA negotiations. The United States also initiated a consultation process with NGOs and other interested parties to develop procedures for broadening the opportunity for NGO input in the trade policy advisory process.

ECAT POSITION: Continued global trade expansion is the bedrock of progress in achieving greater international observance of high labor and environmental standards and in promoting better access to food and health care. Progress on the human side of trade requires that the United States continue its leadership in the multilateral trading system promoting a strong set of WTO rules based on the right of member countries to set and enforce high environmental, labor, or other domestic standards. Before rushing to adopt trade-oriented solutions that may not be effective, it is critical that policymakers first work to define the United States’ objectives in each of these areas, and then determine how those objectives can best be achieved. Many of these issues may be better addressed directly through separate agendas in organizations with technical expertise, rather than as add-ons to the trade agenda. And, in those cases where complementarity between U.S. trade and other U.S. objectives exists, efforts should be made to address these objectives jointly and in a cooperative manner.

Trade Remedy Law Issues

Attention will also continue to be focused in 2004 on a variety of trade remedy issues, including proposals to amend the U.S. trade remedy rules and WTO negotiations and dispute settlement cases involving these rules.

Proposals to Amend U.S. Trade Remedy Laws

Several pieces of legislation have been introduced in 2003 and 2004 to amend the trade remedy rules, including the following:

S. 136 and H.R. 2092, Expedited Remedy for Persistent Dumping Act, introduced by Senator Lincoln (D-AR) in the Senate and by Representative Berry (D-AR), to provide for an expedited antidumping investigation when imports increase materially from new suppliers after an antidumping order has been issued, and to amend the provision relating to adjustments to export price and constructed export price.
S. 219, introduced by Senator Larry Craig (R- ID), to modify adjustments made in determining export price and constructed export price. This legislation would effectively increase the margin of countervailing duties if an exporter had previously paid countervailing duties on the same product.
S. 592, Save American Manufacturing Act, introduced by Senator Hollings (D-SC), to, among other things, abolish the ITC and move all of their functions to the Department of Commerce.
H.R. 491, Duty Parity Act, introduced by Representative Pickering (R-MS), to require the inclusion of countervailing duties, in the calculation of antidumping duties (oftentimes referred to as duty as a cost).
H.R. 1073 and S. 1155, introduced by Judiciary Chairman James Sensenbrenner (R-WI) and Ways and Means Committee Chairman Thomas (R-CA) in the House and by Finance Committee Chairman Grassley (R-IA) in the Senate, to repeal the antidumping provisions contained in the Antidumping Act of September 8, 1916 (discussed under WTO cases below).
S. 1688, Securing American Factory Employment (SAFE) Act, introduced by Senator Rockefeller (D-WV), to revise, among a number of areas including international tax provisions described in section 12, the factors that the ITC considers in making a determination of material injury in dumping and countervailing duty cases.
H.R. 2365, Trade Law Reform Act, introduced by Representative English (R-PA), to revise the criteria that the ITC uses in antidumping and countervailing duty injury determinations, direct the USTR to reject any WTO or other agreement that would weaken U.S. trade remedy rules, require imposition of a steel import licensing program and establish a review commission of WTO cases, as discussed in section 6.
H.R. 2736, Market-Based Antidumping Calculations Act, introduced by Representative Levin (D-MI), modifies the criteria and the application of the non-market economy provisions of the antidumping law.
H.R. 2938 and S. 2212, introduced by Representatives English (R-PA) and Davis (D-AL) in the House and by Senators Collins (R-ME), Bayh (D-IN), Dole (R-NC), and Graham (R-SC) in the Senate, to require the application of the countervailing duty law to so-called non-market economy countries, including China, Vietnam, Ukraine.
H.R. 3564, Economic Sovereignty and Job Security Act, introduced by Representative Strickland (D-OH), to remove U.S. trade remedy laws from review by the World Trade Organization.
H.R. 3688 and S. 1893, Integrity of U.S. Courts Act, introduced by Representative Pickering (R-MS) in the House and Senators Baucus (D-MT) and Craig (R-ID), to provide for review of NAFTA binational panel decisions by the U.S. Court of International Trade.

As discussed in more depth in section 6, several Members of Congress have also introduced proposals to create a WTO dispute settlement review commission with varying powers.

As Congress considers modifying U.S. trade remedy laws, ECAT urges that consideration be given to the balance that these laws need to achieve between the interests of the industry seeking relief and other U.S. industries and consumers. Prior proposals to modify the causation and injury standards of section 201 and some of the proposals to amend the antidumping and countervailing duty laws would not establish that balance, but instead tilt the relief standard overwhelmingly in favor of the petitioning domestic industry. Such a result is not in the interest of the United States as a whole. Furthermore, many of these provisions are contrary to U.S. international commitments.

ECAT strongly urges that any modifications to U.S. law be consistent with U.S. international obligations in the WTO, the NAFTA and other trade agreements. As described below, U.S. trade remedy provisions and decisions have already been the subject of numerous challenges in the WTO. The enactment of WTO-inconsistent provisions, as has been proposed in the past two years, undermines U.S. leadership in the world trading system and our ability to convince other countries to honor their commitments. It also undermines U.S. competitiveness and subjects U.S. exporters to the risk of retaliation.

WTO Dispute Settlement Cases Involving U.S. Trade Remedy Laws

U.S. trading partners have already sought several reviews of U.S. trade remedy provisions (in addition to the steel case discussed above). Several decisions warrant consideration and legislative action in 2004.

Continued Dumping and Subsidy Offset Act (“Byrd Amendment”)

Senator Byrd (D-WV) successfully attached an amendment, the “Continued Dumping and Subsidy Offset Act,” (CDSOA) to the FY 2002 agriculture appropriations bill approved in October 2000. This provision requires that antidumping and countervailing duties be distributed to affected domestic producers who supported the antidumping and countervailing duty actions in the first place, rather than deposited in the general treasury. Eleven parties -- the EU, Mexico, Australia, Brazil, Chile, Canada India, Indonesia, Japan, South Korea, and Thailand -- sought WTO dispute settlement consultations with the United States arguing that the legislation violates several WTO provisions.

In September 2002, the panel reviewing the case found that the CDSOA is an impermissible action against dumping and subsidies under the WTO Antidumping and Subsidies Agreements, respectively, because it is a remedy in addition to what is already authorized under those agreements. The Appellate Body agreed with the panel in January 2003 and an arbitrator found that the United States had until December 27, 2003 to bring its laws into conformity. In January 2004, eight of the complaining parties requested the right to retaliate, to which the United States objected. The matter is now in arbitration.

The United States has stated its intention to implement the DSB recommendations and rulings. The FY 2004 and 2005 budgets proposed the repeal of the CDSOA. Senators Snowe (R-ME), Murkowski (R-AK), and Stevens (R-AK) introduced S. 1299 to bring the CDSOA into conformity with WTO obligations (and provide community assistance as discussed under the trade adjustment assistance section below).

ECAT strongly opposed enactment of the CDSOA because it undercuts U.S. leadership in the global trading system and is inconsistent with U.S. trade obligations. As well, it sets a precedent that we do not want other countries to follow by increasing the incentives for filing antidumping and countervailing duty cases. Through this provision, domestic companies that are successful in having antidumping and/or countervailing duties imposed on foreign competitors, receive a cash reward for their success. This is not in the interest of U.S. exporters who may face similar laws abroad.

Notably, the adoption of the CDSOA helped to guarantee that the WTO antidumping and countervailing duty agreements are once again be on the table in the next round of trade negotiations, diverting us from our broader trade and investment objectives.

A much better use of these duties would be to distribute them to adjustment assistance or similar programs. Redirecting the money to workers, rather than providing it as a windfall to a select group of companies, would at least be helpful in promoting the consensus that we need to build in this country for our broader trade and investment liberalization objectives.

During 2001, the Customs Service distributed nearly half of the more than $206 million in duties to two manufacturers of steel ball bearings – the Torrington Company and Timken. Customs distributed the remaining funds to domestic producers of steel, pasta and other products. In 2003, Customs distributed $190 million to various U.S. companies. If the U.S.-Canada lumber tariffs are collected, it is estimated that payments under this provision would exceed $2 billion.

Zeroing Methodology

On June 12, 2003, the EU requested consultations with respect to the United States use of “zeroing” in the calculation of antidumping margins. Zeroing is a practice by which the United States (and some other countries) treat certain price comparisons as zero values in calculating the overall dumping margin when such comparisons do not show dumping. This methodology has been upheld as consistent with U.S. law.

A panel was established on February 5, 2004 and several other countries have requested to join the consultations. Zeroing has also been raised with respect to antidumping duties imposed by the United States by the Canadian Government in the lumber case, the Brazilian Government in the silicon metal case and the Mexican Government in the cement and oil country tubular goods cases. In April 2004, the WTO panel in the lumber case ruled against the United States’ zeroing methodology.

The WTO Appellate Body has already reviewed the EU’s use of a similar form of analysis in Bed Linen from India and found in March 2001 that the EU’s use of zeroing was inconsistent with the WTO Agreement on Antidumping.

Privatization Methodology under the U.S. Countervailing Duty Law

U.S. trading partners have also brought several cases against the methodology used by the Commerce Department in determining whether government subsidies to a government-owned company continue after the company has changed ownership or been privatized (so-called privatization methodology). In May 2000, the WTO Appellate Body found that the U.S. privatization methodology used in the case of hot-rolled lead and bismuth carbon steel products (Leaded Bar decision) was inconsistent with the WTO Agreement on Subsidies and Countervailing Measures. The United States terminated the duties, but did not propose any legislative modifications as the EU had sought.

On November 13, 2000, the EU requested consultations in 14 separate U.S. countervailing duty proceedings (involving imports of steel and other products) with respect to the Commerce Department’s privatization methodology, arguing that this methodology was found to be inconsistent in the earlier Leaded Bar decision. Consultations were held in December 2000, and a panel was formed in September 2001. The panel ruled in July 2002 that the statutory provision on privatization (section 771(5)(F) of the Tariff Act of 1930) and the Commerce Department’s privatization methodology were inconsistent with the WTO Subsidies Agreement. In December 2002, the Appellate Body upheld the panel's finding that the Commerce Department’s methodology was inconsistent with the Subsidies Agreement. It rejected, however, the panel’s reasoning that an arm's length sale of a government-owned firm for fair market value always extinguishes prior subsidies; rather it creates a rebuttable presumption that prior subsidies are extinguished. The Appellate Body found that the statutory provision was not, therefore, inconsistent with WTO rules. The Commerce Department modified its methodology on privatization and issues revised determinations, revoking two orders entirely and one order in part. In five additional cases, the Commerce Department recalculated the countervailing duty rates. On November 7, 2003, the United States informed the WTO that it had complied with the WTO rulings. On March 17, 2004, the EU informed the WTO that it found these actions insufficient and requested further consultations with the United States.

On December 21, 2000, Brazil requested consultations on the same issue with respect to countervailing duties imposed on Brazilian carbon steel products; consultations were held in January 2001. Brazil has not yet requested a panel. On January 21, 2003, Mexico requested consultations on the same issue with respect to a determination of steel plate and a panel was established on August 29, 2003.

Safeguard Measures

In addition to the steel safeguard issue discussed above, U.S. trading partners have challenged the United States’ application of section 201 of the Trade Act of 1974 with respect to wheat gluten (complaint by EU), lamb meat (complaints by New Zealand and Australia), circular welded carbon line pipe (complaint by Korea), and line pipe and wire rod (complaint by EU).

On December 22, 2000, the WTO Appellate Body circulated its decision in the wheat gluten case finding that the U.S. causation standard was consistent with the WTO Agreement on Safeguards (reversing, thereby, the earlier panel’s finding that increased imports “alone,” “in and of themselves,” or “per se,” must be capable of causing serious injury). The Appellate Body found, however, that the ITC had not adequately examined certain causation issues, and improperly included imports from Canada in its causation analysis (while later excluding such imports from the application of the safeguard measure). The United States indicated that it would need a reasonable period of time to implement the Appellate Body ruling. On January 24, 2001, the EU imposed punitive duties on U.S. exports of corn gluten feed in retaliation for the United States’ maintenance of the safeguard measures on wheat gluten imports into the United States. The United States requested WTO dispute settlement consultations on the imposition of these tariffs on January 25, 2001. In March 2001, the ITC recommended a two-year extension of the quota imposed under the safeguard. In June, the President decided not to extend the quota, but provided wheat gluten producers with $40 million for funding for marketing, product development and capital expenditures. In response to the decision to lift the quota, the EU lifted tariffs on corn gluten imports from the United States.

On December 21, 2000, the WTO panel in the lamb case found that certain aspects of the U.S. safeguard measure on lamb, including the causation standard, were inconsistent with WTO rules. On May 1, 2001, the Appellate Body circulated its report reversing the Panel’s interpretation of the causation requirement, but criticized the ITC’s analysis for failing to ensure that injury caused by other factors was not attributed to imports. The Appellate Body did uphold the Panel’s findings that the ITC’s decisions regarding “domestic industry” and “unforeseen circumstances” were inconsistent with WTO rules. On August 31, 2001, the Bush Administration announced that it would comply with the WTO decision and withdraw in November the tariff-rate quota on imports of lamb meat imposed pursuant to the safeguard action. At the same time, the Administration announced that it would provide $40 million to U.S. sheep producers for a new breeding program and a direct payment program for feeder lambs and slaughter lambs.

On October 29, 2001, the WTO panel in the circular welded pipe case brought by Korea found the United States’ imposition of safeguard measures against such imports violated the WTO Agreement on Safeguards. The panel and Appellate Body found that the ITC failed to establish the requisite causal link and failed to demonstrate that the measure was necessary to prevent or remedy serious injury, among other issues. The United States and Korea that the reasonable period of time to comply with the recommendations and rulings of the DSB would end on September 1, 2002, and that, after that date, the United States would increase the volume of Korean line pipe exempt from the safeguard from 9,000 tons per year to 17,500 tons per quarter.

Antidumping Act of 1916

On August 28, 2000, the WTO Appellate Body issued its decision finding that Title VII of the Revenue Act of 1916 (the so-called Antidumping Act of 1916) is inconsistent with U.S. commitments under the WTO Agreement on Antidumping. The primary problems cited by the Appellate Body were inconsistencies between the statute’s material injury test and its civil and criminal penalties and the requirements of the Antidumping Agreement. The panel and Appellate Body reports were adopted by the Dispute Settlement Body on September 26, 2000, and the United States indicated on October 23, 2000 that it would seek to implement the rulings. On November 17, 2000, the EU and Japan (who originally brought the complaint) asked for arbitration to determine the reasonable period of time that the United States should have to comply with these decisions. A WTO arbitrator ruled that the United States had until July 26, 2001 to bring its law into conformity with this decision. At the request of the United States, the WTO Dispute Settlement Body approved an extension of the deadline until the end of the 1st session of the 107th Congress or December 31, 2001, whichever came first. The EU and Japan have proposed a suspension of concessions as a result of the failure of the United States to come into compliance. In February 2002, the United States, EU and Japan reached an agreement giving the United States until June 30, 2002 to come into compliance.

The amount of damages was referred to arbitration. On February 24, 2003, the Arbitrator determined that the EU had no current right to retaliation given that there are no judgments or settlements under this provision against any EU company.

On December 20, 2001, Ways and Means Committee Chairman Thomas introduced H.R. 3557 to repeal the Antidumping Act of 1916. In the 108th Congress, Judiciary Chairman Sensenbrenner and Chairman Thomas reintroduced the same legislation (H.R. 1073), which was reported favorably by the House Committee on the Judiciary. Finance Committee Chairman Grassley introduced companion legislation in the Senate (S.1155).

Hot-Rolled Steel from Japan

On July 24, 2001, the WTO Appellate Body issued its report finding that the United States’ application of antidumping duties on imports of hot-rolled steel from Japan violated the WTO agreement on antidumping measures. In particular, the Appellate Body (and lower panel) found that the U.S. methodology for calculating the so-called “all-others rate” did not rely fully on actual company information, but included some calculations based on “facts available.” The Appellate Body also found fault with the ITC’s injury analysis. An arbitrator determined that the United States would have 15 months, until November 23, 2002, to comply with this ruling. This deadline was extended until December 31, 2003 and then until July 31, 2004.

Steel Plate from India

India requested consultations with the United States on its final antidumping and countervailing duty findings against steel plate products from India, alleging violations by both the Commerce Department and the ITC. In June 2002, the panel rejected three of India’s four claims, but found on the fourth that the United States’ use of total facts available was incorrect. The United States announced its intention to comply with the panel's report and both parties agreed that the reasonable period of time to implement the panel’s rulings would end on January 31, 2003. The Commerce Department issued a redetermination in this case on February 19, 2003, which it argued had brought it into compliance with its WTO obligations. India remains critical of the redetermination, but has not formally rechallenged the United States.

Corrosion-Resistant Steel from Germany

The EU requested consultations with the United States on its sunset review decision not to revoke a countervailing duty order on corrosion-resistant steel from Germany, alleging that the Commerce Department should have revoked the order because the rate of subsidization is less than 1 percent. The United States and EU held consultations in December 2000 and March 2001. A panel was established on September 10, 2001. In July 2002, the panel rejected most of the EU’s claims, finding that the U.S. system of automatically self-initiating sunset reviews is WTO-consistent. The panel found, however, that the Commerce Department’s failure to apply the 1 percent de minimis standard from CVD investigations to sunset reviews is WTO-inconsistent. The panel also found that Commerce's decision in the German steel sunset review lacked a sufficient factual basis. In November 2002, the Appellate Body affirmed the findings of the panel that had been appealed by the EU and reversed the finding that the 1 percent de minimis rule must be applied in sunset reviews too. The United States revoked the countervailing duty order on April 1, 2004.

Other Trade Remedy Cases

In addition to the cases discussed above, U.S. trading partners have challenged several U.S. antidumping and countervailing duty decisions, including: an Argentine complaint on antidumping duties on oil country tubular goods; an EU complaint against the imposition of antidumping duties on steel pipe from Italy; a Brazilian complaint against antidumping duties on silicon metal; a Japanese complaint against antidumping duties on corrosion-resistant steel; Mexican complaints against antidumping duties on oil country tubular goods and cement; and Canadian complaints against softwood lumber decisions (discussed in section 10).

ECAT POSITION: It is vitally important that both U.S. unfair trade laws and Section 201 maintain – in both the legal provisions and their application – a careful balance between the interests of the petitioning industry and the interests of other U.S. industries and consumers. It is critical that the Congress and the Administration oppose any efforts to impose import restraints or amend U.S. antidumping, countervailing duty, or safeguards laws in ways that would invite foreign retaliation, encourage restrictive foreign mirror legislation, and/or violate the United States’ international trade commitments.

Restructuring and Modernization of the U.S. Customs Service

The U.S. Customs Service represents a key element in the United States’ trade competitiveness. Its role has changed dramatically since it was first authorized to collect customs duties on goods in 1789. While duty collection remains important, the Customs Service plays an integral role in facilitating legitimate trade and protecting the nation’s borders.

Most recently, Customs faces a new challenge as in becoming part of the new Department of Homeland Security. As emphasis shifts to bolster Customs’ border security functions, it is also critical to ensure that Customs’ commercial functions are maintained.

In recent years, outdated technology, understaffing and other impediments to modernization have hampered the ability of the Customs Service to operate efficiently and effectively in several areas. In order for U.S. farmers, manufacturers, service providers, and retailers to remain competitive, efforts must be made to help the U.S. Customs Service keep pace with technological developments and the changing international economic environment.

Transfer to Department of Homeland Security

In November 2002, Congress approved H.R. 5005, the Homeland Security Act of 2002. This legislation establishes a new Department of Homeland Security (DHS), to prevent terrorist attacks within the United States and reduce the vulnerability of the United States to terrorism. As part of the consolidation of numerous U.S. Government functions, the U.S. Customs Service was moved from the Department of the Treasury to the DHS. Customs was placed within the Directorate of Border and Transportation Security, along with the Transportation Administration of the Transportation Department, the Federal Protective Service of the General Services Administration, the Federal Law Enforcement Training Center of the Department of the Treasury, and the Office of Domestic Preparedness of the Office of Justice Programs.

The Commissioner of Customs remains as head of the Customs Service within the new DHS.

Nevertheless, the statute provides that the customs revenue functions are not transferred to the DHS and that the Secretary of DHS may not consolidate, discontinue or diminish the customs revenue functions of the Customs Service or reduce staffing levels or resources attributable to these functions. Further, the Treasury Secretary is authorized to appoint up to 20 persons to work with the DHS in performing customs revenue functions.

No funds available to the Customs Service or customs user fees collected by Customs as part of the Consolidated Omnibus Budget Reconciliation Act may be transferred to any other agency or office of the DHS. The President is required to include a separate budget request for the Customs Service.

As part of the DHS, the Customs Service plans to expand its security initiatives, including the Customs Trade Partnership Against Terrorism (Customs-TPAT) initiative to enhance security throughout the entire import-export process and the Container Security Initiative, pursuant to which Customs has negotiated agreements with 19 of the world’s largest 20 ports to put into place tougher international security standards. These 20 ports represent passage points for approximately two-thirds of the cargo containers shipped to the United States. In June 2003, DHS and Customs announced plans to expand the Initiative beyond the 20 initial major ports to include areas in the Middle East, the Americas and Africa.

Automation Modernization

While progress has been made in appropriating limited funds for the modernization of the Customs Service’s automated systems, substantial appropriations are still required in order to ensure that Customs is able to continue to function in the coming years.

Customs has sought to develop and implement the so-called Automated Commercial Environment (ACE) to enable Customs to process more efficiently and cost-effectively imports and exports and to better protect U.S. borders from threats from abroad. Customs currently relies on the outdated Automated Commercial Systems (ACS) to process import entries. That technology is, however, almost two decades old, and system failures have already impeded Customs’ ability to provide needed services. While minor improvements have been made to the existing ACS system to keep it operational in recent years, it remained overburdened and may suffer catastrophic failure as it continues to face a rising volume of U.S. imports.

Start-up on ACE began in earnest in the summer of 2003 with the establishment of an ACE secure data portal and an initial 41 account participants. Expanded activities are expected to be released this spring.

Congressional appropriators have also been concerned by GAO studies that have sought greater information and definition of Customs Service objectives in the ACE project. In 2000 and 2001, the Customs Service engaged in a major effort to define its operational and automated requirements to the satisfaction of GAO investigators. In the final appropriations package for FY 2004, Customs received $441 million for automation modernization, of which $318 million was specifically earmarked for the development of ACE. This represents a continuation of FY 2003 levels of funding, and a significant increase from 2002 funding. Appropriators provided that none of these funds could be obligated to Customs, however, until Customs (1) meets the capital planning and investment control review requirements established by the Office Management and Budget, including OMB Circular A-11, part 3; (2) complies with the United States Customs Service’s Enterprise Information Systems Architecture; (3) complies with the acquisition rules, requirements, guidelines, and system acquisition management practices of the Federal Government; (4) is reviewed and approved by the Customs Investment Review Board, the Treasury Department, and the Office of Management and Budget; and (5) is reviewed by the General Accounting Office and the Committees on Appropriation. As part of the Trade Act of 2002, Congress also approved an authorization for ACE of $308 million for FY 2004 and required Customs to file reports with the Senate Finance and the House Ways and Means Committees on the status and cost-effectiveness of ACE development.

ECAT continues to support full funding of the ACE program to ensure the modernization of Customs’ operations in order to promote more cost-efficient and effective commercial and enforcement programs.

Customs Modernization

The U.S. Customs Service also continues to be engaged in implementing the provisions of the Customs Procedural Reform and Simplification Act of 1978 (1978 Procedural Reform Act) and the Customs Modernization Act (the so-called Mod Act), which was enacted as title VI of the NAFTA Implementation Act of 1993. The 1993 Mod Act eliminated statutory requirements for paper documentation and provided authority for full electronic processing of customs-related transactions. In return for waiving paperwork requirements, the Mod Act imposed certain recordkeeping requirements on importers and required the production of some information after the fact. The Mod Act also authorized several automation initiatives based on the 1978 Procedural Reform Act, including remote-entry filing, periodic entry and duty payment. As well, the Mod Act required modifications in duty drawback provisions and procedural safeguards.

Under Mod Act authority and prior authority provided by the 1978 Procedural Reform Act, the Customs Service has engaged in a significant reorganization of its activities and functions. While Customs’ reorganization has resulted in some greater efficiency, the importing and exporting communities remain very concerned that implementation and interpretation of authorized reforms are not yet complete, nor fully consistent with the goals and requirements of 1978 Procedural Reform Act and the Mod Act. In particular, concerns have been raised regarding:

Customs’ Compliance Assessment and its Trade Compliance Risk Management processes, including Customs’ reliance on audit-based evidentiary standards (relying on the Generally Accepted Government Audit Standards (GAGAS) rather than the reasonable care standard of the Generally Accepted Accounting Principles (GAAP)).
Customs’ Compliance Measurement and its associated penalty processes (increased cargo inspections, etc.) which penalize otherwise compliant and unsuspecting importers for errors or omissions caused by licensed brokers and express couriers.
Customs’ failure to implement provisions of the 1978 Procedural Reform Act and the 1993 Mod Act in a timely or complete manner.

ECAT supports efforts to further modernize the Customs Service to promote greater trade facilitation and efficiency in a manner consistent with its mandate. In particular, ECAT believes that Customs could substantially improve its operations to better achieve border and economic security through adoption of the following proposals:

Eliminate reconciliation for all entries that provide statistical updates only and have no impact on revenue;
Simplify and reduce the Harmonized Tariff Schedule;
Provide a total electronic interface for all required data to eliminate paper documents;
Eliminate the release of confidential and trade sensitive date to non-governmental agencies;
Operate ports 24 hours/7 days a week;
Reduce the required data for exports and imports to a single set of data to satisfy both transactions as conceived under the ITDS model.

ECAT remains very concerned with Customs’ adoption of the “24-hour manifest rule,” which became effective in December 2002. Pursuant to Customs’ regulations, all carriers and non-vessel operating common carriers (NVOCCs) are required to file their cargo declarations 24 hours before their cargo is laden aboard a vessel at a foreign port. While ECAT recognizes and supports the U.S. Government’s interest in evaluating the contents of shipments for national security and other reasons, this rule does not substantially advance that goal. Rather, it will impede commercial shipments, which oftentimes do not have fully complete manifest information ready that far in advance of shipment. This regulation is overly restrictive and will impede the legitimate commercial flow of goods into the United States to the detriment of U.S. companies, workers and their families. At the same time, it will do little to deter those who seek to evade U.S. laws who can continue to file fraudulent manifests.

ECAT POSITION: ECAT is committed to working with the Customs Service, the Department of Homeland Security and the Department of Treasury to help ensure that Customs’ restructuring progresses in a manner that fulfills our national security and enforcement goals, while also facilitating the flow of legitimate commercial trade that provides enormous economic benefits to the United States. ECAT strongly supports full funding of the Automated Commercial Environment (ACE) from general revenues. The ongoing failure to modernize Customs’ automated systems threatens to undermine U.S. productivity and competitiveness in the global marketplace and ECAT supports efforts to resolve these issues quickly. ECAT also strongly supports improvements in the operation of the Customs Service, including through full and improved implementation of the Customs Modernization Act and the Customs Procedural Reform and Simplification Act of 1978 in a manner that facilitates trade.

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 ma