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.

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 III.2.

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: With economic justification 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 capacity of the U.S. economy to support better, high-paying jobs in the United States. Legislation that will help educate America’s youth, 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.

Reform of Trade Adjustment Assistance and Worker Retraining Programs

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

In 2002, Congress approved a substantial modernization and reform of the TAA programs as part of the Trade Act of 2002. This legislation was based on legislation authored by Senator Bingaman (D-NM) and cosponsored by Senator Baucus (D-MT) and former Minority Leader Daschle (D-SD).

Legislation may be considered in 2006 to modify further the TAA program.

Major Provisions of Trade Adjustment Assistance as Reformed by the Trade Act of 2002

The Trade Act of 2002 made the first major reforms of the TAA programs since 1974 and extended the programs through September 30, 2007. The major provisions include:

TAA for Workers and NAFTA-TAA Programs

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

• Coordinates assistance with the Workforce Investment Act, including rapid response assistance.

• Modifies eligibility requirements to address the following issues:
  • Shifts in Production: Expands eligibility from workers affected by shifts in production to Canada and Mexico to workers affected by shifts in production to any country.

  • Secondary Workers: Expands eligibility to adversely affected secondary workers where (1) a significant proportion of workers has been separated; (2) the firm supplies or is a downstream producer (i.e., performing additional, value-added production processes to articles) to another firm that is eligible for TAA related to the product produced by the petitioning firm; and (3) the loss of business with that other firm contributed importantly to the workers’ separation or the relevant component parts produced by the firm account for at least 20 percent of the firm’s production or sales.

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

• Expansion of Benefits: In addition to wage insurance and the tax credit for COBRA payments discussed below, new TAA programs will:
  • Increase income maintenance payments to certified workers from 52 to 78 weeks;

  • Increase substantially funds for training from $70 million to $220 million;

  • Increase assistance for job relocation; and

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

• Demonstration Project for Older Workers: Not later than one year after enactment, the Secretary of Labor must establish a wage insurance program under which states shall use TAA funds to pay certain workers for up to two years. Eligible workers must be at least 50-years old working at least 30 hours a week and earning no more than $50,000 a year in wages. The wage insurance subsidy is to be equal to 50 percent of the difference between the wages received from reemployment and the wages received at the time of separation. In addition, workers will be eligible to receive, for a period not to exceed two years, a credit for health insurance. Total wage insurance per worker is capped at $10,000 over the two-year period.

• Tax Credit for COBRA Continuation: Provides a 65-percent advance, refundable tax credit for payment of COBRA premiums (to extend health insurance after separation) for two years for eligible TAA or Pension Benefit Guaranty Corporation recipients.

  Trade Adjustment Assistance for Firms:

• Reauthorizes program through September 30, 2007.

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

  Agriculture Trade Adjustment Assistance

• Incorporates Conrad (D-ND)-Grassley (R-IA) provisions to establish a program through September 30, 2007 to provide cash payments to farmers (without training requirement, but training is available) as a result of declines in commodity prices. Does not base eligibility on job loss.

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

• Requires Secretary of Commerce to conduct a study on whether a TAA program is appropriate or feasible for fishermen.

Implementation and Continued Review of TAA Reforms

Given the significant reforms undertaken in the Trade Act of 2002 and key demonstration projects on wage insurance and health care coverage, careful implementation and continued review of the effectiveness of these programs will be critical.

In the 109th Congress, several proposals have already been introduced to make changes in the TAA programs, including:

• H.R. 466, introduced by Representatives Graves (R-MO), McHugh (R-NY) and Scott (D-GA) to designate the Under Secretary of Commerce for International Trade to oversee the TAA programs.
• H.R. 614, NAFTA-Impacted Communities Relief Act, introduced by Representative McIntyre (D-NC).
• H.R. 1281, introduced by Representatives King (D-NY) and Christensen (D-Virgin Islands) to extend TAA benefits to service workers.
• S. 14, Fair Wage, Competition and Investment Act of 2005, by Senator Stabenow (D-MI) and others, which includes a provision to extend TAA benefits to services workers.
• S. 1308, Trade Adjustment Assistance for Firms Reorganization Act, by Senator Baucus (D-MT) to establish an Office of Trade Adjustment Assistance at the Department of Commerce.
• S. 1309, Trade Adjustment Assistance Equity for Service Workers Act, by Senator Baucus (D-MT) to extend TAA benefits to service workers.
• S. 1444, Trade Adjustment for Industries Act, by Senators Baucus (D-MT) and Coleman (R-MN), to provide an alternative means for certifying workers for adjustment assistance.
• S. 1963, Trade Adjustment Assistance Act, by Senator Baucus (D-MT) and others, making multiple reforms to the TAA program, including modifying the certification requirements and revising eligibility requirements for adversely affected workers.

Private Sector Retraining Efforts

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

ECAT Position: ECAT recognizes that while expanding U.S. international trade and investment raises the U.S. standard of living overall, dislocations occur and must be addressed through public and private worker retraining and assistance programs. ECAT supports efforts to implement the trade adjustment assistance provisions of the Trade Act of 2002 and to continue to review and improve the effectiveness of these programs and others in addressing the needs of today’s workers.

Temporary Entry Issues

Provisions have been included in U.S. trade and investment agreements since the 18th century to provide for the temporary entry of persons involved in trade and investment activities. From the United States’ original Treaties of Friendship, Commerce and Navigation and the 38 U.S. bilateral investment treaties (BITs) now in force to the North American Free Trade Agreement (NAFTA), the WTO’s General Agreement on Trade in Services (GATS) and the U.S.-Chile and U.S.-Singapore FTAs, U.S. negotiators and the U.S. Congress have long recognized the intersection between trade and investment on the one hand and the need to provide temporary access of company representatives and investors involved in those activities on the other. Such provisions, which have no impact on overall immigration policy – since they provide only temporary entry – promote economic activity in the United States by helping U.S. companies to expand their markets overseas.

Following negotiation and Congressional implementation of the U.S.-Chile and U.S.-Singapore FTAs, however, concerns were expressed by some Members of Congress on future efforts to negotiate such provisions as part of trade and/or investment agreements. As a result, there has been an effective moratorium on the Administration’s ability to negotiate even minimal temporary entry provisions for investors, such as those already authorized by U.S. immigration law for E visas for BIT investors, or moderate expansions of the H1-B visa provisions for FTA partners, let alone the so-called Mode 4 commitments (temporary entry) that are critical to the ongoing WTO Doha Development Agenda negotiations on services.

Efforts to increase U.S. security in recent years have also resulted in new restrictions on business, as well as student, visas, including more limited time periods for visitors to stay in the United States and additional requirements for the issuance of visas.

Snapshot on the Importance of Temporary Entry for the U.S. Service Industry The effective moratorium on the negotiation of temporary entry issues in trade agreements has an enormously negative effect on the U.S. service industry, which accounts for approximately 65 percent of the U.S. economy. While currently the most competitive service industry in the world, the U.S. service industry faces enormous challenges: Impediment to Growth and Competitiveness of U.S. Service Suppliers. Close to a third of the U.S. service surplus results from services that require U.S. business people to travel abroad to begin or perform service contracts. Without the ability to negotiate improved temporary entry provisions with trading partners in new FTAs, let alone BITs, the entry of Americans traveling abroad is oftentimes restricted or unduly delayed in a manner that undermines the competitiveness of one of America’s strongest industries. Impediment to the Elimination of Foreign Service Barriers. Nowhere is the stalemate on temporary entry more critical than the service negotiations in the WTO Doha Development Agenda, where foreign countries increasingly are seeking clearer, more efficient and expansive temporary entry provisions in exchange for the dismantling of their much more extensive service barriers.

While security concerns are obviously critical, it is also extremely important that U.S. temporary entry policies reflect U.S. economic interests, which include the need for U.S. companies to send their personnel on a temporary basis abroad and to bring their foreign employees on a temporary basis into the United States. Ongoing delays in the U.S. visa process and significant restrictions in the number of H1-B visas permitted each year, as well as foreign barriers to Americans’ temporary entry abroad, represent a growing problem for the ability of U.S. companies to expand and efficiently operate their operations in a manner that promotes economic growth here in the United States. It has become a major impediment to progress in the WTO Doha Development Agenda negotiations as well, and continues to limit U.S. negotiators in FTA and BIT negotiations.

ECAT Position: ECAT strongly urges U.S. trade negotiators, Members of Congress and the business community to expand their efforts to resolve the longstanding stalemate in the treatment of temporary entry in trade and investment negotiations. The existing moratorium on the inclusion of temporary entry provisions in trade and investment agreements undermines the competitiveness of U.S. companies and the ability of U.S. negotiators to secure the elimination of other countries’ barriers to services and investment.

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. NAFTA-specific labor issues are addressed in section IV.3.

Labor Issues

Trade Promotion Authority and Free Trade Agreements

As discussed in section II.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 recent FTAs with Chile, Singapore, Australia, Morocco, Central America and the Dominican Republic, Bahrain, Oman, Peru and Colombia. These provisions build upon the provisions of the U.S.-Jordan FTA, providing – unlike the Jordan FTA – binding dispute settlement subject to strict time limits. The modern, post-Jordan, U.S. FTAs include the following provisions:

Key Labor Provisions in U.S. FTAs Reaffirmation of commitment as ILO members and to 1998 ILO Declaration. Each Party “shall strive to ensure” that labor principles are “recognized and protected” by domestic law. Each Party “shall strive to ensure that its laws provide for labor standards consistent with the internationally recognized labor rights” and “shall strive to improve those standards in that light.” Commitment to enforce effectively domestic labor laws, enforceable through binding, time-limited dispute settlement. Parties “shall strive” . . . “not to waive or derogate from domestic labor laws as an encouragement of trade or investment.” Commitment to ensure access to fair, equitable and transparent tribunals for labor law enforcement and to promote public awareness. Establishment of Labor Cooperation and Capacity Building Mechanism to develop and oversee projects on labor capacity building. Establishment of a Labor Affairs Council to oversee implementation of the labor chapter and review progress, including on capacity building. Establishment of Labor Roster for panel cases involving labor issues. State-of-the-art dispute settlement, with time-limited procedures and binding panel decisions on country’s enforcement of labor laws. Ability to impose monetary fines and subsequently to take “other appropriate steps,” including trade sanctions upon failure to pay fines, for failure to enforce labor laws where a settlement is not reached.

Concerns have been raised that FTAs provide a weaker and less effective penalty for violations of labor rights than for commercial violations of FTAs. In fact, the modern FTA labor enforcement framework is the most appropriate and effective if the objective is to promote improved labor rights and not destroy economic opportunity.

• Fines are more effective to address labor enforcement issues since the fines are being used to address the underlying problems. Trade sanctions or the threat thereof simply cannot help a government that lacks the resources or the capacity to improve its labor law enforcement.
• Fines represent a substantial, if not a greater, deterrent, since it is the government, not the trading community, which suffers the penalty directly. For developing economies, potential fines of $15 million to be paid by the government (rather than sanctions on the private sector) represent a very hefty penalty.
• Sanctions will more likely hurt the very workers that the FTAs are seeking to help. By restricting imports from these countries, trade sanctions would result in lost opportunities and lost jobs for the very workers that the agreement is trying to help. The better enforcement that fines can produce and the economic opportunities that increased trade offers are a much stronger combination to address concretely the real issues.
• Fines are only one piece of a much broader strategy, including capacity building, reporting, monitoring and the promotion of economic growth and opportunities.

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.

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. From 1999 onward, the ILO has published annual studies on countries’ overall compliance with the core ILO principles and conventions.

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. Since 1995, the United States has contributed over $202 million to support 120 projects in 61 countries.

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.

Environmental Issues

Trade Promotion Authority and Free Trade Agreements

As discussed in section II.2, TPA 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 recent FTAs with Chile, Singapore, Australia, Morocco, Central America and the Dominican Republic, Bahrain, Oman, Peru and Colombia. The CAFTA-DR 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:

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

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

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

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

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

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

(iii) labeling requirements for environmental purposes.

The Declaration also recognized the importance of technical assistance and capacity building and encourages information sharing with respect to environmental reviews at the national level. WTO work on these issues is discussed in more depth in section II.1.

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.”

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 over 30 varieties of GMOs. The EU’s effective moratorium on granting approvals was lifted briefly in 2004, when it granted approval for two U.S. biotech varieties -- Bt11 sweet corn for human consumption and NK603 corn for uses as animal feed and processing. Remaining requests have been outstanding for approximately six years. Despite the EU’s approval of a few GMO varieties, several countries – Austria, France, Germany, Italy, Greece and Luxembourg – have established marketing bans.

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. The interim report was circulated in February 2006 and the final report will be circulated in March 2006. Initial press reports indicated that the Panel ruled in favor of the United States.

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 China’s Ministry of Agriculture and State Administration for Quality Supervision, Inspection and Quarantine. They address 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. In November 2004, the EU requested consultations over the U.S. retaliation, alleging that it had taken action to come into compliance with the WTO ruling. A panel in this case was established in February 2005 and panelists were selected in June 2005. The panel expects to issue its decision in October 2006.

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 proposal 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 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. 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.

On August 30, 2003, the WTO General Council approved the Decision on the “Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health” along with the text of a statement describing members “shared understanding” of how the Decision should be interpreted. The Decision provides for the waiver of TRIPS Article 31(f) to allow countries producing generic medicines under compulsory licenses to export the medicines to eligible countries. The accompanying statement makes clear that the provision should be used in good faith for health policy reasons, not commercial or industrial policy. This Decision is to remain operative until an amendment to the TRIPS is adopted.

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. A 2004 analysis, How Do Patents and Economic Policies Affect Access to Essential Medicines in Developing Countries, by Amir Attaran, Health Affairs, Vol. 23, No. 3, found that “[p]atents cannot cause essential medicines to be inaccessible in ‘many’ developing countries because they do not exist 98.6 percent of the time.” Rather, 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.

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.

Copyright 1999-2002, the Emergency Committee for American Trade